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FTC Seeks Additional Comments Regarding Proposed Research on Consumers' Experience with the Auto Finance Industry
On September 14, the FTC published its second Federal Register notice regarding a proposed consumer survey designed to provide the FTC with insights into consumer understanding of the process whereby automobiles are purchased and financed through a dealer. The FTC issued its first notice regarding the survey on January 7, 2016. The second notice summarizes industry comments received in response to its first notice. Commenters suggested that the survey include questions addressing such topics as, (i) consumers’ experiences specifically with “Buy Here Pay Here” dealers; (ii) “yo yo financing scams”; and (iii) add-on products or services. The second notice outlines the FTC’s planned methodology for conducting the survey, and identifies the areas on which the consumer interview questions will focus. The FTC estimates that 170 consumers will participate in the survey and that it will require approximately 367 burden hours. Comments regarding the accuracy of burden estimates, as well as ways to minimize the information collection burden, are due by October 14, 2016.
On June 28, the CFPB released its monthly complaint report focusing on consumer loans, including vehicle loans and leases, installment loans, title loans, and pawn loans. According to the report, of the 906,400 consumer complaints across all products the CFPB has received as of June 1, 2016, approximately 38,500 were in the consumer loans category. Findings regarding consumer loan complaints highlighted in the report include: (i) just over half of consumer loan complaints pertain to vehicle loans, with installment loans following at 31 percent; (ii) consumers most often complain about issues related to servicing the loan, lease, or line of credit; and (iii) additional common consumer loan complaints include encountering problems when shopping for a loan, when taking out a loan, and when consumers are unable to repay a loan.
This month’s report includes a “sub product spotlight” to highlight complaints specific to auto lending, which make up 60 percent of the 38,500 consumer loan complaints the CFPB has received since July 21, 2011. Consumer loan complaints specific to auto lending include, but are not limited to: (i) payment processing issues, such as consumers not having their accounts debited timely and correctly; (ii) confusion over fees and interest rates; (iii) repossession of vehicles without notification; (iv) misleading advertising at “Buy Here Pay Here” dealerships; and (v) insufficient warranty coverage, with consumers alleging that they believed they were required to purchase warranties that did not end up covering basic repairs as they expected.
In addition to a focus on consumer loan complaints, the report identifies Arkansas as its geographical spotlight. As of June 1, Arkansas consumers have submitted 4,200 of the 906,400 total complaints across all products. According to the report, mortgage-related complaints make up 19 percent of complaints from Arkansas, lower than the national average of 26 percent, while debt collection complaints account for 29 percent of Arkansas complaints, higher than the national average of 27 percent.
On June 8, Colorado AG Cynthia Coffman announced a settlement with various lenders to resolve allegations that they violated Colorado’s consumer credit protection laws by making, servicing, and collecting high-cost loans. According to AG Coffman, the lenders made unlawful personal loans to more than 5,000 Colorado consumers, some of which had annual interest rates exceeding 355%. The AG’s office asserted that, in “the most egregious cases, consumers paid over five times the amount they borrowed in unlawful fees and interest.” Pursuant to a consent judgment entered by the Denver District Court, the lenders must pay $7,384,005.12 in disgorgement and restitution. The settlement comes after the State of Colorado obtained a $565,000 consent judgment against various entities in January 2014 arising out of similar conduct, making this the second Colorado AG settlement in connection with high-cost loans.
On December 11, the California Department of Business Oversight (DBO) announced an inquiry into the marketplace lending industry, requesting that 14 lenders complete an online survey to provide five-year trend data on their loan and investor funding programs. In addition, the survey requests that participating firms provide information on their business models and online platforms. Marketplace lenders market themselves as a faster, more accessible source of financing for consumers and small businesses. Due March 9, 2016, the survey responses are intended to assist the DBO assess the state’s licensing and regulatory regime of the industry by: (i) assessing the industry’s size in California and the number of consumers and businesses it affects; and (ii) understanding the various loan and investor funding programs used by marketplace lenders. In four years, the national online lending market reportedly grew from $1 billion in loans to $12 billion; analysts anticipate that by 2020, the total volume will be $122 billion.
On November 18, the California DBO announced that a California-based lender fulfilled its obligation to pay nearly $1 million of restitution to more than 7,000 California consumers and $1 million to the DBO in penalties to resolve allegations that the company used deceptive marketing practices to steer consumers into personal loans exceeding $2,500. California state law limits interest rates at about 30% for loans less than $2,500, but there is no such limit above that amount. According to the DBO, the lender advertised that it provided personal loans of “up to” $2,600, $5,000, or $10,000; in reality, the lender did not offer loans less than $2,600. The lender allegedly told consumers that they could “give back the amount they did not want in the form of a prepayment,” without disclosing that it could then charge borrowers unlimited interest rates since the loan was greater than $2,500. Per the February 5 settlement, in addition to the restitution and penalty fees, the lender must, among other things, ensure that its non-mortgage and non-auto loan ads disclose, in a “clear and conspicuous manner,” that the minimum loan amount is $2,600, that there is a state law interest rate cap on loans of less than $2,500, and that it is lower than the rate charged by the lender.
Maryland Court of Special Appeals Holds MCSBA Applies to Loan Broker Working with Federally Insured Out-of-State Banks
On October 27, the Maryland Court of Special Appeals held that a loan broker who originates loans in Maryland for a federally insured out-of-state bank and then repurchases those loans days later qualifies as a “credit service business” under the Maryland Credit Services Business Act (MCSBA) and must be licensed accordingly. Md. Comm’r of Financial Reg. v. CashCall, No. 1477, 2015 WL 6472270 (Md. Ct. Spec. App. Oct. 27, 2015). The loan broker argued, citing Gomez v. Jackson Hewitt, Inc., 427 MD. 128 (2012), that it was not a “credit service business” within the meaning of the MCSBA because the MCSBA did not apply to the out-of-state federally insured bank that made the loans and because the loan broker did not receive a direct payment from the consumer. The Commissioner and the court disagreed. In affirming the Commissioner’s decision and in overturning the decision of the Circuit Court for Baltimore, the Court of Special Appeals reasoned that the MCSBA applied because (i) the loan broker was engaged in the very business the MCSBA was intended to apply to (i.e. it was exclusively engaged in assisting Maryland consumers to obtain small loans); and (ii) after repurchasing the loan, the loan broker had the right to receive direct payment from consumers. The Court of Special Appeals remanded the case to the Circuit Court for Baltimore.
On August 7, OCC Comptroller Thomas Curry delivered remarks at the Federal Home Loan Bank of Chicago, which was hosting a conference highlighting the future of financial services. Specifically, Curry discussed innovation in the emerging financial technology industry, or “fintech,” noting the risks and benefits associated with mobile payments, virtual currency, and peer-to-peer lending products within the U.S. banking system. With respect to virtual currency, Curry stressed how important it is for financial institutions to implement adequate procedures to deter money laundering and terrorist financing. Curry also recognized that the OCC is “still early in the process” of evaluating a regulatory framework to examine some new and innovative products and services. Rounding out his remarks, Curry expressed his growing concerns with so called “neobanks,” which operate primarily online but provide similar services to brick and mortar retail branch banks, including the heightened privacy risks that neobanks present in light of recent cybersecurity attacks.
On November 19, the CFPB issued a press release highlighting the publication of its compliance bulletin, “Social Security Disability Income Verification.” The compliance bulletin reminds lenders that requiring consumers receiving social security disability income to provide burdensome or unnecessary documentation may raise fair lending issues. The Equal Credit Opportunity Act (ECOA) prohibits lenders from discrimination against “an applicant because some or all of the applicant’s income is from a public assistance program, which includes Social Security disability income,” and the Bureau’s bulletin highlights standards and guidelines intended to help lenders comply with the requirements of ECOA and its implementing regulation, Regulation B.
On September 16, the NYDFS announced that they have issued subpoenas to nine “hard money” lenders, groups that originate short-term, high interest loans secured by a borrower’s home or other real estate, as part of a probe into whether such lenders are intentionally structuring loans with the expectation of foreclosing on the property. NYDFS noted that “[w]hile many hard money lenders may be engaged in legitimate financial activities, certain unscrupulous companies appear to be taking advantage of borrowers in tough financial straits by making loans that are designed to fail.” The NYDFS’s investigation is focused on whether the nine lenders are intentionally structuring hard money loans with onerous terms, such as high interest rates, numerous upfront fees, and enormous balloon payments, so that borrowers are driven into to default.
On June 12, Louisiana Governor Bobby Jindal signed HB 766, which requires all creditors seeking to conduct any consumer credit transaction or deferred presentment transaction to obtain a license in the state, regardless of whether they maintain an office in the state. Under current law only creditors with an office in the state are required to register. Any credit or deferred presentment transaction conducted by an unlicesened creditor will be deemed null and void. The bill retains an existing requirement that a creditor be licensed in the state before taking assignments of and undertaking direct collection of payments from or enforcing rights against consumers arising from consumer loans, but removes the requirement that such creditors maintain an office in the state. The bill makes corresponding changes to licensee recordkeeping requirements to allow licensed creditors to maintain records outside of the state. In addition, the bill (i) authorizes certain finance charges and fees in conjunction with a deferred presentment transaction or small loan; (ii) removes existing authority that allows a licensee to charge a one-time delinquency charge; (iii) allows a borrower who is unable to repay either a deferred presentment transaction or small loan when due to elect once in any 12-month period to repay the licensee the amount due by means of installments, referred to as an extended payment plan; and (iv) provides procedures, terms, and requirements for such extended payment plans. The changes take effect January 1, 2015.
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program
- Benjamin W. Hutten to discuss "BSA program reporting, management and board of directors responsibilities" at the Georgia Bankers Association BSA Experience Program
- Hank Asbill to discuss "Ethical guidance in conducting internal investigations – The intersection of Yates and Upjohn" at the American Bar Association Southeastern White Collar Crime Institute
- H Joshua Kotin to discuss "Recent developments in fair lending and avoiding the pitfalls" at the Arkansas Community Bankers/Bankers Assurance 2019 Compliance Conference
- Brandy A. Hood to discuss "RESPA Section 8/referrals: How do you stay compliant?" at the New England Mortgage Bankers Conference
- Daniel P. Stipano to discuss "Risk management in enforcement actions: Managing risk or micromanaging it" at the American Bar Association Business Law Section Annual Meeting
- Valerie L. Hletko to discuss "Banking on guns ‘n drugs: Social policy meets financial services" at the American Bar Association Business Law Section Annual Meeting
- Daniel P. Stipano to discuss "Navigating the conflicting federal and state laws for doing business with cannabis companies" at the American Bar Association Business Law Section Annual Meeting
- Tim Lange to discuss "Services and value" at the North American Collection Agency Regulatory Association Annual Conference
- Katherine L. Halliday to discuss "UDAP, UDAAP & the Map rule compliance basics" at the Mortgage Bankers Association Regulatory Compliance Conference
- Brandy A. Hood to discuss "How to ace your TRID exam" at the Mortgage Bankers Association Regulatory Compliance Conference
- Amanda R. Lawrence to discuss "Data privacy litigation" at the Mortgage Bankers Association Regulatory Compliance Conference
- Melissa Klimkiewicz to discuss "Navigating FHA rules and regs" at the Mortgage Bankers Association Regulatory Compliance Conference
- Jeffrey P. Naimon to discuss "Washington regulatory overview" at the Mortgage Bankers Association Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "HMDA data is out, now what?" at the Mortgage Bankers Association Regulatory Compliance Conference
- Daniel P. Stipano to discuss "Assessing the CDD final rule: A year of transitions" at the ACAMS AML & Financial Crime Conference
- Daniel P. Stipano to discuss "Lessons learned from recent enforcement actions and CMPs" at the ACAMS AML & Financial Crime Conference
- Kathryn L. Ryan to discuss "The state’s role in fintech: Providing an industry framework for innovation" at Lend360
- Jeffrey P. Naimon to discuss "Truth in lending" at the American Bar Association National Institute on Consumer Financial Services Basics
- Daniel P. Stipano to discuss "Lessons learned from recent enforcement actions" at the Institute of International Bankers Risk Management and Regulatory Examination/Compliance Seminar
- Jonice Gray Tucker to discuss "Fintech regulatory developments, crypto-assets, blockchain and digital banking, and consumer issues" at the Practising Law Institute Banking Law Institute
- Amanda R. Lawrence to discuss "How to balance a successful (and stressful) career with greater personal well-being" at the American Bar Association Women in Litigation Joint CLE Conference