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North Carolina Changes Retail Installment Sales Act Default Fee
On June 12, the General Assembly of North Carolina ratified Senate Bill 577, which amends the North Carolina Retail Installment Sales Act. Specifically, Senate Bill 577 modifies the late charge on an installment sale contract to be a flat fee of fifteen dollars, which is an increase from the prior limit of the lesser of five percent of the installment payment amount or six dollars. The amendment became effective on June 26 and applies to defaults from that day forward.
Texas Passes Law Repealing Vehicle Protection Product Regulatory Act
On June 15, Texas Governor Greg Abbott signed SB 2065. The law modifies a number of motor vehicle-related regulations and licensing requirements. Specifically, the law:
- eliminates the Vehicle Protection Product Act;
- abolishes the Vehicle Protection Product Warrantor Advisory Board;
- requires the warrantor of a vehicle protection product to pay expenses to the person who purchases the product or system if loss or damage occurs due to failure of the product or system;
- prohibits a retail seller from requiring a vehicle buyer—“as a condition of a retail installment transaction or the cash sale of a commercial vehicle”—to buy a vehicle protection product that is not installed on the vehicle at the time of the transaction, classifying this violation as a “false, misleading, or deceptive act or practice” actionable under the Deceptive Trade Practices-Consumer Protection Act; and
- eliminates the licensing requirements for boot operators and boot companies, but requires a booting company to remove a boot within an hour of being contacted by the owner or forfeit all removal fees.
The law takes effect September 1.
Iowa Enacts Amendments to Consumer Credit Code
Two amendments to the Iowa Consumer Credit Code (ICCC) recently signed into law by Iowa Governor Terry Branstad will go into effect July 1. The ICCC applies to, among others, consumer credit transactions, retail installment sales, lending transactions, and motor vehicle financing.
Senate File 502, which relates to banks, credit unions, and specific consumer credit transactions, adds a new subsection 2A to the ICCC, which states a supervised loan made in violation of subsection 2 is void and “the consumer is not obligated to pay either the amount financed or the finance charge.” Additionally, “[i]f the consumer has paid any part of the amount financed or the finance charge, the consumer has the right to recover the payment from the [lender] . . . or from an assignee . . . who undertakes direct collection of payments or enforcement of rights arising from the debt.” Open-end loans have a statute of limitations of two years from the date of the violation, and closed-end loans have a statute of limitations of one year after the due date of the last scheduled payment. Other changes under Senate File 502 include a removal of the ban prohibiting returned check fees, an increase in the maximum late fee applied to transactions, and a clause that allows credit reporting charges to be excluded from finance charges.
Senate File 503, which concerns “the deferral of unpaid installments and deferral charges for certain interest-bearing consumer credit transactions,” contains the following changes, among others: (i) parties may agree in writing to the deferral of unpaid installments before or after default, and (ii) deferral charges are permitted on closed-end, interest-bearing transactions and limited to $30.
CFPB Monthly Complaint Snapshot Highlights Complaints from Older Consumers
On May 31, the CFPB released Vol. 23 of its Monthly Complaint Report. This month’s report highlights complaints from “older consumers” defined as those who voluntarily report their age as 62 or older. Since it began accepting complaints, the Bureau has received over 1 million complaints—more than 100,000 from older consumers. The report focuses on these complaints, with some of the most common in 2017 including:
- Reverse mortgage servicing issues, which are unique to this group of consumers. Many of the complaints surround older consumers attempting to stay in their home after the death of the borrowing spouse, occasionally ending in foreclosure;
- Financial scams and identity theft issues are often difficult to recover from—especially for consumers on fixed-incomes;
- Credit card issues such as introductory offers may cause confusion for older consumers in understanding credit terms and conditions or the difference between zero interest and deferred interest. Additionally, many older consumers struggle with billing disputes, unwanted subscription services and credit monitoring; and
- Escrow issues, especially when the consumer is trying to benefit from tax relief programs.
The graph shown in a blog on the Bureau’s website compares complaints from consumers 62 and older with complaints from consumers under 62. Although both groups of consumers reported complaints for many of the same products, the graph shows that mortgages, debt collection and credit cards, in that order, are the top three products for those 62 and older—whereas debt collection, mortgages and credit reporting are the top three for those under 62. Additionally, the report reveals that almost a quarter of all complaints from older consumers came from residents of California, Texas, and Florida.
Nation's Biggest Bank Agrees to $55 Million Settlement with DOJ Regarding Allegations of Discriminatory Lending Practices
On January 18, the DOJ filed a lawsuit in the United States District Court for the Southern District of New York accusing a national bank of discriminating against minorities in home lending. According to the government’s complaint, the DOJ alleges, among other things, that the bank “failed to adequately monitor for and fully remedy the effects of race and national origin disparities in APR” and did not “maintain adequate data to determine whether it was discriminating” before ending its wholesale lending practice in late 2009. Two days later, on January 20, the bank agreed to settle the matter and will pay $55 million, while denying any wrong doing. The bank maintains its view that the DOJ’s case is based on legacy allegations that concern pricing decisions of independent third-party brokers. The details of the settlement have not been released as of the publication date of this post.
OCC Comptroller Curry Addresses Regulatory Concern Related to Fintech Industry; Outlines Possible Fintech Charter
On September 13, OCC Comptroller Curry delivered remarks at the Marketplace Lending Policy Summit, an inaugural event during which policy implications and regulatory concerns prevalent in the marketplace lending industry were discussed. Similar to past reports and remarks about marketplace lending, Curry expressed concern that the underwriting and business models used by the industry have yet to go through a complete credit cycle: “A less favorable credit cycle will test this business in ways it hasn’t yet experienced, and how sources of funding will hold up under stress remains to be seen.” In addition, drawing attention to the “long-term performance” issues related to marketplace lending, Curry posed the following inquiries: (i) whether new credit underwriting technologies and algorithms comply with existing laws and regulations, such as the Equal Credit Opportunity Act; (ii) whether existing laws, such as the Community Reinvestment Act, should be “amended radically” to ensure that consumers are sufficiently protected against nonbank lenders; (iii) whether an entirely new regulation or law is needed to “protect the public’s interest or prevent risk to the broader financial system”; and (iv) whether innovation itself should be regulated, and, if so, by which primary regulator(s). Notably, Comptroller Curry revealed that the OCC is in the process of developing a potential federal “fintech charter,” a framework that is expected to be released this fall. Comptroller Curry emphasized that, if the OCC grants limited-purpose fintech charters, institutions receiving the charters “will be held to the same strict standards of safety, soundness, and fairness that other federally chartered institutions must meet.”
FTC Issues Paper on Lead Generation, Recaps "Follow the Lead" 2015 Workshop
On September 15, the FTC issued a paper summarizing the insights garnered through its October 2015 “Follow the Lead” workshop on lead generation. As previously covered in InfoBytes, the workshop focused on lead generation issues in the mortgage and education lending space. The FTC paper “detail[s] the mechanics of online lead generation and potential benefits and concerns associated with lead generation for both businesses and consumers.” The paper provides a synopsis of payday lenders’ role in the lead generation industry by describing their use of the “ping tree,” an automated process that enables aggregators to sell consumers’ personal information to lenders or other aggregators. Although the paper acknowledges that lead generators provide potential benefits to consumer, including the ability to offer competitive prices in the mortgage lending space, it never-the-less identifies the following key areas of concern: (i) complexity and lack of transparency surrounding industry policies and processes; (ii) the use of potentially aggressive or deceptive marketing techniques; and (iii) the potential misuse and mishandling of consumers’ personal information in the payday lending space.
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.
CFPB Monthly Complaint Snapshot Highlights Consumer Loan Complaints
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.
Colorado AG Settles with Lenders Over Alleged Violations of Consumer Credit Protection Laws
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.