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FTC Submits Annual Report on 2016 Enforcement Actions to CFPB
On June 1, the FTC announced that it submitted its 2016 Annual Financial Acts Enforcement Report to the CFPB. The report—requested by the Bureau for its use in preparing its 2016 Annual Report to Congress—covers the FTC’s enforcement activities related to compliance with Regulation Z (Truth in Lending Act or TILA), Regulation M (Consumer Leasing Act), and Regulation E (Electronic Funds Transfer Act or EFTA), as well as its initiatives to engage in research and consumer education.
According to the report, the FTC’s enforcement actions in 2016 concerning TILA involved automobile purchasing and financing, payday loans, and financing of consumer electronics. Regarding mortgage-related credit activity, the report highlights continued litigation in two cases involving mortgage assistance relief services involving “forensic audit scams.” Furthermore, the FTC continued its consumer and business education efforts on issues related to consumer credit transactions in the following areas: military lending, auto sales and financing, payday lending, marketplace lending, and consumer disclosures and testing.
Regarding the Consumer Leasing Act, the report noted the FTC had issued a final administrative consent order for deceptive advertising practices and failure to disclose key lease offer terms. The FTC also filed two federal court actions against automobile dealers. The FTC also engaged in research and policy development and educational activities in this area.
Concerning the EFTA, the FTC reported six new or ongoing cases, including four cases alleging violations in the context of “negative option” plans, in which a consumer agrees to “receive various goods or services from a company for a trial period at no charge or at a reduced price” but later incurs unauthorized recurring charges after the end of the trial period, in violation of the EFTA. The remaining two cases involved payday lending and consumer electronics financing. The FTC also engaged in rulemaking, research, policy development, and educational activities involving the EFTA.
Fed Releases List of Small Issuers Exempt from Debit Card Interchange Fees
On May 22, the Federal Reserve Board announced its lists of institutions that either are or are not exempt from the its debit card interchange fee standards found in Regulation II, which implements section 920 of the Electronic Fund Transfer Act (EFTA). The lists are intended to facilitate compliance by assisting payment card networks and others in determining which issuers qualify for the statutory exemption. The lists were generated from available data and contain institutions in existence on Dec. 31, 2016. Exempt institutions, together with their affiliates, have reported assets of less than $10 billion and are not subject to the interchange fee standards under the statute. Institutions that are not exempt have, either individually or together with their affiliates, reported assets of $10 billion or more, and therefore must comply with the interchange fee standards under the statute. Debit card issuers that do not appear on either of the lists must certify to their participating payment card networks that they are exempt from the interchange fee standards. The EFTA requires the Fed to biennially report on interchange fee revenue and costs incurred by debit card issuers and payment card networks. The Fed’s last report—for calendar-year 2015—cites interchange fees across all debit and general-use prepaid cards totaled $18.41 billion.
CFPB Issues Final Rule Delaying Effective Date for Prepaid Accounts Rule to April 1, 2018
On April 20, the CFPB released a final rule delaying the general effective date of its rule governing prepaid accounts by six months, to April 1, 2018. As previously covered in InfoBytes, the Bureau, after reviewing comments, decided last month to delay the effective date of the rule—which, among other things, provides consumers with additional federal protections under the Electronic Fund Transfer Act on prepaid financial products, mobile wallets, person-to-person payment products, and other electronic accounts with the ability to store funds. The CFPB explained that the six-month extension “provides for an appropriate balance between the interests of the consumers who will receive the benefits of the rule and the needs of industry for an adequate implementation period.” For additional background information, please see our earlier InfoBytes coverage of the Prepaid Rule.
State AGs, Industry Groups Submit Comments Addressing CFPB’s Proposed Delay of Prepaid Accounts Rule
As previously covered in InfoBytes, the Bureau released its final rule (the “Prepaid Accounts Rule”) on prepaid financial products in October of last year in order to provide consumers with additional federal protections under the Electronic Fund Transfer Act and also to offer consumers standard, easy-to-understand information about prepaid accounts. Recently, however, the CFPB announced its intention to delay the effective date of its Prepaid Accounts Rule by six months. If approved, the proposed extension would push back the current October 1, 2017, effective date to April 1, 2018. According to the proposed rule and request for public comment published by the Bureau in the March 15 Federal Register, the extension comes in response to comments received from “some industry participants” who “believe they will have difficulty complying with certain provisions.” The CFPB has taken the position that extending the deadline for compliance “would, among other things, help industry participants address certain packaging-related logistical issues for prepaid accounts that are sold at retail locations.” Comments on the proposal were due April 5.
State AG’s Letter. On April 5, attorneys general from 17 states and the District of Columbia submitted a letter to congressional leaders presenting various arguments against pending House and Senate resolutions (S.J. Res. 19, H.J. Res. 62, and H.J. Res. 73) providing for congressional disapproval and effectively nullifying the CFPB’s Prepaid Accounts Rule. The state attorneys general—including AGs for the District of Columbia, California, Hawaii, Illinois, Iowa, Maine, Maryland, Massachusetts, Minnesota, Mississippi, North Carolina, Oregon, Pennsylvania, Rhode Island, Vermont, Virginia, and Washington, along with the Executive Director of the Hawaii Office of Consumer Protection—argued, among other things, that consumer protections provided by the Rule are important because, among other things, “consumers frequently report concerns about hidden and abusive fees as well as fraudulent transactions that unfairly deplete the funds loaded onto prepaid cards.” The AGs’ letter notes further that prepaid cards are often used by “vulnerable consumers” who have limited or no access to a traditional bank account. Notably, although they characterize these congressional resolutions as a “misplaced effort,” the state AGs acknowledge that the Congressional Review Act “gives Congress, with the President’s signature, a window to veto a rule from going into effect.”
American Bankers Association (ABA) Letter. In another comment letter, submitted on April 3, the ABA commended the CFPB for “proposing to extend the deadline” because, among other things, “some industry participants, especially those offering prepaid cards in retail stores, may have difficulty complying with certain provisions.” The ABA also noted that the extension of time presents an opportunity for the Bureau to “consider making adjustments as appropriate to ensure unnecessary disruption to consumers’ access to, and use of, prepaid accounts.” As explained in the letter, the ABA’s primary concern about the Prepaid Accounts Rule “remains the inconsistency and lack of clarity of the regulation’s distinction between checking accounts and prepaid accounts.” To this end, the ABA recommends that the Bureau use the extra time to “remove inconsistencies in the Rule and clarify the distinction between a prepaid account and a checking account to ensure that banks do not inadvertently violate the regulation and risk significant potential liability and supervisory actions.” The ABA’s letter also calls for “similar changes” to the “definition of ‘payroll account’” in order to further distinguish product types.
Independent Community Bankers of America (ICBA) Letter. Also on April 3, the ICBA also submitted a short comment letter stating, among other things, that it “fully supports extending the effective date” as the additional time will “ensure that systems and technology changes could be made to facilitate compliance.”
CFPB Issues Disclosure Guide for Preparing Prepaid Accounts
On March 7, the CFPB issued a disclosure guide with instructions on how to prepare short form disclosures for prepaid accounts. The guidance provides steps for completing the disclosure but does not address other requirements under Regulation E, as amended by the Prepaid Rule, and is not applicable to government benefit accounts or payroll card accounts. The guide also covers information pertaining to insertion of fee amounts, static fees, additional fee types, statements explaining variable fees, informational statements, and size requirements.
As previously covered in InfoBytes, the Bureau released its final rule (the “Prepaid Rule”) on prepaid financial products in October of last year in order to provide consumers with additional federal protections under the Electronic Fund Transfer Act and to also offer consumers standard, easy-to-understand information about prepaid accounts. However, on March 8, the CFPB announced that it may delay this effective date by six months. If approved, the proposed rule would push back the current October 1 effective date to April 1, 2018. According to the proposed rule filed by the Bureau, the extension comes in response to comments received from “some industry participants” who “believe they will have difficulty complying with certain provisions.” Extending the deadline for compliance “would, among other things, help industry participants address certain packaging related logistical issues for prepaid accounts that are sold at retail locations.” Comments on the Bureau's proposal are due next month.
Legislators Appeal to CFPB Regarding Payday Loan Proposal
In a letter sent to CFPB Director Richard Cordray on December 1, a group of Republican members of Congress expressed concern about the Bureau’s proposal regarding payday, vehicle title, and certain high-cost installment loans. The letter observes that CFPB’s proposal “attempts to further regulate an industry that is already highly regulated by nearly a dozen federal laws including the Truth in Lending Act, the Fair Credit Reporting Act, the Equal Credit Opportunity Act, and the Electronic Fund Transfer Act.” Specifically, the letter contends that the CFPB’s framework will effectively preempt existing statutory and regulatory frameworks and/or eliminate regulated small dollar credit products from the market, thereby leaving consumers without access to credit or forcing them to seek “riskier, illegal” forms of credit.
Fed Report Provides Information on Debit Card Transactions in 2015
On November 30, the Fed announced the release of its annual report on debit card transactions in 2015. The report is the fourth in a series to be published every two years pursuant to Section 920 of the Electronic Fund Transfer Act (EFTA). As in prior years, the 2015 report reflected that issuers’ costs of authorizing, clearing, and settling debit card transactions (excluding issuer fraud losses) varied greatly across respondents. Data compiled in the report estimates that debit-card fraud losses to all parties (merchants, cardholders, and issuers) increased by 44 percent from 2013 to an estimated total of $2.41 billion in 2015. The median covered issuer had average fraud prevention and data security costs of 1.9 cents per transaction.
CFPB Orders National Bank to Pay $10 Million Over Overdraft Practices
On July 14, the CFPB ordered a Delaware-based national bank to pay a $10 million civil penalty to settle allegations that its overdraft fee practices were deceptive and violated Regulation E of the Electronic Fund Transfer Act because the bank allegedly charged consumers overdraft fees in connection with ATM and one-time debit card transactions without obtaining their affirmative consent. The CFPB alleges that the bank incentivized sales representatives of a third-party telemarketing vendor to market its overdraft service through “Opt-in Call Campaigns.” According to the consent order, vendor representatives deviated from sales scripts approved by the bank and provided consumers with incomplete, inaccurate, or misleading information to persuade them to enroll in the overdraft service. The CFPB alleges that the bank failed to properly monitor the vendor and detect “widespread problems” throughout the Opt-in Call Campaigns, including, but not limited to: (i) enrolling consumers in the bank’s overdraft program without their consent; (ii) falsely advertising the overdraft program as free, when in fact consumers were charged $35 per overdraft; (iii) misleading consumers into believing they would be charged overdraft fees regardless of whether or not they signed up for the program, or telling consumers they would face additional charges if they opted out of the program; and (iv) falsely claiming that the purpose of the call was “not a sales call” but rather to let consumers know that the bank had changed its name. In addition to imposing a $10 million civil penalty, the consent order requires the bank to, among other things, (i) validate that all consumers who were enrolled in the program through its vendor wish to remain in the program; (ii) stop using a vendor to conduct the marketing of its overdraft service; and (iii) develop and implement a new or revised written policy to govern vendor management for Service Providers engaged in telemarketing of consumer financial products or services.
FTC Submits Annual Report on 2015 Enforcement Actions to CFPB
On June 6, the FTC announced that it submitted its 2015 Annual Financial Acts Enforcement Report to the CFPB. The report covers the FTC’s enforcement activities related to compliance with Regulation Z (TILA), Regulation M (Consumer Leasing Act or CLA), and Regulation E (Electronic Fund Transfer Act or EFTA), as well as the FTC’s related activities in rulemaking, research, policy development, and consumer/business education related to TILA. According to the report, the FTC’s enforcement efforts in 2015 concerning TILA involved mortgage-related credit and non-mortgage credit, including automobile purchases and financing, car title loans, payday lending, and consumer electronics financing. Regarding mortgage-related credit activity, the report highlights continued litigation involving mortgage assistance relief services/forensic audit scams: “[i]n these scams, mortgage assistance relief providers offer, for a substantial fee, to review or audit the mortgage documents of distressed homeowners to identify violations of TILA, Regulation Z, and other federal laws.” The report further noted that under Regulation M and as part of the FTC’s Operation Ruse Control sweep on the auto industry, the FTC issued five final administrative consent orders and one consent agreement for public comment. Finally, regarding the FTC’s enforcement activities related to compliance with the EFTA, the report states that four of the FTC’s seven cases involving the EFTA in 2015 arose in the context of “negative option” plans, where consumers agreed to a trial period in which they received certain goods or services for no additional charge or at a reduced price, but later incurred recurring charges due to failure to cancel before the trial period ended.
CFPB Issues Fall Rulemaking Agenda, Potential Student Loan Servicing Rules on Horizon
On November 20, the CFPB released its fall rulemaking agenda. The CFPB’s notable current initiatives include: (i) addressing arbitration clauses in contracts related to consumer financial products and services and providing an outline of rulemaking ideas such as “whether to propose rules that would prevent companies from using these agreements to foreclose consumers’ ability to bring class action lawsuits”; (ii) developing a Notice of Proposed Rulemaking, with an anticipated release date in the first quarter of 2016, to address concerns relating to payday and auto title lending; (iii) finalizing its December 2014 proposed rule, “Prepaid Accounts Under the Electronic Fund Transfer Act (Regulation E) and the Truth in Lending Act (Regulation Z),” to address consumer protection concerns relating to reloadable cards and other similar prepaid products; and (iv) considering rules to designate consumer installment loans and vehicle title loans as “larger participants” under the CFPB’s supervisory authority. Looking ahead, the CFPB’s report highlights the potential for rulemaking to address issues related to credit reporting and student loan servicing. Regarding student loan servicing, the CFPB stresses that it “has made it a priority to take action against companies that are engaging in illegal servicing practices,” and that it will “continue to monitor the market for trends and developments and evaluate possible policy responses, including potentially proposing rules.”