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  • CFPB Monthly Complaint Snapshot Highlights Consumer Loan Complaints

    Consumer Finance

    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.

    CFPB Auto Finance Debt Collection Consumer Lending Installment Loans Title Loans

  • CFPB Releases Report on Supplemental Findings on Payday, Vehicle, and Installment Loans

    Consumer Finance

    On June 2, the CFPB released a report with various analyses of payday loans, payday installment loans, vehicle title loans, and deposit advance products. The report’s six chapters examine: (i) consumer usage and default patterns for vehicle title installment loans and payday installment loans; (ii) consumer account activity before and after the discontinuation of deposit advance products, analyzing whether consumers who used such products “overdrew their accounts or took out payday loans more frequently after banks stopped offering the products”; (iii) the impact of varying state laws on storefront payday lending in Texas, Colorado, Washington, and Virginia; (iv) the share of payday loans that are reborrowed across states, comparing it to varying limits on renewals and requirements for cooling-off periods between the loans; (v) borrower and default patterns for storefront payday loans for three alternative definitions of the loan sequence concept; and (vi) a series of simulations regarding the estimated impacts of certain requirements on the payday, payday installment, and vehicle title loan markets. On June 2, the CFPB simultaneously released its Proposed Rule on Payday, Title, and Installment loans; to review BuckleySandler’s full coverage on the proposal, please see the Special Alert: CFPB’s Proposed Rule Regarding Payday, Title, and Certain Other Installment Loans.

    The CFPB’s recent supplemental report comes after its April 20 report titled “Online Payday Loan Payments” and its May 18 report titled “Single-Payment Vehicle Title Lending.”

    CFPB Payday Lending Installment Loans

  • CFPB Issues Report on Payday and Installment Loans; Director Cordray Weighs in on Online Lending Industry

    Consumer Finance

    On April 20, the CFPB issued a report titled “Online Payday Loan Payments,” which covers an 18-month period in 2011 and 2012 and examines how online lenders’ attempts to recover debts are affecting consumers. Also on April 20, the CFPB held a press call during which Director Cordray delivered remarks regarding the small-dollar lending market, specifically focusing on findings included in the simultaneously released report. According to Director Cordray, online payday lenders have considerable power over consumers’ bank accounts because they use automated networks to deposit loans and collect payments, which often results in banks or credit unions charging consumers overdraft and non-sufficient funds fees. Director Cordray further summarized key findings from the report, including, but not limited to: (i) half of online consumers incurring an average of $185 in bank penalties – in addition to the penalties imposed by the lenders and the average annualized interest rate of 300% to 500% – as a result of reoccurring failed debits made by online payday lenders; (ii) one-third of online consumers losing their checking or savings accounts due to overdraft and non-sufficient funds fees; and (iii) consumers facing “hefty bank fee[s]” due to lenders’ repeated debit requests, despite the fact that second payment requests have a 70% failure rate, with third or subsequent payment attempts failing at an even higher rate. Director Cordray concluded by emphasizing that the CFPB’s “process of reforming the market for small-dollar loans” is ongoing, and that the CFPB will consider the data from the report as it prepares new regulations to address the industry.

    CFPB Payday Lending Installment Loans Online Lending

  • CFPB Orders Subsidiary of Peer-to Peer Lending Company to Provide $700,000 in Restitution over Practices Related to its Health Care Loan Product

    Consumer Finance

    On August 19, the CFPB announced a consent order against a subsidiary of an online lending company, ordering the subsidiary to provide $700,000 in monetary relief to affected consumers. According to the CFPB, the subsidiary marketed two loan products at dental offices as part of its health-care services financing program – an installment loan and a deferred-interest loan – to assist consumers in paying for dental services. The CFPB contended that consumers were provided inaccurate information related to the terms and conditions of the deferred-interest loan product, finding that, in certain instances, the loan product was marketed as a “no-interest” loan. However, the dental service providers who marketed the loan product failed to note that the 22.98 percent interest rate would be added to the principal if consumers failed to pay the loan in full before the end of the promotional period.

    CFPB Enforcement Installment Loans

  • North Dakota Grants Attorney General Power to Enforce Retail Installment Provisions

    Consumer Finance

    On March 12, the Legislative Assembly of North Dakota approved legislation H.B. 1346 amending the North Dakota Retail Installment Sales Act to grant enforcement authority to a state attorney or to the North Dakota Attorney General. Under the new law, the Attorney General has all powers provided under the Act, in addition to powers provided under the state’s Unlawful Sales or Advertising Practices law. The law as amended will be effective August 1, 2015.

    State Attorney General Enforcement Installment Loans

  • Missouri Assembly Overrides Governor's Veto Of Installment Lending Bill

    Consumer Finance

    On September 10, the Missouri General Assembly voted to override Governor Jay Nixon’s veto of SB 866, which defines traditional installment loans as "fixed rate, fully amortized, closed-end extensions of direct consumer loans” and preempts certain local government actions that would affect lenders who only make such installment loans and who operate under a consumer installment loan license or a consumer credit loan license. The preemption provisions do not apply to ordinances in a home rule city with more than four hundred thousand residents and located in more than one county, i.e., Kansas City, or to a charter provision or valid ordinance as of August 28, 2014, that expressly applies to traditional installment loan lenders.

    Installment Loans

  • Ohio Supreme Court Holds Registered Mortgage Loan Act Lenders May Make Single-Installment Loans

    Consumer Finance

    On June 11, the Ohio Supreme Court held that single-installment, interest bearing loans are permitted under the Mortgage Loan Act (MLA), and that the Short-Term Lender Act (STLA) does not prohibit registered MLA lenders from making such loans. Ohio Neighborhood Finance, Inc. v. Scott, 2013-0103, 2014 WL 2609830 (Ohio Jun. 11, 2014). In this case, an MLA-registered lender sued a borrower seeking to recover the unpaid principal balance on a single-installment loan, as well as interest and fees. The appellate court held that the MLA does not authorize payday-like single-installment loans and that, by enacting the STLA, the General Assembly intended to prohibit all loans of short duration outside the confines of the STLA. The Ohio Supreme Court reversed, holding that the MLA’s definition of “interest-bearing loan” does not require that such loans be multiple installment loans, and that here the loan agreement expressed the debt as the principal amount, and the interest was computed based upon the principal balance outstanding daily, in compliance with the MLA. The court also held that, although the STLA would not permit the loan at issue here because its terms would violate the STLA’s restrictions on the loan term, interest, and fees, the lender was not registered under the STLA, and nothing in the STLA limits the authority of MLA registrants to make loans permitted by the MLA.

    Payday Lending Installment Loans

  • CFPB Director Announces Prepaid Card Rule Delay, Discusses Other Initiatives

    Consumer Finance

    On June 10, CFPB Director Richard Cordray testified before the Senate Banking Committee in connection with the CFPB’s recently released Semiannual Report to Congress. The hearing covered a broad range of topics, including, among several others, prepaid cards, student loans, small dollar loans, and arbitration clauses.

    Prepaid Cards

    Director Cordray advised in response to an inquiry from Senator Menendez (D-NJ) that the CFPB’s prepaid card proposed rule, which the CFPB recently indicated could be released this month, likely will not come until the end of the summer. He reassured the Senator that the delay does not indicate any particular problem about the rulemaking, only that certain of the issues raised have been “hard to work through.”

    Student Loans

    Senator Menendez raised concerns about “automatic defaults” in the student loan context, an issue raised in the CFPB Student Loan Ombudsman’s mid-year report on student loans. In that report, the CFPB stated, based on an unidentified number of consumer complaints, that “industry participants are automatically placing loans in default – even when a borrower is paying as agreed” – in circumstances such as when a co-signer dies or goes into bankruptcy. The Ombudsman acknowledged that financial institutions may have legitimate business purposes for exercising contractual acceleration options which demand the full balance of a loan when a borrower’s co-signer has died or filed for bankruptcy. Senator Mendendez described legislation to address the issue. Senator Brown (D-OH) also focused on student loan issues, picking up on the CFPB’s common refrain that problems in the student loans servicing market are similar to those seen in mortgage servicing. He called for the CFPB to establish student loan servicing standards. Director Cordray acknowledged that the two markets are different, but pointed to “poor customer service, problems with transfers, lack of information, and harm to consumers” as “eerie” examples of problems seen in both markets.

    Small Dollar Loans

    On small dollar loans, Senator Brown expressed concern that an eventual CFPB rule on traditional payday loans could lead to arbitrage and leave gaps in consumer protection related to other small dollar loans, including, for example, online loans, auto title loans, and installment loans. Director Corday described this issue as one of “extreme importance” as the CFPB addresses the small dollar loan market. He stated that implementation of the Military Lending Act has given rise to similar problems, which the CFPB is working with the Department of Defense to address. He explained that the CFPB’s process on a payday loan rule is taking longer as the Bureau attempts to deal with these issues, but believes “it's well worth a little additional time in order to make sure that what we do won't be made a mockery of by people circumventing it through just transforming their product slightly.”

    Arbitration

    Senator Warren (D-MA) turned her attention, which recently has focused on student loans, to the issue of arbitration. She stated that “arbitration stacks the deck against customers in favor of large corporations,” and that it is “no surprise that many big banks, and other big corporations, force customers to agree to arbitration clauses to get credit cards, or open checking accounts, knowing that this means that the customer will have no real remedy if things go wrong.” Director Cordray responded that in hearing from corporations and consumers on the issue of arbitration clauses, there is almost no relation between the two, which is contrary to CFPB’s experience on other issues. He explained that while the Dodd-Frank Act barred arbitration in mortgage contracts, he only directed the CFPB to study and consider interventions related to arbitration in other consumer finance contracts. He said the CFPB has pursued a very thorough process to conduct the required study, which the Director believes will be completed this year. Senator Warren pressed him to commit to new rules if the study presents evidence such rules are required. Director Cordray declined to describe any possible policy judgments or actions that could follow the study, but promised the CFPB will fulfill its obligation to engage in policymaking that appropriately reflects the conclusions of the study.

    CFPB Payday Lending Arbitration Prepaid Cards Student Lending Installment Loans Military Lending Act Online Lending

  • New York AG Action Targets Out-Of-State Retail Installment Obligation Finance Companies

    Consumer Finance

    On April 30, New York Attorney General (AG) Eric Schneiderman announced that four out-of-state companies alleged to have financed retail installment obligations (RIOs) at rates in excess of the state’s usury cap agreed to recast the RIOs at a rate of not more than 16% and provide repayment or credits to impacted New York consumers. The settlements are the latest in a series of actions in New York targeting out-of-state or online lenders and finance companies that make loans in New York without obtaining a license to operate in that state.

    The companies financed elective medical and surgical procedures through RIOs offered by medical providers to patients, an activity the AG believes required the companies to obtain a state license to operate as sales finance companies or lenders. The AG’s Health Care Bureau initiated the investigation after it received complaints about an online lead generation site. As described in the AG’s release, that lead generator requested information regarding a consumer’s employment and credit history, automatically set the APR and RIO repayment terms, and submitted the completed application to sales finance companies. The AG explains that once a finance company agreed to purchase the RIO, the medical provider and the patient both signed a financing agreement that the medical provider immediately assigned to the finance company. The finance company then transferred the funds to the medical provider who agreed to accept less than their usual and customary fees in exchange for upfront payments from the finance company. The patient, however, would be required to repay to the financier full fees plus interest, which in this case allegedly exceeded the statutory usury cap, up to 55% in some instances. State law restricts unlicensed lenders to charging an APR of up to 16%, and establishes criminal penalties for unlicensed lenders that charge interest at a rate exceeding 25% APR.

    In addition to revising existing loans and providing approximately $230,000 in remediation to 317 consumers, the agreements require the companies to (i) collectively pay $35,000 in penalties; (ii) cease all conduct as unlicensed sales finance companies in New York; and (iii) notify any consumer reporting agencies to which they gave consumer information to delete all references to the transactions from customers’ credit records. The agreements do not include any criminal penalties.

    In addition to extending the state’s licensing enforcement focus, this is at least the second financial services case initiated in recent months by the AG’s Health Care Bureau. In June 2013, the AG announced a settlement with a credit card issuer related to alleged illegal deferred interest products offered through medical provider offices.

    State Attorney General Enforcement Installment Loans Licensing

  • Arizona Adjusts Allowable Loan Fees, Finance Charge Structure

    Consumer Finance

    On April 17, Arizona Governor Jan Brewer signed HB 2526, which amends certain permissible practices and limitations governing consumer lenders, which include lenders who make closed end or revolving consumer loans under $10,000. The bill (i) increases the maximum allowable loan origination fee on closed end or revolving consumer loans from $75 to $150; (ii) permits a consumer lender to give a borrower a prize, good, merchandise, or tangible property with an aggregate value of up to $25; and (iii) modifies the framework governing permissible finance charges for consumer loans by increasing the applicable original principal amount, credit limit, or outstanding balance thresholds from either $500 or $1,000 to $3,000. The bill also prohibits consumer lenders from (i) increasing the established rate on a loan that was issued prior to the effective date of the bill when modifying or restructuring smaller loans; and (ii) holding a person responsible for a loan that was extended under fraudulent pretenses. Finally, the bill requires a consumer lender to correct any derogatory credit information reported to a consumer reporting agency within 30 days after knowledge that the loan was a result of such theft or fraud. The changes take effect July 24, 2014.

    Consumer Lending Installment Loans

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