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CFPB Orders Small-Dollar Lender to Pay $10 Million for Debt Collection Practices; Releases Compliance Bulletin
On December 16, the CFPB announced a consent order against a Texas-based small-dollar lender for alleged violations of the Consumer Financial Protection Act, the Electronic Fund Transfer Act (EFTA), and the EFTA’s implementing regulation, Regulation E. According to the CFPB, beginning in July 2011, the company engaged in unfair or deceptive acts or practices and violated Regulation E by (i) visiting consumers’ homes and places of employment to collect debts; (ii) contacting third parties for reasons other than to acquire consumers’ location information, which put consumers at risk of their information being disclosed to third parties, and ignoring requests to stop calling consumers’ workplaces; (iv) making false threats of litigation if consumers did not pay the past due amount; (v) misrepresenting the company’s ability to, and routine practice to, run credit checks on loan applicants; (vi) requiring consumers to pay using pre-authorized electronic fund transfers; (vii) causing consumers to incur fees from their banks due to electronic withdrawal practices; and (viii) misrepresenting a consumer’s ability to repay loans early and to revoke authorization for electronic withdrawal authorization. The CFPB’s administratively-filed consent order requires the company to pay $7,500,000 towards refunding consumers affected by its practices, and pay a civil money penalty of $3,000,000. In addition, the order prohibits the company from collecting on defaulted loans owed by approximately 130,000 consumers, and from engaging in unfair and deceptive debt collection practices in the future.
The CFPB simultaneously released Compliance Bulletin 2015-07, warning creditors, debt buyers, and third-party collectors of potentially unlawful in-person debt collection practices. Specifically, the bulletin reminds the financial services industry of debt collection practices prohibited by the Dodd-Frank Act and the Fair Debt Collection Practices Act, including (i) engaging in unfair, deceptive, or abusive acts or practices; (ii) communicating with a consumer at any place or time that the debt collector knows, or should know, to be inconvenient to the consumer; (iii) communicating with persons other than the consumer (and other identified parties, except in certain circumstances) for purposes other than acquiring location information; (iv) “‘us[ing] unfair or unconscionable means to collect, or attempt to collect, debt’”; and (v) “‘engag[ing] in any conduct the consequences of which is to harass, oppress, or abuse a person in connection with collecting a debt.’”
CFPB Files Notice of Charges Against Online Payday Lender
On November 18, the CFPB announced an action against a Delaware-based online payday lender and its CEO for alleged violations of the Truth in Lending Act and the Electronic Fund Transfer Act, and for engaging in unfair or deceptive acts or practices. Specifically, the CFPB alleges that, from May 2008 through December 2012, the online lender (i) continued to debit borrowers’ accounts using remotely created checks after consumers revoked the lender’s authorization to do so; (ii) required consumers to repay loans via pre-authorized electronic fund transfers; and (iii) deceived consumers about the cost of short-term loans by providing them with contracts that contained disclosures based on repaying the loan in one payment, while the default terms called for multiple rollovers and additional finance charges. The case will be tried by an Administrative Law Judge from the CFPB’s Office of Administrative Adjudication.
CFPB Files Complaint Against Student Financial Aid Consulting Company for Allegedly Illegal Sales and Billing Practices
On July 23, the CFPB announced that it had entered into a proposed consent order with a Sacramento-based company that provides fee-based student financial aid counseling and preparation services. The CFPB’s simultaneously filed complaint alleges that the company violated the Telemarketing and Consumer Fraud and Abuse Prevention Act by engaging in deceptive sales tactics through its websites and call center representatives. The complaint claims that from at least July 21, 2011 to present (recognizing that the company no longer operates one of the websites effective July 13, 2015), the company offered consumers certain services “as an upgrade from its ‘standard’ service level at ‘no additional cost.’” However, consumers were allegedly charged future annual fees of $67 to $85 for such upgrades. The Bureau also alleges that the company violated the Electronic Fund Transfer Act by enrolling consumers in automatic, recurring payments without their knowledge or consent: “The Company did not provide consumers a copy of the consumers’ authorization for electronic fund transfers in which the terms of the preauthorized transfers – including automatic, recurring charges going forward – were clear and readily understandable.” The proposed consent order would require the company to pay $5.2 million in consumer relief and cancel all automatic and recurring charges currently in place. Due to the company’s limited financial resources, the proposed order seeks a civil money penalty of $1.00.
FTC Provides Annual Financial Acts Enforcement Report to CFPB and Federal Reserve
On June 9, the FTC announced that it has provided to the CFPB its 2014 Annual Financial Acts Enforcement Report. The report highlights the FTC’s enforcement, research, rulemaking, and policy development activities with respect to the Truth in Lending Act (Regulation Z), the Consumer Leasing Act (Regulation M), and the Electronic Fund Transfer Act (Regulation E). Areas detailed within the report include enforcement actions related to non-mortgage credit, including auto finance and payday lending, mortgage loan advertising, and forensic audit scams; and consumer and business outreach related to truth in lending requirements. The report, submitted on May 29, will be used to prepare the CFPB’s Annual Report to Congress. The FTC also submitted a copy of the report to the Federal Reserve Board.
Tennessee Allows Industrial Banks To Charge Fees For Electronic Payments
On April 4, Tennessee Governor Bill Haslam signed into law SB 1486, which authorizes registered industrial banks, industrial loan and thrift companies, and industrial investment companies to charge a convenience fee to any borrower making payment by credit card, debit card, electronic fund transfer, electronic check, or other electronic means in order to offset actual costs incurred by the lender. The convenience fees cannot exceed the actual costs incurred by the registrant for each payment type, or the average of the actual cost incurred for the various types of electronic payments accepted by the registrant. Registrants who elect to charge a convenience fee must also allow payment by non-electronic means—check, cash, or money order—without the imposition of a convenience fee. The changes take effect July 1, 2014.
CFPB Proposes To Supervise Larger Nonbank International Money Transmitters
On January 23, the CFPB proposed a rule that would allow the agency to supervise nonbank “larger participants” in the international money transfer market. The proposed rule defines “larger participant” to include any entity that provides one million or more international money transfers annually, which the CFPB estimates will extend oversight to roughly 25 of the largest providers in the market. Providers that do not meet the million-transfer threshold may still be subject to the CFPB’s supervisory authority if the Bureau has reasonable cause to determine they pose risk to consumers. Although the CFPB proposes to use aggregate annual international money transfers as the criterion for establishing which entities are “larger participants” of the international money transfer market, the CFPB also considered and has requested comment on use of annual receipts from international money transfers and annual transmitted dollar volume as potential alternatives.
The CFPB suggests that examinations of such providers will focus on compliance with the Remittance Rule—particularly with respect to new requirements addressing disclosures, cancellation options, and error corrections—and that the agency will “coordinate [examinations] with appropriate State regulatory authorities.” The CFPB released examination procedures for use in assessing compliance with the remittance transfer requirements last year.
Dodd-Frank granted the CFPB authority to supervise “larger participants” in the consumer financial space, as defined by rule. The agency has already finalized similar rules covering “larger participants” in student loan servicing, debt collection, and consumer reporting markets. The proposal, if finalized, would be the fourth larger-participant rule adopted by the CFPB.
A CFPB factsheet on the proposal is available here. The CFPB will accept comments for 60 days from publication of the proposed rule in the Federal Register.
Missouri District Court Holds State Funds Transfer Act Preempts Certain Customer Indemnity Agreements
On August 20, the U.S. District Court for the Western District of Missouri dismissed a bank’s counterclaims that its customer’s agreement to indemnify the bank for any losses, costs, or expenses covers the customer’s losses from an allegedly fraudulent transfer of funds. Choice Escrow & Title, LLC v. BancorpSouth Bank, No. 10-03531, slip op. (W.D.Mo. Aug. 20, 2012). The customer sued the bank claiming that a $440,000 wire transfer from its account through the bank’s internet wire transfer system was fraudulently initiated by a third-party. The bank filed four counterclaims for the same amount based on indemnity agreements signed by the customer. The customer moved to dismiss the counterclaims, arguing that the state Funds Transfer Act, part of the Uniform Commercial Code, displaces the counterclaims. Describing its decision as a “very close call,” the court held that the Funds Transfer Act preempts the types of indemnity agreements relied upon by the bank in its counterclaims and dismissed those claims. The court reasoned that while the Funds Transfer Act generally was not intended to preempt or displace all causes of action between a bank and its customers, the Act does provide that common law causes of action based on allegedly fraudulent transfers are preempted where the common law claims would create rights, duties, or liabilities inconsistent with the Act or where the circumstances giving rise to the claims are specifically covered by the Act. The court held the indemnity agreements could require the customer to pay back to the bank the very losses the bank might owe if the customer proves a fraudulent transfer, a result that is inconsistent with the Act.