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Financial Services Law Insights and Observations


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  • Supplement marketer again settles with FTC over negative option marketing

    Federal Issues

    On September 22, the FTC announced a $1.04 million settlement with a supplement marketer and its two officers (collectively, “defendants”), resolving allegations that the defendants engaged in deceptive sales and billing practices, in violation of the Restore Online Shoppers’ Confidence Act (ROSCA), the Telemarketing Sales Rule (TSR), and a previous court order. Previously, in 2016, the marketer entered into a settlement with the FTC covering allegations that the company engaged in negative option marketing by enrolling consumers in a membership program that billed up to $79.99 monthly unless the consumers canceled within an 18-day trial period. The 2016 settlement barred the company from, among other things, (i) obtaining consumers’ billing information without first disclosing they would be charged, that the charge would increase after a certain period, or that the charge would be reoccurring; (ii) obtaining payment from consumers without express written authorization; and (iii) failing to provide a simple way for consumers to cancel.

    According to the FTC’s new complaint, from 2016 to 2019, the defendants violated the previous consent order, ROSCA, and TSR by failing to clearly and conspicuously disclose that in order to cancel, consumers must contact the company “at least one day before the end of the advertised Free Trial Period to avoid being charged for the monthly membership program.” The agreed-upon proposed contempt order requires the defendants to pay nearly $1.04 million to be used for equitable relief, including consumer redress.

    Federal Issues FTC ROSCA Disclosures Negative Option Enforcement Telemarketing Sales Rule

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  • CDBO releases proposed commercial financing disclosure regulations

    State Issues

    On September 11, the California Department of Business Oversight (CDBO) initiated the formal rulemaking process with the Office of Administrative Law (OAL) for the proposed regulations implementing the requirements of the commercial financing disclosures required by SB 1235 (Chapter 1011, Statutes of 2018). In September 2018, California enacted SB 1235, which requires non-bank lenders and other finance companies to provide written consumer-style disclosures for certain commercial transactions, including small business loans and merchant cash advances (covered by InfoBytes here). In July 2019, California released the first draft of the proposed regulations (covered by InfoBytes here) to consider comments prior to initiating the formal rulemaking process with the OAL.

    The new proposed regulations, which have been modified since the July 2019 draft, provide general format and content requirements for each disclosure, as well as specific requirements for each type of covered transaction. Additionally, the proposed regulations provide information on calculating the annual percentage rate (APR), including additional details for calculating the APR for factoring transactions, as well as calculating the estimated APR for sales-based financing transactions, among other things. Additional details about the proposed regulations can be found in the CDBO’s initial statement of reasons. Comments on the proposed regulations will be accepted through October 28.

    State Issues Small Business Lending Fintech Disclosures APR Commercial Finance Nonbank CDBO

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  • FTC seeks $10 million settlement for negative option billing

    Federal Issues

    On September 2, the FTC announced a proposed $10 million settlement with an online education company, resolving allegations the company engaged in negative option marketing and deceptive billing practices in violation of the FTC Act and the Restore Online Shoppers’ Confidence Act. According to the complaint, filed by the FTC in the U.S. District Court for the Central District of California, from 2015 through at least 2018, the company “failed to adequately disclose key terms of memberships to access online education content for children.” Specifically, the company failed to disclose that memberships automatically renewed indefinitely and kept the “ongoing nature of these term memberships only in separately hyperlinked terms and conditions,” with the automatic renewal “buried” in “dense text, in small font and in single-spaced type.” Moreover, the company allegedly created a difficult cancelation process, notwithstanding the promise of “easy cancellation” written in “bold, red text.”

    Under the proposed settlement, the FTC is seeking $10 million in monetary relief and seeks to ban the company from making negative option misrepresentations. Additionally, the proposal would require the company to, among other things, clearly disclose terms of membership and obtain consumers’ informed consent before enrolling them in an automatic billing program.

    Federal Issues FTC FTC Act ROSCA Disclosures Negative Option

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  • CFPB gives details on e-disclosure tech sprint

    Federal Issues

    On September 1, the CFPB issued new details on its first Tech Sprint, which will cover innovative approaches to adverse action e-disclosures. As previously covered by InfoBytes, the CFPB announced in September 2019 its intention to use Tech Sprints—which had been used by the U.K.’s Financial Conduct Authority seven times since 2016 and resulted in a pilot project on digital regulatory reporting—to encourage regulatory innovation and requested comments from stakeholders on the plan.

    The adverse action e-disclosure Tech Sprint will be held October 5-9, 2020 and will ask participating teams to focus on three goals to improve the notices: accuracy, anti-discrimination, and education. More details on the event are available in the CFPB’s problem statement. A link to an application to participate can be found in the problem statement and will be accepted between September 1 through September 11.

    Federal Issues CFPB Fintech Disclosures ESIGN

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  • 24 state attorneys general reject CFPB’s time-barred debt proposal

    State Issues

    On August 4, twenty-four state attorneys general responded to the CFPB’s request for comments on its proposed supplemental debt collection rule (the “Supplemental Proposed Rule”) arguing it does not “adequately protect[] consumers’ rights.” As previously covered by a Buckley Special Alert, the Supplemental Proposed Rule— which adds to the CFPB’s May 2019 proposed rule (InfoBytes coverage here) — proposes (i) certain disclosures required to be included in communications where a third-party debt collector knows or should know that a debt is time-barred; and (ii) model language and forms that debt collectors may use to comply with such disclosure requirements.

    Among other things, the attorneys general disagree with the “know or should know” standard, arguing that the Bureau should “adopt a strict-liability standard, which would be in line with what the FDCPA intends to accomplish.” Moreover, the attorneys general assert that the model disclosures (i) were not adequately tested; (ii) do not account for the variations in state laws as to the potential revival of time-barred debt; and (iii) provide a safe harbor that is inconsistent with the FDCPA and the Dodd-Frank Act. Lastly, the attorneys general express concerns that the Supplemental Proposed Rule conflicts with state laws that require state disclosures to be on the front side of debt collection notices and fails to address “obsolete debt.”

    State Issues Agency Rule-Making & Guidance CFPB Debt Collection FDCPA Regulation F State Attorney General Disclosures

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  • Federal legislation would apply TILA to small business financing

    Federal Issues

    On July 30, Congresswoman Nydia Velázquez (D-NY), the Chairwoman of the House Small Business Committee, announced new legislation titled, “Small Business Lending Disclosure and Broker Regulation Act,” which would amend TILA and subject small business financing transactions to APR disclosures. The federal legislation would track similar state legislation enacted in California and currently pending the governor’s signature in New York, covered by InfoBytes here and here. However, unlike both California and New York, the federal legislation does not exempt depository institutions from coverage. Highlights of the TILA amendments include:

    • CFPB Oversight. The legislation provides the CFPB with the same authority with respect to small business financing as the Bureau has with respect to consumer financial products and services.
    • Coverage. The legislation defines small business financing as, “[a]ny line of credit, closed-end commercial credit, sales-based financing, or other non-equity obligation or alleged obligation of a partnership, corporation, cooperative, association, or other entity that is [$2.5 million] or less,” that is not intended for personal, family, or household purposes.
    • Disclosure. The legislation would require disclosure of the following information at the time an offer of credit is made: (i) financing amount; (ii) annual percentage rate (APR); (iii) payment amount; (iv) term; (v) financing charge; (vi) prepayment cost or savings; and (vii) collateral requirements.
    • Fee Restriction. The legislation prohibits charging a fee on the outstanding principal balance when refinancing or modifying an existing loan, unless there is a tangible benefit to the small business.

    Additionally, the legislation would amend the Consumer Financial Protection Act to create the Office of Broker Registration, which would be responsible for oversight of brokers who “solicit[] and present[] offers of commercial financing on behalf of a third party.” The legislation would, among other things: (i) require commercial brokers to register with the CFPB; (ii) require commercial brokers to provide certain disclosures to small business borrowers; (iii) prohibit the charging of fees if financing is not available or not accepted; and (iv) require the CFPB to collect and publicly publish broker complaints from small businesses. Lastly, the legislation would require each state to establish a small business broker licensing law that includes examinations and enforcement mechanisms.

    Relatedly, the FTC recently took action against New York-based merchant cash advance providers and two company executives for allegedly engaging in deceptive practices by misrepresenting the terms of their merchant cash advances (MCAs), using unfair collection practices, making unauthorized withdrawals from consumers’ accounts, and misrepresenting collateral and personal guarantee requirements. See detailed InfoBytes coverage on the complaint here.

    Federal Issues TILA Small Business Financing Broker CFPB Disclosures State Issues Licensing Federal Legislation FTC

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  • California AG publishes CCPA FAQs

    Privacy, Cyber Risk & Data Security

    The California attorney general recently published a set of frequently asked questions providing general consumer information on the California Consumer Privacy Act (CCPA). The CCPA—enacted in June 2018 (covered by a Buckley Special Alert) and amended several times—became effective January 1. Final proposed regulations were submitted by the AG last month as required under the CCPA’s July 1 statutory deadline (covered by InfoBytes here), and are currently with the California Office of Administrative Law for review. The FAQs—which will be updated periodically and do not serve as legal advice, regulatory guidance, or as an opinion of the AG—are intended to provide consumers guidance on exercising their rights under the CCPA.

    • General CCPA information. The FAQs address consumer rights under the CCPA and reiterate that these rights apply only to California residents. This section also clarifies the definition of “personal information,” outlines businesses’ compliance thresholds, and states that the CCPA does not apply to nonprofit organizations and government agencies. The FAQs also remind consumers of their limited ability to sue businesses for CCPA violations and details the conditions that must be met before a consumer may sue a business for a data breach. The FAQs remind consumers that if they believe a business has violated the CCPA, they may file a complaint with the AG’s office.
    • Right to opt-out of sale. The FAQs answer common questions related to consumers’ requests for businesses not to sell their personal information. The FAQs provide information on the steps for submitting opt-out requests, as well as explanations for why a business may deny an opt-out request. It also address circumstances where a consumer receives a response from a service provider that says it is not required to act on an opt-out request.
    • Right to know. The FAQs discuss a consumer’s right to know what personal information is collected, used, shared, or sold, and clarifies what consumers should do to submit requests to know, how long a business may take to respond, and what steps should be taken if a business requests more information, denies a request to know, or claims to be a service provider that is not required to respond.
    • Required notices. The FAQs outline the disclosures that businesses must provide - i.e., the “notice at collection” and privacy policy. It also discusses the common places where notices at collection and privacy policies are located.
    • Request to delete. The FAQs address several questions related to consumers’ right to delete personal information, including how to submit a request to delete, businesses’ responses to and denials of requests to delete, and why a debt collector may make an attempt to collect a debt or a credit reporting agency may provide credit information even after a request to delete has been made.
    • Right to non-discrimination. Consumers are reminded that a business “cannot deny goods or services, charge. . .a different price, or provide a different level or quality of goods or services just because [a consumer] exercised [his or her] rights under the CCPA.”
    • Data brokers. The FAQs set forth the definition of a data broker under California law and outline steps for consumers interested in finding data brokers that collect and sell personal information, as well as measures consumers can take to opt-out of the sale of certain personal information.

    Privacy/Cyber Risk & Data Security State Issues CCPA California State Attorney General Opt-Out Disclosures

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  • CFPB announces e-disclosures and HMDA platform Tech Sprints

    Federal Issues

    On June 29, the CFPB announced two Tech Sprints that will “bring together regulators, technologists, software providers, consumer groups, and financial institutions to develop technological solutions to shared compliance challenges.” As previously covered by InfoBytes, the CFPB announced, in September 2019, its intention to use Tech Sprints—which had been used by the U.K.’s Financial Conduct Authority seven times since 2016 and resulted in a pilot project on digital regulatory reporting—to encourage regulatory innovation and requested comments from stakeholders on the plan.

    • E-Disclosures, October 5-9, 2020. This Tech Sprint will have participants “improve upon existing consumer disclosures” by “design[ing] innovative electronic methods for informing consumers about adverse credit actions, including from the use of algorithms.” The Bureau notes that many disclosure laws “were written in a paper-based age” and using digital technology for disclosures may “enable greater consumer engagement and understanding.”
    • HMDA platform and submission, March 22-26, 2021. This Tech Sprint will encourage participants to “develop new tools to address compliance challenges and improve the filing process” on the HMDA platform (operated by the Bureau on behalf of the Federal Financial Institutions Examination Council). Additionally, participants “may work to further develop the HMDA Platform’s Application Programming Interfaces to increase efficiency and lower cost.”

    Separately, the FDIC also announced the start of a prototyping competition intended “to help develop a new and innovative approach to financial reporting, particularly for community banks.” The competition will involve 20 technology firms from across the country that will propose solutions for the FDIC’s consideration to make financial reporting “seamless and less burdensome for banks.”

    Federal Issues CFPB Fintech HMDA Disclosures

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  • 9th Circuit: Providing disclosure with employment documents does not violate FCRA


    On April 24, the U.S. Court of Appeals for the Ninth Circuit affirmed a district court’s ruling that an employer that obtained a consumer report for employment purposes did not violate the FCRA when it provided disclosure simultaneously with other documents and failed to use a standalone document for the FCRA authorization. The plaintiff, a former employee, alleged that during the hiring process, applicants were presented with employment documents and were required to sign two forms related to consumer reports: (i) a separate “disclosure” form that informed applicants that the employer could obtain reports pertaining to their employment record, drug tests, and driving record; and (ii) an “authorization” form appearing at the end of the application, which authorized the employer or its agent or subsidiary to investigate the applicant’s previous employment record. The plaintiff’s suit alleged that the forms violated the FCRA’s standalone disclosure requirement because the defendant presented the forms at the same time as other application materials and failed to place the authorization on a standalone document. The district court granted summary judgment to the defendant.

    On appeal, the 9th Circuit rejected the plaintiff’s argument, concluding that there is nothing that prohibits an employer from “providing a standalone FCRA disclosure contemporaneously with other employment documents.” While the 9th Circuit acknowledged that the FCRA requires a disclosure form to contain nothing more than the disclosure itself, “no authority suggests that a disclosure must be distinct in time, as well.” With respect to the authorization, the appellate court rejected the argument that it violated the FCRA because “the authorization subsection of FCRA lacks the disclosure subsection’s standalone document requirement” and only requires that the authorization be in writing.

    Courts Appellate Ninth Circuit FCRA Disclosures

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  • 9th Circuit: Trustees’ loan transaction is entitled to state and federal consumer disclosure protections


    On April 14, the U.S. Court of Appeals for the Ninth Circuit reversed a district court’s dismissal of claims under TILA, RESPA, and California’s Rosenthal Fair Debt Collection Act, holding that a loan transaction made by a borrower in her capacity as a trustee (appellant-borrower) remained a consumer credit transaction entitled to state and federal consumer disclosure protections. According to the opinion, the appellant-borrower obtained a loan to finance repairs to a personal residence that was occupied by her niece—the trust’s sole beneficiary. The appellant-borrower alleged that the lender’s (defendant-appellee) loan disclosures were materially inconsistent with the loan’s terms and filed a complaint alleging that “the due date disclosures did not accurately reflect the terms of the loan.” The complaint sought rescission of the loan under TILA, damages against the defendant-appellee under the Rosenthal Fair Debt Collection Act due to the alleged use of unfair means to collect her debt, and inaccurate disclosure damages and reimbursements for payments she claimed she was not obligated to make. Under TILA and RESPA, rescission and damage remedies are only available to consumer credit transactions, and the defendant-appellee moved to dismiss on the ground that a residential loan to a trust can only qualify as a consumer credit transaction where a trustee-borrower lives at the residence. The appellant-borrower countered that the CFPB’s Official Staff Commentary (Commentary) to Regulation Z, which implements TILA, explains “that ‘[c]redit extended for consumer purposes to certain trusts is considered to be credit extended to a natural person rather than credit extended to an organization.’” The district court agreed with the defendant-appellee’s position that the loan was not a consumer credit transaction and dismissed the complaint.

    On appeal, the 9th Circuit noted that the Commentary states that “a loan for ‘personal, family, or household purposes’ of the beneficiary of this type of trust is a consumer credit transaction,” and that furthermore, “trusts should be considered natural persons under TILA, so long as the transaction was obtained for a consumer purpose, because, ‘in substance (if not form) consumer credit is being extended.” The appellate court rejected the defendant-appellee’s argument and concluded that the loan should be considered a consumer credit transaction under all three statutes. Holding that the district court erred in dismissing the complaint by construing the statutes too narrowly, it reversed and remanded for further proceedings.

    Courts Appellate Ninth Circuit RESPA TILA State Issues Disclosures

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