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  • CFPB launches innovation webpage

    Fintech

    On October 16, the CFPB announced the launch of its new webpage for innovation, which aims to engage with entrepreneurs and the innovation community to promote competition, innovation, and consumer access within financial services. The webpage is a result of the Bureau’s new Office of Innovation (previously known as Project Catalyst) and includes information regarding the Global Financial Innovation Network and the Bureau’s proposed revisions to the Trial Disclosure Program Policy (previously covered by InfoBytes here and here). The webpage also encourages groups to “pitch a pilot” to work with the Bureau on consumer-friendly innovation ideas.

    Fintech CFPB Regulatory Sandbox Disclosures

  • New California law requires non-bank lenders and other finance companies to provide commercial financing disclosures

    State Issues

    On September 30, the California governor signed 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. Most notably, the act requires financing entities subject to the law to disclose in each commercial financing transaction — defined as an “accounts receivable purchase transaction, including factoring, asset-based lending transaction, commercial loan, commercial open-end credit plan, or lease financing transaction intended by the recipient for use primarily for other than personal, family, or household purposes”— the “total cost of the financing expressed as an annualized rate” in a form to be prescribed by the California Department of Business Oversight (DBO).

    Although the act is effective immediately, the act requires the DBO to first develop regulations governing the new disclosure requirements, and lenders are not required to comply with the provisions of the act until the final regulations are adopted and become effective. Once final regulations are in place, recipients of commercial financing offers will have to sign the disclosures, which are to be provided at the time of the offer. The disclosures must include (i) the total amount of funds provided; (ii) the total dollar cost of the financing; (iii) the term or estimated term; (iv) the method, frequency, and amount of payments; (v) a description of prepayment policies; and (vi) the total cost of the financing expressed as an annualized rate. Finance companies subject to the law are required to provide the annualized financing rate until January 1, 2024, at which time that portion of the disclosure requirement sunsets. The act also allows for finance companies who offer factoring or asset-based lending to provide alternative disclosures using an example transaction that could occur under the agreement.

    Importantly, the act does not apply to (i) depository institutions; (ii) lenders regulated under the federal Farm Credit Act; (iii) commercial financing transactions secured by real property; (iv) a commercial financing transaction in which the recipient is a vehicle dealer, vehicle rental company, or affiliated company, and meets other specified requirements; and (v) a lender who makes no more than one applicable transaction in California in a 12-month period or a lender who makes five or fewer applicable transactions that are incidental to the lender’s business in a 12-month period. The act also does not cover (i) true leases, but will apply to bargain-purchase leases; (ii) commercial loans under $5,000, which are considered consumer loans in California regardless of any business-purpose and subject to separate disclosure requirements; and (iii) commercial financing offers greater than $500,000.

    State Issues Small Business Lending Fintech Disclosures APR Commercial Finance State Legislation Merchant Cash Advance

  • CFPB publishes final rule relating to disclosure of confidential records and information

    Agency Rule-Making & Guidance

    On September 12, the CFPB published a final rule to modify its procedures for the disclosure of records and information. As previously covered in InfoBytes, the notice of proposed rulemaking—published August 2016—sought to amend procedures used to obtain information from the Bureau under the Freedom of Information Act (FOIA), the Privacy Act of 1974, and in legal proceedings. In response to comments on its proposal, the final rule revises the following subparts under section 1070 of title 12 of the Code of Federal Regulations: (i) Subpart A: “procedures related to the certification of authenticity of Bureau records and the service of summonses or complaints on the Bureau”; (ii) Subpart B: practices to provide requesters additional flexibility under FOIA; and (iii) Subpart C: “procedures for requests for information from the Bureau in connection with legal proceedings.” Subpart E, which implements the Privacy Act of 1974, received no comments and has been finalized without modification. The Bureau noted that the final rule does not revise Subpart D, which relates to the “confidential treatment of information obtained from persons in connection with the exercise of its authorities under federal consumer financial law.” The final rule takes effect October 12.

    Agency Rule-Making & Guidance CFPB FOIA Disclosures

  • CFPB issues updated FCRA model disclosures to implement Economic Growth, Regulatory Relief, and Consumer Protection Act amendments

    Federal Issues

    On September 12, the CFPB issued an interim final rule to comply with the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Act”) (previously Senate bill S. 2155). Section 301(a)(1) of the Act amends the FCRA to add section 605A(i), which requires consumer reporting agencies to provide national security freezes free of charge to consumers. Additionally, the new section requires that whenever a consumer is provided a “summary of rights” under section 609, the summary must include a notice regarding the right to obtain a free security freeze. The Act also amends FCRA section 605A(a)(1)(A) to extend from 90 days to one year the minimum time that a credit reporting agency must include an initial fraud alert on a consumer’s file.

    The interim final rule, which is effective on September 21, amends the model forms in Regulation V to comply with the Act. The interim file rule also permits various compliance alternatives to mitigate the impact of the changes to these forms, including allowing the use of the 2012 model forms so long as a separate page provided in the same transmittal contains the new information required.

    Comments on the interim final rule will be due 60 days after publication in the Federal Register. Links to the English and Spanish versions of the revised Summary of Consumer Rights and revised Summary Consumer Identity Theft Rights, covered by Section 609 of the FCRA, are available here.

    Federal Issues CFPB FCRA Disclosures S. 2155 EGRRCPA Security Freeze

  • CFPB proposes revisions to trial disclosure policy, creating “Disclosure Sandbox”

    Federal Issues

    On September 10, the CFPB published a proposal to revise its trial disclosure policy in order to “more effectively encourage companies to conduct trial disclosure programs.” The current trial disclosure policy, authorized by Section 1032(e) of the Dodd-Frank Act, was finalized in 2013 and allows for approved company disclosures to be deemed in compliance with, or exempted from, applicable federal disclosure requirements during the testing period. For the past five years, under the current policy, the Bureau has not approved a single company program for participation. The proposed revisions intend to create a “Disclosure Sandbox” and increase company participation in the program by, among other things, (i) streamlining the application process and providing formal determinations within 60 days of submission; (ii) increasing guidance during the testing period; (iii) providing procedures for requesting extensions of successful programs, as the Bureau expects most testing periods will start at two years; (iv) coordinating with other regulators of similar programs to allow companies to conduct a Bureau Disclosure Sandbox program without going through the Bureau’s application process; and (v) clarifying that trade groups may apply to the program on behalf of its members. Comments on the proposal must be received by October 10.

    Federal Issues CFPB Disclosures Dodd-Frank Regulatory Sandbox

  • CFPB announces settlement with Alabama-based operation for allegedly failing to properly disclose finance charges

    Consumer Finance

    On July 19, the CFPB announced a settlement with a small-dollar lending operation that allegedly failed to properly disclose finance charges and annual percentage rates associated with auto title loans in violation of the Truth in Lending Act (TILA) and the prohibition on deceptive practices in the Consumer Financial Protection Act (CFPA). According to the consent order, the Alabama-based operation, which owned and operated approximately 100 retail lending outlets in Alabama, Mississippi, and South Carolina under several names, materially misrepresented the finance charges consumers would incur for Mississippi auto title loans by disclosing a finance charge based on a 30-day term while having consumers sign a 10-month payment schedule. The Bureau asserts that “[c]onsumers acting reasonably likely would not understand that the finance charge disclosed in the loan agreement does not actually correspond to their loan payment term.” Furthermore, the Bureau contends that the operation also failed to disclose the annual percentage rate on in-store advertisements as required under TILA. The order requires the operation to pay redress in the amount of $1,522,298, which represents the total undisclosed finance charges made directly or indirectly by affected consumers on their loans. However, based on defendants’ inability to pay this amount, full payment is suspended subject to the operation’s paying $500,000 to affected consumers. In addition to the penalties, the operation is prohibited from continuing the illegal behavior and the operation’s board must ensure full compliance with the consent order.

    Consumer Finance CFPB Settlement CFPA TILA Auto Finance Disclosures

  • District court grants partial summary judgment, rules bank did not violate federal and state fair credit reporting laws

    Courts

    On April 25, the U.S. District Court for the Northern District of California granted a bank’s partial motion for summary judgment, holding that a Fair Credit Reporting Act (FCRA) disclosure and authorization form (disclosure form) completed by the plaintiff as part of the bank’s background check hiring process did not violate federal and state fair credit reporting laws. The plaintiff—who brought the proposed class action suit following the bank’s decision not to hire plaintiff following an offer of employment that was contingent upon a satisfactory background check—asserted claims under the FCRA, the California Investigative Consumer Reporting Agencies Act (ICRA), and the California Consumer Credit Reporting Agencies Act (CCRA), including that (i) the disclosure form was not a standalone document; (ii) the disclosure did not accurately identify the investigative consumer reporting agency; and (iii) the bank failed to comply with CCRA disclosure requirements.

    Addressing whether the disclosure form, which “appeared as a separate and distinct web page separated from the rest of the documents,” violated the FCRA, the court ruled that because it “was a stand-alone document that contained no extraneous information or liability waiver” it was in compliance. The court also determined that the bank did not violate the ICRA because it was only required to disclose the agency it engaged to provide an investigative consumer report, not the various sources the agency itself may have used when conducting its investigation. Finally, the court ruled that the plaintiff’s argument that the disclosure form failed to comply with the CCRA lacked merit because—although the bank could not apply an exemption under state law to the section allegedly violated—the bank’s disclosure form complied with the CCRA’s disclosure requirements, and furthermore, the bank was not required to disclose the reasons for requesting the report nor the “various repositories” of information the disclosed source used when compiling the report.

    Courts State Issues FCRA Credit Reporting Agency Disclosures

  • Global internet media company fined $35 million for cybersecurity breach disclosures

    Privacy, Cyber Risk & Data Security

    On April 24, the SEC ordered a global internet media company, acquired in 2017 by a global communications company, to pay $35 million to settle claims alleging that the company failed to disclose a 2014 cybersecurity breach in which Russian hackers stole data from over 500 million user accounts. Compromised private user information included usernames, email addresses, phone numbers, birthdates, passwords, and security questions and answers. According to the SEC’s cease-and-desist order, during the two years following the breach, the internet media company (i) failed to inform outside counsel or auditors of the breach in order to assess public filing disclosure obligations; (ii) failed to maintain internal disclosure controls and procedures designed to guarantee that the company’s information security team reports addressing actual data breaches, or the risk of such breaches, were properly and timely assessed for potential disclosure; and (iii) made misleading statements in its public filings that warned investors only of the “risk of potential future data breaches” without disclosing the 2014 data breach. The SEC claimed that the disclosure violations continued as acquisition discussions were held in 2016 and resulted in renegotiation of the terms of the company’s sale, including a 7.25 percent reduction in price. The company ultimately disclosed the breach to the public in September of 2016. In agreeing to the settlement, the company neither admitted nor denied the SEC’s findings, except as to the SEC’s jurisdiction over the matter.

    Privacy/Cyber Risk & Data Security Data Breach Settlement SEC Disclosures

  • CFPB finalizes KBYO amendment to address “black hole”

    Agency Rule-Making & Guidance

    On April 26, the CFPB issued a final amendment to its “Know Before You Owe” mortgage disclosure rule to address when mortgage lenders with a valid changed circumstance or other justification are permitted to reset tolerances and pass on increased closing costs to consumers using the Closing Disclosure. Last summer, as previously covered in a Buckley Sandler Special Alert, the Bureau published a proposal seeking public comment on whether to close the “black hole” that prohibited creditors from passing on cost increases (particularly rate lock extension fees) when closing was significantly delayed after the Closing Disclosure. After considering comments, the Bureau finalized the proposed amendment. The final amendment will take effect 30 days after publication in the Federal Register.

    Agency Rule-Making & Guidance CFPB TRID Mortgages Disclosures TILA RESPA

  • Multiple states pass bills addressing GAP waiver framework

    State Issues

    On March 28, HB 4186, which amends the Code of West Virginia by adding a section related to guaranteed asset protection waivers (GAP waivers), became law without the governor’s signature. Among other things, HB 4186 clarifies that GAP waivers are not insurance, and that GAP waivers issued after the bill’s effective date are exempt from West Virginia insurance laws. The bill also (i) specifies terms and conditions when offering GAP waivers; (ii) provides requirements for offering GAP waivers, including “contractual liability” obligations, certain disclosures, and cancellation/non-cancellation terms; and (iii) outlines exemptions, such as commercial transactions and GAP waivers sold or issued by federally regulated depository institutions. Additionally, HB 4186 clarifies the procedures a borrower must follow to activate benefits under a GAP waiver. The bill will apply to all GAP waivers in effect on or after July 1.

    On March 28, the Wisconsin governor signed Assembly Bill 663 (AB 663), which amends statutes related to GAP waivers sold in connection with the credit sale or lease of a vehicle. Among other things, AB 663 prohibits creditors from requiring borrowers to purchase GAP waivers and requires creditors to provide written disclosures to borrowers prior to, or at the time of execution, which include that (i) the purchase of a GAP waiver is optional; (iii) outlines the costs and terms; and (iii) specifies procedures borrowers are required to follow to receive GAP waiver benefits. AB 663 also addresses cancellation provisions for borrowers. Furthermore, the bill clarifies that GAP waivers are not insurance and that any cost to a borrower must be separately stated as part of the finance agreement and cannot be considered a finance charge or interest. AB 663 becomes effective September 1.

    Finally, on March 26, the Mississippi governor signed SB 2929, which clarifies that GAP waivers are not insurance and are therefore exempt from Mississippi insurance laws. Provisions promulgated under SB 2929 provide a framework for which GAP waivers may be offered to borrowers in the state and include (i) requirements for contractual liability and other policies to insure a GAP waiver; (ii) disclosure requirements; and (iii) cancellation policies for GAP waivers and procedures for borrowers to obtain a refund in the instance of cancellation or early termination. Similar to Wisconsin AB 663, any cost to a borrower associated with a GAP waiver must be separately stated as part of the finance agreement and cannot be considered a finance charge or interest. The act takes effect July 1.

    State Issues State Legislation GAP Waivers Disclosures Auto Finance

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