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  • Chopra outlines CFPB’s efforts to promote competition in financial markets

    Federal Issues

    On July 11, CFPB Director Rohit Chopra provided an overview of recent steps taken by the agency as part of a “whole-of-government effort” to promote financial market competition. In an effort to identify obstacles facing consumers who want to refinance or easily switch providers, the Bureau sent letters to the CEOs of the nation’s largest credit card companies asking for explanations of how they furnish data to credit reporting agencies regarding the exact monthly payment amounts made by borrowers (covered by InfoBytes here). The Bureau reported that “[c]onsumers reasonably expect that they will receive competitively priced credit based on their ability to manage and repay their credit obligations,” but warned that “this is impaired if actual payment amount information is being suppressed by major credit card companies.” Chopra added that the Bureau is also working to “identify[] impediments to refinancing in other markets, including mortgages and auto,” and is “accelerating its work to implement a required rulemaking on personal financial data rights” to help promote competition and switching by providing consumers more control of their data.

    Chopra also highlighted an initiative to reduce junk fees. As previously covered by InfoBytes, the Bureau has requested comments from the public on fees associated with consumers’ bank accounts, prepaid or credit card accounts, mortgages, loans, payment transfers, and other financial products that are allegedly not subject to competitive processes to ensure fair pricing. The Bureau also issued an advisory opinion last month stating its interpretation that Section 808 of the FDCPA and Regulation F generally prohibit debt collectors from charging consumers “pay-to-pay” fees, also commonly known as convenience fees, for making payments online or by phone to make sure debt collectors are not “disadvantaged by those that impose unlawful fees” (covered by InfoBytes here). A rulemaking process has also begun to address credit card late fees and late payments and card issuers’ revenue and expenses (covered by InfoBytes here).

    Additionally, Chopra discussed Bureau efforts to identify roadblocks facing small financial institutions and new entrants when challenging larger, more dominant players. Specifically, the Bureau issued orders to six large U.S. technology companies seeking information and data on their payment system business practices (covered by InfoBytes here). According to Chopra’s statement, the “information will help the CFPB shed light on how they will decide who they kick off their platform and how they will use the data of individual consumers and any competing businesses.” The Bureau is also working with community banks to understand the impact of major core services providers on their business (covered by InfoBytes here).

    Federal Issues CFPB Consumer Finance Competition Consumer Credit Junk Fees Fees Innovation Fintech

  • 4th Circuit says foreign debit fee contract language is ambiguous

    Courts

    On July 7, the U.S. Court of Appeals for the Fourth Circuit held that a class action breach of contract suit related to foreign debit card fees charged by a credit union may proceed. Class members claimed that the credit union’s contract allows fees only when customers make debit card purchases in a foreign country—not when customers make a purchase while they are physically in the U.S. even if the merchant is abroad. According to the contract’s disclosure agreement and fee schedule, debit card transactions “made in a foreign country” and non-credit union “Point-of-sale and ATM transactions made in a foreign country” will incur a one percent fee.

    In vacating the district court’s ruling that the card contracts clearly prohibited these fees, the 4th Circuit concluded that the contract’s language is ambiguous and subject to different interpretations. While class members and the credit union both cited dictionary definitions in support of their arguments, the appellate court said the contract’s language “simply does not clarify whether the location of the account holder or the seller determines whether the transactions are made in foreign countries.” In an online context, the 4th Circuit pointed to questions posed by the 7th Circuit: “Where is the point of sale for such a purchase—the consumer’s computer? the vendor’s headquarters? the vendor’s server? cyberspace generally?” The 4th Circuit further noted that the contracts could have been clearly drafted to explain whether online transactions were “made in foreign countries” if they were between account holders physically in the U.S. and foreign sellers but “were not.”

    Courts Appellate Fourth Circuit Seventh Circuit Fees Class Action Consumer Finance

  • CFPB warns debt collectors on “pay-to-pay” fees

    Agency Rule-Making & Guidance

    On June 29, the CFPB issued an advisory opinion to state its interpretation that Section 808 of the FDCPA and Regulation F generally prohibit debt collectors from charging consumers “pay-to-pay” fees for making payments online or by phone. “These types of fees are often illegal,” the Bureau said, explaining that its “advisory opinion and accompanying analysis seek to stop these violations of law and assist consumers who are seeking to hold debt collectors accountable for illegal practices.” 

    These fees, commonly known as convenience fees, are prohibited in many circumstances under the FDCPA, the Bureau said. It pointed out that allowable fees are those authorized in the original underlying agreements that consumers have with their creditors, such as with credit card companies, or those that are affirmatively permitted by law. Moreover, the Bureau stressed that the fact that a law does not expressly prohibit the assessment of a fee does not mean a debt collector is authorized to charge a fee. Specifically, the advisory opinion interprets FDCPA Section 808(1) to permit collection of fee only if: (i) “the agreement creating the debt expressly permits the charge and some law does not prohibit it”; or (ii) “some law expressly permits the charge, even if the agreement creating the debt is silent.” Additionally, the Bureau’s “interpretation of the phrase ‘permitted by law’ applies to any ‘amount’ covered under section 808(1), including pay-to-pay fees.” The Bureau further added that while some courts have adopted a “separate agreement” interpretation of the law to allow collectors to assess certain pay-to-pay fees, the agency “declines to do so.”

    The Bureau also opined that a debt collector is in violation of the FDCPA if it uses a third-party payment processor for which any of that fee is remitted back to the collector in the form of a kickback or commission. “Federal law generally forbids debt collectors from imposing extra fees not authorized by the original loan,” CFPB Director Rohit Chopra said. “Today’s advisory opinion shows that these fees are often illegal, and provides a roadmap on the fees that a debt collector can lawfully collect.”

    As previously covered by InfoBytes, the Bureau finalized its Advisory Opinions Policy in 2020. Under the policy, entities seeking to comply with existing regulatory requirements are permitted to request an advisory opinion in the form of an interpretive rule from the Bureau (published in the Federal Register for increased transparency) to address areas of uncertainty.

    Agency Rule-Making & Guidance Federal Issues CFPB Advisory Opinion Fees Junk Fees Consumer Finance FDCPA Regulation F Debt Collection

  • FTC seeks to ban auto lending “junk fees” and “bait-and-switch tactics”

    Agency Rule-Making & Guidance

    On June 23, the FTC issued a notice of proposed rulemaking (NPRM) to ban “junk fees” and “bait-and-switch” advertising tactics related to the sale, financing, and leasing of motor vehicles by dealers. Specifically, the NPRM would prohibit dealers from making deceptive advertising claims to entice prospective car buyers. According to the FTC’s announcement, deceptive claims could “include the cost of a vehicle or the terms of financing, the cost of any add-on products or services, whether financing terms are for a lease, the availability of any discounts or rebates, the actual availability of the vehicles being advertised, and whether a financing deal has been finalized, among other areas.” The NPRM would also (i) prohibit dealers from charging junk fees for “fraudulent add-on products” and services that—according to the FTC—do not benefit the consumer; (ii) require clear, written, and informed consent (including the price of the car without any optional add-ons); and (iii) require dealers to provide full, upfront disclosure of costs and conditions, including the true “offering price” (the full price for a vehicle minus only taxes and government fees), as well as any optional add-on fees and key financing terms. Dealers would also be required to maintain records of advertisements and customer transactions. Comments on the NPRM are due 60 days after publication in the Federal Register.

    The FTC noted that in the past 10 years, the Commission has brought more than 50 auto-related enforcement actions and helped lead two nationwide law enforcement sweeps including 181 state-level enforcement actions in this space. Despite these efforts, the FTC reported that automobile-related consumer complaints are among the top ten complaint types submitted to the Commission.

    Agency Rule-Making & Guidance Federal Issues FTC Auto Finance Junk Fees Fees Disclosures Consumer Finance Federal Register

  • CFPB to look at late fees on cards

    Agency Rule-Making & Guidance

    On June 22, the CFPB issued an Advance Notice of Proposed Rulemaking (ANPRM) soliciting information from credit card issuers, consumer groups, and the public regarding credit card late fees and late payments, and card issuers’ revenue and expenses. Under the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) rules inherited by the CFPB from the Federal Reserve, credit card late fees must be “reasonable and proportional” to the costs incurred by the issuer as a result of a late payment. However, the rules provide for a safe harbor limit that allows banks to charge certain fees, adjusted for inflation, regardless of the costs incurred. Calling the current credit card late fees “excessive,” the Bureau stated it intends to review the “immunity provision” to understand how banks that rely on this safe harbor set their fees and to examine whether banks are escaping enforcement scrutiny “if they set fees at a particular level, even if the fees were not necessary to deter a late payment and generated excess profits.”

    In 2010, the Federal Reserve Board approved implementing regulations for the CARD Act that allowed credit card issuers to charge a maximum late fee, plus an additional fee for each late payment within the next six billing cycles (subject to an annual inflation adjustment). As the CFPB reported, the safe harbor limits are currently set at $30 and $41 respectively. The CFPB pointed out that in 2020, credit card companies charged $12 billion in late fee penalties. “Credit card late fees are big revenue generators for card issuers. We want to know how the card issuers determine these fees and whether existing rules are undermining the reforms enacted by Congress over a decade ago,” CFPB Director Rohit Chopra said. Chopra issued a separate statement on the same day discussing the current credit card market, questioning whether it is appropriate for card issuers to receive enforcement immunity if they hike the cost of credit card late fees each year by the rate of inflation. “Do the costs to process late payments really increase with inflation? Or is it more reasonable to expect that costs are going down with further advancements in technology every year?” he asked.

    Among other things, the ANPRM requests information relevant to certain CARD Act and Regulation Z provisions related to credit card late fees to “determine whether adjustments are needed.” The CFPB’s areas of inquiry include: (i) factors used by card issuers to determine late fee amounts and how the fee relates to the statement balance; (ii) whether revenue goals play a role in card issuers’ determination of late fees; (iii) what the costs and losses associated with late payments are for card issuers; (iv) the deterrent effects of late fees and whether other consequences are imposed when payments are late; (v) methods used by card issuers to facilitate or encourage timely payments such as autopay and notifications; (vi) how late are most cardholders’ late payments; and (vii) card issuers’ annual revenue and expenses related to their domestic consumer credit card operations. The Bureau stated that public input will inform revisions to Regulation Z, which implements the CARD Act and TILA. Comments on the ANPRM are due July 22.

    The ANPRM follows a June 17 Bureau blog post announcing the agency’s intention to review a “host of rules” inherited from other agencies such as the FTC and the Federal Reserve, including the CARD Act. (Covered by InfoBytes here.)

    Agency Rule-Making & Guidance Federal Issues Bank Regulatory CFPB Consumer Finance Federal Reserve CARD Act Regulation Z Fees Credit Cards

  • NYDFS proposes check-cashing fee regulations

    State Issues

    On June 15, NYDFS issued a proposed check cashing regulation following an emergency regulation announced in February that halted annual increases on check-cashing fees and locked the current maximum fee set last February at 2.27 percent (covered by InfoBytes here). The proposed regulation establishes a new fee methodology which evaluates the needs of licensees and consumers who use check cashing services. Two tiers of fees for licensed check cashers are recommended: (i) the maximum fee that a check casher may charge for a public assistance check issued by a federal or state government agency (including checks for Social Security, unemployment, retirement, veteran’s benefits, emergency relief, housing assistance, or tax refunds) is set at 1.5 percent; and (ii) the maximum fee a check casher is permitted to charge for all other checks, drafts, or money orders is $1 or 2.2 percent, whichever is greater. NYDFS added that starting January 31, 2027 (and annually every five years thereafter), licensed check cashers may request an increase in the maximum fees established. Comments on the proposed regulation will be accepted for 60 days.

    State Issues Bank Regulatory State Regulators NYDFS Consumer Finance New York Check Cashing Fees

  • District Court dismisses suit alleging improper inspection fees

    Courts

    On June 6, the U.S. District Court for the District of New Jersey granted a defendant bank’s motion to dismiss, ruling that the plaintiff’s inspection fee allegations are barred on collateral estoppel grounds. The plaintiff filed a class action suit claiming the defendant’s computer software orders property inspections after borrowers’ loans are in default and then charges borrowers for the improper inspection fees. According to the opinion, the defendant initiated foreclosure proceedings in 2012 against the plaintiff in state court after she missed payments. The parties litigated the matter for several years in state court, and in 2018, the plaintiff filed a motion for leave to add class action claims related to the defendant’s inspection fee collection system. The state court denied plaintiff’s motion, finding the proposed claims to be without merit and futile. Final judgment of foreclosure was granted to the bank. Similar proceedings involving the same class action counterclaims occurred after the defendant requested that the judgment be vacated to add an additional lien holder as a defendant. The defendant again applied for entry of final judgment, but withdrew this application allegedly in response to the Covid-19 pandemic. Ultimately the state court dismissed the foreclosure action without prejudice for lack of prosecution. The plaintiff filed an instant complaint in federal court.

    The defendant argued that the plaintiff “should be collaterally estopped from bringing these claims because the New Jersey Superior Court ruled on the exact issues [plaintiff] raises here in the prior foreclosure action brought by [defendant] against [plaintiff] in state court, ultimately dismissing them with prejudice.” The plaintiff countered “that because the foreclosure action was dismissed without entry of judgment, collateral estoppel does not apply.” In agreeing with the defendant, the court stated that “the doctrine of collateral estoppel applies whenever an action is ‘sufficiently firm to be accorded conclusive effect,” adding that the state court’s orders in the foreclosure action are “sufficiently firm as to warrant conclusive effect.” According to the court, “[t]hese decisions—particularly the second dismissal with prejudice—were clearly intended to be the final adjudication of the precise issues that [plaintiff] is now attempting to relitigate in the instant action.”

    Courts State Issues Foreclosure Collateral Estoppel Fees Class Action Consumer Finance

  • FTC secures TRO against credit repair scheme

    Federal Issues

    On May 31, the FTC announced that the U.S. District Court for the Eastern District of Maryland granted a temporary restraining order against a credit repair operation for allegedly engaging in deceptive practices that scammed consumers out of more than $213 million. According to the FTC’s complaint, the operation targeted consumers with low credit scores promising its products could remove all negative information from their credit reports and significantly increase credit scores. The operation allegedly violated the FTC Act, the Credit Repair Organizations Act, and the Telemarketing Sales Rule by, among other things, (i) making misrepresentations regarding its credit repair services; (ii) selling a product that purportedly sends rent payment information to credit bureaus even though “this information is not generally part of consumers’ credit score and many credit bureaus don’t accept this kind of information directly from consumers”; (iii) charging illegal advance fees; (iv) failing to provide consumers required information such as refund and cancellation policies; and (v) recruiting consumers to sell credit repair products to other consumers as part of a pyramid scheme even though few consumers ever received the promised earnings (and many consumers actually lost money as agents). Beyond the temporary restraining order, the FTC is seeking a permanent injunction, monetary relief, and other equitable relief.

    Federal Issues FTC Enforcement Consumer Finance Credit Repair Fees Courts FTC Act CROA TSR UDAP Deceptive

  • District Court preliminarily approves $2 million debt collection settlement over garnishment issuance fees

    Courts

    On May 24, the U.S. District Court for the District of Oregon preliminarily approved a class action settlement resolving claims concerning a debt collection agency’s $45 garnishment “issuance fee.” According to the plaintiffs, the defendant issued garnishments to debtors’ employers and banks through its in-house attorneys to collect revenue for outstanding debts. While Oregon law allows debt collectors to charge fees as a means of compensating for the expense of hiring attorneys who issue such garnishments, the plaintiffs contended that the defendant’s “$45 fee is an abuse of the cost recovery statute because using in-house attorneys relieves defendant from ever incurring such an expense.” The plaintiffs alleged violations of the FDCPA, Oregon’s Unlawful Trade Practices Act, and Oregon’s Unlawful Debt Collection Practices Act. While the defendant denied any wrongdoing as part of the preliminarily approved settlement, it has agreed to pay $2 million to settle the claims. Class members, defined as more than 10,000 Oregonians allegedly injured by the $45 issuance fees between January 2018 and September 2019, will each receive “an amount three times greater than the actual damages caused originally by Defendant’s issuance fees.”

    Courts State Issues Settlement FDCPA Debt Collection Class Action Consumer Finance Fees

  • Chopra testifies at congressional hearings

    Federal Issues

    On April 26, CFPB Director Rohit Chopra testified at a hearing held by the Senate Banking Committee on the CFPB’s most recent semi-annual report to Congress (covered by InfoBytes here). Chopra’s opening remarks focused on key efforts the agency is taking to meet objectives established by Congress, including (i) shifting enforcement resources away from investigating small firms and focusing instead on repeat offenders and large players engaged in large-scale harm; (ii) increasing transparency through the issuance of guidance documents, such as advisory opinions, compliance bulletins, policy statements, and other publications to help entities comply with federal consumer financial laws; (iii) rethinking its approach to regulations, including its work to develop several rules authorized in the CFPA, and placing “a higher premium on simplicity and ‘bright lines’ whenever possible”; (iv) engaging with the business community and meeting with state-based associations to speak directly with community banks and credit unions and engaging with a broad range of other businesses and associations that may be affected by the laws the Bureau administers; (v) promoting greater competition by “lowering barriers to entry and increasing the pool of firms competing for customers based on quality, price, and service”; and (vi) researching issues related to big tech’s influence on consumer payments.

    In his opening statement, Senate Banking Committee Chair Sherrod Brown (D-OH) praised Chopra’s recent efforts related to “junk fees” such as overdraft fees and non-sufficient fund fees, discrimination and bias in the appraisal process, reporting of medical collection debt by the credit reporting agencies, examination authority over non-banks and fintech companies, and crack-down on repeat offenders. However, Ranking Member Patrick Toomey (R-PA) criticized Chopra’s actions and alleged “overreach.” Among other things, Toomey characterized the Bureau’s attempts “to supervise for disparate impact not only in lending, but in all consumer financial services and products” as “unauthorized stealth rulemaking” that “will create tremendous uncertainty among regulated entities.” Toomey also took issue with recent changes to the Bureau’s rules of adjudication, claiming it will “make it easier to engage in regulation by enforcement.”

    During the hearing, committee members discussed topics related to collecting small business lending data, rural banking access, student loan servicing, and whether the Bureau should be subject to the congressional appropriations process. Republican committee members raised concerns over several issues, including significant revisions recently made to the Bureau’s unfair, deceptive, or abusive acts or practices (UDAAP) examination manual that state that any type of discrimination in connection with a consumer financial product or service could be an “unfair” practice (i.e., the CFPB can now bring “unfair” discrimination claims related to non-credit financial products). (Covered by a Buckley Special Alert.) Senator Thom Tillis (R-NC) characterized the new policy as a “wholesale rewrite” of the examination manual that will improperly expand the reach of disparate impact liability and challenged the lack of notice-and-comment for the changes to the UDAAP manual. 

    Conversely, Democratic committee members praised Chopra’s actions and encouraged him to continue pressuring banks to cut excessive overdraft fees and other “junk fees,” as well as strengthen enforcement against repeat offenders. Senator Elizabeth Warren (D-MA) stressed that imposing fines that are less than the profits made from the misconduct will not be enough to persuade large banks to follow the law and asked Chopra to think about other steps regulators might consider to hold large repeat offenders accountable. She referenced her bill, the Corporate Executive Accountability Act, which is designed to hold big bank executives personally liable for the bank’s repeat violations of the law.

    Chopra reiterated the Bureau’s priorities in his April 27 testimony before the House Financial Services Committee. At the hearing, House committee members questioned Chopra on the Bureau’s plans to collect data on small business loans pursuant to Section 1071 of the Dodd-Frank Act, crack down on “junk fees,” and address fair lending concerns with automated valuation models and fraud in payment networks. During the hearing, Chopra told committee members that the Bureau plans to revisit and update older regulations such as the CARD Act to lower credit card fees. “We want to make sure that credit cards are a competitive market . . . [so] I am asking the staff to look at whether we should reopen the Card Act rules that were promulgated by the Federal Reserve Board over 10 years ago . . . to be able to look at some of these older rules we inherited, to determine whether there needs to be any changes,” Chopra said, adding that “late fees are an area that I expect to be one of the questions we solicit input on.”

    Federal Issues CFPB Senate Banking Committee House Financial Services Committee Consumer Finance Dodd-Frank CFPA Credit Cards Overdraft Fees Repeat Offender

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