InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
DC AG takes action against four title insurance companies for unlawful insurance kickback schemes
On August 29, the Attorney General for the District of Columbia (DC AG) released four assurances of voluntary compliance against several real estate companies for allegedly using “illegal kickback schemes” in the title insurance market. The DC AG stated in each assurance that it sought injunctive relief, consumer restitution, civil penalties, costs and attorneys’ fees for violations of DC’s Consumer Protection Procedures Act (CPPA). Although only recently published, two of the settlements were executed in 2023.
In the first assurance, the DC AG alleged that the company — which provided title insurance, escrow, and closing services to DC consumers — created subsidiary agents to receive profits from their own referral business. Noting that DC law prohibits “[a] title insurer or other person” from “giv[ing] or receiv[ing]… any consideration for the referral of title insurance business or escrow… provided by a title insurer,” the DC AG found that the company’s business practices constituted unfair and deceptive trade practices under the CPPA and imposed a $1.9 million civil penalty on the company. Regarding the second assurance, the DC AG took action against a provider of title insurance and settlement services whose employees’ were compensated for the referral of title insurance business in violation of DC law. The DC AG claimed the same violations and an injunction and fined the company $1 million. In the third and fourth assurances, the companies provided title insurance services to DC consumers by establishing joint ventures with local real estate agents, which the DC AG found the companies created to refer title insurance business and share the profits. The companies were respectively fined $325,000 and $65,000 to resolve the claims.
Court approves final settlement in class action against credit union alleging discriminatory loan denial based on DACA status
On August 15, the U.S. District Court for the Northern District of California, issued a final order approving settlement of a loan discrimination class action against a credit union, entering final judgment and ordering dismissal pursuant to the settlement. In this case, the plaintiff claimed that she and other class members experienced discrimination on the basis of immigration status after attempting to finance the purchase of her vehicle with the defendant credit union. According to the complaint, the plaintiff’s auto loan application was denied after disclosing her status as a DACA recipient to a representative of the defendant. The plaintiff alleged that the representative communicated that the defendant does “not lend on DACA status.” In a previous motion to dismiss, the credit union had argued the ECOA and Regulation B allow creditors to consider immigration and residency status in creditworthiness and repayment analyses. The District Court, however, disagreed with the defendant, denying the motion to dismiss, and holding that “Regulation B does not allow a creditor to decline credit solely on the basis of residency or immigration status.”
The approved settlement established an $86,750 settlement fund to be distributed to the 95 members of two settlement classes (a California class and a national class). The settlement provided that each California class member will receive $2,500 from the settlement fund, while other national class members will receive $250 each. The approved settlement will also require the credit union to implement corrective action to ensure that it does not deny consumer credit applications based solely on immigration status.
Fannie and Freddie announce tenant protection policy framework
On August 28, Fannie Mae and Freddie Mac (GSEs) each published a multifamily tenant protection policy framework to require minimum lease standards at multifamily properties financed by new enterprise-backed loans. Introduced by the FHFA in July, the policies will take effect in February 2025 and will include (i) a five-day grace period for rent payments, (ii) a 30-day notice for rent increases, and (iii) a 30-day notice of lease expirations.
According to Freddie Mac’s announcement, the GSEs collaborated with the FHFA to review state landlord-tenant laws and engaged stakeholders to identify best practices. Findings from Freddie Mac’s National Survey of Tenant Protections were also considered. Additionally, the GSEs published FAQs related to the standards and an initial policy grid or policy framework that outlined their policy, applicability, updates to loan documents, implementation requirements for borrowers, and monitoring and enforcement details.
CFPB report targets cash-back fees at retailers
On August 26, the CFPB published a report regarding cash-back fees that some retailers charge for consumers to access cash via the consumers’ debit or prepaid cards. According to the CFPB, such fees have become more prevalent due to bank mergers, branch closures and out-of-network ATM fees, which reduced the availability of free cash access points for consumers. The CFPB’s report overviewed consumers’ use of cash back, the benefits and costs of such transactions to merchants, and the practices of market participants that do not charge cash-back fees.
The Bureau concluded that, while cash back at some retailers is free, other retailers charged for this service, and that consumers with lower incomes or fewer banking choices — including those in small, rural towns, communities of color, and low-income communities — were more likely to encounter cash-back fees. The report sampled eight large retail companies and found that three of them charged cash-back fees. The Bureau estimated this practice costs consumers over $90 million a year, asserting that “some retailers provide cash back as a helpful service to their customers, while other retailers may be exploiting these conditions by charging fees to their consumers for accessing their cash.” The CFPB noted that it “will continue to monitor developments related to the fees consumers pay for accessing cash, and work with agencies across the federal government to ensure people have fair and meaningful access to the money that underpins our economy.”
CFPB orders mortgage servicer to pay after violating 2017 order
On August 21, the CFPB announced an administrative proceeding against a residential mortgage servicer (the respondent) for allegedly taking foreclosure actions against borrowers and preventing borrowers from leveraging foreclosure relief options. As previously covered by InfoBytes, the CFPB issued a 2017 consent order to resolve allegations that the respondent failed to provide mortgage borrowers with the required protections against foreclosures, among other things.
According to the 2024 consent order, the respondent failed to implement proper loss mitigation practices and therefore engaged in improper foreclosure activities. Specifically, the respondent allegedly took up to five days to review loss mitigation applications and decide whether the documents made the application complete before placing a foreclosure hold, then placed foreclosure holds retroactively which resulted in prohibited foreclosure activities. The CPFB stated such actions during that up-to five-day period violated Regulation X, 12 C.F.R. § 1024.41(f)(2) or (g).
Other allegations included (i) a violation of the 2017 order and RESPA’s Regulation X due to respondent advancing the foreclosure process improperly for certain borrowers, (ii) failing to terminate borrower-paid private mortgage insurance (PMI) in a timely manner and disbursing PMI premiums from escrow accounts incorrectly, failing to comply with the Homeowners Protection Act and Regulation X, and (iii) assessing late fees that were inconsistent with the terms of borrowers’ promissory notes, in violation of TILA’s Regulation Z. Additionally, respondent’s policies and procedures allegedly were not reasonably designed to ensure compliance with federal regulations and the 2017 order.
As part of the consent order, the respondent agreed to pay a civil money penalty of $2 million and providing $3 million in restitution to affected consumers. The respondent also agreed to invest at least $2 million to update its servicing technology and compliance management systems, establish a Compliance Committee of the Board, which must meet monthly, and engage an independent third-party auditor to conduct an annual comprehensive review and audit of respondent’s compliance with the consent order for the next five years. The order also put compensation limits on Edward Fay, the company’s Chairman of the Board and Chief Executive Officer CEO, if Mr. Fay does not take the necessary actions to comply with the order.
FTC announces final rule prohibiting fake reviews and testimonials
On August 14, the FTC announced a final rule addressing fake reviews and testimonials, prohibiting businesses from generating misleading reviews of their products or services. The final rule addresses concerns raised by the Commission of unfair or deceptive practices involving consumer reviews and testimonials, which the Commission asserts wastes consumers’ time and drives business from honest competitors.
The rule prohibits several specific practices, including: (i) the creation, sale, or purchase of fake reviews; (ii) reviews written by company insiders without proper disclosure of insider status; (iii) misleading representations that a website or entity controlled by a company provides independent reviews of products or services offered by the same company; and (iv) the use of fake indicators of social media influence, such as inflated views generated by fake social media accounts. The final rule also prohibits business from using threats to suppress negative reviews from consumers, and the final rule bars a business from misrepresenting either negative or all reviews on its website.
The FTC noted that the final rule will be necessary to allow it to obtain consumer redress for violations of the rule, following the Supreme Court’s decision in AMG Capital Management, LLC v. FTC, limiting the commission’s ability to obtain monetary relief (covered by InfoBytes here).
The rule will take effect 60 days after its publication in the Federal Register.
CFPB offers additional guidance for BNPL lenders during compliance transition
On August 16, the CFPB published a blog post on the CFPB’s approach to working collaboratively with the buy now pay later (BNPL) industry to develop an effective regulatory approach to BNPL loans. The blog post stated the CFPB was seeking to provide guidance to BNPL lenders to ensure that rules applied to BNPL lenders protected consumers while encouraging innovative technological or business practices by new market entrants. To this end, the CFPB issued an interpretive rule in May clarifying how federal laws like TILA and Regulation Z apply to BNPL loans (covered by InfoBytes here).
Following issuance of the interpretive rule, including the receipt of comments submitted in response to the interpretive rule, the CFPB reported that the BNPL industry has responded positively with many lenders working to comply with the clarified regulations. To provide additional guidance to lenders who are transitioning their systems to comply with the interpretive rule, the CFPB plans to release a set of FAQs next month, responding to questions received in comments and issued raised during the CFPB’s meetings with BNPL providers. Additionally, the CFPB stated that it will not seek penalties for rule violations during a BNPL’s lender compliance transition if lenders act “in good faith and expeditious manner” through the transition.
FTC and international networks reveal use of dark patterns in consumer apps and websites
On July 10, the FTC and two international consumer protection networks announced the results of its review of the websites and apps that may use dark patterns to obtain privacy consent from consumers. The review covered 642 websites and mobile apps, revealing that a significant portion may use "dark patterns" — commercial techniques designed to manipulate consumers.
Conducted by the International Consumer Protection and Enforcement Network (ICPEN) and the Global Privacy Enforcement Network, the review found nearly 76 percent of sites and apps employed at least one dark pattern, with 67 percent employing multiple. Common dark patterns included hiding information and interface interference. For example, a sneaking practice would be hiding or delaying important disclosure information, often related to costs, to influence consumer decisions. Examples include adding non-optional charges at the last minute (drip-pricing) and automatically renewing subscriptions after a free trial without consent (subscription traps). The most common sneaking practice found was preventing consumers from turning off auto-renewal during purchase, observed in 81 percent of traders with auto-renewal subscriptions. Other prevalent issues were the lack of cancellation steps (70 percent) and not providing a cancellation deadline (67 percent). Forced action practices require consumers to perform an action or provide information to access certain functionalities – the investigation found that at least 66 percent of the cases reviewed required forced action.
While it was not determined if these practices violated laws, the findings highlighted potential impacts on consumer decisions and privacy. The announcement coincided with the FTC assuming the 2024-2025 ICPEN presidency.
NYDFS issues guidance on AI insurance discrimination
On July 11, NYDFS issued Insurance Circular No. 7 to address the use of AI systems and External Consumer Data and Information Sources (ECDIS) in the underwriting and pricing of insurance policies in New York State. NYDFS outlined its expectations for insurers regarding the responsible and compliant use of the technologies, emphasizing the need to abide by existing laws and regulations that prohibit unfair discrimination.
Key points in the circular included:
- Definitions of AI systems and ECDIS, and insurers will be expected to understand that “traditional underwriting” does not include the use of these technologies.
- Insurers must conduct proxy assessments to ensure ECDIS will not result in discrimination based on protected classes. The circular also clarified what the proxy assessment may entail.
- NYDFS expected insurers to maintain robust governance and risk management practices, including board and senior management oversight, policies and procedures, and risk management frameworks.
- Insurers will be responsible for the oversight of third-party vendors providing AI systems and ECDIS, ensuring compliance with laws and regulations.
- NYDFS will not guarantee the confidentiality of submitted information, as it must comply with disclosure laws.
- The circular emphasized transparency, requiring insurers to disclose the use of AI systems and ECDIS in underwriting and pricing decisions, and to provide reasons for any adverse decisions to consumers.
- Insurers must keep up-to-date documentation and be prepared for NYDFS audits and reviews regarding the use of these technologies.
CFPB takes action against national bank for auto loan practices, unauthorized account openings
On July 9, the CFPB issued a consent order against a national bank regarding its auto loans practices that allegedly violated the CFPA. According to the order, if borrowers failed to secure insurance for physical damage to their vehicles, the bank would impose its own physical-damage insurance on the vehicle, known as force-placed insurance. The CFPB alleged that from 2011 through 2019, the bank imposed insurance policies on borrowers who either consistently had their own insurance or secured required insurance within 30 days after their previous policy had lapsed. The Bureau determined that the bank’s practices of applying redundant force-placed insurance on auto loans, billing for premiums on force-placed insurance policies that had ended, and not adequately notifying consumers about the resulting increase in monthly payments due to force-placed insurance — all violated the CFPA.
Furthermore, the Bureau alleged that the bank was deceptive in informing borrowers about the time it would take to cancel force-placed insurance policies and misrepresented the total amounts owed in right-to-cure notices, leading to wrongful delinquency fees. Additionally, the bank allegedly violated the FCRA by reporting incorrect information on repossessions to credit agencies. The bank allegedly failed to properly inform customers about increases in preauthorized electronic fund transfers caused by force-placed insurance, violating the EFTA and Regulation E. As a result of these findings, the bank was ordered to adjust its practices to legal standards, compensate affected consumers, and pay a $5 million civil penalty to the Bureau.
The CFPB concurrently filed a proposed consent order in the U.S. District Court for the Southern District of Ohio to resolve allegations of the bank’s sales practices and opening fake accounts. According to the proposed order, the Bureau initiated a lawsuit against the bank in 2020 for alleged deceptive sales practices. The proposed settlement, pending the court’s approval, would mandate that the bank pay a $15 million civil penalty, provide and implement a redress plan for consumers, comply with the law, and eliminate employee incentives that encourage unauthorized account openings.