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Financial Services Law Insights and Observations


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  • CFPB reports on veterans’ financial hurdles despite legislative wins

    Agency Rule-Making & Guidance

    On November 1, the CFPB published a broad summary of several findings regarding how financial institutions may not be doing all they can to help service members under federal legislation. For instance, in 2022, the CFPB found that service members were losing $10 million a year in savings in eligible auto and personal loans. Last month, the CFPB released a similar study on how credit card companies were also limited in giving all the benefits they could offer under the SCRA. Loans aside, military payroll allotments provide financial companies with a way to force automatic payments––something the CFPB acknowledges is “ripe for abuse.” The CFPB worked with the DOD to close loopholes that could exploit servicemembers. Additionally, military identity theft in 2023 is still an ongoing issue, as has been previously covered by InfoBytes here. But in October the CFPB found that Transunion had failed to provide crucial identity theft protection for thousands of individuals, including active-duty members of the military. There are also issues with supposed consulting services: “Earlier this year, the CFPB published a joint WARNO with the VA on unaccredited individuals and organizations and the CFPB is working closely with federal and state agencies to protect veterans’ benefits.”

    The CFPB notes it will “continue to work with all our partners as the financial marketplace evolves so we can understand the unique needs and challenges of members of the military community. If you have a problem with a financial product or service, submit a complaint to us, and we’ll work to get you a response.”

    Agency Rule-Making & Guidance Federal Issues CFPB Military Lending Loans

  • California AG announces settlement with mortgage servicer

    State Issues

    On September 1, California Attorney General (AG) Rob Bonta announced a settlement with a mortgage servicer for its alleged failure to properly process and grant mortgage deferment requests from California military reservists called to active duty. California’s Military and Veterans Code, which includes the California Military Families Financial Relief Act, allows reservists to delay paying mortgages, credit cards, property taxes, car loans, utility bills, and student loans. To defer payment, they must submit a written request and their military orders to the entity to which their payments are due. The AG noted that the California Department of Justice investigated the mortgage servicer’s processes for handling mortgage deferment requests and found that the servicer delayed granting the deferment requests, requested information for eligibility review outside of the 30-day timeframe to do so, and improperly denied deferment requests, on at least 10 occasions. Furthermore, the servicer allegedly attempted to collect payment from some borrowers during the requested deferral period by making calls and sending notices that warned that the servicer would foreclose on the borrowers’ properties if they failed to pay. The servicer also allegedly incorrectly charged some borrowers late fees and other charges for nonpayment of payments that should have been deferred. Finally, the servicer allegedly provided incorrect negative credit information to credit reporting agencies.

    Under the terms of the settlement, the servicer agreed to, among other things, (i) pay $58,000 in civil money penalties; (ii) “remediate consumer harm”; (iii) disclose deferment request status to borrowers; and (iv) provide annual reports to the AG documenting compliance with the injunctive terms.

    State Issues Settlement State Attorney General California Consumer Finance Mortgage Servicing Military Lending

  • Divided 4th Circuit: Including GAP coverage does not eliminate auto loan exemption from MLA


    On April 12, a split U.S. Court of Appeals for the Fourth Circuit held that loans borrowed in part to finance the purchase of a car are not governed by the Military Lending Act (MLA), even when the loan covers additional related costs. While the MLA’s requirements apply to the extension of consumer credit to covered members, loans procured “for the express purpose of financing” the purchase of a car (and are secured by the car) are excluded from many of the statute’s protections. Plaintiff purchased a car with an auto loan that included guaranteed asset protection coverage (GAP). The plaintiff then filed a putative class action against the defendant claiming the loan violated the MLA because it mandated arbitration (which is prohibited under the MLA) and failed to disclose certain information. The plaintiff argued that the loan should be protected under the MLA because part of his “bundled” loan went to GAP coverage. The district court disagreed and dismissed the case, ruling that the plaintiff’s contract was exempt from the MLA because GAP coverage and other add-on charges were “inextricably tied” to his purchase of the car.

    On appeal, the majority concluded that loan, which was used for both an MLA-exempt and non-exempt purpose, can be treated together under the statute, because “[i]f a loan finances a car and related costs, then it is for the express purpose of financing the car purchase and the exception can apply.” The key issue was how to interpret the MLA exception that covers loans made for the “express purpose” of financing a car. “If that phrase, as used in the [MLA], means merely ‘for the specific purpose,’ [the defendant] wins. If it means ‘for the sole purpose,’ [plaintiff] wins,” the majority wrote. “We do not care and we do not ask” if the loan also financed GAP coverage, provided the loan was made for the specific purpose of financing a car, the court said, explaining that the loan is exempted from the MLA, “no matter what else it financed.”

    The dissenting judge warned that the majority’s conclusion undermines the purpose of the MLA. “There is no reason to suspect that Congress regulated the marketing of financial products to service members, only to allow them to be smuggled in through a vehicle-loan back door,” the dissenting judge wrote, criticizing the majority’s conclusion and noting that opening up the MLA’s exception to include additional loans “permits lenders to piggyback virtually any financial product onto an exempt vehicle loan” at the expense to service members.

    Notably, the CFPB, DOJ, and Department of Defense (DOD) filed an amicus brief last year on behalf of the United States in support of the plaintiff’s appeal, in which the agencies argued that the “hybrid” loan at issue must comply with the MLA. As previously covered by InfoBytes, the agencies wrote that GAP coverage “is not needed to buy a car and does not advance the purchase or use of the car.” The agencies noted that GAP coverage is identified as a “debt-related product that addresses a financial contingency arising from a total loss of the car” and that the coverage can be purchased as a standalone product. According to the brief, the plaintiff’s loan is a “hybrid loan—that is, a loan that finances a product bundle including both an exempt product (such as a car) and a distinct non-exempt product (such as optional GAP coverage),” and the district court erred in failing to interpret the MLA consistent with guidance issued in 2016 and 2017 by the DOD suggesting that such “hybrid loans” are consumer credit subject to the protections in the MLA. The 2017 guidance explained that “a credit transaction that includes financing for [GAP] insurance … would not qualify for the exception,” and the agencies argued that although the 2017 guidance was withdrawn in 2020, the “withdrawal did not offer a substantive interpretation of the statute that would alter the conclusion” that the plaintiff’s loan was not exempt from the MLA.

    Courts Appellate Fourth Circuit Consumer Finance Auto Finance GAP Fees Military Lending Military Lending Act Class Action

  • CFPB shutters mortgage lender, alleging deceptive advertising

    Federal Issues

    On February 27, the CFPB entered a consent order against a California-based mortgage lender (respondent) for alleged repeat violations of the Consumer Financial Protection Act, TILA (Regulation Z), and the Mortgage Acts and Practices Advertising Rule (Regulation N), in relation to a 2015 consent order. As previously covered by InfoBytes, in 2015, the Bureau claimed the respondent (which is licensed in at least 30 states and Puerto Rico and originates consumer mortgages guaranteed by the Department of Veterans Affairs and mortgages insured by the FHA) allegedly led consumers to believe it was affiliated with the U.S. government. Specifically, respondent allegedly used the names and logos of the VA and FHA in its advertisements, described loan products as part of a “distinctive program offered by the U.S. government,” and instructed consumers to call the “VA Interest Rate Reduction Department” at a phone number belonging to the mortgage lender, thus implying that the mailings were sent by government agencies. The 2015 consent order required the respondent to abide by several prohibitions and imposed a $250,000 civil money penalty.

    The Bureau contends, however, that after the 2015 consent order went into effect, the respondent continued to send millions of mortgage advertisements that allegedly made deceptive representations or contained inadequate or impermissible disclosures, including that the respondent was affiliated with the VA or the FHA. Additionally, the Bureau alleges that the respondent misrepresented interest rates, key terms, and the amount of monthly payments, and falsely represented that benefits available to qualifying borrowers were time limited. Many of these alleged misrepresentations, the Bureau claims, were expressly prohibited by the 2015 consent order.

    The 2023 consent order permanently bans the respondent from engaging in any mortgage lending activities, or from “otherwise participating in or receiving remuneration from mortgage lending, or assisting others in doing so.” The respondent, which neither admits nor denies the allegations, is also required pay a $1 million civil money penalty.

    Federal Issues CFPB Enforcement Mortgages Military Lending Consumer Finance CFPA TILA MAP Rule Regulation Z Regulation N Department of Veterans Affairs FHA

  • DOJ initiates SCRA action for auctioning servicemember vehicles without court orders

    Federal Issues

    On April 15, the DOJ filed a complaint in the U.S. District Court for the Eastern District of Virginia against a Virginia-based towing company for allegedly auctioning vehicles owned by at least seven active duty servicemembers without first obtaining the required court orders. Under the Servicemembers Civil Relief Act (SCRA), a person holding a lien on property or effects of a servicemember may not enforce or foreclose on that lien during, or within 90 days after, a period of military service without a court order. According to the complaint, several factors should have alerted the towing company to the fact that the vehicles belonged to a servicemember, including that the vehicles were towed from a military base and one contained a duffel bag containing military uniforms and other evidence of the servicemember’s military service. Additionally, the DOJ contended, among other things, that the company’s policies and procedures “failed to include any mention at all of the SCRA or the protections it grants to servicemembers whose vehicles have been towed,” nor did these policies include the use of the Defense Manpower Data Center database “to determine a vehicle owner’s military status prior to selling, auctioning off, or otherwise disposing of a vehicle without a court order.” The DOJ seeks damages for the affected servicemembers and civil penalties, as well as a court order enjoining the company and all associated persons from engaging in the illegal conduct.

    Federal Issues Courts Enforcement DOJ SCRA Consumer Finance Military Lending Servicemembers

  • Agencies file amicus brief on “hybrid” loan MLA protections


    On January 6, the CFPB, DOJ, and DOD filed an amicus brief on behalf of the United States in support of a consumer servicemember plaintiff’s appeal in Jerry Davidson v. United Auto Credit Corp, arguing that the hybrid loan at issue in the case, which was used for both an MLA-exempt and non-exempt purpose, must comply with the MLA. The loan included an amount used to purchase Guaranteed Auto Protection (GAP) insurance coverage, and the plaintiff alleged that, among other things, the auto lender (defendant) violated the MLA by forcing the plaintiff to waive important legal rights as a condition of accepting the loan and by requiring him to agree to mandatory arbitration should any dispute arise related to the loan. The plaintiff also alleged that the defendant failed to accurately communicate his repayment obligations by failing to disclose the correct annual percentage rate. The case is before the U.S. Court of Appeals for the Fourth Circuit after a district court held that the plaintiff’s GAP insurance fell within the car-loan exception to the MLA as “inextricably tied to” and “directly related” to the vehicle purchase.

    Arguing that GAP coverage “is not needed to buy a car and does not advance the purchase or use of the car,” the agencies’ brief noted that GAP coverage is identified as “debt-related product that addresses a financial contingency arising from a total loss of the car” and that the coverage can be purchased as a standalone product. According to the brief, the plaintiff’s loan is a “hybrid loan—that is, a loan that finances a product bundle including both an exempt product (such as a car) and a distinct non-exempt product (such as optional GAP coverage),” and the district court erred in failing to interpret the MLA consistent with guidance issued in 2016 and 2017 by the DOD suggesting that such “hybrid loans” are consumer credit subject to the protections in the MLA. The 2017 guidance explained that “a credit transaction that includes financing for Guaranteed Auto Protection insurance … would not qualify for the exception,” and the agencies argued that although the 2017 guidance was withdrawn in 2020, the “withdrawal did not offer a substantive interpretation of the statute that would alter the conclusion” that the plaintiff’s loan was not exempt from the MLA.

    Courts CFPB Department of Defense DOJ Amicus Brief Appellate Fourth Circuit Servicemembers Military Lending Act Military Lending GAP Fees

  • CFPB sues pawn lenders for MLA violations

    Federal Issues

    On November 12, the CFPB filed a complaint against a Texas-based pawn lender and its wholly owned subsidiary (together, “lenders”) for allegedly violating the Military Lending Act (MLA) by charging active-duty servicemembers and their dependents more than the allowable 36 percent annual percentage rate on pawn loans. According to the Bureau, between June 2017 and May 2021, the two lenders together allegedly made more than 3,600 pawn loans carrying APRs that “frequently exceeded” 200 percent to more than 1,000 covered borrowers. The Bureau further claimed that the lenders failed to make all loan disclosures required by the MLA and forced borrowers to waive their ability to sue. The identified 3,600 pawn loans only represent a limited period for which the Bureau has transactional data, the complaint stated, adding that the pawn stores located in Arizona, Nevada, Utah, and Washington that originated these loans only comprise roughly 10 percent of the Texas lender’s nationwide pawn-loan transactions. As such, that Bureau alleged that the lenders—together with their other wholly owned subsidiaries—made additional pawn loans in violation of the MLA from stores in these and other states. The Bureau seeks injunctive relief, consumer restitution, disgorgement, civil money penalties, and other relief, including a court order enjoining the lenders from collecting on the allegedly illegal loans and from selling or assigning such debts.

    As previously covered by InfoBytes, the Bureau issued a prior consent order against an affiliated lender in 2013, which required the payment of $14 million in consumer redress and a $5 million civil money penalty. The affiliated lender was also ordered to cease its MLA violations. In its current action, the Bureau noted that because the Texas lender (who was not identified in the 2013 action) is a successor to the prior affiliated lender, it is therefore subject to the 2013 order. Accordingly, the Bureau alleged that the Texas lender’s violations of the MLA also violated the 2013 order.

    Federal Issues CFPB Enforcement Military Lending Military Lending Act Consumer Finance Interest Rate APR Nonbank CFPA Servicemembers

  • DOJ proposes SCRA settlement with Texas auto lender

    Federal Issues

    On September 30, the DOJ announced a proposed settlement with a Texas-based auto lender, resolving allegations that the lender denied early motor vehicle lease terminations to qualifying servicemembers as required by the Servicemembers Civil Relief Act (SCRA). The SCRA allows servicemembers to terminate their motor vehicle leases early without penalty if they enter military service or receive qualifying military orders for a permanent change of station or to deploy to another location. According to the DOJ’s complaint, filed concurrently with the proposed settlement, an investigation revealed 10 instances in which the lender allegedly failed to provide early lease terminations to qualifying servicemembers. As a result, the DOJ claimed that the servicemembers, among other things, continued to make payments for vehicles they no longer wanted and were charged early termination penalties. Under the terms of the proposed settlement, the lender is required to pay more than $94,000 in compensation to the affected servicemembers and a $40,000 civil penalty. The proposed settlement also requires the lender to update its SCRA policies and procedures to avoid future violations and to provide SCRA compliance training to any employees whose customer interaction includes discussion of early lease termination benefits.

    Federal Issues DOJ SCRA Enforcement Military Lending Auto Finance

  • DOJ settles SCRA violations with New Jersey student lending authority

    Federal Issues

    On September 20, the DOJ announced a settlement with a New Jersey’s student lending authority, resolving allegations that the authority obtained unlawful court judgments in violation of the Servicemembers Civil Relief Act (SCRA) against two military servicemembers who co-signed student loans . According to the press release, the DOJ launched an investigation into the authority after receiving a report from the Coast Guard that the authority obtained a default judgment in 2019 against a Coast Guard petty officer who co-signed on behalf of the two student loans. The complaint, filed by the DOJ in the U.S. District Court for the District of New Jersey, states that the authority “obtained default judgments against two SCRA-protected servicemembers” by failing “to file true and accurate affidavits indicating the military status of [the two service servicemembers].” According to the DOJ, lenders can verify an individual’s military status by utilizing a defense data center’s free and public website, or by reviewing their files to confirm military status. The authority allegedly filed affidavits in state court that inaccurately stated that the servicemembers were not in military service, even though the authority had conducted searches in the defense data center’s website that confirmed that the individuals were active military servicemembers.

    The settlement notes that the authority must pay $15,000 each to the two servicemembers who had default judgments entered against them, and must pay a $20,000 civil penalty. Among other things, the settlement also requires the authority to provide compliance training to its employees and to develop new policies and procedures consistent with the SCRA. The settlement also notes that the authority, since the opening of the investigation, has been fully cooperative and has “taken steps to improve its compliance with the SCRA.” 

    Federal Issues DOJ SCRA Military Lending New Jersey Student Lending Courts Enforcement Servicemembers

  • DoD releases MLA report

    Agency Rule-Making & Guidance

    Recently, the Department of Defense (DoD), in consultation with the Treasury Department, released a report to the House Committee on Armed Services in response to Title V of House Report 116-442 on the National Defense Authorization Act (NDAA) for Fiscal Year 202. The House Report requested a report regarding the Military Annual Percentage Rate (MAPR), which cannot exceed 36 percent as established under the Military Lending Act (MLA) and what impact lowering the MAPR to 30 percent would have on military readiness and servicemember retention. Some highlights of the report include, among other things: (i) “the MLA, in combination with the Department’s ongoing financial literacy education and financial counseling efforts, appears to be effective in deterring unfair credit practices”; (ii) the DoD does not take a position regarding the merit of any change to decrease the maximum MAPR rate below 30 percent; (iii) credit cards, auto loans, and personal loans are generally available at risk-based rates below the MAPR; (iv) almost a quarter of all active duty servicemembers in the U.S. are stationed in states that limit a 24 month, $2,000 loan to less than 30 percent; and (v) “a MAPR limit as low as 28 percent would likely have no impact on [servicemembers]’ access to credit cards, assuming credit card issuers meet exemptions for eligible bona fide fees when calculating the MAPR.” The report notes that the DoD “is committed to continue working with Congress to support the financial readiness of [servicemembers] and their families and is willing to provide comment on any such proposal when appropriate.”

    Agency Rule-Making & Guidance Department of Defense Military Lending Act Military Lending Department of Treasury U.S. House


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