InfoBytes Blog

Federal Reserve, CFPB Announce Increased Consumer Credit, Lease Transaction Thresholds

On November 20, the Federal Reserve Board and the CFPB announced an increase in the dollar thresholds in Regulation Z (TILA) and Regulation M (Consumer Leasing) for exempt consumer credit and lease transactions. Transactions at or below the thresholds are subject to the protections of the regulations. Based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers as of June 1, 2013, TILA and Consumer Leasing Act generally will apply to consumer credit transactions and consumer leases of $53,500 or less beginning January 1, 2014. Private education loans and loans secured by real property remain subject to TILA regardless of the amount of the loan.

CFPB TILA Federal Reserve Consumer Leasing Act Regulation Z

S.D.N.Y. Holds TILA Short-Form Credit Card Notice Violations Subject to Statutory Damages

On November 4, the U.S. District Court for the Southern District of New York held that credit card holders may pursue statutory damages for alleged violations of Regulation Z’s short-form credit card notice requirement, even though the short-form notice requirement is contained in a section of Regulation Z that is not enumerated under TILA’s statutory damages section. Zevon v. Dept. Stores Nat’l Bank, No. 12-7799, 2013 WL 5903024, (S.D.N.Y. Nov. 4, 2013). A credit card holder filed a putative class action alleging that the monthly short-form notice provided by the issuer was incomplete and omitted provisions required by Regulation Z’s model form provision. The court rejected the card issuer’s argument that because TILA only provides card holders with a cause of action for statutory damages for specifically enumerated statutory provisions, and because the short-form notice provision is not enumerated in the statute but is set only by Regulation Z, the card holder is not entitled to statutory damages. The court explained that following the card holder’s reasoning would immunize card issuers from statutory damages for even the most egregious short-from notice violations. Instead, the court held that because the allegedly violated Regulation Z provision was promulgated pursuant to an enumerated statutory provision—TILA’s long-form notice requirement—card holders are permitted to bring claims for statutory damages for short-form violations. The court rejected the card issuer’s motion to dismiss for these reasons, but granted its motion to limit statutory damages to $500,000, holding that the Dodd-Frank Act’s increase to a $1 million cap cannot be applied retroactively to violations that allegedly occurred prior to the Act’s passage.

Credit Cards TILA Class Action Regulation Z

CFPB Sues Mortgage Company Over Alleged Loan Officer Compensation Practices

This afternoon, the CFPB released a complaint it filed today against a Utah-based mortgage company and two of its officers for giving bonuses to loan officers who allegedly steered consumers into mortgages with higher interest rates. The complaint alleges that the company, and its president and senior vice-president of capital markets, violated the Federal Reserve Board’s Loan Originator Compensation Rule by instituting a quarterly bonus program that paid more than 150 loan officers greater bonus compensation based on the terms and conditions of the loans they closed.  The CFPB claims the program incentivized loan officers to steer consumers into loans with higher rates.

According to the complaint, when the Loan Originator Compensation Rule took effect in April 2011, the company amended its program to eliminate any written reference to compensation based upon terms or conditions, making it appear on its face to be a compliant compensation program.  The CFPB alleges that although the company’s regular compensation was no longer tied to terms or conditions under the new program, the managers actually continued to adjust the quarterly bonuses based upon the terms and conditions established under the compensation program.

The complaint further alleges violations of Regulation Z’s requirement that a creditor retain records of compensation paid to loan originators for two years.  According to the complaint, the company violated this requirement by failing to record what portion of quarterly bonuses paid to loan originators were attributable to a given loan and by failing to maintain accurate and complete compensation agreements.

The case highlights a number of points:

• The CFPB will look beyond a company’s written compensation and compliance plans to include analysis of a company’s actual compensation payments to its loan originators;

• The CFPB is pursuing individuals in senior management;

• $1 billion companies are within range for CFPB actions;

• The CFPB is seeking an injunction, restitution, civil money penalties for each bonus paid, and costs; and

• The case was referred to the CFPB by the Utah Department of Commerce.

CFPB Mortgage Origination Compensation Regulation Z

CFPB Narrows Application of Credit Card Fee Limit

On March 28, the CFPB published a final rule to remove from Regulation Z a limitation on fees charged prior to credit card account opening. Effective immediately, the rule amends a restriction adopted by the Federal Reserve Board in April 2011, which expanded the 2009 Credit CARD Act fee limitation on certain fees charged during the first year after the account is opened to include fees charged  prior to account opening. The CFPB rule eliminates the limitations on fees charged prior to account opening, and covers only those fees charged during the first year after account opening. The rule responds to a legal challenge to restricting the amount of fees charged prior to account opening, which resulted in a court issuing a preliminary injunction to halt the implementation of the Federal Reserve Board’s broader application of the fee limit.

Credit Cards CFPB Federal Reserve Regulation Z