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On November 12, the CFPB released its latest quarterly consumer credit trends report on the prevalence of actual payment information in consumer credit reporting, concluding that actual payment furnishing for installment loan products has increased steadily between 2012 and 2020 while actual payment furnishing for credit card and retail revolving accounts has declined significantly. Specifically, the Bureau found that, between 2012 and 2020, shares of auto loan, student loan, and mortgage tradelines with actual payment amount information trended upward with over 90 percent of such tradelines reporting actual payment amount information by March 2020. In contrast, shares of revolving and credit card tradelines reporting actual payment data significantly declined over the same time period, falling from 95 percent to 71 percent and from 88 percent to 40 percent respectively. The Bureau also found that, for the nation’s largest credit card issuers, the decision to furnish actual payment information appears to be a binary one, with the issuers either furnishing actual payment information for nearly all accounts or not furnishing such information at all. As of 2020, only half of the nation’s largest credit card issuers furnished actual payment data for their accounts, down from 70 percent in 2013. The Bureau theorizes that the decline in reporting of actual payment data for both revolving and credit card accounts may reflect attempts to prevent account poaching by competitors.
On August 24, the FTC announced several Notices of Proposed Rulemaking (NPRM) intended to clarify that five Fair Credit Reporting Act (FCRA) rules promulgated by the FTC will now apply only to motor vehicle dealers. The NPRMs also propose non-substantive amendments to correspond to changes made to the FCRA by the Dodd-Frank Act, and will apply to the following rules:
- Address Discrepancy Rule. This rule requires users of consumer reports to implement policies and procedures for, among other things, handling notices of address discrepancy received from a nationwide consumer reporting agency (CRA) and furnishing an address for a consumer that a “user has reasonably confirmed as accurate to the CRA from whom it received the notice.” The proposed amendments narrow the scope of the rule to motor vehicle dealers excluded from CFPB jurisdiction.
- Affiliate Marketing Rule. This rule provides consumers the right to restrict a person from using certain information obtained from an affiliate to make solicitations to the consumer. While the proposed amendments narrow the scope of the rule to “motor vehicle dealers” excluded from CFPB jurisdiction, they retain the substantive provisions of the rule because they “addresses the relationship between covered motor vehicle dealers and their affiliates, which may not be motor vehicle dealers.”
- Furnisher Rule. Under this rule, furnishers are required to implement policies and procedures regarding the accuracy and integrity of the consumer information they provide to a CRA. The amendments propose changes including narrowing the rule’s scope to entities set forth in Dodd-Frank “that are predominantly engaged in the sale and servicing of motor vehicles, excluding those dealers that directly extend credit to consumers and do not routinely assign the extensions of credit to an unaffiliated third party.”
- Prescreen Opt-Out Notice Rule. This rule outlines requirements for those who use consumer reports to make unsolicited credit or insurance offers to consumers. The proposed amendments will narrow the scope of the rule to cover only motor vehicle dealers. The model form is unchanged from the previous model notice and is identical to the model notice used by the CFPB.
- Risk-Based Pricing Rule. Under this rule persons that use information from a consumer report to offer less favorable terms are required to provide a risk-based pricing notice to consumers about the use of such data. Under the proposed amendments, only motor vehicle dealers will be required to comply.
The FTC seeks feedback on the effectiveness of the five rules, including (i) whether there exists a continuing need for each rule’s specific provisions; (ii) what benefits have been provided to consumers under each rule; and (iii) should modifications be made to each rule in order to benefit consumers and businesses or to account for changes in relevant technology or economic conditions.
Comments are due 75 days after the NPRMs are published in the Federal Register.
On August 20, the CFPB announced a settlement with a national bank, resolving allegations that the bank violated the EFTA, CFPA, and FCRA through the marketing and sale of its optional overdraft service. According to the consent order, the bank violated the EFTA and Regulation E by enrolling customers who orally consented to the bank’s optional overdraft program without first providing the customers with written notice, and subsequently charged those customers overdraft fees. The bank also allegedly engaged in abusive practices by, among other things, (i) requiring new customers to sign its optional overdraft notice with the “enrolled” option pre-checked without first providing written notice or, in certain instances, without mentioning the optional overdraft service to the customer at all; (ii) enrolling new customers in the optional overdraft service without requesting their oral enrollment decision; and (iii) deliberately obscuring, or attempting to obscure, the overdraft notice “to prevent a new customer’s review of their pre-marked ‘enrolled’ status” in the optional overdraft service. The CFPB also asserted the bank engaged in deceptive practices by marketing the optional overdraft service as a “free” service or benefit, downplaying the associated fees and disclosures, and by suggesting that the overdraft service was a “‘feature’ or ‘package’ that ‘comes with’ all new consumer-checking accounts, rather than as an option that new customers must opt in to.” However, the bank actually charged customers $35 for each overdraft transaction paid through the service, the CFPB alleged.
With respect to the alleged FCRA and Regulation V furnishing violations, the CFPB claimed the bank failed to establish and implement policies and procedures concerning the accuracy and integrity of the consumer-account information it furnished to two nationwide specialty consumer reporting agencies (NSCRAs). The bank also allegedly failed to implement policies or procedures for investigating customer disputes related to the furnished information, failed to timely investigate certain indirect customer disputes concerning its furnishing to one of the NSCRAs, and instructed customers who called to dispute furnished information to contact the NSCRA instead of submitting a direct dispute to the bank.
Under the terms of the consent order, the bank is required to provide approximately $97 million in restitution to roughly 1.42 million consumers and pay a $25 million civil money penalty. The bank has also agreed to (i) correct its optional overdraft service enrollment practices; (ii) stop using pre-marked overdraft notices to obtain affirmative consent from customers; (iii) provide current customers who have remained enrolled in the optional overdraft service with enrollment status details and instructions on how to unenroll from the service; and (iv) establish policies and procedures designed to ensure its furnishing practices comply with the FCRA.
On June 23, the CFPB announced a settlement with several contract for deed companies to resolve allegations that the defendants violated the FCRA and its implementing Regulation V, as well as the Consumer Financial Protection Act, by, among other things, misrepresenting to consumers the necessary steps to resolve consumer-reporting complaints. Specifically, the CFPB’s investigation revealed that the defendants allegedly told consumers who complained about errors on their consumer reports that they had to file a dispute with the consumer reporting agency, even though Regulation V requires furnishers to investigate written disputes and contact the applicable consumer reporting agency to resolve any errors. According to the CFPB, this was inaccurate as a matter of law and a deceptive practice. In addition, the CFPB claimed that one defendant failed to implement policies and procedures required by Regulation V to protect the accuracy and integrity of furnished consumer information.
Under the terms of the consent order, the defendants will collectively pay a total of $35,000 in civil money penalties and have agreed not to “misrepresent or assist others in misrepresenting, expressly or impliedly, how consumers can initiate disputes concerning their consumer reports.”
On April 28, New York Attorney General Letitia James and Pennsylvania Attorney General Josh Shapiro, along with the attorneys general of 19 other states and the District of Columbia sent letters to the three credit reporting agencies (CRAs) stating their intention to protect consumer credit and ensure fair and accurate reporting on consumer credit reports during the Covid-19 crisis. The letter calls attention to the obligations of the CRAs under the FCRA and state credit-reporting laws and further states that the attorneys general intend to enforce compliance of all related requirements. Notwithstanding the CFPB’s announcement that it will ease the FCRA’s 30 or 45-day time restrictions for CRAs to investigate consumer complaints, the letter insists that the attorneys general will enforce the FCRA deadlines. Pursuant to the CARES Act amendment of the FCRA—which requires that consumer accounts be reported by furnishers as current if the consumer was current prior to the grant of a CARES Act accommodation—the letter asserts that its signors will actively monitor for compliance to this amendment. Finally, the letter expresses appreciation for the CRAs’ compliance and cooperation.
On April 27, Senator Elizabeth Warren (D-MA) and Senator Brian Schatz (D-HI) sent letters to the same CRAs also urging the agencies to protect consumer credit reports by complying with the CARES Act amendment to the FCRA. In addition, the Senators request that the CRAs reply to six questions included in the letters to assist the Senators in understanding all efforts the CRAs are taking to protect consumer credit scores during the Covid-19 crisis.
CFPB plans credit reporting supervisory flexibility during Covid-19 pandemic, contingent on accurate reporting
On April 1, the CFPB issued a policy statement directed at consumer reporting agencies (CRAs) and furnishers. Taking into consideration the Covid-19 pandemic, the statement explains that the Bureau will take a “flexible supervisory and enforcement approach during this pandemic regarding compliance with the Fair Credit Reporting Act [(FCRA)] and Regulation V.” The Bureau states that it will be flexible with CRAs and furnishers by refraining from taking enforcement actions and citing during exams in certain situations. Two examples of when the Bureau will be flexible include: (i) furnishers that continue to furnish accurate data to CRAs, including regarding payment relief arrangements (the Bureau notes that the CARES Act obliges furnishers to report consumer accounts as current when furnishers grant payment accommodations requested by consumers impacted by Covid-19); and (ii) CRAs and furnishers that make good faith efforts to investigate consumer disputes but take longer than the FCRA-prescribed 30 days. The statement notes that “the continued operation of the consumer reporting system…will enable consumers, as well as lenders, insurers, employers and other consumer report users, to maintain confidence in the consumer reporting system.”
On January 27, the Michigan governor signed HB 4411, which establishes provisions for credit service organizations. Among other things, HB 4411 prohibits persons engaged in credit service activities from (i) charging or receiving money from a buyer seeking a loan, extension of credit, or other valuable consideration before closing; (ii) charging a buyer or receiving from a buyer money or other valuable consideration before completing all agreed upon services, or “for referral to a retail seller that will or may extend credit to the buyer if the credit that is or may be extended to the buyer is substantially the same as that available to the general public”; (iii) making or using false or misleading representations, or engaging in a fraudulent or deceptive act or practice connected with the offer or sale of a credit services organization, stating that the organization has the ability to delete adverse credit history, or guaranteeing that the organization can obtain an extension of credit regardless of the buyer’s credit history; (iv) failing to perform the agreed upon services within 90 days after the contract is signed by the buyer; (v) advising a buyer to make untrue or misleading statements to certain entities, including a consumer credit reporting agency; (vi) assisting in the removal of adverse credit information that is accurate and not obsolete, or assisting a buyer in creating a new credit record using alternative personal information; and (vii) submitting buyer disputes to consumer credit reporting agencies without a buyer’s knowledge. The act is effective immediately.
On August 29, the U.S. Court of Appeals for the 6th Circuit affirmed a district court’s ruling that a bank was not obligated under the Fair Credit Reporting Act (FCRA) to investigate a credit reporting error because the consumers failed to ever notify a consumer reporting agency. According to the opinion, after plaintiffs paid off their line of credit, the bank (defendant) continued reporting the plaintiff as delinquent on the account. After plaintiffs contacted the bank regarding the reporting error, the bank employee ensured plaintiffs that the defendant submitted amendments to the credit reporting bureaus to correct the situation. However, the plaintiffs claimed the error was not corrected until almost a year later. Plaintiffs also alleged that they did not contact the credit reporting bureau in reliance on the bank employee’s statements. The district court granted summary judgment in favor of the bank, concluding that the FCRA requires that notification of a credit dispute be provided to a consumer reporting agency as a prerequisite for a claim that a furnisher failed to investigate the dispute. Since the plaintiffs failed to trigger the defendant’s FCRA obligations because they never filed a dispute with a consumer reporting agency, the defendant’s responsibility to investigate was never activated.
On appeal, the 6th Circuit agreed with the district court that direct notification to the furnisher of the inaccurate credit report does not meet the FCRA’s prerequisite. Additionally, the plaintiffs’ state common law claims for breach of the duty of good faith and fair dealing and tortious interference with contractual relationships were preempted by the FCRA, and their fraudulent misrepresentation claim was forfeited on appeal.
On February 7, the Ohio Court of Appeals reversed a state trial court’s decision in favor of a national bank, holding that the bank failed to prove it had the right to charge interest exceeding the statutory limit on a credit card account. At trial, the bank sought payment of the consumer’s store credit card debt it acquired in a merger. The consumer argued that the bank had no standing to sue because it failed to prove ownership of the store credit card account. The trial court denied the consumer’s motion to dismiss and granted the bank’s motion for a directed verdict after trial.
The appeals court agreed that, even though the bank was unable to establish that it acquired the consumer’s account, it had standing to bring its collection action by virtue of its own credit card agreement with the consumer and the consumer’s continued use of the card. But because the bank could only produce periodic statements that included the claimed interest rate, it failed to establish that the consumer “assented to any explicitly set forth interest rate over the statutory limit.” Thus, the trial court “erred in granting [the bank’s] motion for a directed verdict as to the precise amount of damages awarded,” and the appeals court remanded with instructions to determine whether Ohio law, as argued by the consumer, or South Dakota law, as argued by the bank, should be applied to verify the applicable statutory interest rates.
- Hank Asbill to discuss "The federal fraud sentencing guidelines: It's time to stop the madness" at a New York Criminal Bar Association webinar
- Daniel P Stipano to moderate "Digital identity: The next gen of CIP" at the American Bankers Association/American Bar Association Financial Crimes Enforcement Conference