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  • Industry groups urge CFPB to rescind UDAAP anti-discrimination policy

    Federal Issues

    On June 28, industry groups and the U.S Chamber of Commerce (collectively, “groups”) released a White Paper, Unfairness and Discrimination: Examining the CFPB’s Conflation of Distinct Statutory Concepts, urging the CFPB to rescind the recently released unfair, deceptive and abusive acts or practices (UDAAP) examination manual. As previously covered by a Buckley Special Alert, in March, the CFPB announced significant revisions to its UDAAP exam manual, in particular highlighting the CFPB’s view that its broad authority under UDAAP allows it to address discriminatory conduct in the offering of any financial product or service. The White Paper, among other things, explained the groups’ position that the Bureau’s UDAAP authority cannot be used to extend the fair lending laws beyond the limits of existing statutory law. The White Paper stated that the Bureau “conflated” concepts of “unfairness” and “discrimination” “by announcing, via a UDAAP exam manual ‘update,’ that it would examine financial institutions for alleged discriminatory conduct that it deemed to be ‘unfair’ under its UDAAP authority.” The groups stated that the agency has “taken the law into its own hand” arguing that “the Bureau did not follow Administrative Procedure Act requirements for notice-and-comment rulemaking.” The groups said the change in the examination manual is “contrary to law and subject to legal challenge” as well as legislative repeal under the Congressional Review Act. Additionally, the groups argued that the Bureau’s interpretation exceeds the agency’s statutory authority, and that the Bureau’s “action should be held unlawful and set aside.” The groups further stated that “[c]hanges that alter the legal duties of so many are the proper province of Congress, not of independent regulatory agencies, and the CFPB cannot ignore the requirements of the Administrative Procedures Act and Congressional Review Act. The CFPB may well wish to fill gaps it perceives in federal antidiscrimination law. But Congress has simply not authorized the CFPB to fill those gaps.”

    In a letter sent to CFPB Director Rohit Chopra, the groups conveyed that Congress did not intend for the Bureau to “fill gaps” between the clearly articulated boundaries of antidiscrimination statutes with its UDAAP authority. The groups urged Director Chopra to rescind the exam manual update and stated that “[s]hould [he] believe additional authority is necessary to address alleged discriminatory conduct, we stand ready to work with Congress and the CFPB to explore that possibility and to ensure the just administration of the law.

    Federal Issues CFPB UDAAP Consumer Finance Deceptive Abusive Unfair Examination Discrimination Administrative Procedures Act

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  • District Court enters consent order in 2016 CFPB structured settlement action

    Courts

    On May 18, the U.S. District Court for the District of Maryland approved a consent order against defendants in an action concerning allegedly unfair, abusive, and deceptive structured settlement practices. As previously covered by InfoBytes, in 2016 the Bureau initiated an enforcement action against the defendants alleging that they violated the CFPA by employing abusive practices when purchasing structured settlements from consumers in exchange for lump-sum payments. According to the Bureau, the defendants encouraged consumers to take advances on their structured settlements and falsely represented that the consumers were obligated to complete the structured settlement sale, “even if they [later] realized it was not in their best interest.” In July 2021, the court denied the defendants’ motions to dismiss the Bureau’s amended complaint, which argued that the enforcement action was barred by the U.S. Supreme Court’s decision in Seila Law LLC v. CFPB, which held that the director’s for-cause removal provision was unconstitutional (covered by a Buckley Special Alert). The defendants had also argued that that the ratification of the enforcement action “came too late” because the statute of limitations on the CFPA claims had already expired (covered by InfoBytes here). Under the terms of the May 18 consent order, the individual defendant, who “had an ownership interest in [the company] and served in executive positions at [the defendants] from their inception to their dissolution" is prohibited from, among other things, participating or assisting others in participating in transfer of payment streams from structured-settlement holders and referring consumers to a specific individual or for-profit entity for advice concerning any structured-settlement transaction, including for independent professional advice. The individual defendant must also pay a $5,000 civil money penalty.

    Courts CFPB Enforcement Settlement Structured Settlement CFPA UDAAP Unfair Deceptive Abusive Consumer Finance

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  • Special Alert: CFPB revises UDAAP manual to include discriminatory practices

    Federal Issues

    On March 16, the Consumer Financial Protection Bureau announced significant revisions to its Unfair, Deceptive, or Abusive Acts or Practices exam manual, in particular highlighting the CFPB’s view that its broad authority under UDAAP allows it to address discriminatory conduct in the offering of any financial product or service. Congress has enacted several statutes that outlaw discrimination on specified prohibited bases, including the Equal Credit Opportunity Act (ECOA), which generally makes it unlawful to discriminate on a prohibited basis when extending credit and which the CFPB is authorized to enforce.  With this announcement, the Bureau made clear its view that any type of discrimination in connection with a consumer financial product or service could be an “unfair” practice — and therefore the CFPB can bring discrimination claims related to non-credit financial products (and other agencies that have UDAP authority may follow in the CFPB’s lead).  

    Federal Issues Special Alerts CFPB Agency Rule-Making & Guidance UDAAP Unfair Deceptive Abusive ECOA Examination Discrimination Fair Lending Disparate Impact

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  • CFPB enters proposed final judgment in 2016 structured settlement action

    Federal Issues

    On December 17, the CFPB filed a proposed stipulated final judgment and order in an action accusing defendants of allegedly employing abusive practices when purchasing structured settlements from consumers in exchange for lump-sum payments. As previously covered by InfoBytes, the CFPB filed a complaint in 2016 claiming the defendants (including the company and executive leadership) violated the Consumer Financial Protection Act (CFPA) by encouraging consumers to take advances on their structured settlements and falsely representing that the consumers were obligated to complete the structured settlement sale, “even if they [later] realized it was not in their best interest.” The Bureau also alleged that the defendants “steered consumers to receive ‘independent advice’” from an outside attorney who was paid by the company and “provided purportedly independent professional advice for almost all Maryland consumers who made structured-settlement transfers with [the defendants].” After a series of motions were filed by the parties, including an amended complaint in 2017, the U.S. District Court for the District of Maryland eventually determined that the Bureau could pursue its enforcement action (covered by InfoBytes here).

    Last month, the court entered a stipulated final judgment and order against the attorney, which required that the attorney pay $40,000 in disgorgement and a $10,000 civil money penalty (covered by InfoBytes here). Under the terms of the proposed settlement, the remainder of the defendants would be required to pay $40,000 in disgorgement and a civil penalty of $10,000, and are permanently barred from referring “consumers to a specific individual or for-profit entity for advice concerning any structured-settlement transactions, including for individual professional advice.”

    Federal Issues CFPB Enforcement Structured Settlement UDAAP Abusive Consumer Finance

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  • District Court enters final judgment in 2016 CFPB structured settlement action

    Courts

    On November 18, the U.S. District Court for the District of Maryland entered a stipulated final judgment and order against one of the individual defendants in an action concerning allegedly unfair, abusive, and deceptive structured settlement practices. As previously covered by InfoBytes, the Bureau claimed the defendants violated the CFPA by employing abusive practices when purchasing structured settlements from consumers in exchange for lump-sum payments. According to the Bureau, the defendants encouraged consumers to take advances on their structured settlements and falsely represented that the consumers were obligated to complete the structured settlement sale, “even if they [later] realized it was not in their best interest.” In July 2021, the court considered the defendants’ motion to dismiss the Bureau’s amended complaint, as well as the defendants’ motion for judgment on the pleadings on the grounds that the enforcement action was barred by the U.S. Supreme Court’s decision in Seila Law LLC v. CFPB, which held that that the director’s for-cause removal provision was unconstitutional (covered by a Buckley Special Alert), and that the ratification of the enforcement action “came too late” because the statute of limitations on the CFPA claims had already expired (covered by InfoBytes here). The court’s opinion allowed the Bureau to pursue its amended 2016 enforcement action, which alleged unfair, deceptive, and abusive acts and practices and sought a permanent injunction, damages, disgorgement, redress, civil penalties, and costs.

    Under the terms of the settlement, the individual defendant—“an attorney who provided purportedly independent professional advice for almost all Maryland consumers who made structured-settlement transfers with [the defendants]” and who has neither admitted nor denied the allegations—is prohibited from, among other things, (i) participating or assisting others in participating in any structured-settlement transactions; (ii) owning, being employed by, or serving as an agent of any structured-settlement-factoring company; or (iii) providing independent professional advice concerning any structured-settlement transactions. The individual defendant is also prohibited from disclosing, using, or benefiting from affected consumers’ information, and must pay $40,000 in disgorgement and a $10,000 civil money penalty.

    Courts CFPB Enforcement Settlement Structured Settlement CFPA UDAAP Unfair Deceptive Abusive Consumer Finance

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  • Chopra testifies on CFPB direction

    Federal Issues

    On October 27, newly sworn in CFPB Director Rohit Chopra appeared for the first time before the House Financial Services Committee to offer some of the first insights into his priorities at the Bureau. Chopra’s opening remarks focused on concerns regarding “Big Tech” and its control over the flow of money in the economy (these comments followed the issuance of information requests to six technology companies, covered by InfoBytes here). Chopra also focused on a need to ensure robust competition in financial markets and listen to local financial institutions and nascent players about obstacles they face when seeking to challenge dominant incumbents. Chopra also stressed the importance of holding “repeat offenders” accountable, highlighted an intent to coordinate efforts with federal and state regulators, and indicated a preference for scrutinizing larger market participants over smaller entities. He noted, however, potential leniency for companies that self-identify their own issues and violations. Additional highlights of the hearing include the following:

    Enforcement. Chopra noted that “markets work well when rules are easy to follow and easy to enforce.” He also expressed his view that the CFPB should focus its resources on larger industry participants and “repeat offenders” rather than “strong-arming” small businesses into settlements to create law. Chopra also expressed a preference for setting regulatory guidelines through enforcement, indicating that “markets work well when rules are easy to follow, and easy to enforce.”

    Section 1033 of Dodd-Frank. With respect to implementing this set of requirements, which deals with consumers’ rights to access information about their financial accounts, Chopra indicated a desire to “unlock more competition,” but warned that there also needs to be assurance that “banks and nonbanks are operating under the same set of rules” and that there is “not regulatory arbitrage.” While Chopra did not specify a timeline for promulgating the final rule implementing this section, he noted that the process is underway and that the Bureau is consulting with various experts. (Issuance of the ANPR was covered by InfoBytes here.)

    Abusive acts and practices. Chopra said that he agreed with former acting Director Dave Uejio’s decision to rescind a policy statement on “abusive” conduct issued by former Director Kathy Kraninger. Chopra stated he has “huge aspirations to create durable jurisprudence” regarding the definition of “abusive” in Dodd-Frank. He noted that “it could be a mix” of judicial decisions and “how the CFPB may use rules and guidance to help articulate those standards.”

    Cryptocurrency and stablecoins. Chopra expressed concerns about the potential for big payment platforms to process stablecoins—cryptocurrencies pegged to stable commodities or currencies like the dollar. However, Chopra clarified that it is not his intention to use his regulatory authority to ban or limit the use of cryptocurrency or blockchain technology. Regarding the CFPB’s role in cryptocurrency, Chopra claimed that depending on the laws implicated, there is a “fact-based determination as to any sort of law that cryptocurrencies or digital currencies have to comply with.” He further described that this is “something that the CFPB is working with the other regulators on,” and emphasized that “where digital payments [are] involved, the Electronic Fund Transfer Act is a key law with key consumer protections.”

    QM Rule. When asked about the postponement of the mandatory compliance date of the General Qualified Mortgage final rule to October 2022 (covered by InfoBytes here), Chopra said he is eager “to hear of places where it needs to be changed” but emphasized that the postponement was before his time and that the rule has gone into effect. He also stated that “QM is a key part of the mortgage market and the mortgage regulatory guidelines.” Therefore, he wants to ensure that the CFPB is always looking at it to make sure the objectives that Congress laid forward in Dodd-Frank are being carried out. When asked about his support of the proposed change in the QM rule, Chopra said he did not know but wants “to make sure he understands the full basis of it.”

    Chopra echoed such sentiments in his October 28 testimony before the Senate Banking Committee.

    Federal Issues Digital Assets CFPB Enforcement Supervision UDAAP Consumer Finance Dodd-Frank House Financial Services Committee Senate Banking Committee Small Business Lending Section 1033 Abusive Cryptocurrency Fintech Mortgages Qualified Mortgage

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  • CFPB reaches $6 million settlement with prison financial services company

    Federal Issues

    On October 19, the CFPB issued its first enforcement action under newly-appointed Director Rohit Chopra. The consent order, issued against a provider of financial services to prisons and jails, stated that the company engaged in unfair, deceptive, and abusive acts or practices in violation of the CFPA by charging consumers fees to access their own funds on prepaid debit cards that they were required to use. The CFPB also claimed the company violated the EFTA and implementing Regulation E by requiring consumers to sign up for its debit card as a condition of receiving gate money (i.e. “money provided under state law to help people meet their essential needs as they are released from incarceration”). According to the CFPB, the company provided approximately 1.2 million debit release cards to consumers, which replaced cash or check options previously offered by state departments of correction. In addition to forcing consumers to use the debit cards to access their funds, the company also allegedly charged consumers fees that were not authorized by the cardholder agreement and misrepresented the fees that it charged. Pursuant to the consent order, the company—which neither admitted nor denied the allegations—may only charge “a reasonable inactivity fee” if a debit card is not used for 90 days. The company is also required to pay $4 million in consumer redress and a $2 million civil money penalty.

    Chopra released a separate statement, saying the “case illustrates some of the market failures and harms that occur when the disbursement of government benefits is outsourced to third-party financial services companies that fail to adhere to the law.” He warned that the CFPB “will continue to scrutinize these companies, particularly when law violations and abuses of dominance undermine the intent of such government benefits, and where the harms fall heavily on people who are struggling financially.”

    Federal Issues CFPB Enforcement CFPA EFTA UDAAP Abusive Deceptive Unfair Regulation E Debit Cards Fees Consumer Finance

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  • Connecticut adds additional protections for student loans

    State Issues

    On July 13, the Connecticut governor signed SB 716 to provide additional protections for student loan borrowers and impose new requirements on student loan servicers. Among other things, the act requires servicers to provide certain information to borrowers and cosigners regarding their rights and responsibilities, including cosigner release eligibility and the cosigner release application process. The law also prohibits a student loan servicer from engaging in an abusive act or practice when servicing a student loan and expands the definition of “servicing” in state student loan servicer law. The law provides a list of exempt persons, which includes banks and credit unions and their wholly-owned subsidiaries. The act states it took effect July 1.

    State Issues State Legislation Student Lending Student Loan Servicer Abusive

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  • District Court allows CFPB to pursue 2016 structured settlement claims

    Courts

    On July 12, the U.S. District Court for the District of Maryland issued an opinion denying several motions filed by parties in litigation stemming from a 2016 complaint filed by the CFPB, which alleged the defendants employed abusive practices when purchasing structured settlements from consumers in exchange for lump-sum payments. As previously covered by InfoBytes, the Bureau claimed the defendants violated the CFPA by encouraging consumers to take advances on their structured settlements and falsely representing that the consumers were obligated to complete the structured settlement sale, “even if they [later] realized it was not in their best interest.” After the court rejected several of the defendants’ arguments to dismiss based on procedural grounds and allowed the CFPB’s UDAAP claims against the structured settlement buyer and its officers to proceed, the CFPB filed an amended complaint in 2017 alleging unfair, deceptive, and abusive acts and practices and seeking a permanent injunction, damages, disgorgement, redress, civil penalties and costs.

    In the newest memorandum opinion, the court considered a motion to dismiss the amended complaint and a motion for judgment on the pleadings on the grounds that the enforcement action was barred by the U.S. Supreme Court’s decision in Seila Law LLC v. CFPB, which held that that the director’s for-cause removal provision was unconstitutional (covered by a Buckley Special Alert), and that the ratification of the enforcement action “came too late” because the statute of limitations on the CFPA claims had already expired. The court reviewed, among other things, whether the doctrine of equitable tolling saved the case from dismissal and cited a separate action issued by the Middle District of Pennsylvania which concluded that an “action was timely filed under existing law, at a time where there was no finding that a provision of the Dodd-Frank Act was unconstitutional.” While noting that the ruling was not binding, the court found the facts in that case to be similar to the action at issue and the analysis to be persuasive. As such, the court denied the motion to dismiss and the motion for judgment on the pleadings, and determined that the Bureau may pursue the enforcement action originally filed in 2016.

    Courts CFPB Enforcement UDAAP Structured Settlement CFPA Unfair Deceptive Abusive

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  • District Court’s order targets debt settlement firm’s abusive acts

    Courts

    On July 2, the U.S. District Court for the Central District of California entered a stipulated final judgment and order against an online debt-settlement company to resolve CFPB allegations concerning violations of the TSR and the CFPA’s prohibition on abusive acts or practices. As previously covered by InfoBytes, the Bureau filed a complaint against the company in April claiming it took “unreasonable advantage of consumers’ reasonable reliance that [the company] would protect their interests in negotiating their debts” by failing to disclose its relationship to certain creditors and steering consumers into high-cost loans offered by affiliated lenders. The Bureau also alleged that the company regularly prioritized creditors with which it had undisclosed relationships when settling consumers’ debts. Under the terms of the order, the company—who neither admits nor denies the allegations except as specified—is required to pay approximately $646,769 in redress and a $750,000 civil money penalty. The company is also (i) prohibited from settling consumers’ debts owed to any affiliated company with which it shares direct or indirect ownership; (ii) required to disclose to consumers any affiliation with any provider of the specific loans; and (iii) required to notify consumers with currently enrolled debts that it will no longer seek to settle those debts. Additionally, the company is required to comply with the TSR when marketing or selling any debt relief products or services, including by providing accurate disbursement amounts, not charging settlement-performance fees, clearly disclosing estimated costs, and not misrepresenting any material facts.

    Courts CFPB Enforcement Abusive UDAAP Consumer Finance Settlement Debt Collection Debt Settlement Telemarketing Sales Rule CFPA

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