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CFPB reaches $6 million settlement with prison financial services company
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.”
Connecticut adds additional protections for student loans
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.
District Court allows CFPB to pursue 2016 structured settlement claims
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.
District Court’s order targets debt settlement firm’s abusive acts
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.
CFPB action against debt settlement firm targets abusive acts
On April 13, the CFPB entered into a preliminary settlement with an online debt-settlement company for allegedly violating the CFPA’s prohibition on abusive acts or practices and failing to clearly and conspicuously disclose total cost under the Telemarketing Sales Rule. The complaint alleges that the company took “unreasonable advantage of consumers’ reasonable reliance that [it] 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 CFPB alleges that the company regularly prioritized creditors with which it had undisclosed relationships in settlements of consumers’ debts. Under the terms of the proposed stipulated final judgment and order, the CFPB is seeking restitution, damages, disgorgement, and civil money penalties.
In the Bureau’s announcement, acting Director David Uejio states that “[t]he CFPB will not tolerate companies that purport to represent consumers, but instead abuse their trust in a self-dealing scheme. This case provides a clear example of what Congress intended to prohibit when it created the CFPB and gave it authority to prevent abusive practices.”
CFPB rescinds abusiveness policy statement
On March 11, the CFPB announced it has rescinded its January 2020 policy statement, which addressed prohibitions on abusive acts or practices. As previously covered by InfoBytes, the Bureau issued the policy statement to provide a “common-sense framework” for how it planned to apply the “abusiveness” standard in supervision and enforcement matters as authorized under Dodd-Frank. Under the 2020 policy statement, the Bureau stated it would only cite or challenge conduct as abusive if the agency “concludes that the harms to consumers from the conduct outweigh its benefits to consumers.” The Bureau also stated it would generally avoid challenging conduct as abusive if it relies on all, or nearly all, of the same facts alleged to be unfair or deceptive, and that it would decline to seek civil money penalties and disgorgement for certain abusive acts or practices, absent unusual circumstances.
The Bureau now states that it is rescinding the 2020 policy statement after reaching the conclusion that the principles set forth do not actually provide clarity to regulated entities. Among other things, the Bureau notes that the 2020 policy statement is counterproductive, “afford[s] the Bureau considerable discretion in its application,” and adds uncertainty to market participants. Moreover, the Bureau claims that after reviewing and applying the 2020 policy statement, it has had “the opposite effect on preventing harm.” Going forward, the Bureau states it intends to “exercise the full scope of its supervisory and enforcement authority to identify and remediate abusive acts and practices” as established by Congress.
CFPB, states sue defendants for predatory immigrant-services scam
On February 22, the CFPB and state attorneys general from Massachusetts, New York, and Virginia filed a complaint against a group of defendants that provide immigration bond products or services for non-English speaking U.S. Immigration and Customs Enforcement (ICE) detainees. The Bureau alleges that the defendants engaged in deceptive and abusive acts and practices in violation of the CFPA, while the states bring related claims that the defendants violated their respective consumer-protection laws, by, among other things, (i) representing that they paid the detainees’ bonds and that monthly payments go towards repaying the defendants for doing so (the Bureau and states allege that the monthly payments are actually “rental fees for a GPS device that do not go to repaying consumers’ bonds”); (ii) making false threats that detainees will be re-arrested, detained, or deported if they do not make the monthly payments or remove the defendants’ GPS devices, many of which, the complaint claims, do not actually work; (iii) threatening to send detainees’ accounts to collection, representing that failing to make payments could harm their credit, or threatening to sue detainees or their families for non-payment; (iv) representing that collateral payments would be refunded once the detainees’ proceedings were resolved but in many cases failing to do so; (v) presenting detainees, most of whom cannot read or understand English, with a series of English-only contracts requiring the payment of large upfront fees plus $420 per month to “lease” GPS-tracking ankle monitors until their cases are resolved; (vi) creating the illusion that defendants are affiliated with ICE, even though they have no affiliation with authorities; and (vii) offering financial rewards to employees who sign up new customers and collect payments. The Bureau is seeking an injunction, as well as damages, redress, disgorgement, and civil money penalties.
Warren and Brown question CFPB on auto lending policies
On March 12, Senators Elizabeth Warren (D-MA) and Sherrod Brown (D-OH) sent a letter to CFPB Director Kathy Kraninger expressing concerns over the Bureau’s oversight of the auto lending market. The Senators contend that the Bureau has not taken any auto lending enforcement actions since Kraninger became director, despite reports expressing concern with the volume of outstanding auto debt and “auto lenders [] engaging in predatory practices and cutting back safeguards.” The Senators were “particularly concerned with the targeting of subprime consumers by non-bank lenders through indirect financing.” The letter seeks information regarding the Bureau’s plans to “fulfill its mission of stopping abusive practices and protecting consumers from this emerging threat,” including (i) whether the Bureau believes that the “incentive structure” between dealers and lenders in indirect financing can create risks for consumers; (ii) whether the Bureau believes lenders are intentionally charging higher rates because of arrangements with auto dealers; (iii) the types of actions the Bureau would take when it identifies a problematic relationship between a lender and a dealer; and (iv) a list of past enforcement actions by the Bureau against lenders who incentivized dealers to offer consumers a larger loan than the market value of the vehicle. In addition, the letter seeks information on the ways that the Bureau evaluates lender underwriting practices and whether it maintains a database with average LTV ratios, length of loan terms, and related data points for each lender. Finally, the Senators asked for clarifications on how the Bureau would evaluate whether auto lenders are engaging in abusive practices in light of its revised “abusiveness” standard and whether the Bureau has identified fair lending concerns with auto lenders. The letter requests that the Bureau respond to the questions by March 26.
CFPB issues statement intended to clarify “abusive” practices
On January 24, the CFPB issued a policy statement applicable immediately to provide a “common-sense framework” for how the Bureau plans to apply the “abusiveness” standard in supervision and enforcement matters as authorized under Dodd-Frank. Under the new policy statement, the Bureau will only cite or challenge conduct as abusive if the agency “concludes that the harms to consumers from the conduct outweigh its benefits to consumers.” The Bureau will also generally avoid challenging conduct as abusive if it relies on all, or nearly all, of the same facts alleged to be unfair or deceptive. Should the Bureau include abusiveness allegations, the policy statement says it will “plead such claims in a manner designed to clearly demonstrate the nexus between the cited facts and the Bureau’s legal analysis of the claim.” With respect to supervision, the Bureau intends to clarify the specific factual basis for determining a violation of the abusiveness standard. In addition, “the Bureau generally does not intend to seek certain types of monetary relief for abusiveness violations” in instances where the Bureau determines that the person made “a good-faith effort to comply with the abusiveness standard.” However, the Bureau cautions that it will still pursue restitution for consumers in such instances, regardless of whether a person acted in good faith. The Bureau further emphasized that the issuance of the policy statement does not prevent the possibility of future rulemaking to further define the abusiveness standard.
As previously covered by InfoBytes, last June the Bureau held a symposium to examine how the “abusive” standard has been used in practice in the field. Academics and practitioners discussed whether consumer harm was required for a practice to be considered abusive or whether there was even a need to clarify the abusive standard, as it is already statutorily defined. Most panelists agreed that a guidance document or policy statement would be an important first step for the Bureau in providing clarity to the industry, noting that the industry has struggled with examples of how abusiveness is different from unfairness or deception and that the Bureau has been “inconsistent at times” in the application of the abusive standard. The Bureau notes that the symposium, along with stakeholder feedback, played an important part of the process leading to the issuance of the policy statement.
New York proposes state-level increase in consumer finance oversight
On January 8, the New York governor released a proposal that would, among other things, expand the entities subject to NYDFS’ enforcement authority and harmonize state regulator authority to bring actions against entities engaging in unfair, deceptive, or abusive acts or practices with federal authority. Proposed within the 2020 State of the State agenda are several initiatives designed to increase the state’s oversight and enforcement of the financial services industry. Key measures include:
- Abusiveness claims. The proposal would make New York consumer protection law consistent with federal law by aligning the state’s UDAAP powers with those of the CFPB, thereby empowering state authorities to bring abusiveness claims under state law.
- Eliminate certain exemptions. The proposal would end exemptions from state oversight for certain, unspecified consumer financial products and services. “With the current federal administration reducing the number and breadth of enforcement actions brought by the CFPB, it is crucial that state consumer protection laws apply to all the same consumer products and services subject to Dodd-Frank,” the proposal states.
- Closing loopholes and creating a level playing field. Under the proposal, state-licensed cryptocurrency companies would be required to pay assessment fees similar to other financial services companies. Currently, only supervised entities licensed under the state’s insurance law or banking law are required to pay assessments to NYDFS to cover examination and oversight costs.
- Fines. In order to effectively deter illegal conduct, the proposal would amend the state’s insurance law to increase fines. Additionally, instead of the current Financial Services Law (FSL) penalty of $5,000 per violation, the governor proposes “capping penalties at the greater of $5,000, or two times the damages, or the economic gain attributed to the violation,” while also updating the FSL to provide “explicit authority for [NYDFS] to collect restitution and damages.”
- Debt collection. Debt collectors under the proposal would be required to be licensed by NYDFS, thus allowing the department to examine and investigate suspected abuses. Additionally, NYDFS’ new oversight authority would allow it to bring punitive administrative actions against debt collectors, which may result in significant fines or the loss of a license. The proposal would also codify the FTC’s rule prohibiting confessions of judgment in consumer loans.
As previously covered by InfoBytes, the proposal would also, among other things, expand access to safe and affordable financial services through a collaborative initiative between the state’s Community Development Financial Institutions, NYDFS, and other state agencies designed to improve outreach and financial literacy education to the unbanked and underserved communities.