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On May 23, the CFPB announced a settlement to resolve allegations that a national bank violated TILA and its implementing Regulation Z, along with the Consumer Financial Protection Act. The Bureau sued the bank in 2020 (covered by InfoBytes here) claiming that, among other things, when servicing credit card accounts, the bank did not properly manage consumer billing disputes for unauthorized card use and billing errors, and did not properly credit refunds to consumer accounts resulting from such disputes. At the time, the bank issued a response stating that it self-identified the issues to the Bureau five years ago while simultaneously correcting any flawed processes.
The bank neither admitted nor denied the allegations but agreed under the terms of the stipulated final judgment and order filed in the U.S. District Court for the District of Rhode Island to pay a $9 million civil penalty. In addition to amending its credit card practices, the bank is prohibited from automatically denying billing error notices and claims of unauthorized use of cards should the customer fail to provide a fraud affidavit signed under penalty of perjury. The bank must also (i) credit reimbursable fees and finance charges to a customer’s account when unauthorized use and billing errors occur; (ii) provide required acknowledgement and denial notices to customers upon receipt or resolution of billion error notices; and (iii) provide customers who call its credit counseling hotline with at least three credit counseling referrals within the caller’s state. The bank must also maintain procedures to ensure customers are properly refunded any fees or finance charges identified by valid error notices and unauthorized use claims. The bank issued a statement following the announcement saying that while it “continues to disagree with the CFPB’s stance with respect to these long-resolved issues, which were self-identified and voluntarily addressed years ago,” it is pleased to resolve the matter.
The Oklahoma governor recently signed SB 794, which increases the maximum loan finance charge for certain loans (i.e., supervised loans under applicable Oklahoma law) by additionally including the federal funds rate published by the Federal Reserve Board. Specifically, a loan finance charge may not exceed the equivalent of the greater of either of the following: the total of (i) 32 percent plus the federal funds rate per year on the part of the unpaid balances of the principal which is $7,000 or less; (ii) 23 percent plus the federal funds rate per year on the part of the unpaid balances of the principal which greater than $7,000 but less than $11,000; and (iii) 20 percent plus the federal funds rate per year on the part of the unpaid balances of the principal which exceeds $11,000; or 25 percent plus the federal funds rate per year on the unpaid balances of the principal. The federal funds rate is defined as the rate published by the Fed that is “in effect as of the first day of each month immediately preceding the month during which the loan is consummated.” Supervised lenders may contract for and receive a loan finance charge not exceeding what is allowed by the Act. The Act is effective November 1.
On May 4, the Oklahoma governor signed SB 1687, which adjusts the amounts a supervised lender may charge in lieu of a loan finance charge on loans carrying principals of $3,000 or less. Previously, the principal limit was $300. The amendments outline specific allowable loan charges based on principal amount that may be made on qualifying loans. Additionally, for loans greater than $1,620 but not more than $3,000, lenders are allowed an acquisition charge for making the loan that may not exceed one-tenth of the amount of the principal. The threshold rate changes are effective July 1.
On January 30, the CFPB announced that it filed suit in the U.S. District Court for the District of Rhode Island against a national bank (defendant) based upon alleged violations of the Truth in Lending Act (TILA) and its implementing Regulation Z, the Fair Credit Billing Act (FCBA), and the Credit Card Accountability Responsibility and Disclosure Act (CARD Act). The CFPB claims that among other things, when servicing credit card accounts, the defendant did not properly manage consumer billing disputes for unauthorized card use and billing errors, and did not properly credit refunds to consumer accounts resulting from such disputes. Specifically, the complaint alleges that violations included the defendant’s (i) “practice of automatically denying billing error claims or claims of unauthorized use for failure of the consumers to provide Fraud Affidavits, including agreeing to testify as witnesses”; (ii) “failure to refund related finance charges and fees when it resolved billing error notices or claims of unauthorized use in consumers’ favor”; (iii) failure “to provide written notices of acknowledgement or denial in response to billing error notices”; and (iv) failure “to provide credit counseling referrals.” The CFPB is seeking injunctive relief, monetary relief, disgorgement of defendant’s ill-gotten gains, civil money penalties, and costs of the action.
The defendant issued a response to the suit on January 31, stating that it self-identified the issues to the Bureau five years ago while simultaneously correcting any flawed processes. According to the defendant’s statement, “the CFPB’s action is misguided” and “well beyond the expiration of the statute of limitations. The defendant vows to “vigorously challenge” the suit.
On August 19, the Court of Appeals of Indiana reversed the Indiana Department of Financial Institutions (Department) finding that a car dealership charged an “impermissible additional charge” in violation of the state’s additional-charges statute when the dealership improperly disclosed a finance charge to its consumers. According to the opinion, the dealership charged, in addition to a third party titling fee, a $25.00 convenience fee to its credit customers for electronic titling through the third party. The service was required for credit customers but was optional for cash customers. After conducting a routine examination, the Department identified one violation from a transaction in July 2015, where the dealership did not disclose the convenience fee in the “finance charge” box of the disclosures, noting “the fee was only mandatory for credit customers and therefore was ‘a condition of the extension of credit.’” The dealership provided a contract from the same time period, showing it disclosed the fee in the “Itemization of Amount Financed” and “Amount Financed” boxes, not in the “Finance Charge” box. The Department charged the dealership with violating the state’s additional-charges statute, “for assessing ‘impermissible additional charges’ in the form of the $25.00 convenience fee,” as opposed to a charge for violating the state’s disclosure statute.
On review, the Court of Appeals concluded the charge was a finance charge because it was mandatory for the dealership’s credit customers but not its cash customers, and noted a finance charge cannot also be an additional charge. The Department argued it made no practical difference which violation it alleged, because the remedies under both statutes are the same, while the dealership noted a disclosure violation would entitle it to raise certain defenses under TILA. The appellate court did not address this issue, but nonetheless concluded “a finance charge doesn’t become an ‘impermissible additional charge’ when it’s not disclosed in the ‘Finance Charge’ box,” and remanded the case back to the Department for proceedings under the disclosure statute.