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On February 23, the CFPB entered a consent order against a Georgia-based nonbank auto title lender (respondent) for alleged violations of the Military Lending Act (MLA), the Truth in Lending Act, and the Consumer Financial Protection Act. According to the Bureau, the respondent allegedly charged nearly three times the MLA’s 36 percent annual interest rate cap on auto title loans made to military families. The respondent also allegedly changed military borrowers’ personal information in an attempt to hide their protected status, included mandatory arbitration clauses and unreasonable notice provisions in its loans, and charged fees for an insurance product that provided no benefit to the borrower. The Bureau noted that the respondent has been under a consent order since 2016 for allegedly engaging in unfair and abusive acts related to its lending and debt collection practices (covered by InfoBytes here). While neither admitting nor denying any of the allegations, the respondent has agreed to pay $5.05 million in consumer redress and a $10 million penalty. The respondent must also implement robust measures to prevent future violations.
District Court stays action against remittance provider while Supreme Court weighs CFPB’s funding structure
On December 9, the U.S. District Court for the Southern District of New York stayed an action brought by the CFPB and the New York attorney general against a defendant remittance provider until after the U.S. Supreme Court decides if it will review whether the U.S. Court of Appeals for the Fifth Circuit erred in holding that the Bureau’s funding structure violates the Appropriations Clause of the Constitution. Last month the DOJ, on behalf of the CFPB, submitted a petition for a writ of certiorari seeking Supreme Court review of the 5th Circuit’s decision during its current term. (Covered by InfoBytes here.) The New York AG and the Bureau sued the defendant in April for allegedly violating the EFTA and its implementing Regulation E, the Remittance Rule, and the Consumer Financial Protection Act (CFPA), among various consumer financial protection laws, in its handling of remittance transfers. (Covered by InfoBytes here.)
The defendant argued that the district court should hold off on deciding on its motion to dismiss per the aforementioned argument, but should nonetheless rule on its pending motion to transfer. The Bureau opposed the defendant’s request for a stay, countering “that a stay would not promote efficiency” since the issue of the Bureau’s standing would not affect the claims brought in the current action. The Bureau further asserted “that the public and the parties’ interest weighs against a stay, as it would hinder Plaintiffs’ enforcement of the consumer protection laws and make obtaining evidence down the line more difficult.”
The district court disagreed, stating that the Supreme Court may address the broader issue of the Bureau’s standing to bring enforcement actions in its decision, and that, regardless, the agency’s claims in the current action “are inextricably linked to CFPB rules and regulations, which themselves may be implicated by a Supreme Court decision should it grant the petition.” The district court stayed the case in its entirety and said that it will wait to decide on both motions until after the Supreme Court decides on the Bureau’s filed petition for a writ of certiorari.
On December 12, the CFPB announced a proposed rule seeking to identify repeat financial law offenders by establishing a database of enforcement actions taken against certain nonbank covered entities. Specifically, the Bureau proposes to enhance market monitoring and risk-based supervision efforts by including all final public written orders and judgments (including any consent and stipulated orders and judgments) obtained or issued by any federal, state, or local government agency for violation of certain consumer protection laws related to unfair, deceptive, or abusive acts or practices in the database. Additionally, pursuant to Section 1024(b)(7) of the Consumer Financial Protection Act, the Bureau is also proposing that larger supervised nonbanks be required to submit annual written statements regarding compliance with each underlying order that is signed by an attesting executive with “knowledge of the entity’s relevant systems and procedures for achieving compliance and control over the entity’s compliance efforts.” Excluded from the registry will be insured depository institutions and credit unions, related persons, states, natural persons, and certain other entities.
Explaining that protecting American consumers is a shared effort spanning local, state, and federal authorities, CFPB Director Rohit Chopra stated that currently “readily accessible information is lacking about the identity of orders issued against nonbanks subject either to the CFPB’s market monitoring authority or to its supervisory authority across the various markets for consumer financial products and services.” The creation of a central repository of enforcement actions around the country for use in tracking and mitigating risks posed by repeat offenders and monitoring entities subject to agency and court orders will help the Bureau, the law enforcement community, and the public “limit the harms from repeat offenders,” the Bureau said in its announcement. The Bureau noted that it plans to share the database with other regulators and law enforcement agencies by making the registry public.
Comments on the proposal are due 60 days after publication in the Federal Register. The Bureau said the proposed registry would launch “no earlier than January 2024.”
On May 20, a global payments provider, which was recently sued by the New York attorney general and the CFPB, filed a pre-motion letter hinting that it will challenge the constitutionality of the Bureau’s funding structure. As previously covered by InfoBytes, the complaint claimed the “repeat offender” defendant allegedly violated numerous federal and state consumer financial protection laws in its handling of remittance transfers. Earlier in the month, the defendant called the allegations “false, inflammatory and misleading,” and took issue with the Bureau’s suggestion that it had “uncovered widespread and systemic issues involving ‘substantial’ consumer harm.” According to the defendant, “data from the CFPB’s own consumer complaint portal strongly suggest otherwise.” (Covered by InfoBytes here.)
The defendant raised several arguments, including that the “CFPB’s funding structure also violates the Appropriations Clause, requiring dismissal”—a nod to a recent en banc decision issued by the U.S. Court of Appeals for the Fifth Circuit (covered by InfoBytes here), in which several dissenting judges argued that the case should be dismissed because the agency’s funding structure violates the Constitution’s separation of powers and “is doubly removed from congressional review.” The defendant’s pre-motion letter also argued that the Bureau’s complaint should be moved to the Northern District of Texas where the company is headquartered and where the Bureau’s examinations were conducted.
In response, the Bureau and New York AG filed their own letter responding to the defendant’s proposed grounds for dismissal, countering, among other things, that the case is “adequately pled,” the claims are timely, and that the Bureau’s funding structure is constitutional. Challenging the defendant’s contention that the Bureau’s statutory method of funding violates the Constitution’s appropriations clause, the letter stressed that the U.S. Supreme Court and the U.S. Court of Appeals for the Second Circuit have held that this clause “simply requires that federal spending be authorized by statute,” adding that “[b]oth the Bureau’s receipt of funds and its use of those funds are so authorized.”
On May 2, a global payments provider recently sued by the New York attorney general and the CFPB responded to allegations claiming the “repeat offender” violated numerous federal and state consumer financial protection laws in its handling of remittance transfers. As previously covered by InfoBytes, the complaint claimed the defendant, among other things, (i) violated the Remittance Rule requirements by repeatedly failing “to provide fund availability dates that were accurate, when the Rule required such accuracy”; (ii) “repeatedly ignored the Rule’s error-resolution requirements when addressing notices of error from consumers in New York, including in this district, and elsewhere;” and (iii) failed to establish policies and procedures designed to ensure compliance with money-transferring laws, in violation of Regulation E. The complaint further asserted that the defendant violated the CFPA “by failing to make remittance transfers timely available to designated recipients or to make refunds timely available to senders,” and that the defendant failed to adopt and implement a comprehensive fraud prevention program mandated by a 2009 FTC order for permanent injunction (covered by InfoBytes here).
The defendant refuted the charges, calling the allegations “false, inflammatory and misleading.” According to the defendant, “before the CFPB filed its lawsuit against the Company on April 21, 2022, [it] had never before been subject to any enforcement action by the CFPB, nor had [it] ever been publicly accused of violating any of the laws or regulations under the CFPB’s purview.” The defendant also took issue with the Bureau’s suggestion that it had “uncovered widespread and systemic issues involving ‘substantial’ consumer harm,” contending that “data from the CFPB’s own consumer complaint portal strongly suggest otherwise. For example, a search of the CFPB’s Consumer Complaint Database shows that in the nine years that the Remittance Rule has been in place, only 351 complaints were made to the CFPB against [the defendant] for failing to deliver money when promised. These complaints represent 0.0001% of the over 325 million transactions subject to the Remittance Rule that [the defendant] processed during that time period. In New York, the total number of complaints in the CFPB Database for that time period was 28, approximately three per year. There have simply never been widespread or systemic violations by [the defendant] of the Remittance Rule.”
On April 26, CFPB Director Rohit Chopra testified at a hearing held by the Senate Banking Committee on the CFPB’s most recent semi-annual report to Congress (covered by InfoBytes here). Chopra’s opening remarks focused on key efforts the agency is taking to meet objectives established by Congress, including (i) shifting enforcement resources away from investigating small firms and focusing instead on repeat offenders and large players engaged in large-scale harm; (ii) increasing transparency through the issuance of guidance documents, such as advisory opinions, compliance bulletins, policy statements, and other publications to help entities comply with federal consumer financial laws; (iii) rethinking its approach to regulations, including its work to develop several rules authorized in the CFPA, and placing “a higher premium on simplicity and ‘bright lines’ whenever possible”; (iv) engaging with the business community and meeting with state-based associations to speak directly with community banks and credit unions and engaging with a broad range of other businesses and associations that may be affected by the laws the Bureau administers; (v) promoting greater competition by “lowering barriers to entry and increasing the pool of firms competing for customers based on quality, price, and service”; and (vi) researching issues related to big tech’s influence on consumer payments.
In his opening statement, Senate Banking Committee Chair Sherrod Brown (D-OH) praised Chopra’s recent efforts related to “junk fees” such as overdraft fees and non-sufficient fund fees, discrimination and bias in the appraisal process, reporting of medical collection debt by the credit reporting agencies, examination authority over non-banks and fintech companies, and crack-down on repeat offenders. However, Ranking Member Patrick Toomey (R-PA) criticized Chopra’s actions and alleged “overreach.” Among other things, Toomey characterized the Bureau’s attempts “to supervise for disparate impact not only in lending, but in all consumer financial services and products” as “unauthorized stealth rulemaking” that “will create tremendous uncertainty among regulated entities.” Toomey also took issue with recent changes to the Bureau’s rules of adjudication, claiming it will “make it easier to engage in regulation by enforcement.”
During the hearing, committee members discussed topics related to collecting small business lending data, rural banking access, student loan servicing, and whether the Bureau should be subject to the congressional appropriations process. Republican committee members raised concerns over several issues, including significant revisions recently made to the Bureau’s unfair, deceptive, or abusive acts or practices (UDAAP) examination manual that state that any type of discrimination in connection with a consumer financial product or service could be an “unfair” practice (i.e., the CFPB can now bring “unfair” discrimination claims related to non-credit financial products). (Covered by a Buckley Special Alert.) Senator Thom Tillis (R-NC) characterized the new policy as a “wholesale rewrite” of the examination manual that will improperly expand the reach of disparate impact liability and challenged the lack of notice-and-comment for the changes to the UDAAP manual.
Conversely, Democratic committee members praised Chopra’s actions and encouraged him to continue pressuring banks to cut excessive overdraft fees and other “junk fees,” as well as strengthen enforcement against repeat offenders. Senator Elizabeth Warren (D-MA) stressed that imposing fines that are less than the profits made from the misconduct will not be enough to persuade large banks to follow the law and asked Chopra to think about other steps regulators might consider to hold large repeat offenders accountable. She referenced her bill, the Corporate Executive Accountability Act, which is designed to hold big bank executives personally liable for the bank’s repeat violations of the law.
Chopra reiterated the Bureau’s priorities in his April 27 testimony before the House Financial Services Committee. At the hearing, House committee members questioned Chopra on the Bureau’s plans to collect data on small business loans pursuant to Section 1071 of the Dodd-Frank Act, crack down on “junk fees,” and address fair lending concerns with automated valuation models and fraud in payment networks. During the hearing, Chopra told committee members that the Bureau plans to revisit and update older regulations such as the CARD Act to lower credit card fees. “We want to make sure that credit cards are a competitive market . . . [so] I am asking the staff to look at whether we should reopen the Card Act rules that were promulgated by the Federal Reserve Board over 10 years ago . . . to be able to look at some of these older rules we inherited, to determine whether there needs to be any changes,” Chopra said, adding that “late fees are an area that I expect to be one of the questions we solicit input on.”
On April 21, the CFPB and New York attorney general filed a complaint against a remittance provider (defendant) for allegedly violating the Electronic Funds Transfer Act and its implementing Regulation E and the Remittance Rule (the Rule) and the Consumer Financial Protection Act (CFPA), among various consumer financial protection laws. The Bureau’s announcement called the defendant a “repeat offender” citing that in 2018, the FTC filed a motion for compensatory relief and modified order for permanent injunction against the defendant, which alleged that it failed to adopt and implement a comprehensive fraud prevention program mandated by the 2009 order (covered by InfoBytes here). The CFPB complaint alleges that from October 2018 through 2022, the defendant: (i) violated the Remittance Rule requirements by repeatedly failing “to provide fund availability dates that were accurate, when the Rule required such accuracy”; (ii) “repeatedly ignored the Rule’s error-resolution requirements when addressing notices of error from consumers in New York, including in this district, and elsewhere;” and (iii) failed to establish policies and procedures designed to ensure compliance with money-transferring laws, in violation of Regulation E. The complaint further noted that the defendant’s “own assessments of consumers’ complaints showed that the dates Defendants disclosed to consumers, repeatedly, were wrong,” and that the defendant “found multiple delays in making funds available to designated recipients, including delays that constituted errors under the Rule,” among other things. Finally, the Bureau claims that the defendant violated the CFPA “by failing to make remittance transfers timely available to designated recipients or to make refunds timely available to senders.” The Bureau’s complaint seeks consumer restitution, disgorgement, injunctive relief, and civil money penalties. According to a statement released by CFPB Director Rohit Chopra, "the remittance market is ripe for reinvention, and the CFPB will be examining ways to increase competition and innovation for the benefit of both families and honest businesses, while also avoiding creating a new set of harms."
On April 12, the CFPB sued a credit reporting agency (CRA), two of its subsidiaries (collectively, “corporate defendants"), and a former senior executive for allegedly violating a 2017 enforcement order in connection with alleged deceptive practices related to their marketing and sale of credit scores, credit reports, and credit-monitoring products to consumers. The 2017 consent order required the corporate defendants to pay a $3 million civil penalty and more than $13.9 million in restitution to affected consumers as well as abide by certain conduct provisions (covered by InfoBytes here). The Bureau’s announcement called the corporate defendants “repeat offender[s]” who continued to engage in “digital dark patterns” that caused consumers seeking free credit scores to unknowingly sign up for a credit monitoring service with recurring monthly charges. According to the Bureau’s complaint, the corporate defendants, under the individual defendant’s direction, allegedly violated the 2017 consent order from the day it went into effect instead of implementing agreed-upon policy changes intended to stop consumers from unknowingly signing up for credit monitoring services that charge monthly payments. The Bureau claimed that the corporate defendants’ practices continued even after examiners raised concerns several times. With respect to the individual defendant, the Bureau contended that he had both the “authority and obligation” to ensure compliance with the 2017 consent order but did not do so. Instead, he allowed the corporate defendants to “defy the law and continue engaging in misleading marketing, even in the face of thousands of consumer complaints and refund requests.” The complaint alleges violations of the CFPA, EFTA/ Regulation E, and the FCRA/Regulation V, and seeks a permanent injunction, damages, civil penalties, consumer refunds, restitution, disgorgement and the CFPB’s costs.
CFPB Director Rohit Chopra issued a statement the same day warning the Bureau will continue to bring cases against repeat offenders. Dedicated units within the Bureau’s enforcement and supervision teams will focus on repeat offenders, Chopra stated, adding that the Bureau will also work with other federal and state law enforcement agencies when repeat violations occur. “Agency and court orders are not suggestions, and we are taking steps to ensure that firms under our jurisdiction do not engage in repeat offenses,” Chopra stressed. He also explained that the charges against the individual defendant are appropriate, as he allegedly, among other things, impeded measures to prevent unintended subscription enrollments and failed to comply with the 2017 consent order, which bound company executives and board members to its terms.
The CRA issued a press release following the announcement, stating that it considers the Bureau’s claims to be “meritless” and that as required by the consent order, the CRA “submitted to the CFPB for approval a plan detailing how it would comply with the order. The CFPB ignored the compliance plan, despite being obligated to respond and trigger deadlines for implementation. In the absence of any sort of guidance from the CFPB, [the CRA] took affirmative actions to implement the consent order.” Moreover, the CRA noted that “[r]ather than providing any supervisory guidance on this matter and advising [the CRA] of its concerns – like a responsible regulator would – the CFPB stayed silent and saved their claims for inclusion in a lawsuit, including naming a former executive in the complaint,” and that “CFPB’s current leadership refused to meet with us and were determined to litigate and seek headlines through press releases and tweets.”