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Financial Services Law Insights and Observations


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  • 28 state AGs argue CFPB’s debt collection proposal “falls far short”

    Agency Rule-Making & Guidance

    On September 18, 28 state attorneys general filed a comment letter in response to the CFPB’s Notice of Proposed Rulemaking (NPRM) amending Regulation F to implement the Fair Debt Collection Practices Act (FDCPA) (the “Proposed Rule”), urging the Bureau to reconsider the proposal. As previously covered by InfoBytes, on May 7, the CFPB issued the Proposed Rule, which covers debt collection communications and disclosures and addresses related practices by debt collectors. The comment letter argues that, “on the most critical issues, the Proposed Rule falls far short.” Specifically, the AGs assert that the bright-line call limit would not meaningfully reduce calls for the majority of consumers because the limit is placed on the debt, not on the consumer, which “renders any benefits to consumers illusory.” Moreover, because there is no restriction on the number of electronic communications a debt collector can send, the AGs argue that the Proposed Rule would result in a “barrage of emails and texts, and even social media contacts.” In addition to the concerns on contact, the letter, among other things, argues that the Proposed Rule: (i) should require affirmative consent for contact methods outside of phone or mail, as opposed to the opt-out requirements; (ii) should only allow for electronic delivery of validation notices with E-SIGN Act compliance; (iii) should have a strict-liability standard for collections on time-barred debt; and (iv) should apply to first-party creditors, as well as third-party creditors. Lastly, the letter notes the Proposed Rule fails to address a number of other topics, including the substantiation of debt prior to litigation, debt payment allocation, and the additional challenges faced by servicemembers.

    Agency Rule-Making & Guidance CFPB Debt Collection FDCPA State Issues State Attorney General

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  • Special Alert: California Legislature passes several amendments to the California Consumer Privacy Act and other privacy-related bills

    State Issues

    Lawmakers in California last week amended the landmark California Consumer Privacy Act (CCPA or the Act), which confers significant new privacy rights to California consumers concerning the collection, use, disclosure, and sale of their personal information by covered businesses, service providers, and third parties. While the amendments, which California Governor Gavin Newsom must sign by October 13, leave the majority of the consumer’s rights intact, certain provisions were clarified — including the definition of “personal information” — while other exemptions were added or clarified regarding the collection of certain data that have a bearing on financial services companies.

    This Special Alert provides an overview and status update of CCPA-related and other privacy bills that were recently considered by the California legislature.

    * * *

    Click here to read the full special alert.

    If you have any questions about the CCPA or other related issues, please visit our Privacy, Cyber Risk & Data Security practice page, or contact a Buckley attorney with whom you have worked in the past.

    State Issues CCPA Privacy/Cyber Risk & Data Security Special Alerts

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  • NYDFS names first Student Advocate and Director of Consumer Advocacy

    State Issues

    On September 17, NYDFS announced that Winston Berkman-Breen has been appointed as the agency’s first-ever Student Advocate and Director of Consumer Advocacy. Prior to joining NYDFS, Berkman-Breen was a Justice Catalyst Fellow and Staff Attorney with the Consumer Protection Unit at the New York Legal Assistance Group, where he represented low-income New York consumer borrowers in state and federal court against lenders and debt collectors. In his new role with NYDFS, Berkman-Breen “will advocate on behalf of students and serve as a liaison between DFS and New York consumers with concerns,” including reviewing and analyzing complaint data from student borrowers to recommend appropriate action by the regulator.

    State Issues NYDFS Student Lending State Regulators

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  • Washington DFI proposes MLO and student loan servicer amendments

    State Issues

    On September 24, the Washington State Department of Financial Institutions (DFI) will hold a rulemaking hearing to discuss amendments concerning mortgage loan originators (MLOs) as well as provisions related to student loan servicers. The proposed amendments will amend rules impacting Washington’s Consumer Loan Act and the Mortgage Broker Practices Act, including those related to the regulation of student loan servicers under a final rule that went into effect January 1. (See previous InfoBytes coverage on DFI’s adoption of amendments concerning student loan servicers here.) According to DFI, the proposed amendments are currently scheduled to take effect November 24.

    Among other proposed changes impacting MLOs are additional disclosure requirements concerning interest rate locks. Under the proposed amendments, MLOs will be required to provide a new interest rate lock agreement to a borrower within three business days of a locked interest rate change. Valid reasons for a change in a locked interest rate include changes in loan value, credit score, or other factors that may directly affect pricing. The amendments will also permit MLOs to include a prepayment penalty or fee on an adjustable rate residential mortgage loan provided “the penalty or fee expires at least sixty days prior to the initial reset period.” Among other provisions, the amendments also stipulate that a loan processor may work on files from an unlicensed location provided the processor accesses the files directly from the licensed mortgage broker’s main computer system, does not conduct any of the activities of a licensed MLO, and the licensed MLO has in place safeguards to protect borrower information.

    The proposed amendments also contain several changes applicable to student loan servicers regulated under the Consumer Loan Act, including that: (i) licensees servicing student loans for borrowers in the state “may apply to the director to waive or adjust the annual assessment amount”; (ii) licensees are required to disclose to all service members their rights under state and federal service member laws and regulations connected to their student loans; and (iii) student loan servicers must review all student loan borrowers against the Department of Defense’s database to ensure borrower entitlements are applied appropriately, and maintain written policies and procedures for this practice. The proposed amendments also state that compliance with federal law is sufficient for complying with several Washington requirements applicable to student loan servicers, including borrower payment provisions.

    State Issues State Regulators Student Lending Student Loan Servicer Mortgage Origination

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  • District Court rules cardholder agreement transferred arbitration rights to third party


    On September 10, the U.S. District Court for the Eastern District of Arkansas granted a motion to compel arbitration in a putative class action alleging violations of the Arkansas Fair Debt Collection Practices Act (AFDCPA) and the FDCPA. According to the order, the plaintiffs contended that the defendants—a debt buyer and its law firm—attempted to collect charged-off credit card debts “through standardized, form debt collection complaints . . . that fraudulently and falsely averred that [the debt buyer] ‘holds in due course a claim . . . pursuant to a defaulted [bank] credit card account.” While the plaintiffs did not dispute that the arbitration provision contained within the cardholder agreement entered into with the bank was valid and that their state and federal claims fell within its scope, they argued that the debt buyer was not a “holder in due course” of the accounts in questions, and as such, the arbitration provision contained within the cardholder agreement was not assigned to the defendants. The court disagreed, ruling that the cardholder agreements specifically permitted the original creditors to assign their rights to a third party, which includes the right to arbitration and the right to enforce the class action prohibition.

    Courts Debt Collection State Issues Arbitration FDCPA

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  • CFPB and state regulators launch American Consumer Financial Innovation Network

    Federal Issues

    On September 10, the CFPB, in conjunction with state regulators, announced the American Consumer Financial Innovation Network (ACFIN) to enhance coordination among federal and state regulators to facilitate financial innovation. ACFIN has three stated objectives in its charter: (i) “[e]stablish coordination between Members to benefit consumers by facilitating innovation that enhances competition, consumer access, or financial inclusion”; (ii) “[m]inimize unnecessary regulatory burdens and bolster regulatory certainty for innovative consumer financial products and services”; and (iii) “[k]eep pace with the evolution of technology in markets for consumer financial products and services in order to help ensure those markets are free from fraud, discrimination, and deceptive practices.” The initial state members of ACFIN are Alabama, Arizona, Georgia, Indiana, South Carolina, Tennessee, and Utah, but the Bureau notes that all state regulators, including financial regulatory agencies, have been invited to join.

    Federal Issues CFPB Fintech State Issues State Attorney General State Regulators

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  • FDIC and OCC critique Madden in amicus brief


    On September 10, the FDIC and the OCC filed an amicus brief in the U.S. District Court for the District of Colorado, supporting a bankruptcy judge’s ruling, which refused to disallow a claim for a business loan that carried a more than 120 percent annual interest rate, concluding the interest rate was permissible as a matter of federal law. After filing bankruptcy in 2017, a Denver-based business sought to reject the claim under Section 502 of the Bankruptcy Code, and sought equitable subordination under Section 510 of the Code, arguing that the original promissory note, executed by the debtor and a Wisconsin state chartered bank, and subsequently assigned to a nonbank lender, was invalid under Colorado’s usury law. The bankruptcy judge disagreed, declining to follow Madden v. Midland Funding, LLC (covered by a Buckley Special Alert here). The judge concluded that the promissory note was valid under Wisconsin law when executed as that state imposes no interest rate cap on business loans, and the assignment to the nonbank lender did not alter this, stating “[i]n the Court’s view, the ‘valid-when-made’ rule remains the law.” The debtor appealed the ruling to the district court.

    In support of the bankruptcy judge’s opinion, the FDIC and the OCC argue that the valid-when-made rule is dispositive. Specifically, the agencies assert that the nonbank assignee may lawfully charge the 120 percent annual rate, because the interest rate was non-usurious at the time when the loan was made by the Wisconsin state chartered bank. Moreover, the agencies state that it is a fundamental rule of contract law that “an assignee succeeds to all the assignor’s rights in the contract, including the right to receive the consideration agreed upon in the contract—here, the interest rate agreed upon.” Hence, the nonbank lender inherited the same contractual right to charge the annual interest rate. The agencies also argue that the Federal Deposit Insurance Act’s provisions regarding interest rate exportation (specifically 12 U.S.C. § 1831d) requires the same result, noting that “Congress intended to confer on banks a meaningful right to make loans at the rates allowed by their home states, which necessarily includes the ability to transfer those rates.” The agencies conclude that the bankruptcy judge correctly rejected Madden, calling the 2nd Circuit’s decision “unfathomable” for disregarding the valid-when-made doctrine and the “stand-in-the-shoes-rule” of contract law.

    Courts FDIC OCC Amicus Brief Madden Valid When Made Usury State Issues

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  • Illinois Appeals Court vacates $4.3 million FACTA class action settlement


    On September 6, the Illinois Appellate Court, 5th District, vacated a circuit court’s $4.3 million settlement in a class action brought against a merchant for allegedly violating the Fair and Accurate Credit Transaction Act (FACTA) when it printed the first six and last four digits of customers’ 16-digit credit card account numbers on receipts. The appeals court held, among other things, that the “record is devoid of facts that would have permitted a reasoned judgment that the class settlement was fair, reasonable and in the best interests of all affected.” Under FACTA, merchants are prohibited from including on a receipt more than the last five digits of a consumer’s credit card number, and a credit card’s expiration date. A class action suit claiming the merchant violated the restriction was originally filed in New York federal court, but the preliminarily approved settlement was later dismissed after objectors argued that the plaintiffs lacked standing. The named plaintiff requested dismissal of the federal action and subsequently filed suit immediately after in Illinois state court, asking the court to adopt a settlement agreement identical to the one that had been preliminarily approved by the federal court. The objector appealed once again, challenging, among other things, (i) the named plaintiff’s ability to adequately represent the settlement class; (ii) the original class notice, which she argued was insufficient to cover the state court settlement; and (iii) the “fairness, reasonableness, and adequacy of the ‘coupon settlement,’” in which class members received $12 merchant gift cards, while the named plaintiff received $4,000 and class counsel was awarded $500,000.

    On appeal, the appeals court disagreed with the objector’s contention that the named plaintiff lacked standing to represent the class because he kept his receipt and therefore had not been injured under FACTA, but found “a number of red flags” regarding the sub-class of more than 350,000 members of the merchant’s loyalty program, questioning whether the named plaintiff was an adequate representative for those class members since there was nothing in the record indicating whether he was a member of the program. Moreover, the appeals court agreed with the objector that the original class notice provided under the federal settlement did not sufficiently protect the due process rights of the settlement class, and that “due process requires the giving of notice anew of the pending state court settlement to absent class members so that they have the opportunity to protect their own interests.” The appeals court remanded the case to allow the trial court to more carefully scrutinize the terms of the settlement, stating that “we are unable to determine whether the trial court evaluated the merits of the cause of action, the prospects and problems of litigating the cause or the fairness of the terms of compromise.” The appeals court also ordered the trial court to further explain its findings that the $500,000 attorneys’ fee award and $4,000 lead plaintiff award are reasonable given the possibility that not every class member will use the coupon.

    Courts State Issues FACTA Credit Cards Privacy/Cyber Risk & Data Security Class Action

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  • Texas adopts licensing requirements for MLOs

    On August 16, the Finance Commission of Texas adopted provisions to amend various licensing requirements for residential mortgage loan originators (MLOs) regulated by the state’s Office of Consumer Credit Commissioner (OCCC), and implement licensing provisions in HB 1442, which took effect September 1. The amendments adopted by the Commission in August “maintain the current one-year term, the current December 31 expiration date, and the current reinstatement period from January 1 through the last day of February.” The Commission further clarified that these amendments apply to MLOs regulated by the OCCC, not just those applying for licensure. The amendments took effect September 5.

    Licensing State Issues Mortgage Origination Mortgage Licensing

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  • District Court allows majority of privacy invasion class action claims to proceed against social media company


    On September 9, the U.S. District Court for the Northern District of California granted in part and denied in part a social media company’s motion to dismiss a multidistrict class action alleging the company failed to prevent third parties from accessing and misusing private data of its users, in violation of the Stored Communications Act (SCA), the Video Privacy Protection Act (VPPA), and various state laws. In the consolidated action, the plaintiffs allege that the company (i) made sensitive user information—including basic facts such as gender, age, and address; and substantive content such as photos, videos, and religious and political views—available to third parties without user consent; and (ii) failed to prevent those same third parties from selling or otherwise misusing the information. The company moved to dismiss the action, arguing, among other things, that “people have no legitimate privacy interest in any information they make available to their friends on social media.”

    The district court disagreed, concluding that most of the plaintiffs’ claims should survive, and that the company “could not be more wrong” in its argument that its users lose all privacy interest in the information they share with their friends on social media. The court asserted that when a user shares information with a limited audience, they “retain privacy rights and can sue someone for violating them.” The court also rejected the company’s argument that the plaintiffs did not have standing to sue in federal court because they could not show “tangible negative consequences from the dissemination of [the] information.” The court noted that privacy invasion is a redressable injury in itself and does not need a secondary economic injury to confer standing. Additionally, while the court recognized that the company’s argument that the users consented to this practice has “some legal force,” it cannot “defeat the lawsuit entirely, at least at the pleading stage.” Therefore, the court denied the motion as to the VPPA and narrowed certain claims under the SCA and California state laws, mostly with regard to claims on behalf of users who signed up for the service after 2009, who purportedly authorized the company to share information through their friends with app developers.

    Courts Privacy/Cyber Risk & Data Security Class Action State Issues Standing

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