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Utah enacts financial institution provisions
On March 24, the Utah governor signed SB 183 into law, which amends the state’s provisions related to financial institutions. Among other things, the bill: (i) modifies the definition of “control” for purposes of the Financial Institutions Act and provides penalties for failure to comply with registration and disclosure requirements. Additionally, the bill enacts the Commercial Financing Registration and Disclosure Act, which requires individuals who provide certain commercial financing products to register with the Department of Financial Institutions and make certain disclosures in connection with each commercial financing product.
State AGs urge CFPB to prioritize consumers during inquiry into BNPL industry
On March 25, a coalition of state attorneys general, led by Illinois Attorney General Kwame Raoul, announced that they are urging the CFPB to ensure that “buy-now-pay-later” (BNPL) lenders are not engaging in practices that trap consumers in a cycle of debt. As previously covered by InfoBytes, in December 2021, the CFPB issued a series of orders to five companies seeking information regarding the risks and benefits of the BNPL credit model. In the letter, the state AGs requested that the CFPB prioritize robust consumer protections during its review of the BNPL loan industry, and noted that they are concerned that BNPL loans and services appeal to borrowers who already struggle to make ends meet or owe on other debts. The letter also noted the AGs’ concern that BNPL lenders can designate their loans to evade federal and state consumer protection and credit laws, and may not adequately disclose lending and repayment terms. The letter also pointed out that, like predatory lending products, BNPL loans may contain terms and features that are known to trap people in cycles of debt. Among other things, the state AGs urged the Bureau to: (i) explore “whether and how BNPL providers ensure consumer rights and protections, disclosure of fees, charges, and other essential terms to consumers, as well as how they comply with general requirements to refrain from unfair, deceptive, and abusive acts and practices”; (ii) assess “what steps, if any, BNPL providers take in considering ability-to-repay and the types and sources of information they rely on”; (iii) study “the emerging role of credit bureaus in the BNPL marketplace”; (iv) monitor partnerships “between BNPL providers and for-profit schools and online course providers” and “consider issuing guidance and rulemaking clarifying regulations for BNPL credit to finance education”; and (v) review the policies, procedures, and practices of BNPL providers regarding debt collection “to ensure that providers comply with all applicable consumer protections.”
NY AG warns debt collectors of new state regulations
On March 29, the New York attorney general announced that letters were sent to large credit card companies and major debt collectors operating in New York, providing a warning regarding new state debt collection regulations. As previously covered by InfoBytes, the New York governor signed S.153 in November 2021, which enacted The Consumer Credit Fairness Act and expanded consumer protections against abusive debt collection by, as explained by NYDFS acting Superintendent Adrienne A. Harris, “address[ing] known predatory debt collection practices, [and] barring an abusive common tactic engaged by predatory debt collectors which is to sue on time-barred consumer debts for which they lack even the most basic of documentation.” The letter noted that its recipients are “aware of these obligations and that [they] are taking appropriate steps to comply with the new requirements.” The letter stated that beginning April 7, the statute of limitations on consumer debt collection actions in the state will be decreased to three years, a period of time that cannot be extended by partial payments made after the statute of limitations has expired, and that “debt collectors must ensure that validation notices for debts that will become time-barred on April 7, 2022 include this disclosure if the notice is likely to be received after that date.” The letter also reminded debt collectors of new disclosures that will be required when filing collection lawsuits against consumers starting May 7. Complaints are required to include an itemization of the debt and include more information about the chain of ownership, including providing a copy of the original contract on which the debt is based. Collectors must also begin utilizing a “more comprehensive” notice that is provided to the clerk of the court and subsequently passed on to consumers and must use a new form when filing for summary judgments. Lastly, the letter requested information on how the companies are complying with Regulation F and the new disclosure requirements.
North Carolina appellate court affirms district court’s decision in debt collection case
On March 15, the Court of Appeals of North Carolina affirmed a district court’s grant of summary judgment in favor of a debt buyer plaintiff and rejected the debtor defendant’s argument that the plaintiff failed to comply with a provision of North Carolina’s Consumer Economic Protection Act (CEPA). According to the order, the defendant appealed the district court’s grant of summary judgment to the plaintiff in its 2019 suit to renew a default judgment that was entered in 2010 against the defendant. The defendant argued that the default judgment “is void because it was procured by fraud and the clerk lacked jurisdiction to enter the default judgment for various reasons,” and “that Plaintiff’s interest rates on Defendant’s debt violate North Carolina law.” The appellate court noted that the CEPA “did not apply” because the statute requires that, “[p]rior to entry of a default judgment or summary judgment against a debtor in a complaint initiated by a debt buyer, the plaintiff shall file evidence with the court to establish the amount and nature of the debt.” The appellate court noted that although the plaintiff filed its original complaint against the defendant in August 2009, this CEPA provision did not take effect until October 1, 2009, and therefore only applies to “foreclosures initiated, debt collection activities undertaken, and actions filed on or after that date.” The defendant argued that the plaintiff was still required to comply with the CEPA provision because the plaintiff filed its motion for a default judgment in February 2010—after the effective date of the CEPA provision. But the appellate court determined that the plaintiff’s motion for a default judgment “was part of prosecuting its ‘action filed’ and was not a ‘debt collection activity’ within the meaning of the Act.”
District Court denies defendant's motion in FCCPA case
On March 25, the U.S. District Court for the Middle District of Florida denied a TV provider’s (defendant) motion for summary judgment while partially granting and partially denying a motion for partial summary judgment from the plaintiff in a Florida Consumer Collection Practices Act (FCCPA) suit. According to the order, the plaintiff allegedly signed up for the defendant’s service, but “pause[d]” the program, which permitted her to suspend her service for nine months for $5 per month. The plaintiff filed for bankruptcy protection, listed the defendant as an unsecured creditor, and obtained a discharge. The plaintiff’s lawyer sent two faxes to the defendant, which disclosed to the defendant that the plaintiff was represented by counsel. The defendant sent five billing notifications and made six calls to the plaintiff, attempting to collect on the $5 monthly payment. A district court granted the defendant summary judgment on claims that it violated the FCCPA and the TCPA. The plaintiff appealed the decision, which affirmed the ruling on the TCPA claim, but reversed the FCCPA ruling, finding that the defendant may have attempted to collect a debt that was discharged and that it contacted the plaintiff after being notified that she was represented by an attorney. According to the order, the court stated that the “[p]laintiff has proffered enough evidence in the record from which a jury could reasonably infer that [the defendant] knew the Pause debt was invalid and that it did not have the right to collect it,” but “[o]n the other hand, considering the evidence in a light most favorable to [the defendant], a jury could reach the opposite conclusion, as [the defendant] has provided record evidence from which a jury could infer [the defendant] did not know that the Pause debt was invalid.”
Arizona and Utah modify various licensing provisions
On March 24, the Arizona governor signed HB 2612, which eliminates requirements for there to be a finding on whether an applicant is law abiding, honest, trustworthy, and of good moral character in order to be eligible for a license, permit, or certification. This applies to bank or in-state financial institution acquisitions, banking, consumer lenders, trust companies, escrow agents, mortgage brokers, mortgage bankers, commercial mortgage brokers, loan originators, financial institution holding companies, premium finance companies, real estate appraisers and appraisal management companies, among others. The bill also makes other technical and conforming changes and takes effect 90 days after adjournment of the legislature.
Earlier, on March 23, the Utah governor signed HB 69, which modifies various licensing provisions under the state’s Residential Mortgage Practices and Licensing Act. The bill also makes various amendments under the Real Estate Licensing and Practices Act related to licensing, fees, and disciplinary actions. Among other things, the bill amends the general qualifications of licensure to make residential mortgage loans, including provisions related to mandatory education requirements for both state applicants and applicants licensed in other states and criminal background checks. Specifically, the bill removes a provision that states a “license is immediately and automatically revoked if the criminal background check discloses the applicant fails to accurately disclose a criminal history involving: (A) the real estate industry; or (B) a felony conviction on the basis of an allegation of fraud, misrepresentation, or deceit.” Additional amendments authorize the commission to impose sanctions against licensees and unregistered persons that were found to be in violation of a provision of the act; discuss the process for filing a written request for the vacation of a license revocation; address pending transactions should the death of a principal broker occur; and remove provisions regarding the payment of certain expenses and costs. The bill takes effect 60 days after adjournment of the legislature.
FCC signs robocall enforcement partnerships with states
On March 28, the FCC announced it launched formal robocall investigation partnerships with the Connecticut, District of Columbia, Idaho, Kentucky, Minnesota, New Jersey, and Wyoming state attorneys general, bringing the total number of state-federal partnerships to 22. According to the FCC, the seven AGs entered into a Memoranda of Understanding (MOU) with state robocall investigators and the FCC’s Enforcement Bureau, which establishes critical information sharing and cooperation structures to investigate spoofing and robocall scam campaigns. The FCC also noted that it expanded existing MOUs in Michigan and West Virginia with robocall investigations. According to the press release, the MOUs help facilitate relationships with other actors, including other federal agencies and robocall blocking companies, and provide support for and expertise with critical investigative tools, including subpoenas and confidential response letters from suspected robocallers. The FCC also noted that “[d]uring investigations, both the FCC’s Enforcement Bureau and state investigators seek records, talk to witnesses, interview targets, examine consumer complaints, and take other critical steps to build a record against possible bad actors,” which “can provide critical resources for building cases and preventing duplicative efforts in protecting consumers and businesses nationwide.”
Chopra: Large repeat offenders should face tougher consequences
On March 28, CFPB Director Rohit Chopra warned that large, dominant banks and firms that repeatedly break the law “should be subject to the same consequences of enforcement actions as small firms.” Speaking before the University of Pennsylvania Law School as the 2022 Distinguished Lecturer on Regulation, Chopra told attendees that the current “double-standard” enforcement approach needs to end, and that the Bureau intends to establish dedicated units within its supervision and enforcement divisions to detect repeat offenders and corporate recidivists “to better hold them accountable.” This may mean that insured depository institutions lose access to federal deposit insurance or are put directly into receivership, Chopra stated, explaining that “[r]epeat offenses and, in particular, order violations, may be a sign that an institution’s condition or behavior is unsafe and unsound.”
Pointing out that penalties become meaningless if regulators are not willing to enforce them, Chopra stated that the Bureau needs “to move away from just monetary penalties and consider an arsenal of options that really work to stop repeat offenses.” To address this, Chopra outlined a new set of “bright-line structural remedies, rather than press-driven approaches” that the Bureau will consider when it discovers large entities are repeatedly committing the same types of violations. These include: (i) imposing limits or caps on size or growth; (ii) banning certain types of business practices; (iii) forcing companies to divest certain product lines; (iv) placing limitations on leverage or requirements to raise equity capital; and (v) revoking government granted privileges. Additionally, with respect to licensed nonbank institutions of all sizes that repeatedly violate the law, Chopra indicated that the Bureau will deepen its collaboration with state licensing officials to allow states to determine whether to suspend licenses or liquidate assets.
Chopra also raised the prospect of targeting individuals. “Agency and court orders bind officers and directors of the corporation, and so do the laws themselves, so there are multiple ways in which individuals are held accountable. Where individuals play a role in repeat offenses and order violations, it may be appropriate for regulatory agencies and law enforcers to charge these individuals and disqualify them. Dismissal of senior management and board directors, and lifetime occupational bans should also be more frequently deployed in enforcement actions involving large firms.” Chopra emphasized that “[w]hen it comes to individuals, we also need to pay close attention to executive compensation incentives. Important remedies for restoring law and order may include clawbacks, forfeitures, and other changes to executive compensation, including where we tie up compensation for longer periods of time and use that deferred compensation as the first pot of money to pay fines.”
Idaho places restrictions on automatic subscription renewals
On March 23, the Idaho governor signed SB 1298, adding new provisions to protect consumers from unfair or deceptive trade practices with respect to automatic subscription renewals entered into or renewed on or after January 1, 2023. Specifically, a seller may not make an automatic subscription renewal offer to an Idaho resident unless the seller clearly and conspicuously discloses the terms of the renewal and provides specific cancellation methods. The bill provides that notice must be given to the consumer at least thirty days and no more than sixty days in advance of the date of the delivery or provision of goods or services. Additionally, sellers must provide the same method for cancellation (including free online cancellation) as used by the consumers to subscribe. A violation of the bill’s provisions constitutes a violation of the Idaho consumer protection act.
Social networking apps settle minors' data claims for $1.1 million
On March 25, the U.S. District Court for the Northern District of Illinois granted final approval to a $1.1 million class action settlement resolving claims that the operators of two video social networking apps (defendants) “‘surreptitiously tracked, collected, and disclosed the personally identifiable information and/or viewing data of children under the age of 13,’ ‘without parental consent’” in violation of federal and California privacy law. Specifically, plaintiffs asserted violations of the Video Privacy Protection Act (VPPA), the California constitutional right to privacy, the California Consumers Legal Remedies Act (CLRA), and the Illinois Consumer Fraud and Deceptive Businesses Practices Act. Defendants countered that plaintiffs’ state-law claims were preempted by the Children’s Online Privacy Protection Act, and that, furthermore, the “alleged conduct is not within the scope of VPPA or the cited state consumer protection laws” and “does not amount to a common law invasion of privacy or a violation of Plaintiffs’ rights under the California Constitution.” Moreover, defendants argued that plaintiffs could not recover actual damages. According to plaintiffs’ supplemental motion for final approval, following months-long negotiations, the parties agreed to settle the action on a class-wide basis.
The settlement requires defendants to pay $1.1 million into a non-reversionary settlement fund, to be dispersed pro rata to class members (anyone in the U.S. who, prior to the settlement’s effective date and while under the age of 13, registered for or used the apps) who submit a valid claim after the payment of settlement administration expenses, taxes, fees, and service awards. The court’s order, however, declined to award an objector’s counsel any attorneys’ fees for his efforts to negotiate modified relief because the agreement was negotiated in a separate proceeding in related multidistrict litigation. The court also denied plaintiffs’ motion for sanctions against the objector’s law firm.