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  • CFPB reports on credit card line decreases

    Federal Issues

    On June 29, the CFPB issued a report analyzing the impact of credit card line decreases (CLD) on consumers. The report is a part of a CFPB series that examines consumer credit trends using a longitudinal sample of approximately five million de-identified credit records maintained by one of the three nationwide consumer reporting agencies. The report described how credit card companies increasingly used credit line decreases during both the Great Recession and at the start of the Covid-19 pandemic. According to the Bureau, in issuing the report it “sought to examine the importance and impact of these decisions by credit card companies” because of the “critical role credit plays in financial resiliency, especially during a downturn.” Key findings of the report include, among other things, that: (i) 67 percent of consumers who had CLDs did not show evidence of a recent delinquency on any credit card, and 83 percent had no delinquency on the card that received the CLD; (ii) the median amount of credit decreased by approximately 75 percent for consumers across different credit score tiers; (iii) the median deep subprime, subprime, near-prime, and prime account utilization reached 94 percent when the CLD was applied; and (iv) the median credit scores for consumers with a recent card delinquency on any card decreased between 33 and 87 points.

    Federal Issues CFPB Consumer Finance Credit Cards Credit Report Consumer Reporting Agency

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  • Freddie to consider rent payments in automated underwriting

    Federal Issues

    On June 29, Freddie Mac announced that it will begin considering on-time rent payments as part of its loan purchase decisions to increase homeownership opportunities for first-time homebuyers. Starting July 10, with a borrower’s permission, mortgage lenders and brokers will be able to submit bank account data showing 12-months of on-time rent payments through Freddie’s automated underwriting system. According to Freddie, bank account data will be “obtained from designated third-party service providers using the same automated process used to verify assets, income and employment” using its asset and income modeler. Freddie explained that eligible rent payment data includes checks, electronic transactions, or digital payments made through specific payment apps. “These automated capabilities provide greater efficiencies to lenders and allows them to deliver a better borrower experience while continuing to meet Freddie Mac’s strong credit underwriting standards,” the announcement said. Additional requirements for submitting rent payment data to Freddie’s underwriting system will be announced in an upcoming July Single-Family Seller/Servicer Guide Bulletin.

    Federal Issues Freddie Mac GSEs Underwriting Mortgages Consumer Finance

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  • CFPB ends EWA sandbox

    Federal Issues

    On June 30, the CFPB issued an order terminating a financial services company’s sandbox approval order related to its earned wage access (EWA) lending model. As previously covered by InfoBytes, the Bureau issued a two-year approval order to the company in December 2020, which provided the company safe harbor from liability under TILA and Regulation Z (to the fullest extent permitted by section 130(f) as to any act done in good faith compliance with the order). The company’s product allowed employees access to their earned but unpaid wages prior to payday and granted employees of a participating employer the ability to download the company’s app and agree to the company’s terms prior to engaging in an EWA program. The Bureau said in its announcement that it had informed the company earlier in June “that it was considering terminating the approval order in light of certain public statements the company made wrongly suggesting a CFPB endorsement of its products.” According to the Bureau, the company then requested termination of the order in order, citing the need to make changes to its fee model that would have required modifying the existing approval order. The Bureau noted that the company “requested termination of the order so it could make fee model changes quickly and flexibly.” The Bureau’s announcement indicated that it plans to issue guidance “soon” regarding earned wage access products and the definition of “credit” under TILA and Regulation Z.

    Federal Issues CFPB Regulatory Sandbox Earned Wage Access TILA Regulation Z Consumer Finance

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  • CFPB warns debt collectors on “pay-to-pay” fees

    Agency Rule-Making & Guidance

    On June 29, the CFPB issued an advisory opinion to state its interpretation that Section 808 of the FDCPA and Regulation F generally prohibit debt collectors from charging consumers “pay-to-pay” fees for making payments online or by phone. “These types of fees are often illegal,” the Bureau said, explaining that its “advisory opinion and accompanying analysis seek to stop these violations of law and assist consumers who are seeking to hold debt collectors accountable for illegal practices.” 

    These fees, commonly known as convenience fees, are prohibited in many circumstances under the FDCPA, the Bureau said. It pointed out that allowable fees are those authorized in the original underlying agreements that consumers have with their creditors, such as with credit card companies, or those that are affirmatively permitted by law. Moreover, the Bureau stressed that the fact that a law does not expressly prohibit the assessment of a fee does not mean a debt collector is authorized to charge a fee. Specifically, the advisory opinion interprets FDCPA Section 808(1) to permit collection of fee only if: (i) “the agreement creating the debt expressly permits the charge and some law does not prohibit it”; or (ii) “some law expressly permits the charge, even if the agreement creating the debt is silent.” Additionally, the Bureau’s “interpretation of the phrase ‘permitted by law’ applies to any ‘amount’ covered under section 808(1), including pay-to-pay fees.” The Bureau further added that while some courts have adopted a “separate agreement” interpretation of the law to allow collectors to assess certain pay-to-pay fees, the agency “declines to do so.”

    The Bureau also opined that a debt collector is in violation of the FDCPA if it uses a third-party payment processor for which any of that fee is remitted back to the collector in the form of a kickback or commission. “Federal law generally forbids debt collectors from imposing extra fees not authorized by the original loan,” CFPB Director Rohit Chopra said. “Today’s advisory opinion shows that these fees are often illegal, and provides a roadmap on the fees that a debt collector can lawfully collect.”

    As previously covered by InfoBytes, the Bureau finalized its Advisory Opinions Policy in 2020. Under the policy, entities seeking to comply with existing regulatory requirements are permitted to request an advisory opinion in the form of an interpretive rule from the Bureau (published in the Federal Register for increased transparency) to address areas of uncertainty.

    Agency Rule-Making & Guidance Federal Issues CFPB Advisory Opinion Fees Junk Fees Consumer Finance FDCPA Regulation F Debt Collection

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  • CFPB says states may regulate credit reporting markets

    Agency Rule-Making & Guidance

    On June 28, the CFPB issued an interpretive rule addressing states’ authority to pass consumer-reporting laws. Specifically, the Bureau clarified that states “retain broad authority to protect people from harm due to credit reporting issues,” and explained that state laws are generally not preempted unless they conflict with the FCRA or “fall within narrow preemption categories enumerated within the statute.” Under the FCRA, states have flexibility to enact laws involving consumer reporting that reflect challenges and risks affecting their local economies and residents and are able to enact protections against the abuse and misuse of data to mitigate these consequences. 

    Stating that the FCRA’s express preemption provisions have a narrow and targeted scope, the Bureau’s interpretive rule provided several examples such as (i) if a state law “were to forbid consumer reporting agencies [(CRA)] from including information about medical debt, evictions, arrest records, or rental arrears in a consumer report (or from including such information for a certain period of time), such a law would generally not be preempted; (ii) a state law that prohibits furnishers from furnishing such information to a CRA would generally not be prohibited; and (iii) if a state law requires a CRA to provide information required by the FCRA at the consumer’s requests in a language other than English, such a law would generally not be preempted. The interpretive rule is effective upon publication in the Federal Register.

    The issuance of the interpretive rule arises from a notice received by the Bureau from the New Jersey attorney general concerning pending litigation that involves an argument that the FCRA preempted a state consumer protection statute. The Bureau stated that it “will continue to consider other steps to promote state enforcement of fair credit reporting along with other parts of federal consumer financial protection law,” including “consulting with states whenever interpretation of federal consumer financial protection law is relevant to a state regulatory or law enforcement matter, consistent with the State Official Notification Rule." As previously covered by InfoBytes, the Bureau issued an interpretive rule last month, clarifying states’ authority to bring enforcement actions for violations of federal consumer financial protection laws, including the CFPA.

    Agency Rule-Making & Guidance Federal Issues State Issues CFPB FCRA Consumer Finance Credit Report Consumer Reporting Agency

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  • Industry groups urge CFPB to rescind UDAAP anti-discrimination policy

    Federal Issues

    On June 28, industry groups and the U.S Chamber of Commerce (collectively, “groups”) released a White Paper, Unfairness and Discrimination: Examining the CFPB’s Conflation of Distinct Statutory Concepts, urging the CFPB to rescind the recently released unfair, deceptive and abusive acts or practices (UDAAP) examination manual. As previously covered by a Buckley Special Alert, in March, the CFPB announced significant revisions to its UDAAP exam manual, in particular highlighting the CFPB’s view that its broad authority under UDAAP allows it to address discriminatory conduct in the offering of any financial product or service. The White Paper, among other things, explained the groups’ position that the Bureau’s UDAAP authority cannot be used to extend the fair lending laws beyond the limits of existing statutory law. The White Paper stated that the Bureau “conflated” concepts of “unfairness” and “discrimination” “by announcing, via a UDAAP exam manual ‘update,’ that it would examine financial institutions for alleged discriminatory conduct that it deemed to be ‘unfair’ under its UDAAP authority.” The groups stated that the agency has “taken the law into its own hand” arguing that “the Bureau did not follow Administrative Procedure Act requirements for notice-and-comment rulemaking.” The groups said the change in the examination manual is “contrary to law and subject to legal challenge” as well as legislative repeal under the Congressional Review Act. Additionally, the groups argued that the Bureau’s interpretation exceeds the agency’s statutory authority, and that the Bureau’s “action should be held unlawful and set aside.” The groups further stated that “[c]hanges that alter the legal duties of so many are the proper province of Congress, not of independent regulatory agencies, and the CFPB cannot ignore the requirements of the Administrative Procedures Act and Congressional Review Act. The CFPB may well wish to fill gaps it perceives in federal antidiscrimination law. But Congress has simply not authorized the CFPB to fill those gaps.”

    In a letter sent to CFPB Director Rohit Chopra, the groups conveyed that Congress did not intend for the Bureau to “fill gaps” between the clearly articulated boundaries of antidiscrimination statutes with its UDAAP authority. The groups urged Director Chopra to rescind the exam manual update and stated that “[s]hould [he] believe additional authority is necessary to address alleged discriminatory conduct, we stand ready to work with Congress and the CFPB to explore that possibility and to ensure the just administration of the law.

    Federal Issues CFPB UDAAP Consumer Finance Deceptive Abusive Unfair Examination Discrimination Administrative Procedures Act

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  • CFPB discusses expanding electronic payments access

    Federal Issues

    On June 28, CFPB Deputy Director Zixta Martinez spoke before the FDIC Meeting of the Advisory Committee on Economic Inclusion to discuss expanding access to affordable payments, credit, and other financial products and services. In her remarks, Martinez first discussed electronic payments, which she considers to be “quickly supplanting cash and are now an essential part of the economy.” She then discussed the role of banks, noting that they have an “obligatory and leading role” in expanding electronic payments. Martinez stated that with “their obligations to increase banking access and reduce banking and financial inequities, banks can play a key role, for example, in reducing the persistent and growing homeownership gap between Black and white families and closing the economic gap between the banked and the under- and un-banked.” She also stated that having access to electronic payments will “low[er] monthly fees and further reduc[e] the cost of overdraft and non-sufficient fund fees” and will service banking deserts in rural areas and within communities of color. Martinez further discussed actions to build out banking access and described a recent proposal to update the Community Reinvestment Act’s (CRA) regulatory framework (covered by InfoBytes here). Martinez stated that the proposal will; (i) take steps to address problems with grade inflation on CRA exams (i.e., meaning that “almost every bank” passes”); (ii) “rely upon small business lending data, which will allow for a more in-depth understanding of small business lending issues,” race, and ethnicity; (iii) “increase incentives for banks to finance community development projects in areas experiencing persistent poverty”; and (vi) “recognize banks that assist low- and moderate-income communities with clean energy transition and climate resiliency.” Additionally, Martinez noted that the Bureau “is working to ensure that banking access and access to credit is not unfairly affected by algorithmic models.” In conclusion, she said the Bureau’s recently released guidance “confirm[s] that it is unlawful to use black box models that do not allow for clear understanding of adverse actions, such as denial of credit.” (Covered by InfoBytes here.)

    Federal Issues CFPB Consumer Finance Electronic Payments Fintech Discrimination CRA

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  • District Court gives final approval in TCPA class action settlement

    Courts

    On June 24, the U.S. District Court for the Eastern District of New York granted final approval of a $38.5 million settlement in a class action against a national gas service company and other gas companies (collectively, defendants) for allegedly violating the TCPA in connection with calls made to cell phones. As previously covered by InfoBytes, the plaintiff’s memorandum of law requested preliminary approval of the class action settlement. The settlement establishes a settlement class of all U.S. residents who “from March 9, 2011 until October 29, 2021, received a telephone call on a cellular telephone using a prerecorded message or artificial voice” regarding several topics including: (i) the payment or status of bills; (ii) an “important matter” regarding current or past bills and other related issues; and (iii) a disconnect notice concerning a current or past utility account. Under the terms of the settlement, the defendants will provide monetary relief to claiming class members in an estimated amount between $50 and $150. The settlement will additionally require the companies to implement new training programs and procedures to prevent any future TCPA violations. The settlement permits counsel for the proposed class to seek up to 33 percent of the settlement fund to cover attorney fees and expenses.

    Courts Class Action Settlement Robocalls TCPA Consumer Finance

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  • Fannie and Freddie release updated guidance on credit score coding glitch

    Federal Issues

    On June 24, Fannie Mae and Freddie Mac issued additional guidance related to a coding issue that impacted approximately 12 percent of credit scores earlier this year. As previously covered by InfoBytes, a consumer reporting agency informed lenders and industry members that it experienced a coding issue when it changed some of the technology to its legacy online model platform.

    After making a determination that the underlying credit report data errors resulting from the coding issue “are not considered to be material erroneous credit data errors under Selling Guide B3-2-09,” Fannie Mae issued LL-2022-02 to provide requirements applicable specifically to impacted loans. Specifically, lenders are not required to obtain an updated credit report and re-underwrite the impacted loan “by resubmitting the loan to Desktop Underwriter® (DU® )” nor are they required to “re-assess the underwriting decision for non-DU loans, based solely on this issue.” An inaccurate credit score used at the time of underwriting will not render the loan ineligible for purchase, Fannie Mae stated, adding that a “repurchase request will not be issued based solely on this issue.” Guidance related to obtaining corrected credit scores and making data corrections, as well as information concerning loan-level price adjustments, post-closing quality control review, and representation and warranty relief is also provided in the lender letter.

    Freddie Mac issued Bulletin 2022-14 to provide similar guidance to sellers about their credit reporting and data correction responsibilities, and stated that it will also “not issue a repurchase based solely on an inaccurate credit score used in the underwriting of a mortgage.”

    The guidance is effective immediately.

    Federal Issues Fannie Mae Freddie Mac Credit Scores Consumer Finance Consumer Reporting Agency Mortgages GSEs

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  • District Court grants summary judgment for debt collector over dunning emails

    Courts

    On June 23, the U.S. District Court for the Northern District of Illinois granted a defendant’s motion for summary judgment, ruling that dunning emails sent to collect unpaid credit card debt did not violate the FDCPA. The plaintiff received an email from the defendant stating that it was attempting to collect the debt on behalf of the creditor, and that due to the age of her debt, the creditor could not sue her for it. While the email stated that “making a payment on a time-barred debt has the potential to restart the statute of limitations for suit on the debt,” it went on to say that it was the creditor’s policy “never to file suit on a debt after the original statute of limitations has expired” and that it never sells such debt. A few days later, the defendant sent the plaintiff an email attempting to collect a separate debt owed to a different creditor. The plaintiff’s attorney sent a letter informing the defendant that she represented plaintiff and requested that plaintiff not be contacted again. After the plaintiff received a third email from the defendant, she sued alleging the defendant violated Section 1692e by urging her to pay a debt without disclosing that the defendant could not sue or report the debt. She further alleged that the defendant violated the FDCPA by continuing to send communications even after the defendant knew she was represented by an attorney. The plaintiff argued that she suffered an injury—and had standing—because she refrained from making purchases and because the defendant had wasted her time.

    The court disagreed, writing that the plaintiff failed to put forth evidence demonstrating some form of financial harm in order to have Article III standing. The court observed that “[o]ne does not suffer a monetary injury by refraining from making a purchase; one still has her money if she refrains from making a purchase. Paying too much for an item constitutes an economic injury but refraining from paying for an item does not. At best, plaintiff’s action might have left her with a feeling of want or desire, but such feelings are not concrete injuries.” Moreover, “[e]ven if plaintiff could be thought to have suffered an injury, her decision to refrain from any particular purchase is not fairly traceable to defendant,” the court wrote. And though the court found standing on her claim related to defendant’s continued contact, the court held that “Section 1692c(a)(2) applies only where the debt collector knows the consumer is represented by an attorney with respect to the specific debt being collected.” The defendant needed to be informed that the attorney was representing the plaintiff on both creditors’ debts for the third email to be a violation of the FDCPA, the court concluded.

    Courts FDCPA Debt Collection Consumer Finance

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