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Illinois pushing to increase accessibility to certified financial products
On August 19, the Illinois governor signed SB 1332, which is designed to decrease low-income consumers’ reliance on alternative financial products and increase the accessibility to certified financial products (defined as a “financial product offered by a financial institution that meets minimum requirements as established by the Comptroller”). SB 1332 creates the Illinois Bank On Initiative Commission, chaired by the state Comptroller, which will provide an annual, publicly available report (starting October 2020) that will list: (i) authorized certified financial products and minimum requirements for qualification; (ii) financial institutions providing certified financial products; and (iii) outreach strategies for facilitating access to certified financial products. SB 1332 is effective immediately.
7th Circuit: FDCPA claims fail due to insufficient evidence
On August 9, the U.S. Court of Appeals for the 7th Circuit affirmed a district court ruling that a consumer could not proceed on FDCPA or Wisconsin Consumer Act (WCA) claims because he failed to demonstrate that the incurred credit card debt in question was a “consumer debt” entitled to FDCPA and WCA protections. The consumer filed a lawsuit against a law firm acting on behalf of a debt collection agency claiming, among other things, that the firm had failed to provide written notice of his right to cure a defaulted debt before the firm commenced an action against him in Wisconsin state court. While the consumer maintained that the debt was not his, he argued that “to the extent” that he was liable for the debt, it was entered into for personal, family, or household purposes, and that by failing to provide written notice of his rights, the firm had violated the FDCPA and WCA. The district court granted summary judgment for the defendant, finding that the consumer failed to establish that the debt was a consumer debt.
On appeal, the 7th Circuit affirmed the district court’s ruling. The appellate court found that the evidence put forward by the plaintiff, which included account statements and his own representations regarding the purpose of the account, was insufficient to show that the debt was incurred for personal, family, or household purposes. Specifically, the court found that the plaintiff’s representations that the debt was a consumer debt could not be reconciled with his contention that the debt was not his and that the charges on his account statement did not provide sufficient information for the court to conclusively determine that they were made for personal, and not business, purposes.
Florida AG settles UDAP action with auto dealership
On August 5, the Florida attorney general announced a $1.2 million settlement with a Florida auto dealership and its owner (defendants) for allegedly violating the state’s Unfair and Deceptive Trade Practices Act by failing to pay off outstanding liens on vehicle trade-ins. According to a complaint filed in the Circuit Court of the 4th Judicial Circuit, the AG initiated an investigation alleging that the defendants, among other things, accumulated unpaid obligations of more than $1.2 million to lienholders on traded-in vehicles. As a result, consumers were held accountable for the debt and received invoices from the lienholders. For consumers who did not make payments on their trade-ins, the lienholders often reported the defaults to credit bureaus, with, in some instances, the adverse credit reporting affected service members’ security clearances. The AG also noted that in certain circumstances, the lienholder attempted to repossess vehicles that were no longer owned by the consumers. Additionally, the defendants also failed to process title transfers within the statutorily required time frame, which resulted in some consumers experiencing difficulty when trying to obtain financing and insurance on their other vehicles, and others being sold traded-in vehicles without having clear title. In 2018, the dealership was purchased and the outstanding liens paid by the acquiring company. Under the terms of the settlement, the defendants have agreed to pay approximately $1.2 million in equitable consumer restitution, $235,000 in civil penalties, and $15,000 for attorney’s fees and costs. The defendants are also permanently enjoined from owning, operating, or managing an auto or truck dealership in the state at any time in the future.
VA encourages relief for Hurricane Barry-affected borrowers
On July 30, the Department of Veterans Affairs (VA) issued Circular 26-19-21, encouraging mortgagees to provide relief for VA borrowers affected by Hurricane Barry on the Gulf Coast. Among other forms of assistance, the Circular encourages loan holders and servicers to (i) extend forbearances to borrowers in distress because of the severe storms and flooding; (ii) establish a 90-day moratorium from the disaster date on initiating new foreclosures on affected loans; (iii) waive late charges on affected loans; and (iv) suspend credit reporting. The Circular is effective until July 1, 2020. Mortgage servicers and veteran borrowers are also encouraged to review the VA’s Guidance on Natural Disasters.
Find continuing InfoBytes coverage on disaster relief guidance here.
CFPB reports on “credit invisibility” symposium
On July 19, the CFPB released a report titled, “Building a Bridge to Credit Invisibility,” which covers the Bureau’s September 2018 fair lending symposium of the same name. The symposium was a day-long event that explored the challenges consumers face in accessing credit. The Bureau uses the term “credit invisible” to describe consumers who do not have a credit record maintained by a national credit reporting agency, or who have a credit record that is deemed to have too little or too old information to be treated as “scorable” by widely used credit scoring models. (Coverage of a previous Bureau report on credit invisibility available here.) The symposium report includes summaries of each of the panel discussions: (i) several short talks on issues such as credit invisibility, lending deserts, and innovation to expand access to credit; (ii) Bridging to Credit Visibility Using Innovative Products; (iii) Credit Products and Services for Microenterprise; and (iv) Alternative Data: Innovative Products and Solutions. The report also highlights key themes from the symposium, noting that many panelists believe work needs to be done to make products for the credit invisible more profitable and sustainable for large financial service providers. Additionally, panelists noted the need for responsible innovation while ensuring that access to credit is facilitated in a way that is “safe, affordable, and non-discriminatory.”
Kraninger: CFPB's focus is preventing consumer harm, and state and federal collaboration
On July 18, Kathy Kraninger, Director of the CFPB, spoke before the Exchequer Club where she discussed the Bureau’s strategy for preventing consumer harm. Kraninger discussed her ongoing “listening tour”—in which she has met with and received feedback from “more than 600 consumer groups, consumers, state and local government officials, military personnel, academics, non-profits, faith leaders, financial institutions, and former and current Bureau officials and staff”—and commented on ways in which feedback received from these stakeholders has helped shape her approach. Kraininger highlighted four “tools” that the Bureau has at its disposal to execute its mission: education, rulemaking, supervision, and enforcement.
- Education. According to Kraninger, the Bureau’s focus reflects a “consumer-centric definition of financial well-being” designed to empower consumers when protecting their own interests and choosing the appropriate financial products and services. Specifically, Kraninger referred to the Bureau’s “Misadventures in Money Management” financial education tool for active-duty servicemembers, as well as its “Start Small, Save Up” initiative, which is designed to increase consumers’ ability to handle urgent expenses.
- Rulemaking. Kraninger commented that the Bureau will continue to comply with Congressional mandates to promulgate rules or address specific issues through rulemaking. However, where the Bureau has discretion, it “will focus on preventing consumer harm by maximizing informed consumer choice, and prohibiting acts or practices that undermine the ability of consumers to choose the products and services that are best for them.” Kraninger spoke of the need for increased transparency and deregulatory efforts and highlighted a recent change to the comment period for the Bureau’s Payday and Debt Collection rulemakings, as well as the consideration of potential changes to the existing Remittances Rule based on responses to a call for evidence.
- Supervision. Kraninger stressed that “[s]upervision is the heart of the agency,” as it helps to prevent violations of laws and regulations from happening in the first place. The Bureau’s approach will focus on ensuring supervision is effective, efficient, and consistent, and will explore ways to incentivize institutions to have in place good compliance management systems. Kraninger noted that, as chair of the Federal Financial Institutions Examination Council, she will focus on coordinating and collaborating with the other agencies to advance consumer protections.
- Enforcement. Kraninger noted that the Bureau will continue to enforce against bad actors that do not comply with the law, as “[a] purposeful enforcement regime can foster compliance, deter unlawful conduct, help prevent consumer harm, and right wrongs.” She referenced the Bureau’s history of collaborating with state and federal partners on enforcement actions, and stressed her commitment to ensuring enforcement matters are handled as expeditiously as possible. Kraninger also specifically drew attention to the Bureau’s collaborative approach in its recent advisory on elder financial exploitation (previously covered by InfoBytes here).
CFPB report finds one in four consumers have debts in collection
On July 18, the CFPB released a report providing an overview of third-party debt collection tradelines from 2004 to 2018, which the Bureau segmented into two parts: debt buyer tradelines and non-buyer debt collections tradelines. The CFPB’s report, “Market Snapshot: Third-Party Debt Collections Tradeline Reporting,” is based on a nationally representative sample of approximately 5 million credit records from one of the three major credit bureaus. According to the report, as of the second quarter of 2018, more than one in four consumers in the sample have at least one debt in collection by third-party debt collectors. Additionally, fewer than 900 unique furnishers of third-party collections tradelines nationwide reported unpaid debts for consumers in the sample, according to the Bureau—a decrease from the 2,294 collectors reported back in 2004. The report also notes that in the second quarter of 2018, the top four debt buyers account for 90 percent of all debt buyer tradelines for consumers in the sample, while the top four non-buyers, by comparison, accounted for just 13 percent of reported tradelines. Furthermore, in the second quarter of 2018, 3 out of 4 of all reported tradelines in the sample from non-buyers were for non-financial debt, such as medical, telecommunications, or utilities debt. Buyers, in contrast, were more likely to report unpaid financial, retail, or banking debts.
FDIC encourages release for Arkansas and South Dakota borrowers
On June 17, the FDIC issued Financial Institution Letters FIL-32-2019 and FIL-33-2019 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Arkansas and South Dakota affected by severe weather. FIL-32-2019 covers severe storms and flooding caused significant property damage in areas of Arkansas from May 21 through the present and FIL-33-2019 covers severe winter storm, snowstorm, and flooding caused significant property damage in areas of South Dakota from March 13 through April 26.
The FDIC is encouraging institutions to consider, among other things, extending repayment terms and restructuring existing loans to borrowers affected by the severe weather. Additionally, the FDIC notes that institutions may receive favorable Community Reinvestment Act (CRA) consideration for community development loans, investments, and services in support of disaster recovery.
Find continuing InfoBytes coverage on disaster relief guidance here.
FDIC encourages relief for Oklahoma borrowers
On June 10, the FDIC issued Financial Institution Letter FIL-30-2019 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Oklahoma affected by severe weather from May 7 through the present. The FDIC is encouraging institutions to consider, among other things, extending repayment terms and restructuring existing loans to borrowers affected by the severe weather. Additionally, the FDIC notes that institutions may receive favorable Community Reinvestment Act (CRA) consideration for community development loans, investments, and services in support of disaster recovery.
Find continuing InfoBytes coverage on disaster relief here.
Class action alleges national bank’s grace period practices breach terms of cardholder agreement
On June 3, a consumer filed a class action complaint against a national bank alleging that the bank charges interest on credit card accounts even when consumers’ balances are paid in full by the billing cycle due date, in breach of the bank’s cardholder agreement. The complaint alleges that the cardholder agreement and monthly billing statements disclose to consumers that interest will not be charged on new purchases if those new purchases are paid off by the billing cycle’s due date, but that in practice the grace period is eliminated for new purchases “[i]f a consumer leaves even $1 on her account balance after a billing period due date.” The complaint alleges that the bank’s practice of only providing a grace period on new purchases for consumers “who have paid off their balances in full for two prior months” directly contradicts the cardholder agreement and consumer disclosures. In addition to breach of contract, the consumer alleges a violation of Delaware’s Consumer Fraud Act and breach of the covenant of good faith and fair dealing. The consumer is seeking certification of a class of similarly situated consumers; damages and restitution; and injunctive relief.