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CFPB’s Project Catalyst Issues First “No-Action” Letter to Consumer Lending Firm
On September 14, the CFPB’s Project Catalyst initiative issued its first “no-action” letter to a consumer lending firm that provides an online lending platform that uses alternative data when making lending decisions. As previously discussed in InfoBytes, Project Catalyst explores innovation in the consumer financial services sector and examines the potential challenges facing consumers, entrepreneurs, and investors. With the issuance of the no-action letter—at the lender’s request—the CFPB indicated that it does not, at the present, intend to take enforcement action against the lender under the Equal Credit Opportunity Act. However, the letter does not waive the Bureau’s right to choose to “conduct supervisory activities or engage in an enforcement investigation” should the lender fail to comply with the outlined terms. Further, the letter stipulates that the Bureau has the right to evaluate other matters concerning the lender. According to a press release issued by the Bureau, the lender has agreed to “share certain information with the CFPB regarding the loan applications it receives, how it decides which loans to approve, and how it will mitigate risk to consumers, as well as information on how its model expands access to credit for traditionally underserved populations.”
Earlier this year the CFPB issued a request for information seeking input about the use of alternative data, and it believes the information it will receive under the terms of the no-action letter will help to “further its understanding of how these types of practices impact access to credit generally and for traditionally underserved populations, as well as the application of compliance management systems for these emerging practices.” (See previous InfoBytes summary here.)
CFPB Announces September 28 Community Bank Advisory Council Meeting
On Thursday, September 28, the CFPB will hold its next Community Bank Advisory Council meeting in Washington, DC. According to the September 12 Federal Register publication providing notice of the meeting, the Council’s discussion topics will focus on “Know Before You Owe: Overdraft” services and other financial empowerment initiatives. As previously discussed in InfoBytes, on August 4 the CFPB announced the release of a study focused on the use of overdraft services by consumers, as well as four prototype overdraft disclosure templates currently under testing.
CFPB Issues Consent Order to Online Lead Aggregator, Settles Separate 2016 Lead Aggregator Action
On September 6, the CFPB ordered an online loan lead aggregator to pay $100,000 for its alleged involvement in selling leads to small-dollar lenders and installment loan purchasers who then extended loans that were void in whole or in part under the borrower’s state laws. The consent order alleges that the California-based company knew the state of residence for each lead sold, yet “regularly sold [l]eads for consumers located in states where the resulting loan was void or the lender had no legal right to collect the principal, interest, or fees from the consumer based on state-licensing requirements or interest-rate limits.” The order also claims that, because the company knows the identity of each purchaser prior to the sale of the loan, it should also know (i) whether the purchaser is likely to comply with the state laws, or (ii) whether the leads it sells will result in loans exceeding state usury interest rate limits or fail to be in compliance with the consumer’s state laws. Pursuant to the consent order, in addition to the $100,000 civil money penalty, the company must (i) “undertake reasonable efforts to ensure” leads do not result in loans that are void under the laws of the consumer’s state; (ii) obtain, among other things, copies of licenses required by each state for its end users “where the absence of such a license would render a loan void in whole or in part under the laws of that state”; (iii) implement procedures for reviewing loans that result from its leads to ensure compliance with privacy and other laws; (iv) establish a policy to prohibit lenders from making loans that are likely to result in loans that are void under the consumer’s state-licensing requirements or interest-rate limits and “refrain from conveying” leads for such loans; and (v) submit registration for the Bureau’s Company Portal.
On the same day, the CFPB also entered into a $250,000 settlement with the company’s president and primary owner for his alleged actions cited in a 2016 complaint involving his role as the operator of a different online lead aggregator. (See previous InfoBytes summary here.) In addition to the civil money penalty, the president has agreed to (i) make efforts to guarantee that all loans offered to consumers are valid in the states where they live; (ii) ensure that there is no misleading, inaccurate, or false information contained in the consumer-facing content of all lead generators from which leads are accepted; and (iii) require all lead generators to “prominently disclose to consumers an accurate description” of how leads will be received, conveyed, and processed. The president has neither admitted nor denied the CFPB’s allegations.
CFPB, Federal and State Banking Agencies Issue Guidance for Financial Institutions on Providing Disaster Relief to Consumers
As previously reported in InfoBytes, several federal banking agencies have already issued guidance and resources for national banks and federal savings associations aiding consumers affected by recent disasters. On September 1, the CFPB issued a statement for CFPB-supervised entities on ways to provide assistance to consumers who may be at financial risk. The list includes:
- offering penalty-free forbearance or repayment periods with disclosed terms;
- limiting or waiving fees and charges, including overdraft fees, ATM fees, or late fees;
- restructuring or refinancing existing debt, including extending repayment terms;
- easing documentation or credit-extension requirements;
- increasing capacity for customer service hotlines, particularly those that serve consumers in languages other than English; and
- increasing ATM daily cash withdrawal limits.
The statement further suggests that supervised entities should utilize existing regulatory flexibility if doing so would benefit affected consumers. Included are examples from Regulations B, X, and Z. Additionally, the Bureau stated it will “consider the circumstances that supervised entities may face following a major disaster and will be sensitive to good faith efforts to assist consumers.”
The CFPB separately published a blog post for consumers containing a financial toolkit that includes links to disaster relief organizations, ways to secure financial needs, and information on forbearance options, insurance settlements, and contractor evaluations. The CFPB also issued a warning to consumers of the increased risk of scams and fraud.
In related news, on September 6, the Federal Reserve Board, Conference of State Bank Supervisors, FDIC, and OCC issued a joint press release for financial institutions that may be impacted by Hurricane Irma. The agencies encouraged constructive cooperation with borrowers, noting that “prudent efforts to adjust or alter terms on existing loans in affected areas should not be subject to examiner criticism.” Guidance was also issued on matters concerning Community Reinvestment Act considerations, investments, regulatory reporting requirements, publishing requirements, and temporary banking facilities.
CFPB, Treasury, and FinCEN Release Memorandum Emphasizing Financial Institutions’ Role in Preventing Elder Financial Exploitation
On August 30, the CFPB, Treasury Department, and Financial Crimes Enforcement Network (the agencies) issued a joint memorandum concerning elder financial exploitation (EFE). The agencies note that EFE—which is defined as “the illegal or improper use of an older person’s funds, property or assets”—has become the most common form of elder abuse in the U.S. The Memorandum on Financial Institution and Law Enforcement Efforts to Combat Elder Financial Exploitation emphasizes that financial institutions can play a key role in detecting, responding to, and preventing EFE, encourages collaboration with law enforcement and local adult protective service agencies to facilitate the timely response to reports, and outlines guidance relating to the filing of suspicious activity reports (SARs). According to the memorandum, “SARs can play an important role in the fight against EFE by providing information and references to any supporting documentation that can trigger an investigation, support an ongoing investigation, or identify previously unknown subjects and entities.” The agencies cautioned, however, that “access to SARs and their use is restricted under federal law” and that law enforcement agencies should contact FinCEN for assistance in SAR-related inquiries.
FTC Announces Two Separate Settlements to Resolve Allegedly Deceptive Telemarketing Schemes
On September 1, the FTC issued a press release announcing a settlement with a Utah-based operation and its owner (Defendants) to resolve allegations that the company had created merchant accounts to help telemarketers process consumer credit card transactions in violation of the Federal Trade Commission Act (FTC Act) and the Telemarketing Sales Rule (TSR). According to the complaint, Defendants nominated individuals to serve as “principals” of straw companies, which then were used to open merchant accounts to assist telemarketers who did not meet the requirements or standards for opening the accounts on their own. The telemarketers, in turn, allegedly deceived consumers by making false promises regarding business opportunities that they claimed would generate substantial income, and processed credit card payments from consumers using the straw company merchant accounts for the allegedly “worthless opportunities.” Under the terms of the order, Defendants are permanently banned from the payment processing business, including acting as an independent sales organization or sales agent, and must pay a judgment of more than $3 million. The FTC suspended the judgment due to the Defendants’ inability to pay, but noted that it “will become due immediately if [Defendants] are found to have misrepresented their financial condition.”
Separately on August 31, the FTC announced that a default judgment had been issued in a pending action brought against the operators of a deceptive telemarketing scheme who allegedly targeted Spanish-speaking consumers by pretending to be affiliated with the Peruvian government and deceived consumers by giving the impression that the calls were from emergency responders or by people the consumers had provided as references. The allegations, which violated the FTC Act and the TSR, claimed that consumers were presented opportunities to participate in language courses at discounted prices and were misled about prizes they had won. When consumers declined to participate or cancelled delivery of the prizes, the telemarketers made “false and threatening” claims of “legal or financial consequences,” allegedly posing as lawyers or government officials. Under the terms of the default judgment, the telemarketers (i) are ordered to pay $6.3 million as equitable monetary relief; (ii) are banned from telemarketing activities; and (iii) prohibited from misrepresenting material facts.
CFPB Proposes Permanent Ban on Credit Repair Company for Misleading Consumers, Illegal Fees
On August 30, the CFPB and a credit repair company requested a California federal court to enter a final judgment and order to end the CFPB’s lawsuit against the company. The Bureau claimed that the company had violated the Consumer Financial Protection Act of 2010 and the Telemarketing Sales Rule among other things. According to a CFPB press release, the company “[c]harged illegal advance fees”; “[m]isled consumers about the benefits of its credit repair services”; “[m]isrepresented the costs of its services”; and “[f]ailed to disclose limits on ‘money-back guarantee.’” As previously reported in InfoBytes, the CFPB filed similar proposed final judgments against other credit repair companies for largely the same reasons.
In addition to permanently prohibiting the defendant from working in the credit repair industry, the proposed settlement also requests a civil money penalty of $150,000.
FTC Enters Consent Order with Final Defendant in Alleged 2015 Debt Collection Scheme
On August 30, the FTC announced a settlement banning the final defendant who had participated in a debt collection scheme from debt collection activities. The settlement stems from a 2015 action against three groups of defendants who allegedly violated the FTC Act and the Fair Debt Collection Practices Act (FDCPA) by engaging in the following activities, among others: (i) attempting to collect debts consumers claimed they did not owe; (ii) impersonating law enforcement to threaten non-compliant consumers with arrests and lawsuits; (iii) harassing friends, family members, and employees in an attempt to collect debts; and (iv) failing to identify themselves as debt collectors. (See previous InfoBytes summary here.) In 2016, the FTC reached separate settlements (here and here) against two of the three groups of debt collectors. In addition to banning the final defendant from debt collection activities, the 2017 action also imposes a $9.39 million judgment to be suspended due to the defendant’s inability to pay. However, the judgment will become immediately due if the defendant is found to have misstated his financial condition.
Banking Agencies Offer Guidance Regarding Harvey Response
On August 29, the OCC and FDIC each issued guidance and resources for national banks and federal savings associations aiding consumers affected by recent natural disasters.
OCC Bulletin 2012-28. The OCC bulletin rescinds and replaces previously issued natural disaster guidance and encourages banks serving affected customers to consider the following: (i) “waiving or reducing ATM fees”; (ii) “temporarily waiving late payment fees or penalties for early withdrawal of savings”; (iii) assisting borrowers based on individual situations, when appropriate, by restructuring debt obligations or adjusting payment terms—not to generally exceed 90 days; (iv) “expediting lending decisions when possible”; (v) “originating or participating in sound loans to rebuild damaged property”; and (vi) communicating with state and federal agencies to help mitigate the effects. “Examiners will not criticize these types of responses as long as the actions are taken in a manner consistent with sound banking practices,” the OCC announced. The bulletin also provides additional resources on accounting and reporting issues and Qualified Thrift Lender requirements, among other things.
FDIC FIL-38-2017. The FDIC financial institution letter (FIL) provides similar guidance for depository institutions assisting affected customers. FIL guidance includes the following suggestions: (i) “waiving ATM fees for customers and non-customers”; (ii) “increasing ATM daily cash withdrawal limits”; (iii) waiving items such as overdraft fees, time deposit early withdrawal penalties, availability restrictions on insurance checks, and credit card/loan balance late fees; (iv) “easing restrictions on cashing out-of-state and non-customer checks” as well as “easing credit card limits and credit terms for new loans”; (v) allowing borrowers to defer or skip some loan payments; and (vi) “delaying the submission of delinquency notices to the credit bureaus.” “Prudent efforts by depository institutions to meet customers' cash and financial needs generally will not be subject to examiner criticism,” the FIL noted. Also, the FDIC “encourages depository institutions to use non-documentary verification methods permitted by the Customer Identification Program requirement of the Bank Secrecy Act for affected customers who cannot provide standard identification documents.”The following agencies also issued guidance: Federal Reserve, Farm Credit Administration, and the National Credit Union Administration.
FTC Files Complaint Against Debt Collection Operation for FTC Act and FDCPA Violations
On August 29, the FTC issued a press release announcing charges against a North Carolina-based debt collection business (defendants) for allegedly using a variety of “trade names” that sound like law firms to threaten individuals if they failed to pay debt they did not actually owe or that the defendants had no right to collect. According to the complaint, the defendants violated the FTC Act by making false, unsubstantiated, or misleading representations regarding debt owed on payday loans or other debts and threatening legal action. Additionally, the defendants allegedly violated the Fair Debt Collection Practices Act by: (i) communicating with consumers “at times or places known or which should be known to be inconvenient to the consumer” or “at the consumer’s place of employment when Defendants knew or had reason to know that the consumer’s employer prohibits the consumer from receiving such communications”; (ii) engaging in “unlawful third-party communications” without obtaining prior consumer consent; (iii) participating in harassing and abusive collection practices; (iv) making false, deceptive, or misleading representations, including by withholding the true status of the debt, impersonating attorneys, threatening legal action, and failing to disclose they were debt collectors; and (v) failing to provide consumers written verification of their debt within the required time frame. A federal judge in the U.S. District Court for the Western District of North Carolina has temporarily restrained and enjoined the defendants’ alleged illegal practices and frozen their assets.