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In a Split Decision, D.C. Circuit Denies John Doe Company’s Request to Remain Anonymous Pending Appeal Challenging CFPB Subpoena; Judge Kavanaugh Dissents, Reiterates Critique of CFPB
On March 3, 2017, the U.S. Court of Appeals for the District of Columbia Circuit denied the request of an anonymous California-chartered, finance company based in the Philippines to remain anonymous pending the resolution of its challenge to a CFPB administrative subpoena. See John Doe Co. v. CFPB, March 3, [Order] No. 17-5026 (D.C. Cir. Mar. 3, 2017) (per curiam). In a 2-1 decision, the court found that the company had failed to show either that it was likely to succeed on the merits of its challenge to the CFPB’s constitutionality, or that it was likely to suffer irreparable harm from being identified as being under investigation. In denying the company’s motion, the panel majority emphasized, among other things, the fact that “[t]he Company’s sole argument regarding likelihood of success on the merits before this court and the district court has been to point to the now-vacated majority opinion in PHH.” Judge Kavanaugh—who back in October, assailed the “massive, unchecked” power of the single director-led CFPB—filed a dissenting opinion, in which he reiterated his call for how to fix the CFPB: namely, giving the president greater power to remove the agency’s director.
As previously covered on InfoBytes, back in January, the John Doe finance company filed an action seeking to set aside or keep confidential a “civil investigative demand” served on the Company by the CFPB as part of an industry-wide investigation against companies that buy and sell income streams. The Company argued both that the CFPB had strayed outside the scope of its authority, and that in light of the pending challenge to the constitutionality of its structure in a separate case (PHH v CFPB), the Bureau should be barred from pursuing any investigation until the questions about its constitutionality are resolved. Fearing that the CFPB would post documents on its website revealing its identity, the company also sought a temporary restraining order to enjoin the CFPB from, among other things, disclosing the existence of its investigation and taking any action against the company unless and until the CFPB is constitutionally structured. John Doe Co. v. CFPB, D.D.C., No. 17-cv-00049 (D.D.C. Jan. 10, 2017). As covered in a recent BuckleySandler Special Alert, however, the D.C. Circuit on February 16, vacated the October 2015 panel decision in PHH v CFPB and will now rehear the case en banc.
Payroll Card Regulations in New York Are Struck Down
In a Decision released on February 16, the New York Industrial Board of Appeals struck down the portions of a New York Department of Labor regulation (12 NYCRR 192), set to go into effect on March 7, that would have restricted a New York employers’ ability to pay its employees via payroll debit card. Specifically, the board ruled that the Department had exceeded its authority under New York labor law and encroached upon the jurisdiction of banking regulators when imposing fee limits and other restrictions on the cards.
The new rule – which was adopted by the Department of Labor in September 2016, and codified at section 192 of the New York Labor Law – set forth numerous regulations clarifying and/or specifying the acceptable methods by which employers in New York State may pay wages to certain employees. Among other things, the regulation required that an employer provide written notice to the employee and obtain written consent from the employee at least seven business days prior to taking action to issue the payment of wages by payroll debit card. The new rule would also have prohibited many fees, including charges for monthly maintenance, account inactivity and overdrafts, and for checking a card’s balance and contacting customer service.
At issue before the Industrial Board of Appeals was a petition submitted by a single payroll debit card vendor challenging the Department of Labor’s authority to regulate payroll debit cards. Ultimately, the Board agreed with the vendor, finding that the Department sought to improperly regulate banking services provided by financial institutions – an area subject to the exclusive jurisdiction of the New York Department of Financial Services. In reaching this holding, the Board noted that that the Department of Financial Services already regulates and has issued guidance concerning the fees that financial institutions may charge for banking services, including those related to checking accounts and licensed check cashers. The Board also noted that, should the Department of Labor wish to challenge the Decision, it may bring an Article 78 proceeding in New York Supreme Court, or, alternatively, it may choose to revise the Prepaid Card-related provisions identified in the Decision.
CFPB Submits Request for Information on Consumer Credit Card Market
On March 10, in accordance with the rules of the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (CARD Act), that mandates the CFPB prepare a report every two years examining developments in the consumer credit card marketplace, the Bureau submitted a Request for Information to solicit feedback from the public. As previously covered in InfoBytes, the first review occurred in October 2013 and the second review in December 2015. In preparation for the next report, the Bureau is focusing on several aspects of the consumer credit card market, as follows:
- The terms of credit card agreements and the practices of credit card issuers
- The effectiveness of disclosure of terms, fees, and other expenses of credit card plans
- The adequacy of protections against unfair or deceptive acts or practices or unlawful discrimination relating to credit card plans
- The cost and availability of consumer credit cards, the use of risk-based pricing for consumer credit cards, and consumer credit card product innovation
- Deferred interest products
- Subprime specialist products
- Third-party comparison sites
- Innovation
- Secured credit cards
- Online and mobile account servicing
- Rewards products
- Variable interest rates
- Debt collection.
Comments are due by June 8, 2017.
White House Releases Proclamation Announcing National Consumer Protection Week
On March 9, President Trump issued Proclamation 9577 announcing March 5 through March 11 as National Consumer Protection Week 2017. The President “call[ed] upon government officials, industry leaders, and advocates to educate our citizens about the protection of personal information and identity theft through consumer education activities in communities across the country.” As previously covered in InfoBytes, several events have been planned nationally to educate and empower consumers.
NY AG Schneiderman Releases List of “Top Ten” Frauds for 2016
On March 6, 2017, New York Attorney General Eric T. Schneiderman released the state’s 2016 top ten list of consumer fraud complaints. For the past 11 years, Internet-related complaints concerning service providers, data privacy and security, and consumer fraud topped the list, closely followed by complaints about automobile sales, service, financing, and repairs. Credit complaints about debt collection, billing, debt settlement, payday loads, credit repair and reporting agencies, and identity theft were sixth. Complaints related to mortgages were ninth. Not on the top ten list but highlighted by the Attorney General’s office were complaints involving scam student debt relief companies as well as two common schemes known as the IRS scam and the Grandparent scam. Also provided were tips consumers should use to protect themselves and their families.
CFPB Issues Disclosure Guide for Preparing Prepaid Accounts
On March 7, the CFPB issued a disclosure guide with instructions on how to prepare short form disclosures for prepaid accounts. The guidance provides steps for completing the disclosure but does not address other requirements under Regulation E, as amended by the Prepaid Rule, and is not applicable to government benefit accounts or payroll card accounts. The guide also covers information pertaining to insertion of fee amounts, static fees, additional fee types, statements explaining variable fees, informational statements, and size requirements.
As previously covered in InfoBytes, the Bureau released its final rule (the “Prepaid Rule”) on prepaid financial products in October of last year in order to provide consumers with additional federal protections under the Electronic Fund Transfer Act and to also offer consumers standard, easy-to-understand information about prepaid accounts. However, on March 8, the CFPB announced that it may delay this effective date by six months. If approved, the proposed rule would push back the current October 1 effective date to April 1, 2018. According to the proposed rule filed by the Bureau, the extension comes in response to comments received from “some industry participants” who “believe they will have difficulty complying with certain provisions.” Extending the deadline for compliance “would, among other things, help industry participants address certain packaging related logistical issues for prepaid accounts that are sold at retail locations.” Comments on the Bureau's proposal are due next month.
Trump Administration Given March 17 Filing Date for Amicus Brief in PHH v CFPB; Requests to Intervene by Outside Organizations Denied by D.C. Circuit
On March 7, the U.S. Court of Appeals for the D.C. Circuit granted the United States’ unopposed motion, filed through the Office of the Solicitor General (“SG”), which requested an extension to file its amicus brief in PHH Corp. v. CFPB. Notably, amicus briefs supporting PHH must be filed by March 10 and those supporting the CFPB must be filed by March 31. The fact that the United States’ motion requested an extension until March 17—before the deadline for briefs supporting the CFPB—signals that the SG may present arguments supporting PHH that differ both from the CFPB and from the positions previously presented by the Obama Administration in briefing submitted on behalf of the United States back in December.
As previously covered in InfoBytes, late last year the D.C. Circuit invited briefing by the SG’s office on behalf of the United States (note that the SG does not represent the CFPB; the Bureau is legally permitted to litigate on its own behalf.) The then Obama-led SG’s office took the position that the case should be reheard by the en banc court because, among other reasons, (i) the majority’s reasoning misapplied Supreme Court precedent on separation of powers issues and/or (ii) the panel majority should not have reached the constitutional issue. Now under the Trump Administration, the DOJ hinted that it may revise its positions with respect to both the constitutionality of the CFPB’s single-director-removable-only-for-cause structure, and, if it chooses, the merits of PHH’s argument that the Bureau’s RESPA interpretation was incorrect. Indeed, the short motion asserted, among other things, that “the views of the United States on matters involving the President’s removal power are not always entirely congruent with the views of independent agencies.”
Also on March 7, the D.C. Circuit issued a separate order denying three pending “motions and alternative requests” seeking to intervene, or in the alternative, hold in abeyance requests to intervene submitted by the Democratic Ranking Members of the Senate and House Committees with jurisdiction over the CFPB, 16 State Attorneys General, a coalition of consumer interest groups, and two conservative advocacy groups working with State National Bank of Big Spring.
Prepared Remarks of Richard Cordray at the LendIt USA Conference
On March 6, CFPB Director Richard Cordray spoke at the LendIt USA Conference to outline three “areas of special interest” to the Bureau relating to innovations in consumer financial services. In his prepared remarks, Cordray highlighted the three areas as (i) the Project Catalyst initiative; (ii) issues regarding consumer control over personal financial data; and (iii) research concerning the benefits and risks of using unconventional data sources to underwrite loans as a means to open credit access for more consumers.
Project Catalyst, Cordray explained, is the Bureau’s major initiative which “operates on the principle that markets work best when they are wide open to competition from new ideas.” He further explained that the Bureau is trying to “learn about what does and does not work for consumers [as well as] potential challenges facing entrepreneurs and investors.” Project Catalyst hosts an “Office Hours” program to engage with startups, nonprofits, banks, and other financial companies, and conducts research pilot programs with companies of all sizes. It also works to devise new policies to foster innovations such as the “Trial Disclosure Waiver Policy,” which encourages the development of new technologies and approaches for designing and testing alternative consumer disclosures.
Cordray also spoke about the Bureau’s interest in understanding the ways consumers are exercising control over their personal financial data. Last November, the Bureau issued a Request for Information seeking input on the challenges consumers face when accessing, using, and securely sharing their financial records. Furthermore, Cordray emphasized at the conference that two pressing issues are (i) “how to satisfy the demands of the consumers without exposing the providers that maintain [the] data to undue costs and risks, and (ii) how to prevent consumers from subjecting themselves to undue risk, including [the misuse of their data].”
Finally, Cordray commented on the Bureau’s February Request for Information issued to better understand the potential consumer benefits and risks associated with using, applying, and analyzing “alternative data” to predict people’s creditworthiness. The request asked consumers for feedback about the difficulties they have encountered when accessing, using, and securely sharing their financial records.
CFPB Releases Supervisory Highlights Focused on Credit Reporting
On March 2, the CFPB released its Supervisory Highlights for winter 2017 that outlines supervisory and oversight actions the Bureau has taken to address issues in the credit reporting market. According to the CFPB’s February Monthly Complaint Report, the Bureau has handled approximately 185,700 credit reporting complaints since the Bureau’s inception. Examples of these complaints include that no action happens when consumers dispute items on their reports, that paid debts often show up as “unpaid,” and that consumers’ files are not updated to reflect changes or deletions which negatively affect their credit scores.
The new Supervisory Highlights outlines the actions the Bureau has taken to address concerns, including the following:
- Fixing data accuracy at consumer reporting companies, including instituting quality control programs and tests to identify mix-ups as well as improving corrective actions and preventative measures.
- Directing consumer reporting companies to improve dispute investigation systems.
- Directing furnishers supplying data to consumer reporting companies to ensure the integrity of the information, an effort that “includes better investigations and handling of disputes, notifying consumers of results, and taking corrective action when inaccurate information has been supplied.”
As further explained, the CFPB uses the same supervision approach for credit reporting activities that it uses for other activities of supervised entities, which “includes a review of compliance systems and procedures, on-site examinations, discussions with relevant personnel, and requirements to produce relevant reports . . . [and, if violations are discovered], enforcement actions.” In addition, on the same day, the Bureau posted to its blog a guide to help consumers learn ways to monitor their credit history, including a list of several companies that claim to offer existing customers free access to credit scores.
FTC Issues New Top 10 Consumer Complaint Categories in Annual Summary
On March 3, the Federal Trade Commission (FTC) issued an annual summary of consumer complaints, highlighting trends in the various categories of consumer complaints received by the Commission over the past year. The agency released its overview in the form of the Consumer Sentinel Network Data Book for January - December 2016 (2016 Data Book)—which provides category breakdowns and state specific data extrapolated from the Consumer Sentinel Network (CSN)—a secure online database of millions of consumer complaints available only to law enforcement, including, but not limited to, the FTC. In compiling the 2016 Data Book, the CSN collected more than 3.1 million consumer complaints, which the FTC sorted into 30 top complaint categories.
Florida, Georgia and Michigan were (again) the top three states for fraud and other complaints, while Michigan, Florida and Delaware were the top three states for identity theft complaints. The 2016 Data Book also reveals that debt-collection complaints remained the top category, comprising 28 percent of all complaints. The Commission attributes this “high number of reported debt collection complaints” to, among other things, “complaints submitted by a data contributor who collects complaints via a mobile app.” The Commission also identifies “imposter scams” as a “serious and growing problem.” In response to this trend, Acting Director of the FTC’s Bureau of Consumer Protection, Thomas Pahl, indicates that the agency “will use all the tools at its disposal to address it,” including “law enforcement actions against scammers and consumer education to help consumers avoid losing money.”
Another category that saw some movement was identity theft. While overall complaints in this category declined from 16 percent to 13 percent, 29 percent were consumers reporting that their data was used to commit tax fraud. Furthermore, there was a jump in those who reported “that their stolen data was used for credit card fraud. . .[a number that] rose from nearly 16 percent in 2015 to more than 32 percent in 2016.” And, rounding out the “Top Ten” consumer complaints for 2016 after debt-collection, imposter scams, and identify theft, were: telephone and mobile services, banks and lenders, prizes/sweepstakes/lotteries, shop-at-home/catalog sales, auto-related complaints, credit bureaus/information furnishers/report users, and television and electronic media complaints.
More information about the Consumer Sentinel Network and Data Book is available through www.FTC.gov/sentinel.