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Financial Services Law Insights and Observations

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  • FTC takes action against auto dealer over deceptive advertising and pricing practices

    Federal Issues

    On October 18, the FTC announced an action against an auto dealer group and two of its officers (the owner/president and the vice president) for engaging in deceptive advertising and pricing practices and discriminatory and unfair financing. According to the complaint, the FTC alleged that the defendants violated the FTC Act by deceptively advertising cars as “certified,” “inspected,” or “reconditioned” at specific prices, but then charged customers fees above the advertised price for costs related to “inspection,” “reconditioning,” or “certification.” The FTC also alleged that the defendants “unlawfully discriminate[d] on the basis of race, color, and national origin by imposing higher borrowing costs on Black and Latino consumers than non-Latino White consumers,” in violation of ECOA. Specifically, the FTC claimed that the defendants charged a higher markup to the interest rate for Black and Latino consumers than to non-Latino White consumers. Black and Latino consumers paid on average about $291 and $235, respectively, more in interest than non-Latino White consumers did. The FTC also alleged that Black and Latino consumers paid on average at least one extra fee 24 percent and 42 percent more often, respectively, than non-Latino White consumers. In addition to alleging that this conduct violated ECOA, the FTC also alleged that this discriminatory practice was an unfair act or practice in violation of Section 5 of the FTC Act.  According to the order, the defendants are required to establish a fair lending program to ensure they do not discriminate in the future, including a provision that will require each associated dealership to either charge no financing markup or charge the same markup rate to all consumers, and must pay the FTC $3.38 million to refund harmed consumers. Among other things, the defendants are also prohibited from misrepresenting the cost or terms to buy, lease, or finance a car, or whether a fee or charge is optional. Two of the commissioners issued dissenting statements (see here and here), challenging the fair lending claims being brought under Section 5 of the FTC Act and the imposition of liability against the individual officers.

    Federal Issues FTC Enforcement Fees ECOA FTC Act Discrimination UDAP Auto Finance Consumer Finance

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  • CFPB sues payment processor over junk fees and dark patterns

    Federal Issues

    On October 18, the CFPB filed a complaint against a Texas-based payment processing service platform (primarily related to collecting and processing event fees) for allegedly violating the Consumer Financial Protection Act (CFPA) and the EFTA by engaging in deceptive and abusive acts and practices. The Bureau alleged that the defendant enrolled consumers in, and charged them, for discount club memberships without their consent that were largely unrelated to the event the consumers were signing up for. The complaint noted that although the defendant’s memberships had a 30-day free “negative option trial membership,” the memberships automatically begin charging the membership fees at the end of the trial period. The Bureau also alleged that the defendant deployed dark patterns, which “are hidden tricks or trapdoors that companies build into their websites to get consumers to inadvertently click links, sign up for subscriptions, or purchase products or services.” The Bureau further alleged that the defendant violated the EFTA and Regulation E by increasing consumers’ membership fees without sending the consumer written notice of the new amount and the date of the new payment at least 10 days before initiating the new payment, which also constitute violations of the CFPA. The Bureau is seeking permanent injunctive relief, damages, restitution, disgorgement, civil money penalties, and other relief.

    According to a statement by CFPB Director Rohit Chopra, the Bureau is “closely watching whether financial services firms are deploying digital dark patterns,” and is “looking at a range of ways to reduce unwanted junk fees.” He also added that the Bureau is “working to ensure our payments system is working safely and fairly” and that it “will continue to look at how payment platforms extract data and fees from their users.”

    Federal Issues CFPB Enforcement Junk Fees Dark Patterns CFPA EFTA UDAAP Consumer Finance Payment Processors

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  • FTC reports on actions to protect seniors

    Federal Issues

    On October 18, the FTC issued a report titled Protecting Older Consumers, 2021-2022, A Report of the Federal Trade Commission on measures taken to protect older adults from scams. Using data from the FTC’s Consumer Sentinel Network, which is a secure online database that provides law enforcement agencies with access to reports from consumers about fraud and other consumer problems, the report generally found that older adults reported significantly higher losses to investment, business impersonation, and government impersonation scams in 2021 as compared to 2020. Among other things, the report noted that: (i) the FTC sent thirty-one cease and desist demand letters regarding potentially false or deceptive advertising or marketing actions related to the Covid-19 pandemic; (ii) FTC enforcement actions have resulted in relief of more than $462 million to consumers of all ages in the last fiscal year; and (iii) scams where older adults were contacted on social media are increasing. In addition to describing three rulemakings that focused on key actions that the FTC has taken to protect older consumers, the report mentioned enforcement actions impacting older consumers. The report also provided details about the FTC’s outreach and education efforts through such programs as the Pass it On campaign, which focuses on providing fraud prevention resources to older adults so they can help protect their communities by sharing information and materials with family and friends.

    Federal Issues FTC Elder Financial Exploitation Covid-19 Consumer Finance

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  • Pennsylvania announces two settlements involving auto title loans

    State Issues

    On October 14, the Pennsylvania AG announced a settlement with the owners of an auto title loan business. According to the settlement, the company made unlawful loans to Pennsylvania borrowers carrying annual interest rates over 200 percent. Under the terms of the settlement, the owners must refund over $1.5 million in unlawful interest charges to consumers. The refunds are in addition to the $3.2 million in debt cancellation victims received under an October 2021 order. The owners are also prohibited from, among other things, knowingly participating in, owning, or working for any company that extends credit to Pennsylvania residents, for seven years after they make their last payment under the settlement.

    The Pennsylvania AG also announced a settlement with a Florida-based auto title lender for alleged violations of Pennsylvania usury laws and unfair and deceptive business practices. Under the terms of the settlement, the company, among other things, must cancel all outstanding loans made to Pennsylvania consumers, and refund Pennsylvania consumers all fees and interest they paid, which will result in nearly 200 consumers receiving refunds in the amount of $99,541.

    State Issues Pennsylvania Enforcement State Attorney General Auto Finance Consumer Finance Usury Interest Rate

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  • Freddie to consider bank account data in automated underwriting

    Federal Issues

    On October 17, Freddie Mac announced that beginning November 6, borrowers’ bank account data will be included as part of its loan purchase eligibility assessments. This “industry-first capability” will be made available to lenders and brokers through Freddie’s automated Loan Product Advisor (LPA) underwriting system. “With the addition of positive monthly cash flow data, our underwriting system can help with more accurately predicting a borrower’s ability to pay their mortgage because it uses a comprehensive view of how personal finances are managed over time,” Freddie said in its announcement. “Our latest innovation levels the playing field and helps make homes more accessible to borrowers whose lenders might not have qualified them with traditional methods of underwriting. This should particularly help first-time homebuyers and underserved communities.”

    Lenders and brokers must obtain borrowers’ permission in order to submit financial data showing 12 or more months of cash flow activity. Data may be obtained from checking, savings, and investment accounts, including those used for direct deposit of income and monthly bill payments, such as rent, utilities, and auto loans, Freddie said, stressing that “account data submitted can only positively affect the borrower’s credit risk assessment.” Lenders and brokers will also be able to obtain financial account data from designated third-party service providers through LPA’s asset and income modeler—the same automated process used to verify assets, income, employment, and on-time rent payments, Freddie explained. Additionally, LPA will advise lenders when a borrower may benefit from the submission of additional account data.

    The announcement follows Freddie’s decision to start considering on-time rent payments as part of its loan purchase decisions to increase homeownership opportunities for first-time homebuyers. (Covered by InfoBytes here.)

    Federal Issues Freddie Mac GSEs Consumer Finance Underwriting Mortgages

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  • VA seeks comments on loss-mitigation options for guaranteed loans

    Federal Issues

    On October 17, the Department of Veterans Affairs published a proposed rule in the Federal Register related to the Department’s Loan Guaranty Service. The proposed rule requests public comments regarding the expansion of the VA’s incentivized loss mitigation options that are available to servicers assisting veterans whose VA-guaranteed loans are in default. Specifically, the VA encourages comments regarding “any other topic that will help VA as it explores whether to expand the incentivized loss-mitigation options outlined in VA regulation.” Comments are due by January 17.

    Federal Issues Agency Rule-Making & Guidance Department of Veterans Affairs Mortgages Mortgage Servicing Loss Mitigation Consumer Finance

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  • House subcommittee asks CFPB for data on crypto-related fraud

    Federal Issues

    On October 14, the House Subcommittee on Economic and Consumer Policy sent a letter to CFPB Director Rohit Chopra requesting information and documents on the Bureau’s efforts to combat cryptocurrency-related fraud. In the letter, Representative Raja Krishnamoorthi (D-IL) expressed concerns that Congress “may need” to pass legislation to help “bring stability to the digital asset industry.” He also argued that “a lack of a central authority to flag suspicious transactions in many situations, the irreversibility of transactions," and the consumers and investors' limited understanding has made “cryptocurrency a preferred transaction method for scammers.” Among other things, the letter asked the Bureau to provide information by October 28 concerning (i) its efforts to combat crypto-related scams and fraud and inform consumers about the risks related to investments in cryptocurrencies; (ii) its authority to identify and investigate potentially fraudulent digital assets or accounts used on cryptocurrency exchanges associated with illicit activities; (iii) its regulatory authority concerning cryptocurrencies; and (vi) documents setting out the existing framework for interagency cooperation on the regulation of cryptocurrencies. Krishnamoorthi also requested that the Bureau provide answers by October 21 to several questions, such as “what tools, including but not limited to code audits, disclosure requirements, or consumer alerts, could provide consumers with additional information to better assess the risks associated with a digital asset?” and “should cryptocurrency holdings be treated as commodities, securities, or both?”

    Federal Issues Digital Assets CFPB Consumer Finance Cryptocurrency Fintech U.S. House

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  • Agencies finalize TILA, CLA 2023 thresholds

    On October 13, the CFPB and Federal Reserve Board finalized the annual dollar threshold adjustments that govern the application of TILA (Regulation Z) and the Consumer Leasing Act (Regulation M) (available here and here), as required by the Dodd-Frank Act. The exemption threshold for 2023, based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers, will increase from $61,000 to $66,400, except for private education loans and loans secured by real or personal property used or expected to be used as the principal dwelling of a consumer, which are subject to TILA regardless of the amount. The final rules take effect January 1, 2023.

    Bank Regulatory Federal Issues Agency Rule-Making & Guidance Federal Reserve CFPB Regulation Z Regulation M Consumer Finance TILA Consumer Leasing Act Dodd-Frank

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  • Agencies finalize 2023 HPML exemption threshold

    On October 13, the CFPB, OCC, and Federal Reserve Board published finalized amendments to the official interpretations for regulations implementing Section 129H of TILA, which establishes special appraisal requirements for “higher-risk mortgages,” otherwise termed as “higher-priced mortgage loans” (HPMLs). The final rule increases TILA’s loan exemption threshold for the special appraisal requirements for HPMLs. Each year the threshold must be readjusted based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers. The exemption threshold will increase from $28,500 to $31,000 effective January 1, 2023.

    Bank Regulatory Federal Issues OCC Federal Reserve CFPB Mortgages Appraisal Consumer Finance HPML TILA

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  • House subcommittee asks CFPB to review CRAs' handling of consumer disputes

    Federal Issues

    On October 13, Chairman of the Select Subcommittee on the Coronavirus Crisis James E. Clyburn sent a letter to CFPB Director Rohit Chopra addressing reports that nationwide consumer reporting agencies (CRAs) were less responsive to consumer complaints and disputes related to credit report errors during the Covid-19 pandemic. According to Clyburn, investigative reports allegedly revealed that the CRAs, which are legally obligated to address errors contained in consumer credit reports, did not always investigate these disputes and purportedly used “broad and speculative criteria” to determine whether a dispute was submitted by an unauthorized third party. The letter also expressed concerns that the CRAs’ alleged “overreliance on data furnishers” raises questions about the sufficiency of the CRAs’ dispute investigations, and that, moreover, using different levels of automation to resolve disputes and complaints is creating variability in the quality and thoroughness of their investigations. Clyburn expressed concerns that by failing to investigate certain legitimate disputes, identify and correct erroneous information, or provide the Bureau with information on the outcomes of the complaint investigations, the CRAs may be failing to meet their obligations under the FCRA. He asked Chopra to review the CRAs for possible statutory violations and to “consider investigating whether the CRAs have made sufficient revisions to their procedures for identifying and taking corrective action against unreliable furnishers.”

    Federal Issues U.S. House CFPB Consumer Reporting Agency Consumer Finance Dispute Resolution Credit Report Covid-19 FCRA

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