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CFPB issues consent order against nonbank automotive finance company
On July 26, the CFPB announced a consent order against a nonbank automotive finance company to resolve allegations that it engaged in furnishing inaccurate information to consumer reporting companies. The CFPB alleged that the company violated the FCRA and Regulation V by, among other things, failing to: (i) “promptly update and correct information it furnished to Consumer Reporting Agencies (CRAs) that it determined was not complete or accurate, and continued to furnish this inaccurate and incomplete information;” (ii) “modify or delete information disputed by consumers that [the company] found to be inaccurate”; and (iii) “establish and implement reasonable written policies and procedures regarding the accuracy and integrity of information provided to CRAs.” The CFPB also alleged that the company violated the CFPA because of the FCRA and Regulation V violations, which it alleged also constitute violations of the CFPA, and for using “ineffective manual processes and systems containing known logic errors to furnish information to CRAs.” Under the terms of the Bureau’s consent order, the company is required to provide $13.2 million in redress to harmed consumers, review all account files that it currently furnishes to credit reporting companies and correct all inaccuracies described in the order, then send updated information to the credit reporting companies, establish and implement written a compliance plan, and pay a $6 million civil penalty to the Bureau.
Senate Republicans urge FHFA to “abandon” equitable finance plans
On July 19, twelve Republican Senators wrote a letter to FHFA Director Sandra Thompson expressing their “many significant concerns” about “race-based housing subsidies” in the recently released Equitable Housing Finance Plans for Fannie Mae and Freddie Mac (GSEs). As previously covered by InfoBytes, in June, the GSEs released their Equitable Housing Finance Plans for 2022-2024 (available here and here), affirming their commitment to addressing racial and ethnic disparities in homeownership and wealth. The plans were developed following FHFA’s September 2021 request for public input, which invited comments to help the GSEs prepare their first plans and to aid FHFA in overseeing the plans (covered by InfoBytes here). In the letter, the Senators argued that the plans “raise significant legal concerns,” adding that “no law authorizes FHFA to use a GSE’s assets to pursue affirmative action in housing.” The Senators also wrote that the Biden administration “is conscripting the GSEs as instrumentalities of its progressive racial equity agenda to achieve outcomes it cannot achieve legislatively or even legally.” The Senators urged Thompson to “abandon” the plans and, “in anticipation of litigation challenging the legality” of them, requested that the GSEs “retain all correspondence with FHFA and other records relating to these plans.”
Dem senators urge CFPB to expand Regulation E fraud protections for P2P payment service users
On July 20, six Senate Democrats sent a letter to CFPB Director Rohit Chopra urging the Bureau to hold banks that own instant digital payment networks accountable for facilitating fraudulent payments. In the letter, the senators noted that “consumers are often on the hook because existing rules do not reflect new technological developments.” The Senators further noted that the Electronic Fund Transfer Act (EFTA) and Regulation E protect consumers “if they are tricked into handing over account information to a fraudster who then initiates a transfer.” However, the letter further explained, that consumers are not protected “if they are tricked into opening an application to transfer funds directly to the fraudster.” The senators believe consumers should be protected in both instances. In particular, the Senators suggested that the CFPB could issue guidance providing that a “fraudulently induced” transfer counts as an “unauthorized” transaction under the EFTA, which could “end up shifting liability from consumers to financial institutions.” The letter suggested, among other things, that the Bureau expand the definition of what counts as a payment “error” under the EFTA, to “clarify that, in certain circumstances, a payment is an 'error' when a consumer is defrauded into initiating a transfer to a scammer.” The letter further argued that expanding financial institutions’ potential liability for covering their customers’ losses to fraud would create “powerful incentives” for them to prevent scams on their payment platforms. The letter concludes with the senators urging the Bureau “to similarly protect banks’ customers against transfers with ‘fraudulent intent’ involving other consumers on payment services that banks themselves own, operate, and control.”
CFPB reports on banks’ overdraft fee practices
On July 20, the CFPB published a blog post examining banks’ overdraft and non-sufficient fund fees (NSF) fees practices since the publication of their report “Overdraft/NSF Fee Reliance Since 2015 – Evidence from Bank Call Reports” in December 2021. According to the blog post, the Bureau relied on additional data from the call report from the last three available quarters – the third quarter of 2021 through the first quarter of 2022. The December 2021 report used aggregate Call Report data from 2015 to 2021 from banks with assets of over $1 billion to examine the evolution of banks’ reliance on overdraft and NSF fees. The report found a lower reliance by banks on overdraft and NSF fees during the pandemic and continuing into 2021, which the Bureau said “reflects the relatively larger continued shortfall of overdraft and NSF fees in relation to their pre-pandemic volumes compared to the shortfall in maintenance and ATM fees.” While reliance on overdraft and NSF fees varied considerably among banks, the report noted that these fees represented close to two-thirds of banks’ reported fee revenue and were generally stable over time for any given bank.
According to the July 20 blog post, the Bureau found that the recent increase in overdraft revenue is greatest among small and midsize banks. However, the data shows that overall overdraft revenue stopped its decline and reversed somewhat, and ended up 20.1 percent below the corresponding 2019 levels. The CFPB also noted that revenues from other listed fees, such as account maintenance and ATM fees, has increased since 2020, especially at banks that experienced the largest declines in overdraft/NSF fee revenues.
FTC, state AGs order says retailer used illegal tactics on servicemembers
On July 20, the FTC and 18 state attorneys general announced a proposed order against a national jewelry retailer (defendant) for allegedly using illegal financing and sales practices on service members and their families. In the complaint, the FTC alleged that the defendants violated the TILA, Holder Rule, and EFTA, among other things, by: (i) making false or unsubstantiated claims that financing jewelry purchases through the company would result in higher credit scores; (ii) misrepresenting that the protection plan was required to finance purchases; and (iii) failing to provide clear written disclosures and meet authorization requirements for contracts. The complaint also alleged that the defendant violated the Military Lending Act (MLA), the FTC’s first action under this Act, because, by failing to “provide disclosures in accord with TILA, including the Itemization of the Amount Financed, they also do not provide all disclosures required by the MLA.” The proposed order requires that the defendants are, among other things: (i) prohibited from making misrepresentations; (ii) prohibited from making unsubstantiated claims; (ii) banned from the marketing or sale of ancillary products or services; and (iii) banned from transferring retail installment contracts to third parties. The order also requires the defendant to refund approximately $10.9 million for purchased protection plans, and provide refunds for overpayments.
SEC fines company $50 million over misleading account statements
On July 18, the SEC issued a cease and desist order to a life insurance company for allegedly providing materially misleading account statements to roughly 1.4 million variable annuity investors in violation of the antifraud provisions of the Securities Act of 1933. According to the SEC, since at least 2016, the company misled investors into thinking that their quarterly account statements listed all fees paid during the period. An SEC investigation found, however, that the statements listed only administrative, transaction, and plan operating fees that investors infrequently incurred. The SEC noted that these fees were usually negligible, and only a slight fraction of the overall fees paid by an investor. “When considering how to invest their hard-earned money and save for retirement, it is essential that investors not be misled about the fees they are paying,” Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, said in the announcement. “This case should serve as an important reminder to investment firms to carefully review their statements to ensure fee information is disclosed properly.” Without admitting or denying the allegations, the company agreed to pay a $50 million civil penalty that will be distributed to affected investors. The company will also cease and desist from committing or causing any future violations and will revise the way it presents fee information in its variable annuity account statements.
FHFA launches Office of Financial Technology
On July 18, FHFA announced the establishment of the Office of Financial Technology to help address emerging fintech risks and priorities. The new office will support the agency in: (i) developing strategies for FHFA-regulated entities to advance safe, responsible, and equitable fintech innovation; (ii) sharing best practices related to fintech in housing finance; (iii) establishing outreach through regulated entities to promote awareness and understanding of fintech innovation; (iv) facilitating interagency collaboration and partnerships with other regulators; and (v) providing resources on innovation, general trends, and emerging risks in housing finance. The new office will also help develop strategies for Fannie Mae, Freddie Mac, and the Federal Home Loan Banks to advance fintech in a responsible manner.
The agency also issued a request for information (RFI) on the role of financial technology in housing finance and the risks and opportunities presented by technology throughout the mortgage lifecycle. Among other things, the RFI seeks feedback on ways the agency can “constructively interact with other stakeholders to facilitate responsible innovation, including the identification of any barriers to or challenges in implementing fintech in the housing finance ecosystem, while also focusing on supporting equity in the housing finance landscape for both homeowners and renters.” FHFA stated it also has an interest in understanding ways technology might automate and increase the effectiveness of compliance and regulatory processes (broadly referred to as “regtech”), commenting that “[r]egtech provides an opportunity to enhance transparency, consistency, and standardization of those processes, while reducing compliance costs.” Comments are due by October 16.
NYDFS to study overdraft fees
On July 15, New York’s governor signed S9348, directing the superintendent of NYDFS to conduct a study of overdraft fees in the state. (See also NYDFS press release here.) The study will examine, among other things: (i) the total amount of overdraft fees paid in the state; (ii) the geographical distribution of these fees; (iii) whether certain communities have higher rates of overdraft fees than others and the possible reason for such high rates; (iv) “the percentage of overdraft fees reduced through direct or indirect negotiation”; and (v) the enumeration of consumer rights related to overdraft fee negotiations. The results of the study are to be delivered within one year to the governor, the temporary president of the senate, and the speaker of the assembly. The act is effective immediately.
Hsu highlights financial health for consumers
On July 14, acting Comptroller of the Currency Michael J. Hsu delivered remarks before the U.S. Department of the Treasury’s Financial Literacy Education Commission (FLEC) discussing financial health for consumers. Hsu began by emphasizing that those who are invested in crypto-assets “are disproportionately young, diverse, and underbanked.” He noted the need “to take a careful and cautious approach” to crypto-assets, and then described the agency’s November 2021 reminder to national banks that their crypto activities must “be done in a safe, sound, and fair manner and that they need to obtain supervisory non-objections from us before engaging in new activities.” Hsu also mentioned that the OCC staff joined the FLEC Digital Assets working group to develop consumer materials clearly explaining new products in the cryptocurrency arena. Additionally, Hsu discussed the OCC’s “Financial Health: Vital Signs” discussion series, which explores issues affecting consumer financial health and well-being (covered by InfoBytes here). He further explained that a “financial health lens focused on individuals and communities, rather than solely on products or services, should enable a more sophisticated and effective approach to balancing the financial empowerment and protection of consumers.” Hsu concluded by noting the second anniversary of “Project REACh,” an initiative to promote greater financial inclusion of underserved populations, as previously covered by InfoBytes.
4th Circuit: Borrower must return loans proceeds to rescind reverse mortgage
On July 14, the U.S. Court of Appeals for the Fourth Circuit held that a borrower has three years to rescind a reverse mortgage loan if a lender fails to provide required TILA disclosures, but that in order for the cancellation of the loan to be complete the proceeds must be returned. The borrower attempted to rescind a reverse mortgage she took out on her home after discovering the lender allegedly did not provide required TILA disclosures at closing. She notified the lender seeking to rescind the mortgage, but later sued after the lender failed to honor her rescission rights as required by Section 1635(b) of TILA. At trial, a jury sided with the lender, finding that it did not fail to honor the borrower’s attempt to rescind the loan. However, the district court issued judgment as a matter of law for the borrower, holding that the lender violated TILA’s requirements following the borrower’s notice of rescission, and ruling that because of this failure, the borrower was not required to return $60,000 in loan proceeds. The lender appealed.
In vacating the district court’s order granting judgment as a matter of law, the appellate court held that the district court’s ruling violated TILA’s recission provisions, which are intended to return all parties to their status prior to the loan agreement. “To decide otherwise would bestow a remarkable windfall on a borrower and penalty on the lender divorced from the text of TILA and the entire purpose of rescission,” the Fourth Circuit wrote. Moreover, the appellate court concluded that while a lender’s obligations in response to a rescission notice are mandatory, nothing in Section 1635(b) “specifies that if the lender fails to take these actions, it loses its right to the monies it loaned to the borrower.”