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CFPB, OCC issue consent orders against national bank
On July 14, the CFPB announced a consent order against a national bank to resolve allegations that the bank engaged in unfair and abusive acts or practices with respect to unemployment insurance benefit recipients who filed notices of error concerning alleged unauthorized electronic fund transfers (EFTs). The CFPB alleged that the bank violated the CFPA by, among other things: (i) determining that “no error had occurred and [by] freezing cardholder accounts based solely on the results of [the bank’s] automated Fraud Filter”; (ii) “retroactively applying its automated Fraud Filter to reverse permanent credits for unemployment insurance benefit prepaid debit cardholders whose notices of error [the bank] had previously investigated and paid”; and (iii) “impeding unemployment insurance benefit prepaid debit cardholders’ efforts to file notices of error and seek liability protection from unauthorized EFTs.” The CFPB also claimed that the bank violated the EFTA and Regulation E by “fail[ing] to conduct reasonable investigations” of cardholders’ notices of error. Under the terms of the Bureau’s consent order, the bank is required to provide redress to harmed consumers, review and reform its unemployment insurance benefit prepaid debit card program, and pay a $100 million civil penalty to the Bureau.
The same day, the OCC announced a consent order and a $125 million civil money penalty against the bank for alleged unsafe or unsound practices related to the same prepaid card program. According to the OCC, the bank, among other things: (i) “fail[ed] to establish effective risk management” over its unemployment card program”; and (ii) “beginning in 2020, denied or delayed many consumers’ access to unemployment benefits when consumers filed or attempted to file [unemployment insurance benefits] unauthorized transaction claims.” The OCC’s civil money penalty and remediation requirement is in addition to the CFPB’s civil money penalty.
FTC testifies on its efforts to combat fraud against servicemembers
On July 13, the FTC announced that it testified before the House Committee on Oversight and Reform Subcommittee on National Security regarding the Commission’s efforts to combat fraud and related threats against servicemembers. The testimony highlighted efforts by the Commission to protect military members, such as: (i) proposing a rule to eliminate “junk fees” and “bait-and-switch” advertising tactics related to the sale, financing, and leasing of motor vehicles by dealers (covered by InfoBytes here); (ii) taking action against a fast-food chain that allegedly targeted veterans with false promises while withholding information required by the FTC’s Franchise Rule; and (iii) providing $1.2 million in refunds and debt cancellation for students who allegedly were deceived by a for-profit medical school. The testimony also discussed other “challenges in protecting consumers from fraud and abuse,” and referenced the U.S. Supreme Court's ruling in AMG Capital Mgmt., LLC v. FTC, which held that the FTC does not have the ability to obtain monetary relief under Section 13(b) of the FTC Act (covered by InfoBytes here). Additionally, the FTC said its education and outreach efforts, including its focus on identity theft, is a “critical part of the agency’s consumer protection and fraud prevention work.”
NYDFS issues overdraft and NSF fee guidance
On July 12, NYDFS issued guidance in an industry letter to regulated banking institutions, calling into question bank practices that can cause consumers to receive multiple overdraft and non-sufficient funds (NSF) fees from a single transaction. The industry letter identifies three specific types of fee practices as unfair or deceptive:
- Charging overdraft fees for “authorize positive, settle negative” transactions, where consumers are charged an overdraft fee even if they have sufficient money in their account when a bank approves a transaction, but the balance is negative when the payment is settled. Per NYDFS, imposing an overdraft fee in this situation is unfair because, among other things, consumers “have no control over or involvement in” when or how their debit transactions get settled.
- Charging “double fees” to consumers for a failed overdraft protection plan transfer, which occurs when a bank goes to transfer money from one deposit account to another deposit account to cover an overdraft transaction, but the first account lacks sufficient funds to cover the overdraft. Per NYDFS, double fees injure consumers “by imposing fees for a transfer that provides no value to the consumer and is not reasonably avoidable by consumers, who have no reason to expect that they will be charged a fee for an overdraft protection transfer that does not in fact protect them against an overdraft.”
- Charging NSF representment fees when a merchant tries several times to process a transaction that is deemed an overdraft and the bank charges a fee for each blocked representment without adequate disclosure. Banks that currently charge multiple NSF fees should “make clear, conspicuous, and regular disclosure to consumers that they may be charged more than one NSF fee for the same attempted debit transaction,” NYDFS stated. Additionally, banks are advised to consider other steps to mitigate the risk that consumers are charged multiple NSF fees, including limiting time periods for when multiple NSF fees may be charged, performing periodic manual reviews to identify instances of multiple NSF Fees, and offering refunds to affected consumers. NYDFS “ultimately expects [i]nstitutions will not charge more than one NSF fee per transaction, regardless of how many times that transaction is presented for payment,” the industry letter said.
NYDFS informed regulated entities that it will evaluate whether they “are engaged in deceptive or unfair practices with respect to overdraft and NSF fees in future Consumer Compliance and Fair Lending examinations.”
Chopra outlines CFPB’s efforts to promote competition in financial markets
On July 11, CFPB Director Rohit Chopra provided an overview of recent steps taken by the agency as part of a “whole-of-government effort” to promote financial market competition. In an effort to identify obstacles facing consumers who want to refinance or easily switch providers, the Bureau sent letters to the CEOs of the nation’s largest credit card companies asking for explanations of how they furnish data to credit reporting agencies regarding the exact monthly payment amounts made by borrowers (covered by InfoBytes here). The Bureau reported that “[c]onsumers reasonably expect that they will receive competitively priced credit based on their ability to manage and repay their credit obligations,” but warned that “this is impaired if actual payment amount information is being suppressed by major credit card companies.” Chopra added that the Bureau is also working to “identify[] impediments to refinancing in other markets, including mortgages and auto,” and is “accelerating its work to implement a required rulemaking on personal financial data rights” to help promote competition and switching by providing consumers more control of their data.
Chopra also highlighted an initiative to reduce junk fees. As previously covered by InfoBytes, the Bureau has requested comments from the public on fees associated with consumers’ bank accounts, prepaid or credit card accounts, mortgages, loans, payment transfers, and other financial products that are allegedly not subject to competitive processes to ensure fair pricing. The Bureau also issued an advisory opinion last month stating its interpretation that Section 808 of the FDCPA and Regulation F generally prohibit debt collectors from charging consumers “pay-to-pay” fees, also commonly known as convenience fees, for making payments online or by phone to make sure debt collectors are not “disadvantaged by those that impose unlawful fees” (covered by InfoBytes here). A rulemaking process has also begun to address credit card late fees and late payments and card issuers’ revenue and expenses (covered by InfoBytes here).
Additionally, Chopra discussed Bureau efforts to identify roadblocks facing small financial institutions and new entrants when challenging larger, more dominant players. Specifically, the Bureau issued orders to six large U.S. technology companies seeking information and data on their payment system business practices (covered by InfoBytes here). According to Chopra’s statement, the “information will help the CFPB shed light on how they will decide who they kick off their platform and how they will use the data of individual consumers and any competing businesses.” The Bureau is also working with community banks to understand the impact of major core services providers on their business (covered by InfoBytes here).
4th Circuit says foreign debit fee contract language is ambiguous
On July 7, the U.S. Court of Appeals for the Fourth Circuit held that a class action breach of contract suit related to foreign debit card fees charged by a credit union may proceed. Class members claimed that the credit union’s contract allows fees only when customers make debit card purchases in a foreign country—not when customers make a purchase while they are physically in the U.S. even if the merchant is abroad. According to the contract’s disclosure agreement and fee schedule, debit card transactions “made in a foreign country” and non-credit union “Point-of-sale and ATM transactions made in a foreign country” will incur a one percent fee.
In vacating the district court’s ruling that the card contracts clearly prohibited these fees, the 4th Circuit concluded that the contract’s language is ambiguous and subject to different interpretations. While class members and the credit union both cited dictionary definitions in support of their arguments, the appellate court said the contract’s language “simply does not clarify whether the location of the account holder or the seller determines whether the transactions are made in foreign countries.” In an online context, the 4th Circuit pointed to questions posed by the 7th Circuit: “Where is the point of sale for such a purchase—the consumer’s computer? the vendor’s headquarters? the vendor’s server? cyberspace generally?” The 4th Circuit further noted that the contracts could have been clearly drafted to explain whether online transactions were “made in foreign countries” if they were between account holders physically in the U.S. and foreign sellers but “were not.”
CFPB sues payday lender over debt collection practices
On July 12, the CFPB filed a complaint against a Texas-based payday lender (defendant) for allegedly engaging in illegal debt-collection practices and allegedly generating $240 million in reborrowing fees from borrowers who were eligible for free repayment plans in violation of the CFPA. As previously covered by InfoBytes, in 2014, the Bureau ordered the defendant to, among other things, pay $10 million for allegedly using false claims and threats to coerce delinquent payday loan borrowers into taking out an additional payday loan to cover their debt. The Bureau stated that after the CFPB’s 2014 enforcement action, the defendant “used different tactics to make consumers re-borrow.” The complaint alleges that the defendant “engaged in unfair, deceptive, and abusive acts or practices by concealing the option of a free repayment plan to consumers who indicated that they could not repay their short term, high-cost loans originated by the defendant.” The Bureau also alleges that the defendant attempted to collect payments by unfairly making unauthorized electronic withdrawals from over 3,000 consumers’ bank accounts. The Bureau seeks permanent injunctive relief, restitution, disgorgement, damages, civil money penalties, and other relief.
FHA revises appraisal validity period
On July 12, FHA released FHA INFO 2022-71, announcing the publication of Mortgagee Letter (ML) 2022-11, Revised Appraisal Validity Periods, which applies to Single Family Title II Forward and HECM programs. The ML increases the FHA initial appraisal validity period from 120 days to 180 days and extends the appraisal update validity period to one year. As a result of the ML, FHA will implement modifications to the appraisal-related functionality in FHA Connection (FHAC). For all case numbers assigned on or after September 6, the Appraisal Effective Date field on the FHAC Appraisal Logging screen will no longer be editable. Appraisal Logging for this field is automatically pre-filled with the information submitted from the electronic appraisal report. The updates outlined in ML 2022- 11 will be incorporated under the Single-Family Housing Policy Handbook 4000.1.
District Court orders CFPB to issue Section 1071 rulemaking by March 31
On July 11, the U.S. District Court for the Northern District of California issued an order setting March 31, 2023 as the deadline for the CFPB to issue a notice of proposed rulemaking (NPRM) on small business lending data. As previously covered by InfoBytes, the Bureau is obligated to issue an NPRM for implementing Section 1071 of the Dodd-Frank Act, which requires the agency to collect and disclose data on lending to women and minority-owned small businesses. The requirement was established as part of a stipulated settlement reached in 2020 with a group of plaintiffs, including the California Reinvestment Coalition (CRC), who argued that the Bureau’s failure to implement Section 1071 violated two provisions of the Administrative Procedures Act, and harmed the CRC’s ability to advocate for access to credit, advise organizations working with women and minority-owned small businesses, and work with lenders to arrange investment in low-income and communities of color (covered by InfoBytes here).
Find continuing Section 1071 coverage here.
FHA expands mortgage eligibility for Covid-affected borrowers
On July 7, FHA announced expanded mortgage eligibility for qualifying borrowers who previously experienced employment gaps or loss of income due to the Covid-19 pandemic. Under Mortgagee Letter (ML) 2022-09, salaried and hourly wage-earners, as well as self-employed individuals impacted by a Covid-19 related economic event (defined “as a temporary loss of employment, temporary reduction of income, or temporary reduction of hours worked during the Presidentially Declared COVID-19 National Emergency”), who now have stable income will have a greater opportunity to purchase a home using affordable FHA-insured mortgage financing. Specifically, ML 2022-09 updates calculation guidelines for a borrower’s effective income under certain sections in the Single-Family Housing Policy Handbook 4000.1. While ML 2022-09’s provisions are effective for all case numbers assigned on or after September 5, 2022, lenders may begin using the policies immediately. According to FHA Commissioner Julia Gordon, the changes further agency efforts “to facilitate recovery from COVID-19 and support access to homeownership, particularly for populations most deeply impacted by the pandemic.” Gordon noted that the pandemic impacted “the livelihoods of tens of millions of workers in this country, particularly workers of color and those at the lower end of the wage scale.”
CFPB advisory stresses “permissible purpose” of consumer reports
On July 7, the CFPB issued an advisory opinion to state its interpretation that under certain FCRA-permissible purpose provisions, a consumer reporting agency may not provide a consumer report to a user unless it has reason to believe that all of the information it includes pertains to the consumer who is the subject of the user’s request. The Bureau explained that “credit reporting companies and users of credit reports have specific obligations to protect the public’s data privacy,” and reminded covered entities that “FCRA section 604(f) strictly prohibits a person who uses or obtains a consumer report from doing so without a permissible purpose.”
Among other things, the FCRA is designed to ensure fair and accurate reporting and requires users who buy these consumer credit reports to have a legally permissible purpose. Specifically, the advisory opinion clarifies that (i) insufficient matching procedures can result in credit reporting companies providing reports to entities without a permissible purpose, thus violating a consumer’s privacy rights (the Bureau explained that if a credit reporting company uses name-only matching procedures, items appearing on a credit report may not all correspond to a single individual); (ii) it is unlawful to provide credit reports of multiple people as “possible matches” (credit reporting companies are obligated to implement adequate procedures to find the correct individual); (iii) disclaimers about insufficient matching procedures will not cure a failure to take reasonable measures to ensure the information provided in a credit report is only about the individual for whom the user has a permissible purpose; and (iv) credit report users must ensure that they are not violating an individual’s privacy by obtaining a credit report when they lack a permissible purpose for doing so.
The Bureau also outlined certain criminal liability provisions in the FCRA. According to the advisory opinion, covered entities may face criminal liability under Section 619 for obtaining information on an individual under false pretenses, while Section 620 “imposes criminal liability on any officer or employee of a consumer reporting agency who knowingly and willfully provides information concerning an individual from the agency’s files to an unauthorized person.” Violators can face criminal penalties and imprisonment, the Bureau said in its announcement.
As previously covered by InfoBytes, the Bureau finalized its Advisory Opinions Policy in 2020. Under the policy, entities seeking to comply with existing regulatory requirements are permitted to request an advisory opinion in the form of an interpretive rule from the Bureau (published in the Federal Register for increased transparency) to address areas of uncertainty.