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On January 19, the CFPB initiated an enforcement action against a U.S. bank alleging it mislead consumers regarding its overdraft services. In a complaint filed with the United States District Court for the District of Minnesota, the Bureau claims the bank created an application process that obscured fees and made an optional opt-in overdraft service appear to be mandatory for both new and existing consumers. Furthermore, the complaint alleges that the bank relied on overdraft fee revenue to a greater degree than most other banks its size and recognized that the opt-in rule could negatively impact its business by virtue of reducing overdraft revenue. The CFPB seeks “redress for consumers, injunctive relief, and penalties.”
On January 20, the Ninth Circuit issued an opinion affirming the U.S. District Court for the Central District of California’s 2014 order enforcing the investigative demands against three tribal lending entities. The investigative demands are centered on determining whether small-dollar online lenders or other persons have engaged or are engaging in unlawful acts or practices relating to the advertising, marketing, provision, or collection of small-dollar loan products, in violation the Dodd-Frank Act and other Federal consumer financial laws. According to the opinion, the court claims that in “the Consumer Financial Protection Act, a generally applicable law, Congress did not expressly exclude tribes from the Bureau’s enforcement authority” and thereby, the tribes cannot claim tribal sovereign immunity.
On January 10, the FTC filed a complaint against an online company that owns three “free credit report” websites as well as three individuals connected to the company with claims that they illegally lured consumers to their websites. The scheme, as alleged in the complaint, made use of Craigslist ads promoting non-existent or unauthorized apartments and houses for rent as the means of encouraging consumers to request additional information, which would then prompt them to click on a link to one of the three websites owned by the company to get a “free” credit check. The consumers allegedly were then enrolled in a credit monitoring service, supposedly without their knowledge or consent. The company has purportedly accrued millions of dollars using this method. On January 11, the U.S. District Court for the Northern District of Illinois entered a temporary restraining order against the defendants.
On January 20, Reince Priebus, Chief of Staff to President Trump, issued a memorandum to the heads of executive departments and agencies initiating a regulatory review to be headed by the Director of the Office of Management and Budget (“OMB”). Congressman Mick Mulvaney (R-SC) has been nominated to fill that position.
On behalf of the President, the memorandum asks the following of the agency and department heads:
- No new regulations: “[S]end no regulation to the Office of the Federal Register (the ‘OFR’) until a department or agency head appointed or designated by the President after noon on January 20, 2017, reviews and approves the regulation.”
- Withdraw final but unpublished regulations: “With respect to regulations that have been sent to the OFR but not published in the Federal Register, immediately withdraw them from the OFR for review and approval.”
- Delay the effective date of published but not yet effective regulations: “With respect to regulations that have been published in the OFR but have not taken effect, as permitted by applicable law, temporarily postpone their effective date for 60 days from the date of this memorandum” and consider notice and comment to further delay the effective date or to address “questions of fact, law, or policy.” Following the delay, regulations that “raise no substantial questions of law or policy” would be allowed to take effect. For those regulations that do raise such questions, the agency or department “should notify the OMB Director and take further appropriate action in consultation with the OMB Director.”
Rulemakings subject to statutory or judicial deadlines are exempt, and the OMB Director has the authority to grant further exemptions for “emergency situations or other urgent circumstances relating to health, safety, financial, or national security matters, or otherwise.”
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If you have questions about the “freeze” or other related issues, visit our Consumer Financial Protection Bureau practice for more information, or contact a BuckleySandler attorney with whom you have worked in the past.
On January 23, the Attorneys General of 16 states and the District of Columbia (the State Attorneys General) filed a motion requesting the permission of the D.C. Circuit to intervene in the CFPB’s petition for en banc reconsideration in PHH Corp. v. CFPB. In the motion, the State Attorneys General argue that they have a vital interest in the matter because the October 2016 panel decision subjecting the CFPB Director to “at will” removal by the President “threatens to undermine the ability of the State Attorneys General [to work with the CFPB] to bring effective civil enforcement and coordinated regulatory actions free from political influence and interference.”
Noting the possibility that President Trump may seek to remove CFPB Director Cordray before the petition for rehearing is resolved or refuse to pursue an appeal to the Supreme Court if the panel decision stands, the State Attorneys General raise the concern that “[t]he incoming administration … may not continue an effective defense of the statutory for-cause protection of the CFPB director.” Therefore, because “[a] significant probability exists that the pending petition for rehearing will be withdrawn, or the case otherwise rendered moot,” the State Attorneys General argue that the D.C. Circuit should allow them to intervene to protect their interests.
In addition to the District of Columbia, the motion was filed on behalf of the Attorneys General for the following states: Connecticut, Delaware, Hawaii, Illinois, Iowa, Maine, Maryland, Massachusetts, Mississippi, New Mexico, New York, North Carolina, Oregon, Rhode Island, Vermont, and Washington. The filing of the motion was announced by Connecticut Attorney General George Jepsen, whose office prepared the initial draft.
Last week, Sens. Deb Fischer (R-Neb.), Ron Johnson (R-Wis.) and John Barrasso (R-Wyo.) introduced a bill (S. 105) that would amend the Consumer Financial Protection Act of 2010 to replace the CFPB’s current single director with a bipartisan, five-member board. The proposed leadership structure would be similar to that of other financial regulators, including the FDIC, SEC and CFTC.
On January 18, GOP members of the House Financial Services Committee released “The CFPB’s Vitiated Legal Case Against Auto-Lenders”, an investigative report prepared by GOP members who are of the belief that the CFPB likely has and continues to violate the Administrative Procedure Act. Relying mostly on internal CFPB documents obtained by the committee, the report focuses on the Bureau’s 2015 rule authorizing it to supervise larger participants in the auto lending market. In an accompanying press release, Committee Chairman Rep. Jeb Hensarling noted that the CFPB likely violated federal law when CFPB Director Richard Cordray failed to “heed CFPB attorneys who advised him to publish a list of institutions the Bureau believed would be subject to the proposed [auto-lending] rule” and/or “re-open the public comment period after it had closed.”
The report was released amid uncertainty over the fate of Director Cordray as the new administration assumes office. As previously covered in InfoBytes, a group of Democratic senators sent a letter Jan. 10 to President-elect Trump urging him not to dismiss Cordray, and noting that an attempt by Trump to fire him would be hard-pressed to withstand a legal challenge. This latest investigative report was the third released by GOP members on the panel over the last 14 months concerning CFPB efforts to regulate auto lenders—which Rep. Hensarling describes as “dangerously out-of-control,” and “unconstitutional.”
According to a January 17 blog post by CFPB Student Loan Ombudsman Seth Frotman, the CFPB has released an updated student loan Payback Playbook prototype, incorporating changes that the Bureau implemented after reviewing thousands of public comments submitted by student loan borrowers, consumer advocates, and other industry members. According to Mr. Frotman, the Bureau worked together with the Departments of Education and Treasury to develop “prototype disclosures” that “outline a path to affordable payments for struggling borrowers who are trying to avoid student debt distress.” The CFPB reports that it has shared the Payback Playbook prototype and the underlying consumer feedback data with the Department of Education. The joint efforts are part of a broader Department of Education initiative branded “A New Vision for Serving Student Loan Borrowers.”
On January 10, a California-chartered finance company with its principal place of business in Manila, Philippines filed an action to enjoin the CFPB from, among other things, disclosing the existence of an investigation of the plaintiff and taking any action against the plaintiff 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). The action was prompted, in part, by the recent PHH v. CFPB decision in which the court held that the CFPB’s single director leadership structure is unconstitutional and, thus, that the agency must operate as an executive agency supervised by the President. Here, the John Doe plaintiff argues that because the CFPB has requested review of the PHH decision, the court’s remedy in regarding the CFPB’s structure has not taken effect and thus agency is operating in violation of the Constitution. Therefore, plaintiff asserts, the CFPB can take no further action against it—including publication of the CFPB’s investigation of plaintiff or initiation of enforcement action against plaintiff.
We note, that on the same day the plaintiff filed its complaint, the court issued an order reflecting its decision that the plaintiff be able to proceed in its action against the CFPB under a pseudonym. In so doing, the court noted that where a company has filed an action to protect against the government’s disclosure of its identity, it would be “counterintuitive that a court should require that same company to disclose its identity in the parallel court proceedings.” Judge Rudolph Contreras of the U.S. District Court for the District of Columbia has given the CFPB until Jan. 25 to respond to the company’s complaint and motion to proceed under a pseudonym.
On January 18, the CFPB initiated an enforcement action against the nation’s largest student loan servicer based upon alleged violations of the CFPA, FCRA, and FDCPA. In a complaint filed with the Middle District of Pennsylvania, the Bureau charged that the student lender “systematically and illegally” created “obstacles to repayment” and “cheated” many borrowers out of their rights to lower repayments, causing them to pay much more than they had to for their loans. The CFPB “seeks to obtain permanent injunctive relief, restitution, refunds, damages, civil money penalties, and other relief.”
Later that day, the lender issued a statement categorically rejecting the CFPB's charges, explaining: “[T]he suit improperly seeks to impose penalties  based on new servicing standards applied retroactively and applied only against one servicer. The regulator-asserted standards are inconsistent with Department of Education regulations, and will harm student loan borrowers, including through higher defaults.” The company also noted that “the timing of this lawsuit—midnight action filed on the eve of a new administration—reflects their political motivations.”
- Jonice Gray Tucker to discuss “Getting your company ready: Managing fair lending for IMBs” at the Mortgage Bankers Association Independent Mortgage Bankers Conference
- Jonice Gray Tucker to discuss “Be Your Compliance Best in 2022” at the California Mortgage Bankers Association webinar
- Lauren R. Randell to discuss “Significant legal developments in the Northeast” at the 37th Annual National Institute on White Collar Crime
- Jonice Gray Tucker to discuss “Small business & regulation: How fair lending has evolved & where it is heading?” at the Consumer Bankers Association Live program
- Jonice Gray Tucker to discuss “Regulators always ring twice: Responding to a government request” at ALM Legalweek
- Jonice Gray Tucker and Kari Hall to discuss “Equity, equality, regulation and enforcement – The evolving regulatory landscape of fair lending, redlining, and UDAAP” at the ABA Business Law Committee Hybrid Spring Meeting