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CFPB urges District Court to dissolve preliminary injunction and lift stay on late fee rule
On August 22, the CFPB filed a reply brief in support of its motion urging the U.S. District Court for the Northern District of Texas to dissolve the preliminary injunction and lift the stay on the CFPB’s late fee rule. As previously covered by InfoBytes, the District Court granted the plaintiffs’ motion for a preliminary injunction and stayed the CFPB’s final rule in May. The rule, promulgated earlier this year, would lower the safe harbor amount for credit card late fees from $30 (and $41 for a subsequent late fee charged within six billing cycles) to $8. In the recent reply brief, the CFPB argued that the rule was consistent with the CARD Act and TILA and that the plaintiffs, a group of national and local business and bank associations, failed to show how the stay would serve the public interest or why a 90-day compliance period would be appropriate.
The CFPB made several points in its recent 13-page reply brief. First, it argued that the rule is “entirely consistent” with the statute, maintaining that the plaintiffs “overread” the CARD Act as permitting late fees to exceed the costs incurred for a late payment. The CFPB also contended that the plaintiffs were not entitled to a preliminary injunction because of TILA’s effective-date provision, which requires six months of lead time before certain TILA regulations can go into effect. Second, the CFPB urged the court to reconsider its finding that a preliminary injunction would serve the public interest, arguing that maintaining the current injunction would harm consumers. Lastly, the CFPB asserted that the plaintiffs’ arguments to impose a 90-day compliance period in the event the court lifts the stay were unpersuasive.
This case has also been the subject of a venue dispute. The CFPB originally filed a motion to transfer the venue from Texas to the U.S. District Court for the District of Columbia, which was granted, but the U.S. Court of Appeals for the Fifth Circuit intervened (covered by InfoBytes here) and transferred the case back to Texas, where it remains (also covered by InfoBytes here).
SEC alleges whistleblower protection violations in customer gag clauses
On September 4, the SEC announced it had settled charges against three affiliated registrants (the respondents) accused of violating the whistleblower protection rule. According to the SEC order, from May 2021 through February 2024, the respondents required collectively eleven retail clients to sign confidentiality agreements that hindered them from reporting potential securities law violations to the SEC. Specifically, some agreements included provisions that restricted clients from disclosing information unless an inquiry was initiated by a regulator and required clients to represent that they had not reported and would not report the underlying dispute to any securities regulator.
The SEC found that respondents willfully violated Rule 21F-17(a) under the Securities Exchange Act, which prohibits taking any action to impede an individual from communicating with the SEC about possible securities law violations. The respondents agreed to the settlement without admitting or denying the findings.
Respondents are ordered to cease and desist from future violations of the whistleblower protection rule and are required to pay civil monetary penalties: the Commission-registered investment adviser will pay $160,000, the Commission-registered broker-dealer will pay $70,000, and the state-registered investment adviser will pay $10,000. The SEC noted that it considered the respondents’ cooperation and remedial efforts in determining the penalties and that penalties were apportioned based on the relative size and financial condition of the entities involved.
DOT probes four airline rewards practices
On September 5, the U.S. Department of Transportation (DOT) initiated an inquiry into the rewards programs of the four largest U.S. airlines to investigate potential unfair, deceptive, or anticompetitive practices. Secretary of Transportation Pete Buttigieg ordered the airlines to provide detailed reports and records about their rewards programs. Specific practices subject to investigation included the devaluation of earned rewards, hidden or dynamic pricing, extra fees, and reduced competition and choice. The inquiry followed a joint public hearing by the CFPB and DOT earlier this year, where concerns about the transparency and fairness of airline rewards programs were raised (covered by InfoBytes here). CFPB Director Rohit Chopra released a statement regarding the DOT’s action, stating “Americans are paying high interest rates and fees to participate in these programs — yet these tempting points and rewards programs are often depreciated or changed with little notice.” The DOT also noted that this initiative was part of the Biden Administration’s broader efforts to improve airline passenger rights and oversight of the airline industry. Other DOT actions included the creation of new rules governing automatic cash refunds to passengers, the imposition of surprise airline fees, and an expansion of DOT’s capacity to review air travel service complaints.
FTC provides annual debt collection activities to CFPB in letter
On September 5, the FTC published a letter to the CFPB on the Commission’s annual summary of debt collection activities in 2023. Addressed to CFPB Director Rohit Chopra, the report aimed to assist the Bureau in preparing its annual report to Congress on implementing the FDCPA.
The letter began by detailing the FTC’s enforcement activities and rulemaking efforts, which included: (i) enforcement actions against small business debt collectors alleging unfair and deceptive debt collection practices; and (ii) actions to prevent the collection of illegal student debt as income-share agreements not compliant with applicable law. The letter also highlighted the FTC’s efforts against certain activities that add to consumers’ debt burden; (i) actions to combat “dark patterns” that prevent consumers from canceling subscriptions by making the cancellation process confusing and misleading; (ii) the proposal of the CARS Rule to ban bait-and-switch tactics and hidden junk fees assessed to customers financing the purchase of a vehicle; and (iii) the proposal of a rule to ban hidden and misleading fees in routine transactions, including booking hotels, buying concert tickets, renting apartments, and paying utility bills (covered by InfoBytes here).
The report also emphasized the FTC’s public outreach and cross-agency coordination, including efforts to coordinate with the CFPB and other law enforcement agencies to pursue consumer protection efforts.
CFPB issues its annual FDCPA report
On September 5, the CFPB released its 2024 annual report on the FDCPA, which discussed several issues consumers face in debt collection and highlights practices in the collection of medical and rental debt. Medical debt collection has been a primary focus of the CFPB. The report noted that medical debt collection complaints comprised 11 percent of the 68,000 debt collection complaints received in 2023. A continuing trend among consumer complaints was that the debts have already been paid or should have been covered by financial assistance programs. The report also identified problems with the quality of information provided by debt collectors and healthcare providers, which the CFPB argued may lead to increased difficulty for consumers.
As it relates to rental debt, the report noted that rental debt collection complaints rose to over 1,700 complaints between August and December 2023. The CFPB found that many rental debt collectors charged consumers fees not owed under lease agreements or state law, and some engaged in allegedly “illegal price-fixing practices.” The Bureau emphasized that debt collectors might violate the FDCPA by attempting to collect inflated or incorrect amounts.
CFPB Director speaks on mortgages and interest rates
On September 9, CFPB Director Rohit Chopra spoke at the National Housing Conference on how a decrease in interest rates could impact mortgage refinancing. Chopra noted that over a fifth of all mortgages currently have interest rates above 5 percent and that millions of borrowers could benefit from refinancing as interest rates decline. Despite the economic benefit that homeowners could receive from refinancing, Chopra emphasized that the costs of the process could serve as a barrier to many borrowers. Chopra also argued that, based on previous refinancing history, there were concerns that minority homeowners and those in less affluent neighborhoods would be less likely to benefit from refinancing opportunities.
To encourage more refinancing, the CFPB will: (i) closely monitor the implementation of new mortgage technologies like AI; (ii) explore the need to change existing mortgage regulations to reduce closing costs and streamline refinancing processes; and (iii) pursue rules to shift to “open banking,” which the CFPB believes could lower underwriting costs.
Chopra concluded his remarks by stating uncertainly whether the predicted interest rates cuts would relieve many homeowners of high monthly mortgages. However, he concluded that “[i]f we can collectively refinance millions of mortgages in neighborhoods across the country, it will be a huge boost for those families and their local economies.”
Several consumer advocacy groups urge presidential candidates to continue CFPB’s work on “junk fees”
On August 15, a coalition of community, civil rights, consumer, and advocacy organizations released a letter urging both presidential candidates to support the CFPB’s ongoing efforts to combat “junk fees.” In a letter addressed to Vice President Harris and former President Trump, the groups emphasized the need for enforcement action and continued regulation of credit card fees, overdraft fees, non-sufficient funds fees and other similar types of fees. The letter highlighted how these fees may affect lower-wage workers, people of color, and small businesses disproportionately and claimed they discourage consumers from obtaining “mainstream” financial products, redirecting them into costlier “fringe” and “predatory” financial services.
The groups argued that such fees caused consumers to fall into debt cycles and accentuated that regulation would help curb these practices. The letter claimed that the CFPB’s actions are “overwhelmingly supported by the public” and called for any future administration to prioritize an economic agenda addressing these alleged financial harms. Specifically, the groups expressed support for an economic justice agenda that would prioritize consumer financial stability and support the CFPB’s role.
Fed issues cease and desist against bank
On September 4, the Fed and the Texas Department of Banking published a cease and desist order alleging deficiencies identified in a Texas-based bank’s corporate governance, risk management and compliance with BSA/AML laws. Under the order, the bank’s board of directors will be required to submit a plan to strengthen oversight of compliance with BSA/AML requirements and Office of Foreign Assets Control (OFAC) regulations. The plan must include actions to maintain effective control, contain measures to track and escalate noncompliance, and ensure adequate resources and expertise.
The board must submit a corporate governance plan addressing the findings of an independent third-party report. The bank must also submit a revised BSA/AML compliance program, which should address third-party report findings, enhance internal controls, conduct comprehensive risk assessments, and ensure independent testing and effective training.
In addition, the bank must submit quarterly progress reports detailing actions taken to comply with the order. The bank’s board of directors consented to the order and waived any rights to challenge its terms.
CFTC fines bank $3M for recordkeeping failures and more
On August 14, the CFTC issued an order simultaneously filing and settling charges against a swap dealer (the respondent) for allegedly violating the Commodity Exchange Act and related regulations. The order stated the bank self-reported these violations based during an internal audit. Specifically, from December 2019 to the present, the respondent failed to maintain required records, used unapproved communication methods, and inadequately supervised its swap dealer activities. Furthermore, the respondent’s employees (including senior personnel) used personal text messages and other unapproved methods of communication for business purposes, and such communications were not preserved or monitored (as required by the CFTC). This failure to maintain records and supervise employees specifically led to violations of Sections 4s(f)(1)(C), 4s(g)(1) and (3), and 4s(h)(1)(B) of the Commodity Exchange Act, among others.
The offer of settlement, which the CFTC accepted, included the respondent admitting to the violations, agreeing to pay a civil monetary penalty of $3 million, and committing to cease and desist from further violations. Additionally, the respondent will conduct a review of its supervisory and compliance policies related to electronic communications and will implement changes to ensure future compliance.
CFPB granted default judgment against auto loan servicer
On August 28, the U.S. District Court for the Northern District of Georgia entered an order and opinion granting the CFPB a default judgment in a case against an auto loan servicer (the defendant).
The CFPB alleged the defendant engaged in several unfair and deceptive practices in violation of the CFPA, including wrongful activation of starter-interruption devices (SIDs), mishandling Guaranteed Asset Protection (GAP) premiums, double billing for collateral-protection insurance, misapplying consumer payments, and wrongful repossessions. The defendant filed for Chapter 7 bankruptcy not long after the CFPB filed its complaint, and the courts merged this case with other affiliated debtors. Although the defendant requested a stay pending its bankruptcy filing, the court found that the CFPB’s enforcement action fell under the “police power” exception from the automatic stay, allowing the case to proceed. The court also granted the CFPB’s motion for default judgment regarding liability, finding that the defendant’s practices “caused substantial injury to consumers, which was not reasonably avoidable.” The court agreed to issue injunctive relief to prevent future violations of the CFPA, which was requested by the CFPB.
The CFPB sought restitution for unearned GAP premiums, damages for wrongful SID activations and repossessions, and a civil monetary penalty. The court, however, found the CFPB’s damage estimates flawed and directed the CFPB to supplement its calculations with more expert evidence. On timing, the court directed the Bureau to provide additional evidence within 35 days to support its damages claims. The court granted the motion regarding liability and injunctive relief, and it will require additional information concerning damages.