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CFPB Seeks Public Input on Impacts of CARD Act
On December 19, the CFPB issued a notice and request for information about the impact of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act or Act) on the consumer credit card market. The request seeks information about: (i) how the CARD Act has changed the substantive terms and conditions of credit card agreements, (ii) the effectiveness of disclosure of terms, fees, and other expenses of credit card plans, (iii) the adequacy of protections against unfair or deceptive acts or practices relating to credit card plans, and (iv) whether the Act has affected the cost and availability of credit, the safety and soundness of any credit card issuers, the use of risk-based pricing, or the innovation of new products. The CFPB explained that it will use the data gathered to prepare a publicly available report to Congress on the state of the consumer credit card market, and to inform future policy decisions regarding credit cards. The CFPB will accept comments for 60 days following publication of the notice in the Federal Register.
District Court Declines to Find Implied Contract to Adhere to Payment Industry Standards
On November 20, the U.S. District Court for the Northern District of California dismissed a putative class action that claimed, among other allegations, that Google violated an implied contract to handle certain users’ credit card information in accordance with the Payment Card Industry Security Standards. Frezza v. Google, Inc., Case No. 12-CV-00237-RMW, 2012 WL 5877587 (N.D. Ca. Nov. 20, 2012). The named plaintiffs alleged that they submitted credit card information when they bought Google Tags, which display advertisements in search results as part of a promotion. The plaintiffs claim that entering their credit card information into Google’s billing system established an implied contract requiring that Google handle such information responsibly, which the plaintiffs allege is in accordance with the Data Security Standards promulgated by the Payment Card Industry Security Standards Council. The court found that Google did not make any indication that it adopted the DSS recommendations when dealing with plaintiffs, and that Google had not violated any implied contract to handle its customers’ credit card information responsibly when it retained credit card data after the plaintiffs cancelled their subscriptions to Google Tags. The court also dismissed the plaintiffs’ breach of contract claims and other claims made under California statutes.
U.S. Supreme Court Passes on Two Banking Cases
This week the Supreme Court denied petitions for a writ of certiorari in two banking-related appeals. In Cummings v. Doughty, No. 12-351, the petitioners, a bank and its CEO, asked the Supreme Court to determine whether the safe harbor established by the Annunzio-Wylie Anti-Money Laundering Act provides absolute (versus qualified) immunity from claims that arise from the submission of a suspicious activity report (SAR). The petitioners were appealing a Louisiana state court holding, which the state appellate courts declined to review, that denied petitioners immunity under the Act after the CEO reported a bank president for possible suspicious activity. The bank president claimed that the petitioners lacked a good faith basis to report him and, therefore, could not receive absolute immunity. The petitioners argued that the First Circuit and the Second Circuit have held, based on the plain language of the Act, that financial institutions have absolute immunity from any cause of action relating to the submission of a SAR, while the Eleventh Circuit has held that the Act only grants qualified immunity. The Supreme Court declined to remedy the apparent circuit split.
In Parks v. MBNA America Bank, N.A., No 12-359, the Supreme Court denied review of a California Supreme Court decision that held that the National Bank Act preempts state requirements that certain disclosures accompany preprinted or “convenience checks” provided by a credit card issuer to its cardholders. The plaintiff filed suit on behalf of a putative class after he used such checks and was assessed finance charges that were greater than those that he would have been assessed had he used his credit card instead. He alleged that California law requires certain disclosures to be provided with the checks, including those related to convenience checks. In June, the California Supreme Court held the specific disclosure obligations imposed by the state law at issue, including precise language and placement of the disclosures, exceeded any federal law requirements and is preempted as an obstacle to the broad grant of power given to national banks by the NBA to conduct the business of banking.
European Parliament Moves Towards Common Rules for Card Payments
On November 20, the European Parliament adopted a nonbinding resolution calling for the development of common rules and standards for personal credit and debit card payments. The resolution explains that such rules would bring the card payment market “closer to its full potential and efficiency.” The Members of Parliament called on the European Commission to develop the legislative proposals needed to extend the current single Euro payments area (SEPA) regulation, which governs euro credit and direct debit transactions among banks, to the market for card, internet and mobile payments, but cautioned that lawmakers should avoid regulating the internet and mobile payment market too heavily, so as not to hinder its growth and innovation. The resolution also claims that current fees for handling card payments are high relative to the costs they need to cover, but does not call for caps. Finally, the resolution states that minimum security requirements for card, internet and mobile payments should be the same in all EU member states.
FTC and States Target "Cardholder Services" Robocalls
On November 1, the FTC announced that courts have granted temporary restraining orders in five cases in which the FTC alleged that the defendants placed automated calls to consumers to make allegedly deceptive “no-risk” offers to substantially reduce the consumers’ credit card interest rates in exchange for an upfront fee. The telemarketers claimed to be calling from the consumers’ credit card company, or otherwise used the generic “Cardholder Services” title to suggest a relationship with a bank or credit card company, the FTC says. Each complaint alleges that the defendants violated the FTC Act by misrepresenting that consumers who buy their services will have their credit card interest rates reduced substantially and will save thousands of dollars as a result. Four of the five complaints also charge that the defendants violated the FTC Act by making other misrepresentations, such as promises of faster debt payoff. The FTC also charges that the defendants violated the Telemarketing Sales Rule (TSR) by misrepresenting their services, calling numbers on the Do Not Call Registry, making illegal robocalls, and collecting up-front fees. The FTC coordinated with multiple state entities, including the attorneys general of Arizona and Arkansas and the Florida Department of Agriculture and Consumer Services, each of which took separate actions against other companies for similar alleged activities.
CFPB Launches College Credit Card Agreement Database, Releases Annual Report on College Card Agreements
On November 1, the CFPB launched a database of college credit card agreements in effect during 2011 and released an annual report to Congress on such agreements. The database provides copies of all 2011 agreements and presents other information submitted by card issuers for each agreement, including total payments, total open accounts, and new accounts opened in 2011. The report presents summary information about the data reflected in the database and identifies some trends from 2009-2011. For example, the report notes that (i) the total number of college card agreements declined from 2010 to 2011, (ii) issuers added 26 new agreements in 2011, and (iii) the majority of agreements were between issuers and an organization affiliated with an institution of higher education (such as an alumni association) or an institution of higher learning.
CFPB Reports Examination Findings, Updates Examination Manual, and Details Supervisory Appeals Process
The CFPB today released its first periodic Supervisory Highlights publication, along with an updated examination manual and a bulletin about the Bureau’s examination appeals process.
The Supervisory Highlights report describes the CFPB’s supervisory activity from July 2011 through September 2012, including with regard to credit cards, credit reporting, and mortgages, and “signal[s] to all institutions the kinds of activities that should be carefully scrutinized.” During its first year of conducting exams, the CFPB states that it has found compliance management system deficiencies, including with regard to fair lending compliance programs and oversight of affiliate and third-party service providers. The report also reviews nonpublic actions taken to enforce compliance with the CARD Act and FCRA, and identifies several areas of concern for mortgage originators.
Bulletin 2012-07 details the CFPB supervisory appeals process, and addresses confidentiality and the role of the CFPB Ombudsman. Finally, the updated Supervision and Examination Manual incorporates the various procedures issued since the manual first was published in October 2011, e.g. the payday lending and consumer reporting exam procedures. The updated manual also includes new references to the Code of Federal Regulations to reflect the republishing of federal consumer finance law regulations under the CFPB’s authority.
CFPB Proposes Change to Credit Card Ability to Pay Rules
On October 17, the CFPB proposed a rule to amend the current Regulation Z requirement that credit card issuers consider an applicant's independent ability to pay regardless of age. The current regulation, as amended by the Federal Reserve Board, and which took effect October 1, 2011, has received criticism from members of Congress and other stakeholders that the rule limits access to credit for stay-at-home spouses and partners. The CFPB's proposed revision would remove the ability to pay requirement for consumers who are twenty-one and older and permit issuers to consider income to which such consumers have a "reasonable expectation of access." The proposed rule would not change the independent ability to pay requirement for individuals under the age of twenty-one. Comments on the proposed rule will be accepted for sixty days following publication in the Federal Register.
CFPB Releases Additional Credit Card Complaints
On October 10, the CFPB added credit card complaints dating back to December 1, 2011 to its publicly available consumer complaint database. The CFPB launched the database in June 2012, but until now had only provided data for complaints received after June 1, 2012. The CFPB is collecting complaints regarding a number of other consumer products and services, including auto and student loans, but the CFPB has not indicated when it will make those complaints available through the public database. The CFPB also announced that the public database is no longer in “beta” form and released a “snapshot” of the consumer complaint process to date, including an analysis of complaints received through September 30, 2012.
CFPB Continues Credit Card Enforcement Activity
On October 1, the CFPB announced a coordinated enforcement action taken by federal regulators against a major credit card company and several of its subsidiaries alleged to have violated multiple consumer financial protection laws. According to the CFPB, the investigations conducted by it and other federal regulators and a state regulator revealed that the companies (i) charged illegal late fees, (ii) discriminated on the basis of age in the offering of credit, (iii) engaged in deceptive marketing, and (iv) failed to properly report consumer credit disputes. To resolve the allegations, the companies agreed to enter into several different consent orders. Two orders obtained by the CFPB and a joint CFPB/FDIC order require three of the subsidiaries collectively to refund approximately $85 million to approximately 250,000 customers and pay a cumulative $18 million in civil money penalties. Likewise, the OCC issued a consent order that includes an additional $500,000 penalty, and provides for restitution that overlaps with the broader restitution ordered by the CFPB. Finally, an order obtained by the Federal Reserve Board, requires the company, and certain of its subsidiaries, to pay an additional $9 million penalty. Furthermore, pursuant to the various orders, the companies agreed to undergo an independent audit and implement enhanced compliance systems to address the alleged illegal practices. This is the third public CFPB-led enforcement action aimed at credit card companies, and the first to go beyond allegations regarding ancillary products and resolve alleged violations of the CARD Act, the Fair Credit Reporting Act, and the Equal Credit Opportunity Act.