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On May 31, the CFPB released Vol. 23 of its Monthly Complaint Report. This month’s report highlights complaints from “older consumers” defined as those who voluntarily report their age as 62 or older. Since it began accepting complaints, the Bureau has received over 1 million complaints—more than 100,000 from older consumers. The report focuses on these complaints, with some of the most common in 2017 including:
- Reverse mortgage servicing issues, which are unique to this group of consumers. Many of the complaints surround older consumers attempting to stay in their home after the death of the borrowing spouse, occasionally ending in foreclosure;
- Financial scams and identity theft issues are often difficult to recover from—especially for consumers on fixed-incomes;
- Credit card issues such as introductory offers may cause confusion for older consumers in understanding credit terms and conditions or the difference between zero interest and deferred interest. Additionally, many older consumers struggle with billing disputes, unwanted subscription services and credit monitoring; and
- Escrow issues, especially when the consumer is trying to benefit from tax relief programs.
The graph shown in a blog on the Bureau’s website compares complaints from consumers 62 and older with complaints from consumers under 62. Although both groups of consumers reported complaints for many of the same products, the graph shows that mortgages, debt collection and credit cards, in that order, are the top three products for those 62 and older—whereas debt collection, mortgages and credit reporting are the top three for those under 62. Additionally, the report reveals that almost a quarter of all complaints from older consumers came from residents of California, Texas, and Florida.
On April 3, the U.S. Supreme Court granted certiorari in a case challenging a Texas law that bars retailers from imposing credit card surcharges, and remanded the case to the Fifth Circuit in light of its ruling last week in Expressions Hair Design, that a similar statute in New York regulated merchants’ First Amendment rights. In Rowell, a landscaping business, a computer networking company, a self-storage facility, and an event design and production company sought to challenge a Texas law allowing merchants to charge different prices to customers who pay with cash and customers who pay with a credit card, but barring merchants from describing the price difference as a surcharge for credit cards, leaving them to describe it instead as a discount for using cash. The Fifth Circuit held that the Texas law did not violate the retailers’ free speech rights, aligning it with the Second Circuit in its September 2015 ruling in the Expressions Hair Design litigation against New York State.
As previously reported on InfoBytes, the Supreme Court last week in the Expressions case unanimously rejected the Second Circuit’s conclusion that the New York credit card law regulates conduct alone, rather than speech. As explained in the Supreme Court’s opinion, the law at issue “is not like a typical price regulation,” which regulates a seller’s conduct by dictating how much to charge for an item. Rather, the Court explained, the law regulates “how sellers may communicate their prices.” (emphasis added). The Supreme Court, however, did not address the question of whether the law unconstitutionally restricts speech.
On March 29, the U.S. Supreme Court vacated and remanded a lawsuit challenging a New York law—N.Y. Gen. Bus. Law § 518—which provides that no seller “may impose a surcharge on a holder who elects to use a credit card” instead of a cash payments. (See Expressions Hair Design, et al. v Schneiderman.) Plaintiffs, a group of New York merchants, argued that the law violates the First Amendment by regulating how they communicate their prices. Plaintiffs further alleged that the law is unconstitutionally vague. In its defense, the State of New York asserted that the law merely prevents unfair profiteering, consumer anger, and deceptive sales tactics. After the district court ruled in favor of the Plaintiffs, the Court of Appeals for the Second Circuit vacated the judgment with instructions to dismiss. The Second Circuit appellate panel reasoned that the law is a “price regulation” that regulates conduct rather than speech and, as such, is immune from scrutiny under the First Amendment.
Writing for the Supreme Court—which was unanimous in the judgment—Chief Justice John G. Roberts disagreed with the Second Circuit panel’s conclusion that the law regulates conduct alone. Specifically, Justice Roberts notes in his opinion that Section 518 “is not like a typical price regulation,” which regulates a seller’s conduct by dictating how much to charge for an item. Rather, the Chief Justice explained, the law regulates “how sellers may communicate their prices.” Notably, the majority opinion declined to delve into the First Amendment issues raised by the parties, including whether the law is a valid commercial speech regulation, citing its status as “a court of review, not of first view.”
Justice Stephen G. Breyer filed a concurring opinion in which he noted that because the law’s interpretation is unclear, on remand, the Second Circuit should ask New York's highest court to clarify it, as this “is a matter of state law.” Justice Sonia M. Sotomayor, joined by Justice Samuel A. Alito, Jr., also filed a concurring opinion in which she called the majority's ruling a “quarter-loaf outcome,” because the holding failed to address whether the law unconstitutionally restricts speech. The Second Circuit erred by not certifying the question of the statute's interpretation to the N.Y. Court of Appeals “and this Court errs by not correcting it,” Sotomayor reasoned. The Justice indicated that she would have “vacate[d] the judgment below and remand with instructions to” certify the question for a definitive interpretation.
On March 10, in accordance with the rules of the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (CARD Act), that mandates the CFPB prepare a report every two years examining developments in the consumer credit card marketplace, the Bureau submitted a Request for Information to solicit feedback from the public. As previously covered in InfoBytes, the first review occurred in October 2013 and the second review in December 2015. In preparation for the next report, the Bureau is focusing on several aspects of the consumer credit card market, as follows:
- The terms of credit card agreements and the practices of credit card issuers
- The effectiveness of disclosure of terms, fees, and other expenses of credit card plans
- The adequacy of protections against unfair or deceptive acts or practices or unlawful discrimination relating to credit card plans
- The cost and availability of consumer credit cards, the use of risk-based pricing for consumer credit cards, and consumer credit card product innovation
- Deferred interest products
- Subprime specialist products
- Third-party comparison sites
- Secured credit cards
- Online and mobile account servicing
- Rewards products
- Variable interest rates
- Debt collection.
Comments are due by June 8, 2017.
On December 19, the CFPB announced the release of “Consumer Credit Trends,” a beta version of its new web-based tool to help the public monitor developments in the mortgage, credit card, auto loan, and student loan markets. According to the Bureau, the data used by Consumer Credit Trends “draws from a nationally representative sample of credit records maintained by one of the top three U.S. credit repositories.” The CFPB plans to update this information regularly, and will offer analyses on notable findings as warranted. It also clarifies that “before being provided to the Bureau,” the credit records are “stripped of any information that might reveal consumers’ identities, such as names, addresses, and Social Security numbers.” The ability to “chart the state of consumer markets,” says CFPB Director Richard Cordray, “will help us identify and act on trends that warn of another crisis or that show credit is too constricted.”
CFPB Releases Student Banking Report Examining Credit Card Marketing Deals Targeting College Students
On December 14, the CFPB released a student banking report analyzing roughly 500 marketing agreements between colleges, universities and affiliated organizations, and large banks in an effort to identify trends in the school-sponsored credit card market. The report found in part that while credit cards offered in conjunction with educational institutions have declined since the CARD Act was enacted in 2009, many similar offers and deals still exist and may include features that lead students to rack up hundreds of dollars in fees. As explained by CFPB Student Loan Ombudsman Seth Frotman, “Colleges across the country continue to make deals with banks to promote products that have high fees, despite the availability of safer and more affordable products.” According to Mr. Frotman, “Students shouldn’t get stuck with the bill when their school inks a deal for an account that’s not in their best interest.”
In conjunction with the publication of this report, the Bureau also published a new compliance bulletin to assist colleges in understanding their obligations under the CARD Act and Regulation Z related to college credit card agreements. This bulletin noted, among other items, that many of the largest colleges and universities do not publish credit card agreements on their websites or make them available to students and the public upon request, creating increased risks of non-compliance. The complete set of credit card agreement data collected by the Bureau in accordance with its obligations under the Credit CARD Act of 2009 can be accessed here.
On October 7, following the Federal Reserve’s and the CFPB’s leads, the OCC released Bulletin 2016-33 advising financial institutions of updated interagency examination procedures for compliance with the Department of Defense’s (DoD) Military Lending Act (MLA) July 2015 final rule. As previously summarized in BuckleySandler’s Special Alert, the DoD issued an interpretive rule regarding the amendments to the regulations implementing the MLA on August 26, 2016. The 2015 final rule went into effect for consumer credit products other than credit cards on October 3, 2016. The requirements will take effect for credit card accounts one year later, on October 3, 2017. The OCC plans to include the updated interagency examination procedures in the Comptroller’s Handbook.
CFPB Releases Final Rule on Prepaid Financial Products; Chamber of Digital Commerce Comments on Scope of the Rule
On October 5, the CFPB released its final rule on prepaid financial products, including traditional prepaid cards, mobile wallets, person-to-person payment products, and other electronic accounts with the ability to store funds. The rule is intended to provide consumers with additional federal protections under the Electronic Fund Transfer Act analogous to the protections checking account consumers receive. The following federal protections are included in the new rule: (i) financial institutions will be required to provide certain account information for free via telephone, online, and in writing upon request, unless periodic statements are provided; (ii) financial institutions must work with consumers who find errors on their accounts, including unauthorized or fraudulent charges, timely investigate and resolve these incidents, and restore missing funds when appropriate; and (iii) consumers will be protected against unauthorized transactions, such as withdrawals or purchases, if their prepaid cards are lost or stolen. The rule contains new “Know Before You Owe” prepaid disclosures similar to those used for mortgages and student financial aid offers. In addition to requiring two (one short, the other long) disclosure forms, the new rule requires that prepaid account issuers post agreement offers made available to the general public on their websites, submit all agreements to the CFPB, and make agreements that are not required to be posted on their website available to relevant consumers. The new rule also includes credit protections stemming primarily from the Truth in Lending Act and the Credit Card Accountability Responsibility and Disclosure Act, including providing consumers with monthly credit billing statements, giving consumers reasonable time – at least 21 days – to repay their debt before incurring late fees, ensuring that consumers are able to repay the debt before making a credit offer, and limiting the fee and interest charges to 25% of the total credit limit during the first year an account is open. The rule, which has not yet been published in the Federal Register, has a general compliance date of October 1, 2017, but includes certain accommodations, one of which is an October 2018 effective date for the requirement that agreements be submitted to the CFPB.
The Chamber of Digital Commerce submitted comments to the CFPB in December advocating that virtual currency products and services should fall outside the scope of the prepaid rule. Pursuant to the final rule, the CFPB found that “application of Regulation E and this final rule to such products and services is outside the scope of this rulemaking.”
On September 26, the U.S. Court of Appeals for the Second Circuit ruled that a credit card company did not unreasonably restrain trade in violation of the Sherman Act by prohibiting merchants from directing customers to use other, less costly forms of payment. The appeals court reversed based on the lower courts definition of the market as limited to the “core enabling functions provided by networks which allow merchants to capture, authorize, and settle transactions for customers who elect to pay with their credit or charge card.” According to the decision, this definition was too limited in this case, because the credit card network derived its market share from cardholder satisfaction, providing “no reason to intervene and disturb the present functioning of the payment‐card industry.” The court noted that the outcome in this case is different than in previous credit card exclusionary rule cases because here, the payment clearing network and the card issuing function are completely integrated, meaning that the issuer and the network are the same company.
On July 26, the CFPB released its most recent monthly complaint report, which provides a high-level snapshot of consumer complaint trends. The current report highlights credit card complaints. According to the report, between July 21, 2011 and July 1, 2016, the CFPB handled approximately 97,100 credit card-related complaints, making credit cards the fourth most complained about product. The report identifies billing disputes, identity theft/fraud/embezzlement, and “other” complaints as the three most common types of credit card-related complaints. The report states that, with respect to complaints related to credit decisions, consumers frequently complain about difficulty in understanding initial application decisions and servicing changes (such as interest rate adjustments and credit limit reductions). Credit card complaints described in the report also include (i) confusion over payment allocation relating to promotional and deferred interest balances; (ii) frustration with late fees and additional costs; and (iii) difficulty understanding the terms and conditions of rewards and obtaining benefits.
With respect to consumer complaints generally, the report’s “Geographic spotlight” section focuses on Washington and the Seattle metro area. The report notes that, as of July 1, Washington consumers have submitted 18,900 complaints, with approximately 11,000 of those from Seattle consumers. At 29%, mortgage loans are the most-complained-about product in Washington, with debt collection and credit reporting trailing at 27% and 15%, respectively. Across all products and throughout the nation, the CFPB has handled approximately 930,800 complaints.
- Sasha Leonhardt and John B. Williams to discuss "Privacy" at the National Association of Federally-Insured Credit Unions Spring Regulatory Compliance School
- Aaron C. Mahler to discuss "Regulation B/fair lending" at the National Association of Federally-Insured Credit Unions Spring Regulatory Compliance School
- Heidi M. Bauer and Dan Ladd to discuss "'So you want to form a joint venture' — Licensing strategies for successful JVs" at RESPRO26
- Tim Lange to discuss "Update from 2019 NMLS Conference" at the California Mortgage Bankers Association Mortgage Quality & Compliance Committee webinar
- Jonice Gray Tucker to discuss "Small business & regulation: How fair lending has evolved & where are we heading?" at CBA Live
- Jonice Gray Tucker to to discuss "DC policy: Everything but the kitchen sink" at CBA Live
- Jon David D. Langlois to discuss "Transaction management-issues surrounding purchase & sale agreements, post acquisition integration & trailing docs" at the Investment Management Network Residential Mortgage Servicing Rights Forum
- Daniel P. Stipano to discuss "Lessons learned from ABLV and other major cases involving inadequate compliance oversight" at the ACAMS International AML & Financial Crime Conference
- Daniel P. Stipano to discuss "A year in the life of the CDD final rule: A first anniversary assessment" at the ACAMS International AML & Financial Crime Conference
- Moorari K. Shah to discuss "State regulatory and disclosures" at the Equipment Leasing and Finance Association Legal Forum
- Hank Asbill to discuss "Creative character evidence in criminal and civil trials" at the Litigation Counsel of America Spring Conference & Celebration of Fellows
- Brandy A. Hood to discuss "Flood NFIP in the age of extreme weather events" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "UDAAP compliance" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "State examination/enforcement trends" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Benjamin K. Olson to discuss "LO compensation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "Major state law developments" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "Leveraging big data responsibly" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Hank Asbill to discuss "Pay no attention to the man behind the curtain: Addressing prosecutions driven by hidden actors" at the National Association of Criminal Defense Lawyers West Coast White Collar Conference
- Daniel P. Stipano to discuss "Keep off the grass: Mitigating the risks of banking marijuana-related businesses" at the ACAMS AML Risk Management Conference
- Daniel P. Stipano to discuss "Mid-year policy update" at the ACAMS AML Risk Management Conference
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program