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Financial Services Law Insights and Observations

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  • FTC settles with credit repair companies

    Federal Issues

    On January 17, the FTC announced it had reached settlements with a number of defendants alleged to have operated “an unlawful credit repair scam that has deceived consumers across the country.” According to the FTC’s complaint, the defendants purportedly made false representations to consumers regarding their abilities to improve credit scores, falsely promised to remove any negative entries on the consumers’ credit reports, illegally collected upfront fees from consumers before the services were fully performed, and used threats and coercion to intimidate consumers from disputing charges. The FTC alleged these misleading statements and illegal actions violated TILA, the FTC Act, the Telemarketing Act, and the Credit Repair Organizations Act, among other things. Additionally, the FTC claimed that the defendants “routinely engage in electronic fund transfers from consumers’ bank accounts without obtaining proper authorization, and use remotely created checks to pay for credit repair services they have offered through a telemarketing campaign, in violation of the TSR.” The defendants, without admitting or denying the allegations, agreed to settlements that ban the defendants from offering credit repair services through “advertising, marketing, promoting, offering for sale, or selling,” impose a total monetary penalty of nearly $14 million, and require several defendants to turn over the contents of bank and merchant accounts as well as investment and cryptocurrency accounts. See the settlements here, here, and here.

    Federal Issues Agency Rule-Making & Guidance Settlement Enforcement FTC FTC Act TILA TSR CROA Telemarketing Sales Rule Telemarketing and Consumer Fraud and Abuse Prevention Act Credit Repair

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  • CFPB denies petitioner’s request to postpone CID pending Seila decision

    Federal Issues

    On December 26, the CFPB denied a petition by a student loan relief company to modify or set aside a civil investigative demand (CID) issued by the Bureau last October. According to the company’s petition, the CID requested information as part of an investigation into the company’s promotion of student loan debt relief programs. As previously covered by InfoBytes, stipulated orders were entered against the company by the FTC and the Minnesota attorney general for violations of TILA and the assisting and facilitating provision of the Telemarketing Sales Rule, which resulted in the company being permanently banned from engaging in transactions involving debt relief products and services or making misrepresentations regarding financial products and services. In its petition, the company argued that the CFPB’s requests were duplicative of the FTC’s earlier investigation. The company also argued that the documents and materials sought in the CID were overly burdensome and the time frame to respond was too short. Furthermore, the company stated that until the U.S. Supreme Court issues a decision in Seila Law v. CFPB on whether the Bureau’s structure violates the Constitution’s separation of powers under Article II, the CID should either be withdrawn or stayed because of the uncertainty surrounding the Bureau’s ability to proceed with enforcement actions.

    The Bureau denied the petition, arguing that “the administrative CID petition process is not the proper forum for raising and deciding constitutional challenges to provisions of the Bureau’s statute.” The Bureau also noted that the company failed to show that it engaged with Bureau staff on ways to alleviate undue burden, such as proposing modifications to the substance of the requests, and that even though the Bureau proposed an extension to the CID deadline, the company did not seek such an extension.

    Federal Issues CFPB CIDs Single-Director Structure Enforcement Seila Law FTC State Attorney General TILA Telemarketing Sales Rule Debt Relief

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  • 9th Circuit affirms no jurisdiction without exhaustion of administrative remedies

    Courts

    On December 27, the U.S. Court of Appeals for the Ninth Circuit affirmed the dismissal of a TILA case brought by a consumer against his mortgage lender, citing lack of subject matter jurisdiction under the provisions of FIRREA that require claims involving a bank that is in receivership to be presented to the FDIC before the borrower files suit. In 2009 the consumer filed an adversary proceeding in bankruptcy court against his lender for rescission of his mortgage loan under TILA. The consumer claimed that the lender’s notice of right to cancel was defective when the loan was signed, resulting in an extended rescission period under TILA, but his suit was dismissed for lack of jurisdiction. Once again, in 2012, the district court dismissed the consumer’s TILA suit after finding that the consumer had not exhausted his administrative remedies with the FDIC before filing suit.

    On appeal, the three-judge panel rejected the consumer’s claim that his lender was not placed into receivership until after his loan was sold, and therefore he did not have to exhaust his administrative remedies before filing suit. The panel subscribed to the Fourth Circuit’s interpretation of the exhaustion requirement, stating that “even where an asset never passes through the FDIC’s receivership estate, the FDIC should assess the claim first.” According to the opinion, the FIRREA requirement that the consumer exhaust his remedies with the FDIC applied to this action because the panel determined that (i) the consumer’s claim was “susceptible of resolution under the FIRREA claims process”; (ii) the consumer’s claim was related to an act or omission of the lender; and (iii) the FDIC, which “was not required to have possessed the loan before determining a claim” had been appointed as receiver for that lender, stripping the appellate court of subject matter jurisdiction until after the FDIC determined his claim.

    Courts TILA Appellate FIRREA FDIC Ninth Circuit Foreclosure Settlement

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  • CFPB releases TILA, EFTA, and CARD Act annual report

    Federal Issues

    On December 18, the CFPB issued its mandated annual report to Congress covering activity in 2016 and 2017 pertaining to the Truth in Lending Act (TILA), the Electronic Fund Transfer Act (EFTA), and the Credit Card Accountability Responsibility and Disclosure Act (CARD Act). The report describes enforcement actions brought by the Bureau and federal agencies related to TILA, EFTA, the CARD Act (and respective implementing Regulations Z and E), as well as data on required reimbursements to consumers. The report also includes a compliance assessment of TILA and EFTA violations. Federal Financial Institutions Examination Council (FFIEC) member agencies report that more institutions were cited for violations of Regulation Z than Regulation E during the 2016 and 2017 reporting periods, and that the most frequently reported Regulation Z violations include (i) failing to disclose, or to accurately disclose, the finance charge on closed-end credit; (ii) failing to disclose good faith estimates on disclosures for closed-end credit; and (iii) failing to provide consumers with specific loan cost information on closing disclosures. The most commonly cited Regulation E violations include (i) failing to comply with investigation and timeframe requirements when resolving errors in electronic fund transfers; and (ii) failing to provide applicable disclosures. In addition, the report recaps FFIEC outreach activities related to TILA and EFTA, such as workshops, blogs, and other outreach events.

    Federal Issues CFPB TILA EFTA CARD Act FFIEC Regulation Z Regulation E Disclosures

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  • CFPB releases TRID guidance for construction loans

    Agency Rule-Making & Guidance

    On December 18, the CFPB published two guides to assist with TILA-RESPA Integrated Disclosure Rule (TRID) compliance for construction-only and construction-permanent loans. The Bureau notes that under Regulation Z, “a creditor may treat a construction-permanent loan as either one, combined transaction or as two or more separate transactions.” Disclosure options are (i) one, combined loan estimate along with one, combined closing disclosure; or (ii) two or more loan estimates and two or more closing disclosures for each phase of the construction-permanent loan. Appendix D in both the Combined Guide and the Separate Guide provides methods that may be used for estimating construction phase financing disclosures. As previously covered by InfoBytes, the Bureau previously released FAQs in May concerning the application of TRID to construction loans.

    Agency Rule-Making & Guidance CFPB TRID Regulation Z TILA RESPA

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  • CFPB releases annual HMDA and TILA adjustments

    Agency Rule-Making & Guidance

    On December 18, the CFPB announced final rules adjusting the asset-size thresholds under HMDA (Regulation C) and TILA (Regulation Z). Both rules take effect on January 1, 2020.

    Under HMDA, institutions with assets below certain dollar thresholds are exempt from the collection and reporting requirements. The final rule increases the asset-size exemption threshold for banks, savings associations, and credit unions from $46 million to $47 million, thereby exempting institutions with assets of $47 million or less as of December 31, from collecting and reporting HMDA data in 2020.

    TILA exempts certain entities from the requirement to establish escrow accounts when originating higher-priced mortgage loans (HPMLs), including entities with assets below the asset-size threshold established by the CFPB. The final rule increases this asset-size exemption threshold from $2.167 billion to $2.202 billion, thereby exempting creditors with assets of $2.202 billion or less as of December 31, from the requirement to establish escrow accounts for HPMLs in 2020.

    Agency Rule-Making & Guidance CFPB HMDA TILA Mortgages Escrow Regulation C Regulation Z

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  • CFPB settles with two military loan companies

    Federal Issues

    On November 25, the CFPB announced a settlement with two companies that originated and serviced travel-related loans for military servicemembers and their families. According to the consent order with the lender and its principal, the lender (i) charged fees to customers who obtained financing, at a higher rate than those customers who paid in full, but failed to include the fee in the finance charge or APR; (ii) falsely quoted low monthly interest rates to customers over the phone; and (iii) failed to provide the required information about the terms of credit and the total of payments in violation of TILA and the TSR. The consent order prohibits future lending targeted to military consumers and requires the lender and its principal to pay a civil money penalty of $1. The order also imposes a suspended judgment of almost $3.5 million, based on an inability to pay.

    In its consent order against the servicer, the Bureau asserts the servicer engaged in deceptive practices by overcharging servicemembers for debt-cancellation products and, in violation of the FCRA’s implementing Regulation V, never established or maintained written policies and procedures regarding the accuracy of information furnished to credit reporting agencies. The consent order issues injunctive relief and requires the servicer to (i) pay a $25,000 civil money penalty; (ii) provide redress to consumers who were allegedly overcharged for the debt-cancellation product; (iii) pay over $54,000 in restitution to borrowers with no outstanding balance on their loans and issue additional account credits to borrowers with outstanding balances; and (iv) establish reasonable policies and procedures for accurate reporting to consumer reporting agencies.

    Federal Issues CFPB Military Lending Servicemembers TILA TSR CFPA FCRA Enforcement Settlement

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  • CFPB seeks feedback on TRID

    Agency Rule-Making & Guidance

    On November 20, the CFPB issued a request for information (RFI) regarding the TILA-RESPA Integrated Disclosures Rule (TRID Rule) assessment, which is required by Section 1022(d) of the Dodd-Frank Act. Section 1022(d) requires the Bureau to conduct an assessment of each “significant rule or order” no later than five years after its effective date. The Bureau issued the TRID Rule in November 2013, and the rule took effect on October 3, 2015. In addition to comments received on this RFI, the Bureau notes that it is also considering the approximately 63 comments already received regarding the TRID Rule from the 2018 series of RFIs issued on the adopted regulations and new rulemakings, as well as the inherited regulations (covered by InfoBytes here and here).

    The RFI seeks public feedback on any information relevant to assessing the effectiveness of the TRID Rule, including (i) comments on the feasibility and effectiveness of the assessment plan; (ii) recommendations to improve the assessment plan; (iii) data and information about the benefits, costs, and effectiveness of the TRID Rule; and (iv) recommendations for modifying, expanding, or eliminating the TRID Rule.

    Comments must be received within 60 days of publication in the Federal Register.

    Agency Rule-Making & Guidance TRID RFI Mortgages Mortgage Origination Dodd-Frank TILA RESPA CFPB Disclosures

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  • Agencies adjust threshold for Regulations Z and M

    Agency Rule-Making & Guidance

    On October 31, the CFPB and the Federal Reserve Board finalized the annual dollar threshold adjustments that govern the application of Regulation Z (Truth in Lending Act) and Regulation M (Consumer Leasing Act) to credit transactions, as required by the Dodd-Frank Act (published in the Federal Register here and here). Each year the thresholds must be readjusted based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The exemption threshold for 2020, based on the annual percentage increase in the CPI-W, is now $58,300 or less, except for private student loans and loans secured by real property, which are subject to TILA regardless of the amount.

    Agency Rule-Making & Guidance CFPB Federal Reserve Federal Register TILA Consumer Leasing Act Regulation M Regulation Z

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  • Agencies increase threshold for appraisal exemption under TILA for HPMLs

    Agency Rule-Making & Guidance

    On October 30, the CFPB, OCC, and the Federal Reserve Board published a final rule in the Federal Register, which increases the smaller loan exemption threshold for the special appraisal requirements for higher-priced mortgage loans (HPMLs) under TILA. TILA requires creditors to obtain a written appraisal before making a HPML unless the loan amount is at or below the threshold exemption. Each year the threshold must be readjusted based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers. The exemption threshold for 2020 is $27,200, up from $26,700 in 2019. The final rule will take effect January 1, 2020.

    Agency Rule-Making & Guidance CFPB OCC Federal Reserve Federal Register Mortgages Appraisal TILA

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