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  • FTC halts the operation of alleged credit repair scheme

    Federal Issues

    On June 21, the FTC announced that the U.S. District Court for the District of Connecticut temporarily halted the operation of an alleged credit repair scheme based on allegations the company charged illegal upfront fees and falsely claimed to substantially improve consumers’ credit scores in violation of the FTC Act, the Credit Repair Organizations Act, the Telemarketing Sales Rule (TSR), the Consumer Review Fairness Act, TILA, and the EFTA. According to the complaint, since 2014, the company, among other things, (i) claims they can improve consumers’ credit scores by removing negative items and hard inquiries from credit reports; (ii) charges advance fees for their services; (iii) does not provide the required disclosures for its services, including credit transaction disclosures related to the financing of the service fees; (iv) engages in electronic funds transfers from consumers’ bank accounts without proper authorization; and (v) threatens consumers with legal action after consumers complain about the lack of results. The court order requires the company to temporarily cease its operations and ensures the company’s assets are frozen.

    Federal Issues FTC Credit Repair Credit Scores Courts TILA EFTA FTC Act Telemarketing Sales Rule

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  • FTC shares 2018 enforcement report with the CFPB

    Federal Issues

    On June 6, the FTC announced that it submitted its 2018 Annual Financial Acts Enforcement Report to the CFPB. The report—which the Bureau requested for its use in preparing its 2018 Annual Report to Congress—covers the FTC’s enforcement activities regarding Regulation Z (the Truth in Lending Act or TILA), Regulation M (the Consumer Leasing Act or CLA), and Regulation E (the Electronic Fund Transfer Act or EFTA). Highlights of the enforcement matters covered in the report include:

    • Auto Lending and Leasing. The report discusses two enforcement matters related to deceptive automobile dealer practices. The first, filed in August 2018, alleged that a group of four auto dealers, among other things, advertised misleading discounts and incentives in their vehicle advertisements, and falsely inflated consumers’ income and down payment information on financing applications. The charges brought against the defendants allege violations of the FTC Act, TILA, and the CLA. The FTC sought, among other remedies, a permanent injunction to prevent future violations, restitution, and disgorgement. (Detailed InfoBytes coverage of the filing is available here.) In the second, in December 2018, the FTC mailed over 43,000 checks, totaling over $3.5 million, to consumers allegedly harmed by nine dealerships and owners engaged in deceptive and unfair sales and financing practices, deceptive advertising, and deceptive online reviews. (Detailed InfoBytes coverage is available here.)
    • Payday Lending. The report covers two enforcement matters, including the U.S. Court of Appeals for the 9th Circuit’s December 2018 decision upholding the $1.3 billion judgment against defendants responsible for operating an allegedly deceptive payday lending program. The decision is the result of a 2012 complaint in which the FTC alleged that the defendants engaged in deceptive acts or practices in violation of Section 5(a) of the FTC Act by making false and misleading representations about costs and payment of the loans. (Detailed InfoBytes coverage is available here.) The report also indicates that, in February 2018, the FTC issued over 72,000 checks totaling more an $2.9 million to consumers stemming from a July 2015 settlement, that alleged that online payday operators used personal financial information purchased from third-party lead generators or data brokers to make unauthorized deposits into and withdrawals from consumers’ bank accounts, regardless of whether the consumer applied for a payday loan. (Detailed InfoBytes coverage is available here.)
    • Negative Option. The report covers six enforcement matters related to alleged violations of the EFTA and Regulation E for “negative option” plans, including three new filings against online marketers for allegedly advertising “free trial” offers for products that enrolled consumers in expensive, ongoing plans without their knowledge or consent. The report notes that, in 2018, the FTC reached a settlement with one entity and obtained a court judgment against another, both resulting in injunctive relief and monetary settlements (which were suspended due to the defendants’ inability to pay). The report also notes that the FTC mailed 2,116 refund checks totaling more than $355,000 to people who bought an allegedly deceptive “memory improvement” supplement.

    Additionally, the report addresses the FTC’s research and policy efforts related to truth in lending and leasing, and electronic fund transfer issues, including (i) a study of consumers’ experiences in buying and financing automobiles at dealerships; and (ii) the FTC’s Military Task Force’s work on military consumer protection issues. The report also outlines the FTC’s consumer and business education efforts, which include several blog posts warning of new scams and practices.

     

    Federal Issues FTC FTC Act TILA EFTA Enforcement CFPB Consumer Education Auto Finance Military Lending Act

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  • CFPB issues fact sheet on TRID disclosures with assumption transactions

    Agency Rule-Making & Guidance

    On May 1, the CFPB released a factsheet addressing when loan estimates and closing disclosures are required for assumption transactions under the TILA-RESPA Integrated Disclosure Rule (TRID Rule). The factsheet includes a flowchart and a narrative summary to demonstrate when the disclosures would be required. According to the factsheet, as a threshold matter, the new transaction must be within the TRID Rule’s scope of coverage (e.g., the transaction is a closed-end consumer credit transaction secured by real property or a cooperative unit and is not a reverse mortgage subject to § 1026.33). The creditor must then determine if the transaction is an “assumption” as defined in Regulation Z (under § 1026.20(b) an assumption “occurs when a creditor expressly agrees in writing to accept a new consumer as a primary obligor on an existing residential mortgage transaction.”) The factsheet includes three elements the transaction must meet in order to qualify as an assumption under Regulation Z: (i) the creditor must expressly accept the new consumer as a primary obligor; (ii) a written agreement must be executed, which includes the creditor’s express acceptance of the new customer; and (iii) it must be a “residential mortgage transaction” as to the new customer—specifically, the new customer must be financing the acquisition or initial construction of his or her principal dwelling. If the creditor determines the transaction is an assumption, based on the outlined factors, it must provide a loan estimate and closing disclosure required by the TRID Rule, unless the transaction is otherwise exempt from the requirements.

    Agency Rule-Making & Guidance TRID CFPB TILA RESPA Mortgages

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  • District Court allows usurious interest and TILA violation claims to proceed

    Courts

    On March 5, the U.S. District Court for the Eastern District of Arkansas denied a request for summary judgment by several defendant pawnbrokers and pawnshops concluding there exists “disputed general issues of material fact” concerning claims filed by two plaintiffs who entered into pawn-loan contracts with the defendants. Among other things, the plaintiffs alleged that the defendants violated Amendment 89 of the Arkansas Constitution (Amendment 89) and the Arkansas Deceptive Trade Practices Act (ADTPA) by charging usurious rates of interest, and violated ADTPA by making false statements on pawn loan contracts (pawn tickets). The plaintiffs additionally claimed that the defendants violated TILA by failing to identify creditors on the face of their pawn tickets.

    In dismissing the defendants’ motion for summary judgment, the court determined that success of the claims hinged upon whether “the pawn transactions . . . are ‘loans’ charging usurious rates of interest under Arkansas law.” Specifically, genuine issues of material fact remained on: (i) whether the defendants knowingly entered into loans charging usurious interest because “the differences between traditional bank loans and pawn transactions . . . may not prevent the pawn transactions entered into by [the plaintiffs] from being classified as ‘loans’ under Arkansas law”; (ii) whether the plaintiffs were charged usurious interest or otherwise suffered damages under Amendment 89 or ADTPA as a result of the pawn transactions; (iii) whether the language on the pawn tickets stating that “the finance charge ‘is not interest for any purpose of the law,’” was a false statement in violation of the ADTPA; and (iv) whether the defendants’ failure to disclose the identity of the creditors on the pawn tickets is a violation of TILA, because, among other things, there remains a dispute as to whether the identified finance charges constitute as “credit,” and whether certain defendants qualify as “creditors” under TILA. Furthermore, the court rejected the defendants’ argument that they were entitled to summary judgment on the plaintiffs’ TILA claims “due to plaintiffs’ alleged failure to demonstrate detrimental reliance.”

    Courts Interest TILA Usury Deceptive Consumer Finance

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  • CFPB seeks comments on PACE financing

    Agency Rule-Making & Guidance

    On March 4, the CFPB issued an Advance Notice of Proposed Rulemaking (ANPR) on Property Assessed Clean Energy (PACE) financing, which often takes the form of loans to facilitate residential solar energy and other home improvement projects. The ANPR was issued in response to Section 307 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, which amended TILA to mandate the CFPB propose regulations related to PACE financing. Specifically, the regulations are required to carry out the purposes of TILA’s ability-to-repay requirements and apply TILA’s general civil liability provisions for violations, accounting for the “unique nature” of the transaction. In addition to seeking feedback on the unique features of PACE financing and the general implications of regulating PACE financing under TILA, the ANPR also requests commenters (i) provide samples of any written materials used in PACE financing transactions; (ii) describe the current standards and practices in PACE financing origination, including application information obtained and underwriting standards used; and (iii) identify parties in a PACE financing transaction to whom civil liabilities may apply, including information related to any rescission rights and loss mitigation programs available upon borrower default. Comments must be submitted within 60 days after publication in the Federal Register.

    Agency Rule-Making & Guidance CFPB PACE Programs ANPR Federal Register TILA EGRRCPA

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  • 4th Circuit holds TILA and EFTA taxpayer payment agreement claims can proceed

    Courts

    On February 6, a three-judge panel for the U.S. Court of Appeals for the 4th Circuit affirmed a district court’s denial of a motion to dismiss a proposed class action suit against two tax payment financing companies, finding that (i) the plaintiff had standing under EFTA because he alleged that he suffered an injury in fact; and (ii) a taxpayer payment agreement (agreement) between the plaintiff and the financing companies qualifies as a consumer credit transaction subject to both TILA and EFTA. According to the decision, the plaintiff entered into an agreement to finance the payment of residential property taxes as allowed under state law. The plaintiff subsequently challenged the agreement on several grounds, including that it violated TILA, EFTA, and the Virginia Consumer Protection Act because many of the agreement’s terms had incorrect amounts, there was no itemized list of closing costs, and the agreement did not include “certain allegedly required financial disclosures.” Following the plaintiff’s initiation of a proposed class action, the defendants moved to dismiss for failure to state a claim, arguing, among other things, that the agreement is not a consumer credit transaction and therefore not subject to TILA or EFTA.

    The district court, however, determined that the plaintiff had standing under the EFTA because he claimed he suffered an injury in fact—that the agreement was contingent on his agreeing to preauthorized electronic funds transfer payments—and that the agreement was subject to both TILA and EFTA. On appeal, the 4th Circuit agreed that the plaintiff satisfied the injury requirement “because he alleged that he was required to agree to [electronic funds transfer payment] authorization as a condition of the agreement and that the agreement contained terms requiring him to waive EFTA’s substantive rights regarding [electronic funds transfer payment] withdrawal.” Even if the court accepted the defendant’s assertion that there was no injury, it held that the plaintiff would still have standing to challenge the agreement because “there is a ‘realistic danger’ that [the plaintiff] will ‘sustain[] a direct injury’ as a result of the terms of the [agreement].” The court also found the agreement to be a credit transaction under the meaning of TILA and EFTA because under TILA, a consumer transaction is “one in which the party to whom credit is offered or extended is a natural person, and the money, property, or services which are the subject of the transaction are primarily for personal, family or household purposes.”

    One judge concurred in part—regarding standing under EFTA—but dissented also, writing that the agreement does not qualify as a “credit transaction” under TILA because the Virginia code, and not a creditor, grants the taxpayer the right to defer payment of a local tax assessment by entering into an agreement with a third party like the defendant. “A[n] [agreement] is not a ‘credit transaction,’ within the meaning of TILA, because the preexisting obligation of the taxpayer is not severed by the third-party payor’s payment, and the third-party payor does not grant any right to the taxpayer that is not conferred already by statute,” the dissenting judge concluded. The judge further opined that protections for taxpayers who enter into an agreement should be resolved by the state, as the entity creating this form of tax payment.

    Courts Fourth Circuit Appellate TILA EFTA

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  • CFPB releases 2019 lists of rural or underserved counties

    Agency Rule-Making & Guidance

    On February 12, the CFPB released its annual list of rural counties and rural or underserved counties for lenders to use when determining qualified exemptions to certain TILA regulatory requirements. In connection with the release of the lists, the Bureau also directed lenders to use its web-based Rural or Underserved Areas Tool to assess whether a rural or underserved area qualifies for a safe harbor under TILA’s Regulation Z.

    Agency Rule-Making & Guidance CFPB TILA Regulation Z Consumer Finance Lending

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  • CFPB announces settlement with payday lending operation

    Federal Issues

    On February 6, the CFPB announced a settlement with an Indiana-based payday retail lender and affiliates (companies) in seven states to resolve alleged violations of the Consumer Financial Protection Act (CFPA), Truth in Lending Act (TILA), and Gramm-Leach-Bliley Act (GLBA) privacy protections. The CFPB alleges that the companies engaged in unfair acts or practices, failed to properly disclose annual percentage rates, and failed to provide consumers with required initial privacy notices.

    Specifically, the Bureau alleges that the companies violated CFPA’s UDAAP provisions by, among other things, (i) failing to implement processes to prevent unauthorized charges, including those resulting from unauthorized draws on borrowers’ bank accounts; (ii) requiring loan applicants to provide contact information for their employers, supervisors, and four personal references, and then repeatedly calling employers to seek payments when borrowers became delinquent; (iii) disclosing the borrower’s financial information during those calls and, in certain instances, asking the third party to make payments on the loan; (iv) misusing personal references for marketing purposes; and (v) advertising check-cashing and telephone reconnection services they were no longer providing.

    The Bureau also asserts that the companies violated the GLBA by only providing initial privacy notices when consumers opened their first loan. GLBA requires financial services firms to provide borrowers a privacy policy each time a new customer relationship is established, which in this instance the CFPB claims, occurred each time a borrower paid off an outstanding loan and subsequently took out a new loan. Finally, the Bureau alleges that because the payday loans extended by the companies constitute as closed-end credit under TILA and Regulation Z, the companies were required to disclose a payday loan database fee charged to Kentucky customers in the APR but failed to do so. This resulted in, among other things, inaccurate APR disclosures in advertisements.

    While the companies have not admitted to the allegations, they have agreed to pay a $100,000 civil money penalty and are prohibited from continuing the illegal behavior.

    Federal Issues CFPB Enforcement Settlement Payday Lending CFPA Gramm-Leach-Bliley Regulation P Privacy Notices TILA Regulation Z APR UDAAP

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  • District Court moves puppy financing action forward

    Courts

    On January 23, the U.S. District Court for the District of Minnesota denied two financing companies’ (collectively, “defendants”) motions to dismiss an action alleging the defendants violated the Consumer Leasing Act (CLA), TILA, and a Minnesota law prohibiting usurious contracts through a transaction to purchase a puppy. According to the opinion, the plaintiff financed the purchase of a puppy through the defendants, which allowed her to take possession of the puppy in exchange for 24 monthly payments through an agreement styled as a “Consumer Pet Lease.” The agreement had an APR of 120 percent. The plaintiff filed suit against the defendants alleging the companies violated (i) the CLA by failing to disclose the number of payments owed under the agreement prior to execution; (ii) TILA by failing to adequately disclose the finance charge, the APR, and the “total of payments” as required under the Act; and (iii) the state’s usury law cap of 8 percent for personal debt. The defendants moved to dismiss the action challenging the plaintiff’s standing, among other things. The court, rejected the defendants arguments, finding that the consumer adequately alleged injury by stating she “would” have, not “might” have, pursued other funding had the defendants disclosed the actual interest rate. Additionally, the court determined the consumer plausibly alleged a CLA violation because the agreement contains information the plaintiff could view as “conflicting and confusing.” With respect to the TILA claims, the plaintiff argued that, although the agreement is styled as a lease, it is actually a credit sale, and the court rejected one of the defendant’s arguments that it was not a creditor, but rather a servicer not subject to TILA. Lastly, the court held the plaintiff adequately pleaded her state usury claim, but noted the claim’s viability would be better informed by discovery. Accordingly, the court denied the defendants’ motions to dismiss.

    Courts TILA CLA Usury State Issues Standing APR Interest Rate

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  • District Court dismisses non-borrower action against mortgage servicer

    Courts

    On January 11, the U.S. District Court for the Northern District of Mississippi granted a mortgage servicer’s motion to dismiss a lawsuit with prejudice brought by a homeowner’s widow alleging violations of, among other claims, TILA, RESPA, and FDCPA, for failing to include a credit-life-insurance provision in the loan note. According to the opinion, the plaintiff sued the mortgage servicer and mortgage originator after her husband passed and the servicer initiated foreclosure proceedings. The plaintiff argued that her husband, who was the sole borrower, and the mortgage originator had an oral agreement to include a credit-life-provision in the mortgage loan note but the originator failed to include it. The mortgage servicer moved to dismiss the action arguing, among other things, that the plaintiff lacked standing to bring the action. Upon review, the court agreed with the mortgage servicer, determining that the plaintiff lacks standing under TILA, RESPA, and the FDCPA because she was neither an “obligor” nor “borrower” on the loan even though she  was identified as a “borrower” on the Deed of Trust. Moreover, the court rejected the plaintiff’s alternative claim that she is a third-party beneficiary with standing to sue under the laws, finding that no valid contract existed as to the credit-life-insurance policy and therefore, the plaintiff could not claim to be a beneficiary of a non-existent contract. The court also dismissed the plaintiff’s other state law and fraud claims, finding she failed to provide sufficient facts to make the claims plausible.

    Courts Foreclosure FDCPA TILA RESPA Mortgage Servicing

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