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CFPB urges 9th Circuit to reverse district court’s order and impose higher penalty in tribal lending action
On October 19, the CFPB filed its opening brief before the U.S. Court of Appeals for the 9th Circuit in Consumer Financial Protection Bureau v. CashCall, Inc., an action brought by the CFPB to limit the reach of the so-called “tribal model” of online lending. In the original action, the court found that an online loan servicer that operated on tribal lands engaged in deceptive practices by collecting on loans that exceeded the usury limits in various states, and ordered it and its affiliates to pay a $10 million penalty, far short of the Bureau’s request. (Previously covered by InfoBtyes here and here.) The CFPB appealed, arguing that the district court erred by imposing a civil penalty that was “inappropriately low” and by refusing to order appropriate restitution. In its brief, the Bureau argued that the district court misapplied the law when finding that restitution was not “an appropriate remedy.” According to the Bureau, the district court believed it had discretionary power to deny restitution, based on the court’s view of the equities. But the district court had no such discretion, the Bureau asserted, claiming that if a plaintiff proves a violation and resulting harm, it is entitled to restitution under the CFPA. In addition, the Bureau argued that the district court should not have denied restitution on the grounds that the servicer had not acted in bad faith. The Bureau argued that allowing the servicer to earn $200 million in ill-gotten gains while paying a $10 million penalty leaves companies with “little incentive to follow the law.” The Bureau also argued that the loan servicer’s actions were reckless and warranted a higher civil penalty. The district court had concluded that the servicer did not act recklessly because its primary counsel opined that it could contract around state law. In response, the Bureau asserted that the servicer had “ample reason to know” its attempts to circumvent state usury laws posed an unjustifiably high risk that it was “collecting amounts consumers did not owe” after multiple lawyers warned the servicer that its attempts to avoid state law “likely” would not work.”
CFPB launches innovation webpage
On October 16, the CFPB announced the launch of its new webpage for innovation, which aims to engage with entrepreneurs and the innovation community to promote competition, innovation, and consumer access within financial services. The webpage is a result of the Bureau’s new Office of Innovation (previously known as Project Catalyst) and includes information regarding the Global Financial Innovation Network and the Bureau’s proposed revisions to the Trial Disclosure Program Policy (previously covered by InfoBytes here and here). The webpage also encourages groups to “pitch a pilot” to work with the Bureau on consumer-friendly innovation ideas.
CFPB publishes fall 2018 rulemaking agenda
On October 17, the Office of Information and Regulatory Affairs released the CFPB’s fall 2018 rulemaking agenda. According to the Bureau’s preamble, the information presented is current as of August 30 and represents regulatory matters it “reasonably anticipates” having under consideration during the period of October 1, 2018, to September 30, 2019. The Bureau also states it plans on “reexamining the requirements of [ECOA] in light of recent Supreme Court case law and the Congressional disapproval of a prior Bureau bulletin concerning indirect auto lender compliance with ECOA and its implementing regulations.”
Key rulemaking initiatives include:
- Property Assessed Clean Energy Loans (PACE): The Bureau is planning to complete an assessment of its 2013 rules for assessing consumers’ ability to repay mortgage loans by January 2019, which will inform the drafting of a request for information or advance notice of proposed rulemaking (ANPR) on PACE issues to facilitate the Bureau’s rulemaking process.
- HMDA/Regulation C: The Bureau plans to follow-up on its action in August 2017 to amend Regulation C to increase the threshold for collecting and reporting data with respect to open-end lines of credit for a period of two years so that financial institutions originating fewer than 500 open-end lines of credit in either of the preceding two years would not be required to begin collecting such data until January 1, 2020.
- Debt Collection: The Bureau states it plans to issue an ANPR addressing issues such as communication practices and consumer disclosures by March 2019, and has received support from industry and consumer groups to engage in rulemaking to explore ways to apply the FDCPA to modern collection practices.
- Small Dollar Lending: The Bureau anticipates it will issue a proposed rule on small dollar lending in January 2019.
- Payday Rule: The Bureau estimates it will issue an ANPR in January 2019 to reconsider the merits and compliance date for its final payday/vehicle title/high-cost installment loan rule.
- FCRA: Comments must be submitted by November 19 on the changes and underlying disclosures implemented by its interim final rule, which amended certain model forms under the FCRA and took effect September 21. (See previous InfoBytes coverage on the interim final rule here.)
Long term priorities now include rulemaking addressing (i) small business lending data collection; (ii) consumer reporting; (iii) amendments to FIRREA concerning automated valuation models; (iii) consumer access to financial records; (iv) rules to implement the the Economic Growth, Regulatory Relief, and Consumer Protection Act, concerning various mortgage requirements, student lending, and consumer reporting; and (v) clarity for the definition of abusive acts and practices.
CFPB solicits comments on proposed rule regarding civil penalty inflation adjustments
On October 12, the CFPB published an amendment to its rule regarding inflation adjustments for the maximum amount of each civil penalty within its jurisdiction, pursuant to the 2015 Inflation Adjustment Act amendments. Under the Bureau’s amendment, adjusted penalty amounts would only apply to assessments with associated violations occurring on, or after, November 2, 2015. The Bureau noted that because the amendment “would limit the civil penalties covered persons may pay, the proposed rule would not impose any additional costs on them. Nor does the rule impose any new, affirmative duty on any small entity or change any existing requirements on small entities, and thus no small entity who is currently complying with the laws that the Bureau enforces will incur any expense from the amended rule.” Comments must be received by November 13.
FDIC FIL provides guidance on HMDA partial exemptions
On October 10, the FDIC issued FIL-58-2018 which summarizes guidance provided by the CFPB on the implementation of partial exemptions from certain of HMDA’s reporting requirements for specific insured depository institutions and insured credit unions pursuant to Section 104(a) of the Economic Growth, Regulatory Relief, and Consumer Protection Act. On August 31, as previously covered in InfoBytes here, the Bureau issued an interpretive and procedural rule to implement and clarify recent HMDA amendments and outline exemption qualification requirements. FIL-58-2018 reminds FDIC-supervised institutions subject to HMDA and Regulation C of the following clarifications made by the Bureau: (i) there are 26 data points covered by the partial exemptions and 22 other data points that all HMDA reporters must collect, record, and report”; (ii) loans counted towards partial exemption thresholds must otherwise be reportable under Regulation C; (iii) exception based on Community Reinvestment Act examination reports will be determined by the two most recent CRA ratings as of December 31 of the preceding calendar year; (iv) if an institution eligible for a partial exemption chooses not to report a universal loan identifier, it must report a non-universal loan identifier unique within the institution; and (v) institutions exempt from certain reporting requirements may still report exempt data fields so long as they “report all data fields associated with that data point.”
CFPB announces settlement with companies that allegedly delayed transfer of consumer payments to debt buyers
On October 4, the CFPB announced a settlement with a group of Minnesota-based companies that allegedly violated the Consumer Financial Protection Act when consumers made payments on debts that the companies had already sold to third parties, and the companies improperly delayed the forwarding of some of those payments to debt buyers. According to the consent order, the companies—whose practices include the purchasing, servicing, collection, and furnishing consumer-report information on consumer loans—partnered with third-party banks to sell merchandise on closed-end or open-end revolving credit. Within a few days, banks originated the loans and sold the receivables to the companies. The companies subsequently serviced the debts and sold the receivables to a third party. For defaulted accounts, the companies charged off the accounts and sold them to third-party debt buyers. According to the Bureau, the companies allegedly failed to notify consumers when their accounts were sold, failed to inform them who now owned the debt, and continued to accept direct pays from consumers. The Bureau contends that between 2013 and 2016, the companies delayed forwarding direct pays for more than 31 days in 18,000 instances, and in 3,500 of those instances, the companies did not forward the payments for more than a year. Moreover, the Bureau asserts that these delays led to misleading collection efforts, including collection activity on accounts consumers had completely paid off. The order requires the companies to pay a civil money penalty of $200,000, and improve their policies and procedures to prevent further violations.
CFPB bulletin announces changes to supervisory communications
On September 25, the CFPB issued Bulletin 2018-01, which announces changes to how it communicates supervisory expectations to institutions. According to the bulletin, effective immediately, examination reports and supervisory letters will include two categories of findings that convey supervisory expectations: (i) Matters Requiring Attention (MRAs); and (ii) Supervisory Recommendations (SRs). MRAs will continue to be used to outline specific goals for institutions to accomplish in order to correct violations of law, remediate harmed consumers, and address compliance management system (CMS) weaknesses, and will include timeframes for companies to report on its efforts to address MRAs and timeframes for implementation. SRs will be used when the Bureau has not identified violations of law but noted weaknesses in CMS and will contain recommended actions to address weaknesses. The bulletin notes that neither MRAs nor SRs are legally enforceable, but emphasizes the Bureau will consider an institution’s response in addressing the noted concerns when assessing a compliance rating, prioritizing future supervisory work, or assessing the need for an enforcement action.
Court dismisses action by a tribal nation against a national bank for claims relating to the bank’s incentive compensation sales program
On September 25, the U.S. District Court for the District of New Mexico dismissed an action brought by a tribal nation against a national bank alleging, among other things, that the bank’s incentive compensation sales program resulted in the bank’s employees opening deposit and credit card accounts for consumers without obtaining their consent to do so. In December 2017, the tribal nation brought 17 claims against the national bank, including alleged violations of the Consumer Financial Protection Act (CFPA) and a variety of federal, state, tribal, and common law violations. The court rejected the tribal nation’s claims under the CFPA, holding they are barred by res judicata, as the claims previously had been litigated under the CFPB’s 2016 consent order (previously covered by InfoBytes here) and that the tribal nation was in privity with the CFPB. The court also rejected the tribal nation’s argument that it was entitled to civil penalties, injunctive and declaratory relief under the doctrine parens patriae, finding the tribal nation failed to allege facts sufficient to demonstrate standing for each claim and each form of relief. As for the state and tribal law claims, the court held that it lacked an independent basis for jurisdiction due to the court’s dismissal of all of the federal law claims.
CFPB issues report and RFI on data sources and use
On September 25, the CFPB released a report on the Bureau’s data governance program, including what data the Bureau collects, from where the data is sourced, and how the data is used and reused within the Bureau. The report emphasizes that data informs a large portion of the Bureau’s work, including rule writing, supervision, enforcement, consumer education, and market monitoring. The report details the more than 188 data collections from public sources, government agencies, commercial vendors, financial institutions, and consumers that the Bureau has undertaken to date. In connection with the report, the Bureau issued a request for information (RFI) seeking feedback on the Bureau’s data governance program and data use. Specifically, the RFI requests comments on, among other things, (i) the overall effectiveness and efficiency of the Bureau’s data collections; (ii) privacy issues related to the Bureau’s data collection practices; (iii) ways the Bureau should or should not reuse data collected for one purpose to inform other work; and (iv) ways the Bureau could make data reporting less burdensome. Comments must be received by December 27.
Federal Reserve seeks to repeal SAFE Act regulations to reflect CFPB authority
On September 21, the Federal Reserve Board (Board) issued a notice of proposed rulemaking seeking comment on the repeal of certain provisions of regulations that incorporate the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act), which the Board states are intended to reflect the transfer of rulemaking authority to the CFPB by the Dodd-Frank Act. Specifically, the Board proposes amending Regulation H (Membership of State Banking Institutions in the Federal Reserve System) and Regulation K (International Banking Operations) to repeal the provisions that incorporate the SAFE Act because of the change in rulemaking authority and because the CFPB finalized a rule that is substantially identical to the Board's regulations. Comments on the proposal are due within 60 days after publication in the Federal Register.