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On August 11, the CFPB released updated FAQs pertaining to compliance with the payment provisions of the “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (Payday Lending Rule). Earlier in June, the Bureau issued a final rule revoking certain underwriting provisions of the Payday Lending Rule (previously covered by InfoBytes here), along with FAQs discussing the details of covered loans and “payment transfers” under the rule. The updated FAQs provide guidance on several topics, including (i) exemptions for certain loans originated by a federal credit union; (ii) Regulation Z’s coverage threshold; (iii) conditions for when closed-end and open-end loans may become covered longer-term loans; (iv) exclusions for real estate secured credit; (v) the purchase money exclusion’s applicability to automobile loans; (vi) situations where failed payment transfers count towards the limit under Payday Lending Rule; (vii) how a “business day” is determined; and (viii) situations where a lender must provide an unusual payment withdrawal notice.
On August 4, an Administrative Law Judge (ALJ) recommended that a Delaware-based online payday lender and its CEO be held liable for violations of TILA, CFPA, and the EFTA and pay restitution of $38 million and $12.5 million in civil penalties in a CFPB administrative action. As previously covered by InfoBytes, in November 2015, the Bureau filed an administrative suit against the lender and its CEO alleging violations of TILA and the EFTA, and for engaging in unfair or deceptive acts or practices. Specifically, the CFPB argued that, from May 2008 through December 2012, the online lender (i) continued to debit borrowers’ accounts using remotely created checks after consumers revoked the lender’s authorization to do so; (ii) required consumers to repay loans via pre-authorized electronic fund transfers; and (iii) deceived consumers about the cost of short-term loans by providing them with contracts that contained disclosures based on repaying the loan in one payment, while the default terms called for multiple rollovers and additional finance charges. In 2016, an ALJ agreed with the Bureau’s contentions, and the defendants appealed the decision. In May 2019, CFPB Director Kraninger remanded the case to a new ALJ.
After a new hearing, the ALJ concluded that the lender violated (i) TILA (and the CFPA by virtue of its TILA violation) by failing to clearly and conspicuously disclose consumers’ legal obligations; and (ii) the EFTA (and the CFPA by virtue of its EFTA violation) by “conditioning extensions of credit on repayment by preauthorized electronic fund transfers.” Moreover, the ALJ concluded that the lender and the lender’s owner engaged in deceptive acts or practices by misleading consumers into “believing that their APR, Finance Charges, and Total of Payments were much lower than they actually were.” Lastly, the ALJ concluded the lender and its owner engaged in unfair acts or practices by (i) failing to clearly disclose automatic rollover costs; (ii) misleading consumers about their repayment obligations; and (iii) obtaining authorization for remote checks in a “confusing manner” and using the remote checks to “withdraw money from consumers’ bank accounts after consumers attempted to block electronic access to their bank accounts.” The ALJ recommends that both the lender and its owner pay over $38 million in restitution, and orders the lender to pay $7.5 million in civil money penalties and the owner to pay $5 million in civil money penalties.
On August 4, twenty-four state attorneys general responded to the CFPB’s request for comments on its proposed supplemental debt collection rule (the “Supplemental Proposed Rule”) arguing it does not “adequately protect consumers’ rights.” As previously covered by a Buckley Special Alert, the Supplemental Proposed Rule— which adds to the CFPB’s May 2019 proposed rule (InfoBytes coverage here) — proposes (i) certain disclosures required to be included in communications where a third-party debt collector knows or should know that a debt is time-barred; and (ii) model language and forms that debt collectors may use to comply with such disclosure requirements.
Among other things, the attorneys general disagree with the “know or should know” standard, arguing that the Bureau should “adopt a strict-liability standard, which would be in line with what the FDCPA intends to accomplish.” Moreover, the attorneys general assert that the model disclosures (i) were not adequately tested; (ii) do not account for the variations in state laws as to the potential revival of time-barred debt; and (iii) provide a safe harbor that is inconsistent with the FDCPA and the Dodd-Frank Act. Lastly, the attorneys general express concerns that the Supplemental Proposed Rule conflicts with state laws that require state disclosures to be on the front side of debt collection notices and fails to address “obsolete debt.”
On July 30, Congresswoman Nydia Velázquez (D-NY), the Chairwoman of the House Small Business Committee, announced new legislation titled, “Small Business Lending Disclosure and Broker Regulation Act,” which would amend TILA and subject small business financing transactions to APR disclosures. The federal legislation would track similar state legislation enacted in California and currently pending the governor’s signature in New York, covered by InfoBytes here and here. However, unlike both California and New York, the federal legislation does not exempt depository institutions from coverage. Highlights of the TILA amendments include:
- CFPB Oversight. The legislation provides the CFPB with the same authority with respect to small business financing as the Bureau has with respect to consumer financial products and services.
- Coverage. The legislation defines small business financing as, “[a]ny line of credit, closed-end commercial credit, sales-based financing, or other non-equity obligation or alleged obligation of a partnership, corporation, cooperative, association, or other entity that is [$2.5 million] or less,” that is not intended for personal, family, or household purposes.
- Disclosure. The legislation would require disclosure of the following information at the time an offer of credit is made: (i) financing amount; (ii) annual percentage rate (APR); (iii) payment amount; (iv) term; (v) financing charge; (vi) prepayment cost or savings; and (vii) collateral requirements.
- Fee Restriction. The legislation prohibits charging a fee on the outstanding principal balance when refinancing or modifying an existing loan, unless there is a tangible benefit to the small business.
Additionally, the legislation would amend the Consumer Financial Protection Act to create the Office of Broker Registration, which would be responsible for oversight of brokers who “solicit and present offers of commercial financing on behalf of a third party.” The legislation would, among other things: (i) require commercial brokers to register with the CFPB; (ii) require commercial brokers to provide certain disclosures to small business borrowers; (iii) prohibit the charging of fees if financing is not available or not accepted; and (iv) require the CFPB to collect and publicly publish broker complaints from small businesses. Lastly, the legislation would require each state to establish a small business broker licensing law that includes examinations and enforcement mechanisms.
Relatedly, the FTC recently took action against New York-based merchant cash advance providers and two company executives for allegedly engaging in deceptive practices by misrepresenting the terms of their merchant cash advances (MCAs), using unfair collection practices, making unauthorized withdrawals from consumers’ accounts, and misrepresenting collateral and personal guarantee requirements. See detailed InfoBytes coverage on the complaint here.
On July 30, a group of consumer fair housing associations (collectively, “plaintiffs”) filed suit against the CFPB, challenging the Bureau’s final rule permanently raising coverage thresholds for collecting and reporting data about closed-end mortgage loans and open-end lines of credit under HMDA. As previously covered by InfoBytes, the final rule, which amends Regulation C, permanently increases the reporting threshold from the origination of at least 25 closed-end mortgage loans in each of the two preceding calendar years to 100, and permanently increases the threshold for collecting and reporting data about open-end lines of credit from the origination of 100 lines of credit in each of the two preceding calendar years to 200. In the complaint, the plaintiffs argue that the Bureau, among other things, (i) failed to provide a “reasoned explanation” for the changes to the original threshold requirements; (ii) conducted a “flawed analysis of the costs and benefits” of the final rule; and (iii) failed to “adequately consider comments” that were submitted in response to the rule’s proposal. According to the complaint, the final rule “exempts about 40 percent of depository institutions that were previously required to report.” The plaintiffs assert this result “undermines the purpose” of HMDA by allowing potential violations of fair lending laws to go undetected. The plaintiffs argue that because the CFPB allegedly violated to the Administrative Procedures Act, the final rule should be vacated and set aside.
On July 28, the CFPB issued a request for information (RFI) seeking input on ways to create a regulatory environment that expands credit access and ensures consumers and communities are protected from discrimination with respect to any aspect of a credit transaction. The RFI seeks comments to “identify opportunities to prevent credit discrimination, encourage responsible innovation, promote fair, equitable, and nondiscriminatory access to credit, address potential regulatory uncertainty, and develop viable solutions to regulatory compliance challenges under the Equal Credit Opportunity Act (ECOA) and Regulation B.” The RFI is in lieu of a symposium previously planned for this fall on topics related to ECOA. Information received will assist the Bureau in exploring ways to address regulatory compliance challenges, prevent unlawful discrimination, and foster innovation. Among other things, the Bureau seeks comments on ways to provide clarity under ECOA and/or Regulation B related to: (i) disparate impact analysis; (ii) meeting the credit needs of borrowers with limited English proficiency; (iii) special purpose credit programs; (iv) affirmative advertising to disadvantaged groups; (v) small business lending, particularly minority and women-owned firms; (vi) the prohibition of discrimination on the basis of a sexual orientation or gender identity; (vii) the scope of federal preemption of state law; (viii) situations in which “creditors seek to ascertain the continuance of public assistance benefits in underwriting decisions”; (ix) credit underwriting decisions based in part on models using artificial intelligence or machine learning; and (viii) adverse action notices. Comments on the RFI are due 60 days after publication in the Federal Register.
The same day, Director Kathy Kraninger published a blog post outlining Bureau priorities for ensuring a more inclusive financial system. In addition to the RFI, Kraninger discussed (i) the usefulness of the consumer complaint system in identifying cases of discrimination and fair lending violations; (ii) examinations and enforcement actions; (iii) the Bureau’s request for legislative authority to compensate whistleblowers; and (iv) education efforts focusing on consumers’ rights in the financial marketplace, including those related to disparities in student loan outcomes.
On July 27, the U.S. Court of Appeals for the Third Circuit determined that the Commonwealth of Pennsylvania may pursue claims against a student loan servicer under the Consumer Financial Protection Act (CFPA) despite a concurrent action brought against the servicer by the CFPB. The appellate court also held that the Commonwealth’s claims under the Pennsylvania Unfair Trade Practices and Consumer Protection Law are not preempted by the federal Higher Education Act (HEA). The decision results from a lawsuit filed by the Commonwealth claiming the servicer, among other things, originated risky, high-cost student loans, steered borrowers into forbearance, failed to properly inform borrowers about income-driven repayment options, made misrepresentations related to cosigner release, and misapplied borrower payments. Because the CFPB filed a lawsuit alleging similar claims against the servicer nearly nine months prior to the Commonwealth’s suit, the servicer argued that under the applicable provision of the CFPA, the Commonwealth could not file a concurrent suit. The district court disagreed and denied the servicer’s motion to dismiss.
In addressing whether a concurrent suit is permitted, the appellate court noted, “that the clear statutory language of the [CFPA] permits concurrent state claims, for nothing in the statutory framework suggests otherwise.” With respect to whether the applicable provision of the HEA expressly and impliedly preempts the Commonwealth’s suit, the 3rd Circuit stated that the statute only expressly preempts claims “based on failures to disclose information as required by the statute,” and not claims “based on affirmative misrepresentations.” Thus, because the Commonwealth’s claims were based on alleged affirmative misrepresentations and misconduct, it affirmed the district court’s ruling that the Commonwealth’s case may proceed. The 3rd Circuit highlighted, however, a circuit split over whether the HEA impliedly preempts state-law claims, pointing to the 9th Circuit’s holding that “allowing state law causes of action to proceed would conflict with the purpose of uniformity.” The 3rd Circuit’s decision joins those issued by the 7th and 11th Circuits, which both rejected the argument that uniformity was an intended purpose of the HEA.
The CFPB and the defendants filed with the district court in May dueling motions for summary judgment in the concurrent CFPB action, but the court has yet to issue a ruling on those motions.
On July 24, the CFPB announced plans to issue an Advanced Notice of Proposed Rulemaking (ANPR) on consumer-authorized access to financial records later this year. The future ANPR relates to the February Symposium held by the Bureau covering this subject and Section 1033 of the Dodd-Frank Act, which deals with consumers’ rights to access information about their financial accounts. As previously covered by InfoBytes, the purpose of this symposium was “to elicit a variety of perspectives on the current and future state of the market for services based on consumer-authorized use of financial data.” The symposium consisted of three panels: (i) the current landscape and benefits and risks of consumer-authorized data access; (ii) market developments; and (iii) considerations for policymakers. Along with the ANPR announcement, the Bureau released a report summarizing the February symposium.
According to the Bureau, the future ANPR will solicit feedback on (i) how the Bureau can effectively and efficiently implement the financial access rights described in Section 1033 of Dodd-Frank; (ii) the possible scope of data that might be subject to protected access; and (iii) how the Bureau may be able to solve the regulatory uncertainty of Section 1033’s interaction with other statutes, such as the FCRA.
On July 24, the CFPB announced settlements with two mortgage lenders (here and here) for allegedly mailing consumers advertisements for Department of Veterans Affairs (VA) mortgages that allegedly contained misleading statements or lacked required disclosures. According to the Bureau, both lenders offer and provide VA guaranteed mortgage loans, and allegedly disseminated direct-mail advertisements to servicemembers and veterans in violation of the Mortgage Acts and Practices – Advertising Rule (MAP Rule) and Regulation Z. Among other things, the Bureau alleges the advertisements (i) stated credit terms that the lenders were not actually prepared to offer; (ii) described introductory interest rates as “fixed,” when in fact, the rates were adjustable; (iii) gave the false impression the lenders were affiliated with the government; and (iv) used the name of the consumer’s current lender in a misleading way. Both consent orders impose bans on future advertising misrepresentations similar to those identified by the Bureau and require the companies to use a compliance official to review mortgage advertisements for compliance with consumer protection laws. The Bureau imposes a civil penalty of $460,000 against one lender and a civil penalty of $645,000 against the other.
On July 29, CFPB Director Kathy Kraninger testified at a hearing held by the Senate Banking Committee on the CFPB’s Semi-Annual Report to Congress, which covers the Bureau’s work from October 1, 2019, through March 31, 2020. (Covered by InfoBytes here.) Kraninger’s testimony identified four key areas of focus for the Bureau: (i) providing financial education resources to prevent consumer harm; (ii) implementing “clear rules of the road” to encourage “competition, increase transparency, and preserve fair markets for financial products and services”; (iii) ensuring a “culture of compliance” through supervision; and (iv) following a consistent, purposeful enforcement regime. Kraninger also highlighted Bureau efforts to address discrimination, consumer confusion regarding forbearance options under the CARES Act, and a legislative proposal that would authorize the Bureau to award whistleblowers who report federal consumer financial law violations.
During the hearing, committee members focused on, among other things, the Bureau’s response to the Covid-19 pandemic and the agency’s recent repeal of certain underwriting provisions of its 2017 final rule covering “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (covered by InfoBytes here). In response to Democratic criticism regarding the repeal of the underwriting provisions, Kraninger reiterated that a Bureau analysis of the provisions in the 2017 final rule revealed it would reduce the availability of small-dollar credit “by at least 70 percent,” and denied claims that the rulemaking process had been impacted by political appointees at the agency. Additionally, Kraninger said she intends to move ahead with putting the payment provisions of the payday rule into effect and is currently “working through” a pending legal challenge to the provisions.
Democratic committee members also questioned Kraninger regarding temporary regulatory relief to mortgage servicers and other financial services companies (covered by InfoBytes here) and the Bureau’s policy statement providing Fair Credit Reporting Act and Regulation V compliance flexibility for consumer reporting agencies and furnishers during the pandemic (covered by InfoBytes here). With regard to the U.S. Supreme Court’s June ruling in Seila Law v. CFPB (covered by a Buckley Special Alert), Committee Chairman Mike Crapo (R-ID) noted he is still advocating for “a bipartisan board of directors to oversee the CFPB” and for subjecting the Bureau to the annual appropriations process.
The next day, Kraninger appeared before the House Financial Services Committee’s hearing to discuss the semi-annual report. Similar to the Senate hearing, committee members questioned Kraninger on the payday rule, the revision to the HMDA rule, the Bureau’s pandemic-related initiatives for consumers, and on ways the Bureau is protecting struggling consumers during the pandemic, particularly with respect to the agency’s supervisory and enforcement work.
- Thomas A. Sporkin to discuss "Managing internal investigations and advanced government defense" at the Securities Enforcement Forum
- Jeffrey P. Naimon to discuss "2021 - A new beginning/what's to come" at the QuestSoft Lending Compliance & Risk Management Virtual Conference
- H Joshua Kotin to discuss "Mortgage servicing in a recession: Early intervention, loss mitigation and more" at the NAFCU Virtual Regulatory Compliance Seminar
- Daniel R. Alonso to discuss "Independent monitoring in the United States" at the World Compliance Association Peru Chapter IV International Conference on Compliance and the Fight Against Corruption
- Jonice Gray Tucker to discuss "Cyber security, incident response, crisis management" at the Legal & Diversity Summit
- Jonice Gray Tucker to discuss "The future of fair lending" at the Mortgage Bankers Association Regulatory Compliance Conference
- Michelle L. Rogers to discuss "Major litigation" at the Mortgage Bankers Association Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "Pandemic fallout – Navigating practical operational challenges" at the Mortgage Bankers Association Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "Consumer financial services" at the Practising Law Institute Banking Law Institute
- Daniel P. Stipano to discuss "BSA/AML - Covid impact and regulatory/guidance roundup" at an NAFCU webinar