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  • CFPB reflects on 2023 enforcement actions; states upcoming enforcement goals

    Federal Issues

    On January 29, the CFPB released a blog post on its enforcement actions from 2023, as well as its outlook for 2024.  In 2023, the CFPB reportedly filed 29 enforcement actions and resolved six final orders on previously filed lawsuits. Compensation-wise, the Bureau required entities to pay approximately $3.07 billion in compensation to consumers and nearly $500 million in civil money penalties. The CFPB highlights some key enforcement actions from 2023, such as helping protect servicemembers from loan exploitation, as previously covered in Infobytes here, and taking action against the alleged illegal junk advance fees from credit repair services, also covered in Infobytes here.

    Looking forward to 2024, the CFPB stated its intent to increase its capacity. The Bureau’s outlook falls in line with previous comments from a CFPB representative in an FTC panel, covered by InfoBytes here. The blog post provides greater detail, outlining the Bureau’s plans to hire more technology experts to help enforce the law against emerging technologies, as well as expanding its enforcement capacity by adding more attorneys, analysts, paralegals, and economists, among others.

    Federal Issues CFPB Enforcement

  • FTC hosts tech summit on artificial intelligence; CFPB weighs in

    Agency Rule-Making & Guidance

    On January 25, the FTC hosted a virtual tech summit focused on artificial intelligence (AI). The summit featured speakers from the FTC––including all three commissioners––software engineers, lawyers, technologists, entrepreneurs, journalists, and researchers, among others. First, Commissioner Slaughter spoke on how there are three main acts that led to where we are today in creating guardrails for AI use: first, the emergence of social media; second, industry groups and whistleblowers rang the alarm on data privacy and forced regulators to play catch-up; third, regulators must now urgently grapple with difficult social externalities such as impacts on society and political elections.

    The first panel discussed the various business models at play in the AI space. One journalist spoke on the recent Hollywood writers’ strike, opining that copyright law is a poor legal framework by which to regulate AI, and suggested labor and employment law as a better model. An analyst at a venture capital firm discussed how her firm finds investment opportunities by reviewing which companies use a language-learning model, as opposed to the transformer model, which is more attractive to that firm.

    Before the second panel, Commissioner Bedoya discussed the need for fair and safe AI, and said that in order for the FTC to be successful, it must execute policy with two topics in mind: first, people need to be in control of technology and decision making, not the other way around; and second, competition must be safeguarded so that the most popular technology is the one that works the best, not just the one created by the largest companies.

    During the second panel, a lawyer from the CFPB spoke on how the CFPB is doing “a lot” with regards to AI, and that the CFPB gives AI technology no exceptions in the laws it oversees. The CFPB recently issued releases on how the “black box” model in credit decision making needs to be fair and free from bias. When discussing future AI enforcement actions, the CFPB lawyer said in a “high-level” way that AI enforcement is currently “capacity building”; they are building out their resources to be more intellectually diverse, including having recently created their technologist program. 

    Agency Rule-Making & Guidance FTC Artificial Intelligence CFPB Technology

  • District Court denies stay of CFPB case against lender

    Courts

    On January 12, the U.S. District Court for the Southern District of Florida denied a defendant-mortgage lender’s motion to stay a case filed by the CFPB. The defendant argued that judicial economy—the preservation of the court’s time and resources—favored the stay because the defendant’s pending motion to dismiss is premised on the same constitutional issue addressing the CFPB’s funding structure now before the Supreme Court (see continuing InfoBytes coverage here and here). In opposition, the CFPB argued that the Supreme Court may take months to issue a ruling, the public interest in enforcement of consumer protection laws, and the failure to show how an adverse ruling in the Supreme Court case would definitively result in dismissal of this case.

    The District Court sided with the CFPB, stating that as of now, the CFPB “is a valid agency that is entitled to enforce the consumer financial laws.”  With the stay denied, the court will now consider the defendant’s motion to dismiss.    

    Courts CFPB Mortgage Origination Mortgages Consumer Finance Consumer Protection Constitution

  • CFPB proposes rule making certain NSF fees “abusive”

    Agency Rule-Making & Guidance

    On January 24, the CFPB released a proposed rule that would identify the charging of non-sufficient funds (NSF) fees on transactions that financial institutions decline instantaneously or near-instantaneously as an “abusive” act or practice. The rule would prohibit financial institutions from charging such fees. The proposed rule defines a “covered transaction” as a consumer’s attempt to withdraw, debit, pay, or transfer funds from their account that is declined instantaneously or near-instantaneously by a “covered financial institution” due to insufficient funds. Further, instantaneously, or near-instantaneously-declined transactions are characterized as transactions that are processed in real-time with “no significant perceptible delay to the consumer when attempting the transaction.” One-time debit card transactions that are not preauthorized, ATM transactions, and certain person-to-person transactions would be covered by the proposed rule. The proposed rule would not cover (i) transactions declined or rejected due to insufficient funds hours or days after a consumer’s attempt; (ii) checks and ACH transactions (given that they are not able to be instantaneously declined); (iii) transactions authorized at first, even if they are later rejected or fail to settle due to insufficient funds. The proposed rule defines “covered financial institution” in line with Regulation E’s definition of “financial institution.”

    Although the CFPB noted that currently financial institutions do not typically charge NSF fees on the proposed covered transactions and acknowledged that it was proposing the “rule primarily as a preventive measure,” it expressed concern that financial institutions who do not currently charge NSF fees for “covered transactions” may have an incentive to do so as other regulatory interventions reduce other sources of fee income. Further, the CFPB considered whether its concerns could be addressed through certain disclosures, but declined to pursue that course of action, citing challenges in implementation across diverse payment channels and interfaces. Even if feasible, the CFPB added, such disclosures might be costly and may not fully prevent abusive practices.

    Moreover, the proposed rule clarifies the CFPB’s current interpretation of the prohibition on abusive acts or practices and distinguish prior views set forth in the preamble of a separate rule—the CFPB’s 2020 rule rescinding certain provisions of the 2017 Rule on Payday, Vehicle Title, and Certain High-Cost Installment Loans’ (2020 Rescission Rule). Abusive practices are defined to include, among other things, acts or practices that take “unreasonable advantage” of a consumer’s “lack of understanding . . . of the material risks, costs, or conditions” of a consumer product or service. The CFPB proposes to “clarify” its prior interpretation of this prohibition, by articulating its view that a “lack of understanding” need not be “reasonable” to form the predicate of an abusive act or practice.  In the CFPB’s view, this distinguishes the abusiveness prohibition from the longstanding prohibition on “unfair” practices, which requires showing that consumers could not “reasonably avoid” consumer injury by, for example, reading disclosures or understanding that a particular transaction would overdraw the balance in their account and result in fees.  The Bureau’s current view is that the 2020 Rescission Rule conflated “reasonable avoidability” and “lack of understanding,” contrary to the text and purpose of the abusive conduct prohibition. In addition, the CFPB proposes clarifying that, notwithstanding the 2020 Rescission Rule’s emphasis on the “magnitude” and “likelihood” of harm, the “materiality” requirement pertains to understanding “risks,” not necessarily “costs” or “conditions.” The CFPB explained that a consumer’s lack of understanding of costs does not always align with the analysis of harm likelihood and magnitude, for example, it suffices to demonstrate that a company exploits consumer ignorance about a fee (“cost”) in a specific situation, even if consumers generally understand the “risk” of fees. The CFPB has preliminarily determined that consumers charged NSF fees on covered transactions would “lack understanding of the material risks, costs, or conditions of their account at the time they are initiating covered transactions.”

    In the CFPB’s view, financial institutions are taking “unreasonable advantage” of consumers when they impose NSF fees on covered transactions because the financial institution: (i) profits from a transaction but provides no service in return; (ii) chooses to impose NSF fees when instantaneously declining a transaction at no cost or negligible cost is an option; (iii) benefits from negative consumer outcomes caused by their lack of understanding; and (iv) profits from economically “vulnerable” consumers’ lack of understanding or hardship, instead of providing services to alleviate it.

    Among other things, the CFPB seeks comments on the proposed parameters of covered transactions, whether the practices identified in the proposed rule are broad enough to address the “potential consumer harms,” and submission of data on covered financial institutions’ cost to decline covered transactions. Comments must be received by March 25. Finally, the CFPB is proposing an effective date of 30 days after publication of the final rule in the Federal Register.

    Agency Rule-Making & Guidance CFPB CFPA NSF Fees Federal Issues Bank Supervision

  • CFPB proposes new rule on overdraft lending, opens comment period

    Agency Rule-Making & Guidance

    On January 17, the CFPB issued a proposed new rule to restrict overdraft fees charged by financial institutions. Historically, the Federal Reserve Board exempted banks from credit disclosure requirements when an overdraft was needed to honor checks (for a fee). The proposed rule would recharacterize overdrafts as extensions of credit, which would extend the consumer credit protections in TILA that apply to other forms of credit to overdraft credit. 

    According to the related Fact Sheet, the proposed rule would only apply to financial institutions with assets of $10 billion or more. The CFPB offered financial institutions two options on deciding how much to charge customers. First, a financial institution may adopt a “breakeven standard,” charging a fee needed to offset losses for written off overdrawn account balances and direct costs traceable to the provision of courtesy overdrafts. Second, a financial institution may employ a “benchmark fee,” of either $3, $6, $7, or $14, derived by the CFPB from analyzing charge-off losses and cost data. Comments to the rule must be received on or before April 1, 2024. In addition, the proposal would prohibit requiring the customer to use preauthorized electronic fund transfers for repayment of covered overdraft fees by these institutions. The final overdraft rule is expected to go into effect on October 1, 2025.

    Agency Rule-Making & Guidance CFPB Junk Fees TILA Regulation E Regulation Z

  • Fed’s OIG report on CFPB says training improvements needed to meet enforcement goals

    Federal Issues

    Recently, the Office of Inspector General of the Federal Reserve Board released a report assessing the CFPB’s process for conducting enforcement investigations.  The report makes two key recommendations.  First, noting that the CFPB has not met its stated goal to file or settle 65 percent of its enforcement actions within two years, the OIG recommended that the CFPB Office of Enforcement incorporates the timing expectations for key steps in the enforcement process into the tracking and monitoring of matters. In addition, the Office of the Inspector General also recommended improvements to enforcement staff training on document maintenance and retention requirements for the CFPB’s matter management system. The report states that the recommendations were accepted by the CFPB, with a follow-up to ensure full implementation.

    Federal Issues OIG CFPB Enforcement

  • CFPB, seven State AGs file suit against debt-relief company

    Federal Issues

    On January 19, the CFPB and seven state attorneys general (Colorado, Delaware, Illinois, Minnesota, New York, North Carolina, and Wisconsin) announced a lawsuit against a debt-relief company, its subsidiaries, and its two individual owners (defendants) for allegedly facilitating an unlawful debt relief service. According to the complaint, the company used third parties to solicit consumers with large debts and direct them to contact defendants. The company then, allegedly, advised consumers to enroll in their debt-relief service that will negotiate reduced payoff amounts with consumers’ creditors and represent consumers. Additionally, individual defendants implicated in the action created law firms paired with one of the company’s subsidiaries, which performed little to no work on behalf of consumers, while non-attorney negotiators from the company were tasked with renegotiating a consumer’s debt. The CFPB and the AGs alleged that the company charges fees ($84 million since 2016) before and during the service, that left consumers with additional debt, lower credit scores, lawsuits with creditors, and had none of their original debts settled or reduced.

    Among other things, the CFPB claimed the company violated the Telemarketing Sales Rule (TSR) by (i) charging advance fees before a consumer has made at least one payment under a debt settlement plan; (ii) collecting fees after settling some of a consumer’s debts when the fees are not proportional to the amount of debt defendant successfully settled or based on a fixed percentage of the amount saved; and, (iii) supporting its subsidiary law firms that the company knew or knowingly avoided knowing engaged in abusive acts or practices. The complaint sought permanent and preliminary injunctive relief, redress for consumers, and a civil money penalty. On January 11, the court granted the Bureau’s request for a temporary restraining order.

    Federal Issues CFPB State Attorney General Colorado Delaware Illinois Minnesota New York North Carolina Wisconsin Debt Relief

  • District Court denies motion to dismiss State Attorneys’ General case against “subprime lender”

    Courts

    On January 12, the U.S. District Court for the Eastern District of Pennsylvania denied a defendant’s motion to dismiss a case brought by five State Attorneys General (State AGs) from Pennsylvania, New Jersey, Oregon, Washington, and D.C. seeking to enforce the CFPA. The State AGs allege the defendant engaged in “predatory lending practices” that violate state and federal law. As covered by InfoBytes, in Spring 2022, the CFPB issued an interpretive rule clarifying that states have the authority to enforce federal financial consumer protection laws, such as the CFPA. This interpretive rule led to partisan attacks claiming the CFPB was “colluding” with state regulators, as covered by InfoBytes here.

    The defendant is a state-licensed and regulated “subprime installment lender” operating in 28 states. As noted in the opinion, the defendant offers loans between $1,000 and $25,000, with terms between 12 and 60 months and charges interest at rates ranging from 18.99% to 35.99% with an average APR of 28%, and average loan size of around $3,650.

    In addition to the complaint regarding subprime loans, the State AGs assert that the defendant “deceptively ‘adds-on’” various insurance options to consumers’ loans and targets a financially vulnerable population: those with a credit score of 629 or less who “often already have significant… debt[.]”. The State AGs seek injunctive and other relief. 

    Courts Pennsylvania CFPB CFPA State Attorney General New Jersey Washington Oregon District of Columbia

  • CFPB issues two opinions that stress FCRA compliance for consumer reporting companies

    Agency Rule-Making & Guidance

    On January 11, the CFPB issued two advisory opinions to consumer reporting companies, reminding them of FCRA obligations. The first advisory opinion addresses background screening companies and inaccuracies that appear on consumer reports. The CFPB highlights how some consumer reporting companies will use a disposition date to start the seven-year reporting period for records of arrests and other non-conviction record information, instead of “date of entry,” resulting in consumer reports including older information than FCRA permits.

    Consumer reporting companies must begin the seven-year time limit for criminal charges from the time of the original charge if a person is found not guilty. The CFPB added that inaccurate consumer reports can impact consumer access to employment and housing, and they require consumers to engage in a lengthy process to correct inaccuracies. This advisory opinion underscores that consumer reporting agencies must employ reasonable procedures to ensure accurate reporting, in line with FCRA obligations. Additionally, when reporting public record information, companies should avoid duplicative or legally restricted data and include disposition information for arrests, charges, or court filings.

    The second advisory opinion addresses file disclosure obligations under the FCRA and clarifies that consumers can trigger a consumer reporting agency’s file disclosure requirement without using specific language like “complete file.” The opinion further confirms that consumer reporting companies must disclose both the original source and all intermediary or vendor sources that have furnished information to the CRA. To meet FCRA standards, a file disclosure must be understandable to the average consumer, helping them identify inaccuracies, dispute incomplete or incorrect information, and understand the impact of adverse information. The FCRA requires consumer reporting companies to provide a disclosure reflecting the information given or potentially given to a user, including presenting criminal history information in the format seen by users, enabling consumers to check for inaccuracies and dispute any errors.

    The CFPB interprets the requirement to disclose “all information in the consumer’s file,” to include information that formed the basis of any summarized information that a CRA provided to a user. The CFPB also warns that the FCRA stipulates that “‘any person who willfully fails to comply with any requirement imposed under this title with respect to any consumer is liable to that consumer in an amount equal to’ actual or statutory damages” up to $1,000 per violation, punitive damages as determined by the court, and associated costs and reasonable attorney's fees.

    Agency Rule-Making & Guidance Federal Issues CFPB Consumer Reporting

  • States endorse the CFPB’s rule to regulate fintechs

    Federal Issues

    Recently, 19 state attorneys general submitted a comment letter supporting the CFPB’s proposed rule that would expand the CFPB’s supervisory authority to regulate nonbank fintech firms that offer digital payment services. They emphasized the importance of regulating nonbank financial institutions, including popular digital payment applications. The proposed rule aims to protect consumers from fraud, unregulated investment risks, and data privacy concerns. It addresses issues such as the lack of FDIC insurance for funds stored in digital payment applications, customer service problems, and potential risks associated with investment activities. The state attorneys general commend the CFPB for exercising its authority to improve the regulation of consumer financial products and urge prompt publication and implementation of the final rule.

    Fintech State Attorney General Comment Letter CFPB

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