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  • CFPB settles with auto servicer over deceptive practices

    Federal Issues

    On October 13, the CFPB announced a settlement with the Texas-based auto-financing subsidiary of a Japanese automobile manufacturer to resolve allegations that the servicer violated the Consumer Financial Protection Act by engaging in illegal repossession and collection practices. The CFPB alleged that the servicer engaged in unfair and deceptive practices by (i) wrongfully repossessing vehicles even though customers made payments to decrease their delinquency to less than 60 days past due or kept a promise to pay; (ii) limiting the ability of borrowers who pay over the phone to select payment options with significantly lower fees; (iii) making false statements in loan extension agreements, which “created the net impression that consumers could not file for bankruptcy”; and (iv) knowing its repossession agents were charging customers upfront storage fees before returning personal property left inside repossessed cars.

    Under the terms of the consent order, the servicer must pay a $4 million civil money penalty, as well as up to $1 million in consumer redress. The servicer must also credit any outstanding fees stemming from the repossession and pay consumers redress for each day it wrongfully held their vehicles. The servicer is also ordered to, among other things, (i) cease using language that creates the impression that customers may not file for bankruptcy; (ii) conduct a quarterly review to identify and remediate any future wrongful repossessions; (iii) adopt policies and procedures to correct its repossession practices; (iv) prohibit its repossession agents from charging fees to get personal property returned; and (v) clearly disclose phone payment fees to consumers.

    Federal Issues CFPB Enforcement CFPA UDAAP Deceptive Unfair

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  • Senate Democrats question CFPB’s lack of restitution in VA ad settlements

    Federal Issues

    On October 1, sixteen Democratic Senators sent a letter to CFPB Director Kathy Kraninger, expressing concern over the Bureau’s failure to obtain restitution in eight recent settlements with mortgage lenders for allegedly mailing consumers advertisements for Department of Veterans Affairs (VA) mortgages that contained misleading statements or lacked required disclosures (covered by InfoBytes here). The letter states that while the Bureau collected approximately $2.8 million in civil penalties over the eight settlements, it did not require any company to pay restitution to harmed consumers. The letter argues that the failure to obtain restitution in these matters was a departure from the Bureau’s practice in previous cases where it obtained restitution for consumers who enrolled in a service connected to allegedly deceptive advertising. The letter notes that, if the Bureau was not able to determine a restitution amount based on the “millions of advertisements” that were sent, it had the authority to seek disgorgement as a remedy. The letter requests the Bureau elaborate on, among other things, its decision not to seek restitution for consumers in the cited actions and to provide information about the standard the Bureau uses to determine when to provide restitution.

    Federal Issues U.S. Senate Mortgages CFPB Department of Veterans Affairs UDAAP

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  • CFPB settles with auto lender on unfair LDW practices

    Federal Issues

    On September 21, the CFPB announced a settlement with a California-based auto-loan servicer to resolve allegations that the company engaged in unfair practices with respect to its Loss Damage Waiver (LDW) product, in violation of the Consumer Financial Protection Act. The CFPB alleged that the company engaged in unfair practices by charging certain borrowers for LDW coverage, but then failed to provide the coverage. Specifically, the LDW agreement allowed the company to suspend coverage if borrowers became 10-days delinquent on their auto loans. The company, however, continued to charge borrowers LDW premiums even though coverage was no longer being provided. The Bureau also alleged that the company assessed LDW claim-related fees that were not disclosed in the LDW contract, which the borrowers were not contractually obligated to pay.

    Under the terms of the consent order, the company is required to pay more than $1.3 million in consumer redress to approximately 4,000 impacted consumers, as well as a $100,000 civil money penalty. The order also prohibits the company from “failing to provide consumers with LDW coverage, collateral protection insurance, or similar products or services for which [the company] has charged consumers” or from “charging consumers fees that are not authorized by its LDW contracts.”

    Federal Issues CFPB Enforcement Auto Finance Unfair UDAAP

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  • Joint settlement requires forgiveness on $330 million of student loans

    Federal Issues

    On September 15, the CFPB filed a complaint and proposed stipulated judgment against a trust, along with three banks acting in their capacity as trustees to the trust, for allegedly providing substantial assistance to a now defunct for-profit educational institution in engaging in unfair acts and practices in violation of the Consumer Financial Protection Act. The Bureau asserted that the trust owned and managed private loans for students attending the defunct institution, even though the trust “allegedly knew or was reckless in not knowing that many student borrowers did not understand the terms and conditions of those loans, could not afford them, or in some cases did not even know they had them.” The Bureau alleged that the defunct institution induced students to take out loans through several unfair practices, including “using aggressive tactics, and in some cases, gaining unauthorized access to student accounts to sign students up for loans without permission.” These loans, the Bureau contended, carried default rates well above what was expected for student loans. According to the Bureau, the trust was allegedly actively involved in the servicing, managing, and collection of these student loans.

    If approved by the court, the Bureau’s proposed settlement would require the trust to (i) cease collection efforts on all outstanding loans owned and managed by the trust; (ii) discharge all outstanding loans owned and managed by the trust; (iii) ask all consumer reporting agencies to delete information related to the trust’s loans; and (iv) notify all affected consumers of these actions. The Bureau estimated that the total amount of loan forgiveness is roughly $330 million.

    This settlement is the third reached by the Bureau in relation to the defunct institution’s private loan programs. In 2019, the defunct institution reached a settlement with the Bureau (covered by InfoBytes here), which required the payment of a $60 million judgment. Additionally, the Bureau entered into another settlement in 2019 with a different company that managed student loans for the defunct institution’s students, which required the loan management company to comply with similar requirements as the trust (covered by InfoBytes here).

    Also on September 15, attorneys general from 47 states plus the District of Columbia reached a national settlement with the trust.

    Federal Issues CFPB Enforcement State Attorney General State Issues Settlement UDAAP Unfair Student Lending

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  • CFPB settles with eighth lender on misleading VA advertising

    Federal Issues

    On September 14, the CFPB announced a settlement with an eighth mortgage lender for mailing consumers advertisements for Department of Veterans Affairs (VA) mortgages that allegedly contained misleading statements or lacked required disclosures. According to the Bureau, the lender offers and provides VA guaranteed mortgage loans, and allegedly sent false, misleading, and inaccurate direct-mail advertisements to servicemembers and veterans in violation of the CFPA, the Mortgage Acts and Practices – Advertising Rule (MAP Rule), and Regulation Z. Among other things, the Bureau alleged the advertisements (i) failed to include required disclosures; (ii) stated credit terms that the lenders were not actually prepared to offer; (iii) made “misrepresentations about the existence, nature, or amount of cash available to the consumer in connection with the mortgage credit product”; (iv) gave the false impression the lenders were affiliated with the government; and (v) used the name of the consumer’s current lender in a misleading way.

    The settlement imposes a civil money penalty of $625,000 and bans the lender from future advertising misrepresentations similar to those identified by the Bureau. Additionally, the settlement requires the lender to use a compliance official to review mortgage advertisements for compliance with consumer protection laws.

    The latest enforcement action is part of the Bureau’s “sweep of investigations” related to deceptive VA-mortgage advertisements. Previously, the Bureau issued consent orders against seven other mortgage lenders for similar violations, covered by InfoBytes herehere and here.

    Federal Issues CFPB Mortgages Department of Veterans Affairs Mortgage Lenders CFPA UDAAP MAP Rule Regulation Z

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  • Court approves additional settlements in CFPB student debt relief action

    Courts

    On September 8, the U.S. District Court for the Central District of California entered a stipulated final judgment against two additional defendants in an action brought by the CFPB, the Minnesota and North Carolina attorneys general, and the Los Angeles City Attorney alleging a student loan debt relief operation deceived thousands of student-loan borrowers and charged more than $71 million in unlawful advance fees. As previously covered by InfoBytes, the complaint alleged that the defendants violated the Consumer Financial Protection Act, the Telemarketing Sales Rule, and various state laws by charging and collecting improper advance fees from student loan borrowers prior to providing assistance and receiving payments on the adjusted loans. Four defendants settled in August, with a total suspended judgment of over $95 million due to the defendants’ inability to pay and total payments of $90,000 to Minnesota, North Carolina, and California, and $1 each to the CFPB, in civil money penalties.

    The new final judgment holds the two relief defendants liable for nearly $7 million in redress; however, the judgment is suspended based on an inability to pay. The defendants are not subject to any civil money penalties, but are required to relinquish certain assets and submit to certain reporting requirements.

    Courts CFPB Student Lending State Attorney General CFPA Telemarketing Sales Rule UDAAP Debt Relief

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  • Special Alert: California’s new consumer financial protection law expands UDAAP and enforcement authority

    State Issues

    On Monday, August 31, the California Legislature passed Assembly Bill 1864, which enacts the California Consumer Financial Protection Law (CCFPL) and changes the name of the Department of Business Oversight (DBO) to the Department of Financial Protection and Innovation (DFPI).

    Key takeaways

    • Establishes UDAAP authority for the new DFPI, adding “abusive” to “unfair or deceptive” acts or practices prohibited by California law, and authorizing remedies similar to those provided in the Dodd-Frank Act. The DFPI also has authority to define UDAAPs in connection with the offering or provision of commercial financing (e.g., merchant cash advance, lease financing, factoring) and other financial products or services to small business recipients, nonprofits, and family farms.

    State Issues State Legislation CDBO UDAAP Consumer Finance Consumer Protection Special Alerts Merchant Cash Advance

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  • CFPB settles with three more lenders on misleading VA advertising

    Federal Issues

    Recently, the CFPB announced settlements (see here, here, and here) with three mortgage lenders for mailing consumers advertisements for Department of Veterans Affairs (VA) mortgages that allegedly contained misleading statements or lacked required disclosures. According to the Bureau, the lenders offer and provide VA guaranteed mortgage loans, and allegedly sent false, misleading, and inaccurate direct-mail advertisements to service members and veterans in violation of the CFPA, the Mortgage Acts and Practices – Advertising Rule (MAP Rule), and Regulation Z. Among other things, the Bureau alleges the advertisements (i) failed to include required disclosures; (ii)  stated credit terms that the lenders were not actually prepared to offer; (iii) made “misrepresentations about the existence, nature, or amount of cash available to the consumer in connection with the mortgage credit product”; and (iv) gave the false impression the lenders were affiliated with the government. Two of the lenders also allegedly used the name of the consumer’s current lender in a misleading way, and misrepresented that consumers would receive specific escrow refund amounts if they refinanced their mortgages, even though the advertised amounts “were calculated using a methodology that had no bearing on the actual escrow refund amount,” and consumers were often required to fund new escrow accounts upon generating new loans.

    In addition, one of the lender’s advertisements represented to consumers that they could “‘[s]kip two payments’ or ‘miss’ two payments by refinancing with the company,” but failed to disclose, among other things, that the skipped or missed payments would be added to the loan’s principal balance.

    The consent orders (see here, here and here) impose bans on future advertising misrepresentations similar to those identified by the Bureau, require the lenders to use a compliance official to review mortgage advertisements for compliance with consumer protection laws, and require compliance with certain enhanced disclosure requirements. The Bureau further imposes civil penalties of $225,000, $50,000, and $230,000 respectively against the lenders.

    The latest enforcement actions are part of the Bureau’s “sweep of investigations” related to deceptive VA-mortgage advertisements. In August and July, the Bureau issued consent orders against four other mortgage lenders for similar violations, covered by InfoBytes here and here.

     

    Federal Issues CFPB Enforcement Mortgages Department of Veterans Affairs Mortgage Broker Mortgage Lenders CFPA UDAAP MAP Rule Regulation Z

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  • Court approves settlements in CFPB student debt relief action

    Courts

    On August 26 and 28, the U.S. District Court for the Central District of California entered two final judgments (see here and here) against four of the defendants in an action brought by the CFPB, the Minnesota and North Carolina attorneys general, and the Los Angeles City Attorney alleging a student loan debt relief operation deceived thousands of student-loan borrowers and charged more than $71 million in unlawful advance fees. As previously covered by InfoBytes, the complaint alleged that the defendants violated the Consumer Financial Protection Act, the Telemarketing Sales Rule, and various state laws by charging and collecting improper advance fees from student loan borrowers prior to providing assistance and receiving payments on the adjusted loans. In addition, the complaint asserts the defendants engaged in deceptive practices by misrepresenting (i) the purpose and application of fees they charged; (ii) their ability to obtain loan forgiveness; and (iii) their ability to actually lower borrowers’ monthly payments.

    The finalized settlements suspend a total judgment of over $95 million due to the defendants’ inability to pay, and requires the two defendants who settled on August 26, to pay a total of $75,000 to Minnesota, North Carolina, and California, and $1 each to the CFPB, in civil money penalties, and the two defendants who settled on August 28, to pay a total of $15,000 to the respective states and $1 to the CFPB in civil money penalties. In addition to the monetary penalties, the defendants are required to relinquish certain assets and submit to certain reporting and recordkeeping requirements. All four defendants neither admit nor deny the allegations, as part of the settlements.

    Courts CFPB Student Lending State Attorney General CFPA Telemarketing Sales Rule UDAAP Debt Relief

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  • CFPB settles with two mortgage companies over misleading VA loan advertisements

    Federal Issues

    On August 26, the CFPB announced a settlement with a mortgage company to resolve allegations that the company, which is licensed as a mortgage broker or lender in approximately 11 states, sent false, misleading, and inaccurate direct-mail advertisements to servicemembers and veterans for its VA-guaranteed loans in violation of the CFPA, Mortgage Acts and Practices – Advertising Rule (MAP Rule), and Regulation Z. According to the Bureau, among other things, the mortgage company (i) advertised credit terms that the lenders were not actually prepared to offer; (ii) failed to clearly and conspicuously disclose payment terms; (iii) made numerous “misrepresentations about the existence, nature, or amount of cash available to the consumer in connection with the mortgage credit product”; and (iv) misrepresented the consumer’s repayment obligations by failing to state the amount of each payment that would apply over the term of the loan or failing to clearly and conspicuously state that actual payment obligations would be greater. In addition to a $260,000 civil money penalty, the consent order requires the company to enhance its compliance functions, designate a compliance official to review mortgage advertisements for compliance with consumer protection laws, and comply with certain enhanced disclosure requirements. Additionally, the company is prohibited from making similar misrepresentations in the future.

    Earlier on August 21, the CFPB also announced a settlement with a mortgage company to resolve allegations that the company sent false, misleading, and inaccurate direct-mail advertisements to servicemembers and veterans for its VA-guaranteed loans in violation of the CFPA, Mortgage Acts and Practices – Advertising Rule (MAP Rule), and Regulation Z. According to the Bureau, among other things, the mortgage company (i) advertised credit terms that the lenders were not actually prepared to offer; (ii) described variable-rate loans as “fixed,” when in fact the rates were adjustable; (iii) falsely stated or implied that consumers with “FICO scores as low as 500” would qualify for advertised rates; and (iv) gave the false impression the lenders were affiliated with the government. In addition to a $150,000 civil money penalty, the consent order prohibits the company from making similar misrepresentations and requires the company to designate a compliance official to review mortgage advertisements for compliance with consumer protection laws.

    The latest enforcement actions are part of the Bureau’s “sweep of investigations” related to deceptive VA-mortgage advertisements. In July, the Bureau issued consent orders with two other mortgage lenders for similar violations, covered by InfoBytes here.

    Federal Issues CFPB Mortgages Department of Veterans Affairs Mortgage Broker Mortgage Lenders CFPA UDAAP MAP Rule Regulation Z Enforcement

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