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CFPB sues company for marketing of high-yield CDs
On July 6, the CFPB filed a complaint in the U.S. District Court for the Southern District of New York against a Delaware financial-services company operating in Florida and New York along with its owner (collectively, “defendants”) for allegedly violating the Consumer Financial Protection Act’s prohibition against deceptive acts or practices by making misleading marketing representations when advertising its high yield CD accounts. The Bureau's complaint alleges that since August 2019, the company took more than $15 million from at least 400 consumers. According to the complaint, the defendants engaged in four separate deceptive acts or practices by: (i) falsely representing that consumers’ deposits into the high yield CD accounts would be used to originate loans for healthcare professionals, when in fact, the company never used the deposits to originate loans for healthcare professionals, never sold a loan to a bank or secondary-market investor, and never entered into a contract with a buyer or investor to purchase a loan; (ii) concealing the company’s true business model by falsely representing that the consumers’ deposits, when not being used to originate healthcare loans, would be held in an FDIC- or Lloyd’s of London-insured account or a “cash alternative” or “cash equivalent” account, when in reality, consumers’ deposits were, among other things, invested in securities; (iii) falsely describing the company as a commercial bank and claiming their high yield CD accounts were comparable to a traditional savings accounts with a guaranteed return, when in fact, the company was not a commercial bank, and consumers’ deposits were actively traded in the stock market or used in securities-backed investments; and (iv) falsely representing that past high yield CD accounts allegedly paid interest at rates between 5 percent and 6.25 percent prior to 2019; however, the company did not offer CDs until August 2019, and “consumers’ principals was neither guaranteed nor insured.” Among other things, the Bureau seeks monetary relief, consumer redress, injunctive relief, and a civil money penalty.
OCC issues new UDAP/UDAAP Comptroller’s Handbook booklet
On June 29, the OCC issued a new Comptroller’s Handbook booklet, “Unfair or Deceptive Acts or Practices and Unfair, Deceptive, or Abusive Acts or Practices,” which covers details for examiners regarding UDAP violations under Section 5 of the FTC Act and UDAAP violations under sections 1031 and 1036 of the Dodd-Frank Act. The booklet includes, among other things, examination procedures for assessing the effectiveness of a bank’s compliance management systems in identifying and managing UDAP and UDAAP risks and red flags that examiners can use to identify acts or practices that may raise UDAP or UDAAP concerns. Specifically, Appendix A includes a detailed list of nine red flags that examiners can use to identify potential areas with higher risks, including items such as (i) customer complaints received by the OCC or the bank; (ii) whistleblower referrals; (iii) higher than average fee incomes; (iv) weak servicing and collection practices; and (v) inadequate oversight over incentive compensation programs. Additionally, Appendix B includes risk indicator charts for examiners to use when assessing the quantity and quality of a bank’s risk management for UDAP and UDAAP.
CFPB settles with contract for deed companies on credit reporting violations
On June 23, the CFPB announced a settlement with several contract for deed companies to resolve allegations that the defendants violated the FCRA and its implementing Regulation V, as well as the Consumer Financial Protection Act, by, among other things, misrepresenting to consumers the necessary steps to resolve consumer-reporting complaints. Specifically, the CFPB’s investigation revealed that the defendants allegedly told consumers who complained about errors on their consumer reports that they had to file a dispute with the consumer reporting agency, even though Regulation V requires furnishers to investigate written disputes and contact the applicable consumer reporting agency to resolve any errors. According to the CFPB, this was inaccurate as a matter of law and a deceptive practice. In addition, the CFPB claimed that one defendant failed to implement policies and procedures required by Regulation V to protect the accuracy and integrity of furnished consumer information.
Under the terms of the consent order, the defendants will collectively pay a total of $35,000 in civil money penalties and have agreed not to “misrepresent or assist others in misrepresenting, expressly or impliedly, how consumers can initiate disputes concerning their consumer reports.”
Court rejects dismissal of CFPB claims against foreclosure relief services company
On May 20, the U.S. District Court for the Central District of California denied a foreclosure relief services company and its owner’s (collectively, “defendants”) motion to dismiss an action by the CFPB accusing the defendants of violating the Consumer Financial Protection Act (CFPA) and Regulation O. As previously covered by InfoBytes, in September 2019, the CFPB filed a complaint against the defendants, alleging that since 2014 the defendants made deceptive and unsubstantiated representations about the efficacy and material aspects of its mortgage assistance relief services, and made misleading or false claims about the experience and qualifications of its employees. The Bureau alleged that the defendants’ representations constituted abusive acts and practices because, among other things, consumers “generally did not understand and were not in a position to evaluate the accuracy of [the defendants’] marketing representations or the quality of the mortgage-assistance-relief services that [the defendants] sold.” Moreover, the Bureau claimed the defendants further violated Regulation O by charging consumers advance fees before rendering services. The defendants moved to dismiss the action.
The district court rejected all of the defendants’ arguments, concluding that the Bureau “as an organization and its establishment” are constitutionally permissible, and therefore, can bring enforcement actions against the company. The court also held that the Bureau adequately pleaded that the defendants’ were covered by the CFPA and Regulation O, as providers of “[a]udit and litigation documents to consumers, which Defendants claim will prevent foreclosure or modify the terms of [consumers] mortgage[s].” And lastly, the court held that the Bureau sufficiently alleged that the defendants took “unreasonable advantage of the consumer’s lack of understanding” of the material terms of the product they were selling.
CFPB reaches $18 million settlement in credit-report scheme
On May 14, the CFPB filed a proposed stipulated final judgment and order in the U.S. District Court for the Central District of California against a mortgage lender and several related individuals and companies (collectively, “defendants”) for alleged violations of the Consumer Financial Protection Act (CFPA), Telemarketing Sales Rule (TSR), and Fair Credit Reporting Act (FCRA). As previously covered by InfoBytes, the CFPB filed a complaint in January claiming the defendants violated the FCRA by, among other things, illegally obtaining consumer reports from a credit reporting agency for millions of consumers with student loans by representing that the reports would be used to “make firm offers of credit for mortgage loans” and to market mortgage products, but instead, the defendants allegedly resold or provided the reports to companies engaged in marketing student loan debt relief services. The defendants also allegedly violated the TSR by charging and collecting advance fees for their debt relief services. The CFPB further alleged that defendants violated the TSR and CFPA when they used telemarketing sales calls and direct mail to encourage consumers to consolidate their loans, and falsely represented that consolidation could lower student loan interest rates, improve borrowers’ credit scores, and change their servicer to the Department of Education.
If approved by the Court, the Bureau’s proposed settlement would (i) impose an $18 million redress judgment against the mortgage lender, of which all but $200,000 would be suspended due to the lender’s limited ability to pay; (ii) require one of the individuals and his company to disgorge $403,750 in profits to provide redress; (iii) impose a $406,150 judgement against a second individual and his company, which will be suspended due to the defendants’ inability to pay; (iv) impose a total $450,001 civil money penalty against the defendants; (v) permanently ban the defendants from the debt-relief industry and from using or obtaining prescreened consumer reports; and (vi) prohibit the defendants from on using or obtaining consumer reports for “any business purpose other than underwriting or otherwise evaluating mortgage loans.”
New York attorney general: CARES Act payments are exempt from setoff, garnishment
On April 21, New York Attorney General Letitia James issued guidance clarifying that New York law exempts emergency stimulus payments made under the CARES Act from garnishment. Additionally, although New York law may, in certain circumstances, permit a bank to seize funds in a consumer’s account to pay a debt owed to the bank, the Office of the Attorney General views such a setoff against a CARES Act payment as unfair and abusive. James warned that the Office of the Attorney General would aggressively pursue any creditor or debt collector that garnishes or exercises a right of setoff against a CARES Act payment in violation of New York law.
CFPB fines short-term lender $1.3 million for unfair and deceptive acts and practices
On April 1, the CFPB announced a $1.3 million settlement with a Texas-based short-term lender to resolve allegations that the lender violated the Consumer Financial Protection Act, FCRA, and TILA. The Bureau alleged that while “marketing, servicing, and collecting on high-interest payday, auto-title, and unsecured consumer-installment loans,” the lender made deceptive representations through advertisements and telemarketing calls when promoting purported loan discounts. The Bureau also alleged that the lender engaged in unfair collection call practices by allegedly calling consumers who failed to make payments numerous times—some more than 15 or 20 times a day—even after being asked to stop. In addition, the lender allegedly repeatedly called consumers’ workplaces and references as a tactic to obtain payments and disclosed, or risked disclosing, to third parties the existence of the delinquent debts. According to the Bureau, the lender also violated FCRA by failing to maintain adequate consumer reporting policies and procedures to ensure the “accuracy and integrity” of the information furnished to consumer reporting agencies, and violated TILA by failing to provide telemarketers guidance on how to lawfully disclose a loan’s annual percentage rate as required by federal law when responding to consumers’ questions about interest and other loan costs.
Under the terms of the consent order, the lender is required to pay a $1.1 million civil money penalty, $286,675 in consumer redress, and is, among other things, (i) permanently restrained from certain collection practices; (ii) required to ensure employees do not misrepresent discount offers when marketing or selling consumer financial products or services; and (iii) tasked with ensuring employees correctly disclose the APR of loan products.
CFPB sues regional bank for sales practices
On March 9, the CFPB filed a complaint in the U.S. District Court for the Northern District of Illinois against a regional bank for alleged violations of TILA, the Truth in Savings Act and the Consumer Financial Protection Act relating to the bank’s sales practices. According to the complaint, the bank had instituted a “cross-sell” sales strategy along with sales goals to increase sales to customers. The complaint alleges that, although the bank knew that sales employees “engag[ed] in misconduct in order to meet goals or earn additional compensation,” the bank purportedly “took insufficient steps to properly implement and monitor its program, detect and stop misconduct, and identify and remediate harmed consumers.” The complaint alleges two claims for “abusiveness” in violation of the CFPA, which are the first such allegations since the Bureau issued a policy statement in January regarding its “abusiveness” standard, covered in InfoBytes here. Among other things, the Bureau seeks injunctive relief, monetary relief, disgorgement, and a civil money penalty. After the complaint was filed, the regional bank issued a press release rejecting the charges in the CFPB’s complaint.
CFPB denies tribal lenders’ joint request to set aside CIDs
On February 18, the CFPB released a Decision and Order denying a joint request to set aside civil investigative demands (CIDs) issued in 2019 to four online installment lenders owned by a federally recognized Indian tribe, as well as a processing services company. The CIDs in dispute were issued to the petitioners last October and sought information “to determine whether lenders or associated individuals or entities have violated the Consumer Financial Protection Act’s (CFPA) prohibition on unfair, deceptive, and abusive acts and practices [(UDAAP)] by collecting amounts that consumers did not owe or by making false or misleading representations to consumers in the course of servicing loans and collecting debts.” As previously covered by InfoBytes, four of the petitioners were also part of a 2017 CFPB enforcement action, which alleged that the lenders’ practices violated UDAAP and the Truth in Lending Act. This action was voluntarily dismissed without prejudice in 2018 (covered by InfoBytes here).
According to the CFPB, the joint petition to set aside or modify the CIDs sets out five primary arguments: (i) the CFPB “lacks authority to investigate entities that are arms of a tribe”; (ii) the lenders cannot comply with the CIDs without violating a protective order issued by the Tribal Consumer Financial Services Regulatory Commission; (iii) “the CIDs lack a proper purpose”; (iv) “the CIDs are overly broad and unduly burdensome”; and (v) the CIDs should be withdrawn or stayed pending the U. S. Supreme Court’s ruling in Seila Law LLC v. CFPB about whether the structure of the CFPB is unconstitutional.
The CFPB’s denial of the petitioners’ request addresses each of the arguments. First, it rejects that it lacks authority to investigate “arms of a tribe” based on, among other things, a Ninth Circuit case holding that the CFPA applies to tribal businesses and numerous cases holding that tribes “do not enjoy sovereign immunity from lawsuits brought by the federal government.” Second, while noting the CFPB’s “utmost respect” for, and desire to coordinate with, state and tribal regulators, the agency is not required to coordinate with such regulators before carrying out its responsibility to investigate potential violations of federal consumer law. Third, with respect to whether the CIDs have a proper purpose, the CFPB asserts, among other things, that the dismissal of the earlier lawsuit does not preclude it from bringing future actions, and moreover, even if some of the requested information relates to potentially time-barred conduct, it does not undermine the overall validity. Fourth, concerning the petitioners’ claims that the CIDs are overbroad or unduly burdensome, the CFPB states that the petitioners did not meaningfully engage during the meet-and-confer-process and have not adequately specified or identified how or why the CIDs would be unduly burdensome. Finally, regarding the constitutional issue, the CFPB notes that it has consistently stated that “the administrative process set out in the [CFPB’s] statute and regulations for petitioning to modify or set aside a CID is not the proper forum for raising and adjudicating challenges to the constitutionality of the [CFPB’s] statute.” The CFPB directs the petitioners to comply with the CIDs within 30 days of the order.
Special Alert: Trailer bill would enact California Consumer Financial Protection Law
A trailer bill accompanying the governor’s proposed 2020-2021 state budget would expand the Department of Business Oversight’s (DBO) authority and enact the California Consumer Financial Protection Law (Law).
Specifically, the provisions outlined in the proposed Law would revamp and rename the state’s DBO, expand its authority to protect consumers from predatory practices, and foster the responsible development of new financial products. Under California’s Constitution, a trailer bill — which provides for an appropriation related to the budget bill — takes effect immediately after a simple majority vote and the governor’s signature.* * *
Click here to read the full special alert.
If you have any questions regarding the California Consumer Financial Protection Law or other related issues, please visit our Consumer Finance practice page or contact a Buckley attorney with whom you have worked in the past.