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CFPB settles with auto lender over unfair LDW practices
On May 21, the CFPB announced a settlement with a California-based auto-loan lender 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 illegally charging interest for late payments on its LDW product without customers’ knowledge. According to the consent order, if consumers had insufficient insurance coverage for their vehicles, the company would add the LDW product to their accounts. For these consumers, the cost of the LDW product was added to the principal of the loan, resulting in an increase to the total loan balance and the amortized loan payment. The company allegedly disclosed the increase in the consumer’s monthly payment as an LDW fee but failed to disclose to consumers that interest accrues on late payments of that fee. The Bureau alleged that the company’s practice of charging consumers interest for late LDW fee payments without their consent caused “substantial injury that was not reasonably avoidable or outweighed by any countervailing benefit to consumers or to competition.”
Under the terms of the consent order, the company is required to provide $565,813 of relief to 5,782 impacted consumers, as well as pay a $50,000 civil money penalty. The order also permanently enjoins the company from charging interest on LDW fees without “clearly and conspicuously disclosing the material terms and conditions to consumers.”
CFPB denies lending agency’s petition to set aside CID
On April 26, the CFPB denied a petition by a title lending company to set aside a civil investigative demand (CID) issued by the Bureau in February. The CID requested information from the company to determine, among other things, whether “consumer-lending companies or title-loan companies, in connection with the extension of credit, servicing of loans, processing of payments, or collection of debt, have made false or misleading representations” to consumers. On February 25, the company had petitioned the Bureau to set aside the CID, arguing, in part, that (i) the Bureau failed to provide the company “‘with fair notice as to the nature of the Bureau’s investigation,” as required under section 1052(c)(2) of the Consumer Financial Protection Act (CFPA); (ii) the CID did not enable the company to adequately assess “the relevance or the burdensomeness of the individual requests”; and (iii) part of the Bureau’s investigation related to the company’s sale of non-filing insurance (NFI), which is a particular concern “because NFI is a topic that appears to be completely outside of the Bureau’s authority,” as the CFPA does not authorize the Bureau to regulate the business of insurance.
The Bureau rejected the company’s request to set aside or modify the CID, finding that: (i) the Bureau notified the company that it is investigating conduct in connection with the extension of credit, servicing of loans, processing of payments, or collection of debt’ as potential violations of §§ 1031 and 1036 of the CFPA, the Truth in Lending Act, the Military Lending Act, as well as a prior consent order to which the company is still subject; (ii) the company’s defenses are premature at the investigative stage, even if they “could be raised in defense against the potential legal claims contemplated by the CID”; (iii) although the company complained about the purported “vagueness of the description of the subjects of the investigation” and “whether all of the potential violations applied to the [c]ompany or only a portion,” the Bureau is not required to identify the subject of law enforcement investigations in its CIDs; and (iv) the notification at issue is “far more specific” than the notification of purpose in a different matter referenced by the company, and “identifies the precise conduct under investigation while expressly noting the conduct was committed ‘in connection with the extension of credit, servicing of loans, processing of payments, or collection of debt.’”
CFPB action against debt settlement firm targets abusive acts
On April 13, the CFPB entered into a preliminary settlement with an online debt-settlement company for allegedly violating the CFPA’s prohibition on abusive acts or practices and failing to clearly and conspicuously disclose total cost under the Telemarketing Sales Rule. The complaint alleges that the company took “unreasonable advantage of consumers’ reasonable reliance that [it] would protect their interests in negotiating their debts” by failing to disclose its relationship to certain creditors and steering consumers into high-cost loans offered by affiliated lenders. The CFPB alleges that the company regularly prioritized creditors with which it had undisclosed relationships in settlements of consumers’ debts. Under the terms of the proposed stipulated final judgment and order, the CFPB is seeking restitution, damages, disgorgement, and civil money penalties.
In the Bureau’s announcement, acting Director David Uejio states that “[t]he CFPB will not tolerate companies that purport to represent consumers, but instead abuse their trust in a self-dealing scheme. This case provides a clear example of what Congress intended to prohibit when it created the CFPB and gave it authority to prevent abusive practices.”
CFPB settles with California-based company for debt collection violations
On April 6, the CFPB announced a consent order against a California-based debt collector and its former owner for allegedly harassing consumers and threatening to take legal action if they did not pay their debts. According to the CFPB, the respondents violated the FDCPA and the CFPA’s prohibition against deceptive acts or practices by mailing letters to consumers printed with “Litigation Notice” that threatened recipients with legal action if they did not repay their debts. However, the Bureau stated that the respondents did not file lawsuits against the consumers, nor did they hire law firms or lawyers to obtain any judgments or collect on any such judgments. Under the terms of the consent order, the respondents are permanently banned from the debt collection industry and are ordered to pay $860,000 in redress to its victims, which has been suspended due to an inability to pay, as well as a $2,200 civil money penalty. This is the CFPB’s latest action taken against debt collectors that have used false threats to collect debts. As previously covered in InfoBytes, in 2019 the CFPB and New York attorney general announced proposed settlements with a network of New York-based debt collectors to resolve allegations that the defendants engaged in improper debt collection tactics in violation of the CFPA, the FDCPA, and various New York laws. Also, in 2018, the CFPB announced a settlement with a Kansas-based company and its former CEO and part-owner that allegedly engaged in improper debt collection tactics in violation of the CFPB’s prohibitions on engaging in unfair, deceptive, or abusive acts or practices (covered by InfoBytes here).
CFPB declines to stay $51 million order for online payday lender
On March 9, the CFPB denied a request made by a Delaware online payday lender and its CEO (collectively, “respondents”) to stay a January 2021 final decision and order requiring the payment of approximately $51 million in restitution and civil money penalties, pending appellate review. As previously covered by InfoBytes, in 2015, the Bureau filed a notice of charges alleging the respondents (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. Former Director Kathy Kraninger issued the final decision and order in January, affirming an administrative law judge’s recommendation that the respondents’ actions violated TILA, EFTA, and the CFPA’s prohibition on unfair or deceptive acts or practices by, among other things, deceiving consumers about the costs of their online short-term loans.
The Bureau’s March 9 administrative order determined that respondents (i) failed to show they have a substantial case on the merits with respect to their argument regarding ratification as an appropriate remedy for the respondents’ alleged constitutional violation; (ii) failed to show they “suffered irreparable harm” because the Bureau’s final decision does not infringe on the respondents’ constitutional rights and merely requires them to pay money into an escrow account; and (iii) failed to demonstrate that staying the final decision would not harm other parties and the public interest because the respondents might “dissipate assets during the pendency of further proceedings,” potentially impacting future consumer redress. The administrative order, however, granted a 30-day stay to allow respondents to seek a stay from the U.S. Court of Appeals for the Tenth Circuit.
CFPB rescinds abusiveness policy statement
On March 11, the CFPB announced it has rescinded its January 2020 policy statement, which addressed prohibitions on abusive acts or practices. As previously covered by InfoBytes, the Bureau issued the policy statement to provide a “common-sense framework” for how it planned to apply the “abusiveness” standard in supervision and enforcement matters as authorized under Dodd-Frank. Under the 2020 policy statement, the Bureau stated it would only cite or challenge conduct as abusive if the agency “concludes that the harms to consumers from the conduct outweigh its benefits to consumers.” The Bureau also stated it would generally avoid challenging conduct as abusive if it relies on all, or nearly all, of the same facts alleged to be unfair or deceptive, and that it would decline to seek civil money penalties and disgorgement for certain abusive acts or practices, absent unusual circumstances.
The Bureau now states that it is rescinding the 2020 policy statement after reaching the conclusion that the principles set forth do not actually provide clarity to regulated entities. Among other things, the Bureau notes that the 2020 policy statement is counterproductive, “afford[s] the Bureau considerable discretion in its application,” and adds uncertainty to market participants. Moreover, the Bureau claims that after reviewing and applying the 2020 policy statement, it has had “the opposite effect on preventing harm.” Going forward, the Bureau states it intends to “exercise the full scope of its supervisory and enforcement authority to identify and remediate abusive acts and practices” as established by Congress.
CFPB sues payment processor for fraudulent practices
On March 3, the CFPB filed a complaint against an Illinois-based third-party payment processor and its founder and former CEO (collectively, “defendants”) for allegedly engaging in unfair practices in violation of the CFPA and deceptive telemarketing practices in violation of the Telemarketing Sales Rule. According to the complaint, the defendants knowingly processed remotely created check (RCC) payments totaling millions of dollars for over 100 merchant-clients claiming to offer technical-support services and products, but that actually deceived consumers—mostly older Americans—into purchasing expensive and unnecessary antivirus software or services. The tech-support clients allegedly used telemarketing to sell their products and services and received payment through RCCs, the Bureau stated, noting that the defendants continued to process the clients’ RCC payments despite being “aware of nearly a thousand consumer complaints” about the tech-support clients. According to the Bureau, roughly 25 percent of the complaints specifically alleged that the transactions were fraudulent or unauthorized. The Bureau noted that the defendants also responded to inquiries from police departments across the country concerning consumer complaints about being defrauded by the defendants. Further, the Bureau cited high return rates experienced by the tech-support clients, including an average unauthorized return rate of 14 percent—a “subset of the overall return rate where the reason for the return provided by the consumer is that the transaction was unauthorized.” The Bureau is seeking an injunction, as well as damages, redress, disgorgement, and civil money penalties.
DFPI requests comment on CCFPL regulations
On February 4, the California Department of Financial Protection and Innovation (DFPI) released an Invitation for Comments on a proposed rulemaking to implement the California Consumer Financial Protection Law (CCFPL). As previously covered by InfoBytes, in September 2020, the governor signed AB 1864, which enacts the CCFPL and established the DFPI name change from the Department of Business Oversight. The CCFPL authorizes DFPI to establish rules relating to the covered persons, service providers, and consumer financial products or services outlined in the law. The invitation for comments describes specific topics for stakeholder consideration when providing comments, but DFPI notes that commenters may provide feedback on “any potential area for rulemaking.” Highlights of the topics for comment include:
- Exemptions. Whether or not DFPI should clarify the scope of the entities exempt from CCFPL.
- Registration Requirements. What industries should be required to first register with DFPI and what rules should be established to facilitate industry oversight, including records and reporting requirements.
- Complaint Handling. What requirements DFPI should establish with regard to timely responses to consumer complaints and inquiries, including timelines and substance of response.
- Consumer UUDAAP. Description of acts or practices that stakeholders believe qualify as “unlawful, unfair, deceptive, or abusive” in consumer transactions, including suggested “requirements DFPI should adopt to prevent the act or practice.”
- Commercial UDAAP and Data Collection. Description of acts or practices that stakeholders believe qualify as unfair, deceptive, and abusive in the commercial space, and whether or not DFPI should define specific acts or practices as unfair, deceptive, or abusive. Additionally, whether or not DFPI should require the collection and reporting of commercial financing data.
- Disclosures. Whether or not DFPI should prescribe rules covering the features of consumer financing disclosures and if so, what the requirements should cover.
- California Credit Cost Limitations. Whether or not DFPI should clarify the applicability of state credit cost limitations, including rate and fee caps, to consumer financial products and services.
Comments must be submitted by March 8.
CFPB obtains $15 million judgment against student financial aid operation
On January 21, the U.S. District Court for the Southern District of California issued an order granting in part and denying in part the CFPB’s motion for partial summary judgment and granting the agency’s motion for default judgment in a 2015 case against a now defunct California-based student financial aid operation and its owner (defendants). As previously covered by InfoBytes, the defendants allegedly engaged in deceptive practices when they, among other things, represented that by paying a fee and sending in an application, consumers were applying for financial aid or the defendants would apply for aid on behalf the students. However, according to the Bureau, the consumers did not receive the promised services in exchange for their payment. The case was stayed in 2016 while the owner defendant faced a pending criminal investigation, until the court lifted the stay in 2019 after finding the possibility of the civil proceedings affecting the owner defendant’s ability to defend himself in the criminal proceeding “speculative and unripe.”
In issuing the order, the court determined, among other things, that the Bureau had established the owner defendant’s liability for deceptive practices under the CFPA, rejecting the owner defendant’s argument that booklets sent to consumers did not qualify as a “consumer financial product or service” within the scope of the Bureau’s enforcement authority. The court further ruled that the owner defendant had made material representations to consumers that were “likely to mislead” them into thinking, among other things, that they would receive individually tailored products, when in reality their individual information never mattered and no specific financial aid advice was ever provided. However, the court denied the CFPB’s motion for summary judgment with respect to solicitation packets sent by the defendants in 2016, ruling that an included FAQ creates “a genuine issue of disputed fact as to whether the 2016 solicitation packets misrepresented that [the company’s] program permitted consumers to apply for financial aid or to apply through [the company].”
The order requires the defendants to pay a $10 million civil money penalty and more than $4.7 million in restitution. The court will also issue an injunction to prevent the defendants “from committing any future fraud” once the Bureau submits a proposed order. Additionally, default judgment was entered against the defendants on the merits of the Bureau’s claims, which included allegations that the defendants failed to provide privacy notices to consumers as required by Regulation P.
CFPB denies guaranty agency’s petition to set aside CID
On December 16, the CFPB denied a petition by a non-profit guaranty agency that serves as a guarantor of federal student loans to set aside a civil investigative demand (CID) issued by the Bureau last September. The CID requested information from the company to determine, among other things, whether “debt collectors, guaranty agencies, or associated persons” violated the CFPA’s UDAAP provisions by improperly causing borrowers to incur costs or fees in connection with the collection of student loans. The company petitioned the Bureau to set aside the CID. Among other things, the company argued that the Bureau lacked jurisdiction, because it does not provide a consumer financial product or service, but rather a commercial service to the Department of Education (Department). The company also argued that the Bureau lacked jurisdiction due to the company’s fiduciary relationship with the Department, citing a Memorandum of Understanding (MOU) between the Bureau and the Department related to their respective responsibilities for handling student borrower complaints. Additionally, the company claimed that any potential allegations are time-barred, and that, in the alternative, the CID should be stayed until the U.S. District Court for the District of Columbia issues a decision in a pending lawsuit challenging the validity of the Department’s Guaranty Agency Collections Fee Rule.
The Bureau rejected the company’s request to set aside or modify the CID, finding that (i) it has a “reasonable basis to investigate” whether guaranty agencies, like the company, fall within its jurisdiction; (ii) the CID is proper because it seeks information “relevant to a violation” of consumer financial protection laws, as well as information related to the company’s relationships with private collection agencies and loan servicers; (iii) the Bureau’s MOU with the Department has “no relevance” to the Bureau’s exercise of its investigative or enforcement authority; (iv) its investigation is not time-barred because the CFPA’s statute of limitations begins to run upon the Bureau’s discovery of the violation, and, moreover, the Bureau is not limited to gathering information from only within the limitations period; and (v) the company “fail[ed] to establish any basis for an indefinite stay of the CID.”