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  • Banking associations petition District Court for summary judgment against CFPB’s Final Rule on small business lending

    Courts

    On March 1, several banking associations (plaintiffs) petitioned a district court under a motion for summary judgment in an ongoing case against CFPB’s Final Rule in §1071, claiming that the Final Rule goes beyond the scope of the CFPB’s rulemaking authority. (For rule, see 88 Fed. Reg. 35150 from May 31, 2023). As previously covered by InfoBytes, the Court last ordered granting motions for a preliminary injunction against the CFPB and its small business loan rule. The rule expanded the number of data points to 81 so certain lenders––including women-owned, minority-owned, and small businesses––would be required to disclose to covered financial institutions. The plaintiffs argued that the Final Rule would be a “fruitless attempt to capture the complexity of small business lending” given the number of extraneous data fields and would not fulfill the underlying purpose of the rule set forth by ECOA. That purpose would be to “facilitate enforcement of fair lending laws and enable communities, government entities, and creditors to identify business and community development needs and opportunities for credit for women-owned, minority-owned, and small businesses.”

    In their argument, the banking associations alleged that the CFPB had exceeded its statutory authority by requiring the extra data disclosures, that the data would not provide any tangible benefit, and that implementation of the rule is arbitrary and capricious as it ignores the significant costs that will be incurred by requiring lenders to provide such a large amount of extra information. The plaintiffs emphasized that while Congress granted the CFPB the power to add data points to information a lender might be expected to disclose, the CFPB exceeded its authority in adopting the Final Rule and that its only consequence “will be the imposition of a staggering compliance burden on lenders” and ultimately reduce opportunities for small businesses.

    Courts CFPB Small Business Section 1071 ECOA Congress

  • CFPB releases consumer advisory for student borrowers notifying them of April deadline to cancel

    Federal Issues

    On March 11, the CFPB published a consumer advisory notifying student loan borrowers that they may have an opportunity to cancel or receive credits toward the cancellation of their student loans but some borrowers will need to consolidate their loans by April 30 in order to obtain the benefit. The Department of Education has implemented a “one-time adjustment” to help borrowers receive credit toward federal student loan cancellation. This adjustment is designed to enable the counting of more payments, including all payments made on federally managed loans since July 1, 1994, as well as certain periods of deferment, economic hardship, and forbearance. Generally, federal student loans are eligible for Income Driven Repayment (IDR) plans, which offer loan cancellation after 10, 20, or 25 years of qualifying payments, or after 10 years for those pursuing Public Service Loan Forgiveness (PSLF), provided other eligibility criteria are met. The Bureau also noted that consolidation is free, warning against scammers who would charge for that service.

     

    Federal Issues CFPB Consumer Finance Student Lending Department of Education Income-Driven Repayment

  • Business groups sue the CFPB over credit card late fee rule

    Courts

    On March 7, several business groups (plaintiffs) sued the CFPB rule in the U.S. District Court for the Northern District of Texas over its announced credit card late fee rule. As previously covered by InfoBytes, the Bureau’s new final rule limited most credit card late fees to $8, among other actions, and was met immediately with criticism from banks and legislators.

    The plaintiffs’ complaint claimed the CFPB completed the rule hastily to implement a pledge made by President Biden around his State of the Union Address to reduce credit card late fees by 75 percent. The complaint further asserted the CFPB skipped necessary steps, made economic miscalculations, and otherwise breached the Administrative Procedure Act. As alleged, the Bureau likely understated “the volatility of card issuers’ cost-to-fee ratios pertaining to late fees” and improperly relied on data which does not allow for the recovery of a “reasonable and proportional” penalty fee. On the Bureau’s use of the Y-14M data, the complaint alleged the new rule ignored peer-reviewed studies and instead opted to base the rule on an internal study using confidential data that was not available for examination during the period allocated for public comment. The plaintiffs argued the final rule would incur “substantial compliance costs” by amending printed disclosures, using the cost-analysis provisions, and notifying consumers of changes in interest rates to recoup costs, among other problems. The complaint also cited TILA’s effective-date provisions and the Bureau’s embattled funding structure to support the argument that the final rule would cause irreparable harm.

    Courts Federal Issues CFPB Litigation Credit Cards Agency Rule-Making & Guidance Fees Consumer Finance Consumer Protection

  • House Financial Services Committee holds a hearing to address the “moving target” of CFPB’s recent actions

    Federal Issues

    On March 7, the House Committee on Financial Services held a hearing entitled, “Politicized Financial Regulation and its Impact on Consumer Credit and Community Development” to discuss recent actions and proposals, like mandated fee caps and government price fixing, by federal financial regulatory agencies. During the hearing, Congressman Barr (R-KY) criticized recent regulatory actions by federal authorities, particularly the Biden Administration and the CFPB, which he saw as politically-motivated interventions in the financial sector. He expressed concern over the implementation of fee caps and price controls, like the CFPB’s new rule on credit card late fees (covered by InfoBytes here), which he believed could impact consumer access to credit and competition. Barr argued that these regulations served political interests rather than protecting consumers, dismissing the concept of "junk fees" as undefined and hypocritical as the CFPB charges fees itself. Barr also discussed the need for clear standards in enforcement actions under UDAAP to provide certainty to financial institutions and foster a more inclusive market. He criticized other regulatory proposals, such as the Community Reinvestment Act final rule and the new certification process for the Community Development Financial Institutions Fund, for potentially overreaching into the operations of financial institutions.

    Barr contended the timing of the CFPB's most recent rule announcement, which was close to President Biden's State of the Union address, alleged a political agenda rather than an independent regulatory action. A witness policy analyst also shared that using financial regulation for political gain can negatively impact consumer credit. The analyst addressed the CFPB’s recent actions against overdraft fees and cited a May 2023 CFPB report which noted that revenue from overdraft and insufficient fund fees in the fourth quarter of 2022 was $1.5 billion lower than in the fourth quarter of 2019 and that many banks have already adjusted their overdraft practices––making the Bureau’s proposals unwarranted. Witnesses also argued how smaller banks and credit unions do not boast the same revenue nor goals as some larger banks, and that regulations should not be a “one size fits all” model.

    Federal Issues Hearing House Financial Services Committee CFPB Federal Reserve Overdraft

  • CFPB publishes notice and requests comments on “Consumer Complaint Survey”

    Federal Issues

    On March 6, the CFPB published a notice and request for comment in the Federal Register, proposing two new surveys to investigate the factors influencing whether consumers file complaints regarding financial products and services.

    The initial pilot survey will target credit card users, comparing those who have lodged complaints with the CFPB to those who have not, to help identify the reasons behind their decision-making. This case-control study will aim to reveal key factors associated with the submission of regulatory complaints. Following the pilot, a second, broader survey will encompass a range of financial products, including mortgages, vehicle loans, bank accounts, and debts owed to third-party debt collectors. The surveys will gather data on consumers’ use of the products, the issues faced, their perceptions of the product and provider, and demographic details.

    The CFPB was seeking public comments on the necessity and utility of the information collection, the accuracy of its burden estimates, methods for enhancing the quality of the information, and ways to reduce the burden on respondents. Comments must be received by May 6.

    Federal Issues CFPB Federal Register

  • State of the Union Address: President Biden addresses the banking industry

    Federal Issues

    On March 7, President Biden delivered his 2024 State of the Union Address, where he highlighted how his administration is actively working to reduce costs for consumers by addressing issues such as corporate price gouging and alleged “junk fees.” According to a related White House Fact Sheet, the Biden Administration was focusing on corporate practices that may contribute to high prices, urging companies to lower their prices in line with decreasing input costs and stabilize supply chains.  Biden highlighted the CFPB’s proposed rule on overdraft fees and the final rule on credit card late fees as progress in reducing alleged “junk fees.”

    Furthermore, the fact sheet highlighted the CFPB’s scrutiny of alleged practices by branded retailers and airline credit cards of devaluing points and miles and luring in consumers with misleading deferred interest products.

    Federal Issues Junk Fees CFPB Biden White House Credit Cards Consumer Finance

  • CFPB blog post tackles mortgage closing costs, seeks consumer feedback

    Federal Issues

    On March 8, the CFPB published a blog post seeking consumer input on experiences with the closing process of consumer mortgages, and in particular, closing costs. The blog post posited that closing costs significantly impact a borrower’s financial commitment and, potentially, monthly payments and identified a “noticeable increase” in closing costs, with median total loan expenses on home purchase loans increasing by 21.8 percent between 2021 and 2022. In particular, the Bureau singled out title insurance fees and credit reporting fees. It labeled title insurance as a fee that borrowers are charged and for which they have no control over the cost, alleging that “the amount that borrowers pay for lender’s title insurance is often much greater than the risk.” With respect to credit reports, the Bureau remarked that the highly concentrated industry dictates the price of credit reports, citing anecdotal evidence of cost increases of 25 to 400 percent.

    The blog post also indicated that borrowers with smaller mortgages, including those with lower incomes, first-time homebuyers, and individuals residing in Black and Hispanic communities, are often disproportionately affected by closing costs, because they are typically fixed costs and do not change based on the size of the loan. The Bureau requested that consumers provide input on their experience with mortgage or closing costs, signaling that it will continue to analyze and if necessary “issue rules and guidance to improve competition, choice, and affordability.”

    Federal Issues CFPB Junk Fees Mortgages Mortgage Origination Title Insurance Discount Points Fees Credit Report Competition Consumer Finance

  • CFPB lowers most credit card late fees to $8, amending Regulation Z

    Federal Issues

    On March 5, the CFPB announced a final rule that will amend TILA Regulation Z and lower the typical credit card late fees from $30 to $8. According to the final rule, the CFPB determined that the Regulation Z §1026.52(b) $30 discretionary safe harbor for fees (for card issuers that together with their affiliates have at least one million open credit card accounts, i.e., “larger card issuers”) is too high, and therefore “are not consistent with TILA’s statutory requirement that such fees be reasonable [for a] violation.”

    For larger card issuers, the final rule will repeal the current safe harbor threshold amount and adopt a late fee safe harbor dollar amount of $8. It also will eliminate late fees for a higher safe harbor dollar amount for repeat violations that occur during the same billing cycle or in one of the next six billing cycles. Larger card issuers will still be able to charge fees above the safe harbor threshold for late fees if they can prove the higher fee is necessary to cover their actual collection costs.

    With respect to late fees imposed by larger card issuers, the provision on annual adjustments for the safe harbor dollar amounts (to reflect changes in the consumer price index) will not apply to the $8 safe harbor amount for those late fees. For card issuers that together with their affiliates have fewer than one million open credit card accounts for the entire preceding calendar year (“smaller card issuers”), the safe harbors revised pursuant to the annual adjustments will continue to apply to the late fees imposed by them. The final rule also amended comments and sample forms in Appendix G to revise current examples of late fee amounts to be consistent with the $8 safe harbor amount. Card issuers that meet or exceed the one million open credit card account thresholds, transforming them into larger card issuers, will have 60 days to comply with the requirements of the rule.

    Regarding annual adjustments for safe harbor threshold amounts, the rule will adjust safe harbor threshold amounts in §§1026.52(b)(1)(ii)(A) and (B) to $32, and $43 for repeat violations that will occur during the same billing cycle or in one of the next six billing cycles. These two revised threshold amounts will apply to penalty fees other than late fees for all card issuers, as well as late fees imposed by smaller card issuers. The CFPB’s final rule will go into effect 60 days after publication in the Federal Register.

    The final rule was highlighted in the White House’s Fact Sheet entitled, “President Biden Announces New Actions to Lower Costs for Americans by Fighting Corporate Rip-Offs,” which announced a new “Strike Force on Unfair and Illegal Pricing” co-chaired by the DOJ and the FTC to strengthen interagency efforts to combat high prices through anti-competitive, unfair, deceptive, or fraudulent business practices.

    Federal Issues Agency Rule-Making & Guidance CFPB TILA Regulation Z

  • CFPB limits examiner term limits to five years after concurring with OIG recommendations

    On February 26, the Office of Inspector General for the CFPB (OIG) released a report entitled, “The CFPB Can Enhance Certain Practices to Mitigate the Risk of Conflicts of Interest for Division of Supervision, Enforcement and Fair Lending Employees.” The report found that the CFPB’s Office of Supervision Examinations (OSE) does not have a formal policy that requires bank examiners to rotate assignments in a specified time frame, which increases potential conflicts of interest. The OSE examines banks to check for compliance failures in federal consumer financial law and is based out of four regional offices: New York (Northeast), Atlanta (Southeast), Chicago (Midwest), and San Francisco (West). The OIG argued that a formal policy adopted by the OSE would more effectively monitor examiner rotations, promoting “objectivity, cross-training, and broader expertise” and reducing the risk of regulatory capture – or subjecting the same regulated entity to the same examiner and subsequently risking independence and objectivity of exams. The OIG’s report posited two recommendations: (i) that the CFPB implement a formal examiner rotation policy; and (ii) that the CFPB track and document assignments for examiners and its members.

    The OIG found that while some OSE offices have informal examiner rotation policies in place, there is no global system in place to track examiner assignments to ensure regular rotation. For example, OSE’s Northeast and West regional offices have written policies that require certain staff members to rotate every five years. However, the Southeast and Midwest offices do not have any written policies in place and stated having a “natural” turnover process based on needs and availability, among others.

    The CFPB concurred with both OIG recommendations, stating that it will limit the time for lead examiners and field managers to five years and develop a tool for tracking these assignments.

    Bank Regulatory CFPB OIG Enforcement Examination

  • CFPB warns lead generators, digital comparison-shopping tool operators of potential CFPA violations

    Federal Issues

    On February 29, the CFPB issued a circular to law enforcement agencies and regulators explaining how operators of digital comparison-shopping tools or lead generators can potentially violate the CFPA’s prohibition on abusive acts or practices by steering consumers towards options that best serve the operator or the lead generator. The circular further discussed “how law enforcement agencies and regulators can evaluate operators of comparison-shopping tools… to manipulate results” to appease consumer preferences.

    The Bureau explained that while consumers often use these tools to research, compare, and select financial products, some intermediaries also functioned as lead generators that sold consumer information to lenders. These intermediaries may have received compensation, the CFPB said, often termed as “bounties,” from financial providers for preferential treatment or lead generation. The circular recognized that operators of these tools may have engaged in commercial arrangements with financial providers and may have received compensation based on user actions or bids.

    The CFPB stated that both digital comparison-shopping tool operators and lead generators can qualify as “covered persons” under CFPA section 1031(d)(2)(C) which prohibits them from engaging in unfair, deceptive, or abusive acts or practices, particularly those that “take unreasonable advantage” of consumers so they may act in the “covered person’s” best interests. The circular outlined elements of CFPA Section 1031(d)(2)(C) and applied the elements including reasonable reliance by consumers on covered entities to act in their interests, to an evaluation of the operator or lead generator activities. Notably, the circular warned that reasonable consumer reliance could be created based on the representations of the tool operator or lead generator, as well as implicit or explicit communications. Further, the Bureau added that steering consumers towards certain products or providers for the financial benefit of the operator or lead generator, rather than consumer interest, constituted unreasonable advantage-taking.

    Finally, the circular included a non-exhaustive list of examples of preferencing or steering arrangements and advised law enforcement agencies and regulators to scrutinize bounty or bidding schemes and decision-making processes to identify abusive conduct.

     

    Federal Issues CFPB Lead Generation CFPA Enforcement Consumer Protection Abusive Deceptive Unfair

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