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Trump Administration Given March 17 Filing Date for Amicus Brief in PHH v CFPB; Requests to Intervene by Outside Organizations Denied by D.C. Circuit
On March 7, the U.S. Court of Appeals for the D.C. Circuit granted the United States’ unopposed motion, filed through the Office of the Solicitor General (“SG”), which requested an extension to file its amicus brief in PHH Corp. v. CFPB. Notably, amicus briefs supporting PHH must be filed by March 10 and those supporting the CFPB must be filed by March 31. The fact that the United States’ motion requested an extension until March 17—before the deadline for briefs supporting the CFPB—signals that the SG may present arguments supporting PHH that differ both from the CFPB and from the positions previously presented by the Obama Administration in briefing submitted on behalf of the United States back in December.
As previously covered in InfoBytes, late last year the D.C. Circuit invited briefing by the SG’s office on behalf of the United States (note that the SG does not represent the CFPB; the Bureau is legally permitted to litigate on its own behalf.) The then Obama-led SG’s office took the position that the case should be reheard by the en banc court because, among other reasons, (i) the majority’s reasoning misapplied Supreme Court precedent on separation of powers issues and/or (ii) the panel majority should not have reached the constitutional issue. Now under the Trump Administration, the DOJ hinted that it may revise its positions with respect to both the constitutionality of the CFPB’s single-director-removable-only-for-cause structure, and, if it chooses, the merits of PHH’s argument that the Bureau’s RESPA interpretation was incorrect. Indeed, the short motion asserted, among other things, that “the views of the United States on matters involving the President’s removal power are not always entirely congruent with the views of independent agencies.”
Also on March 7, the D.C. Circuit issued a separate order denying three pending “motions and alternative requests” seeking to intervene, or in the alternative, hold in abeyance requests to intervene submitted by the Democratic Ranking Members of the Senate and House Committees with jurisdiction over the CFPB, 16 State Attorneys General, a coalition of consumer interest groups, and two conservative advocacy groups working with State National Bank of Big Spring.
FTC Reaches $9 Million Settlement with Nationwide Debt Relief Company
On March 7, the FTC announced that it had reached a settlement with a debt relief company and its principals over allegations that they mislead consumers and charged illegal advance fees. The FTC claimed that the defendants sent direct mail ads that looked like official attorney or bank documents and exaggerated the amount of money consumers would save and the time it would take them to become debt free. In violation of the FTC’s Telemarketing Sales Rule, the defendants also allegedly charged advance fees before negotiating savings on credit card debts. The stipulated order requires the defendants to pay $9 million (to be partially suspended upon payment of $510,000), a figure that represents the amount of alleged harm to consumers. The defendants are also banned from “making misrepresentations about debt relief and other financial products or services, and making unsubstantiated claims about any products or services.”
OCC Chief Issues Remarks on Fintech Charter Plan; Federal Reserve Governor Highlights Virtual Currency Risks
On March 6, Thomas Curry, Comptroller of the Office of the Comptroller of the Currency (OCC) spoke at the LendIt USA 2017 conference and addressed arguments against the regulator’s authority to provide charters to Fintech firms as presented in its December 2016 white paper, Exploring Special Purpose National Bank Charters for Fintech Companies (see InfoBytes Special Alert). Curry stated, “[T]he National Bank Act [] give[s] the OCC the legal authority to grant national bank charters to companies engaged in the business of banking,” and added that “[i]t is not circumscribed just because a company delivers banking services in new ways with innovative technology.” Curry says the OCC plans to publish a supplemental document to clarify ways it will evaluate Fintech companies that apply for charters.
Regarding the risks posed by institutions creating their own virtual currencies, Federal Reserve’s lead governor, Jerome Powell, said in remarks made to Yale University on March 3 that the risks and technological challenges are far too high for central banks to undertake. “Any central bank actively considering issuing its own digital currency would need to carefully consider the full range of the payments system and other policy issues, which do seem substantial, as well as the potential societal benefits,” said Powell. “I would expect private-sector systems to be more forward-leaning than central banks in providing new features to the public through faster payments systems as they compete to attract retail customers,” Powell said. “A central bank-issued digital currency would compete with these and other innovative private-sector products and may stifle innovation over the long run.”
Prepared Remarks of Richard Cordray at the LendIt USA Conference
On March 6, CFPB Director Richard Cordray spoke at the LendIt USA Conference to outline three “areas of special interest” to the Bureau relating to innovations in consumer financial services. In his prepared remarks, Cordray highlighted the three areas as (i) the Project Catalyst initiative; (ii) issues regarding consumer control over personal financial data; and (iii) research concerning the benefits and risks of using unconventional data sources to underwrite loans as a means to open credit access for more consumers.
Project Catalyst, Cordray explained, is the Bureau’s major initiative which “operates on the principle that markets work best when they are wide open to competition from new ideas.” He further explained that the Bureau is trying to “learn about what does and does not work for consumers [as well as] potential challenges facing entrepreneurs and investors.” Project Catalyst hosts an “Office Hours” program to engage with startups, nonprofits, banks, and other financial companies, and conducts research pilot programs with companies of all sizes. It also works to devise new policies to foster innovations such as the “Trial Disclosure Waiver Policy,” which encourages the development of new technologies and approaches for designing and testing alternative consumer disclosures.
Cordray also spoke about the Bureau’s interest in understanding the ways consumers are exercising control over their personal financial data. Last November, the Bureau issued a Request for Information seeking input on the challenges consumers face when accessing, using, and securely sharing their financial records. Furthermore, Cordray emphasized at the conference that two pressing issues are (i) “how to satisfy the demands of the consumers without exposing the providers that maintain [the] data to undue costs and risks, and (ii) how to prevent consumers from subjecting themselves to undue risk, including [the misuse of their data].”
Finally, Cordray commented on the Bureau’s February Request for Information issued to better understand the potential consumer benefits and risks associated with using, applying, and analyzing “alternative data” to predict people’s creditworthiness. The request asked consumers for feedback about the difficulties they have encountered when accessing, using, and securely sharing their financial records.
Fannie, Freddie and FHLBs Ordered to Report Results of Annual Stress Tests
On March 3, FHFA Director Melvin Watt issued orders directing FHFA regulated government-sponsored enterprises (GSEs)—Fannie Mae (Order No. 2017-OR-FNMA-01), Freddie Mac (Order No. 2017-OR-FHLMC-01), and the 11 Federal Home Loan Banks collectively (Order No. 2017-OR-B-01)—to report the results of their stress tests so that the financial regulators may determine whether the GSEs “have the capital necessary to absorb losses as a result of adverse economic conditions.” The orders were issued pursuant to the requirement under the Dodd-Frank Act that covered financial institutions with total consolidated assets of more than $10 billion conduct an annual stress test to determine whether they have sufficient capital to support operations in adverse economic conditions. Accompanying each order was a copy of the “2017 Report Cycle Dodd-Frank Stress Tests Summary Instructions and Guidance.”
On April 14, the FHFA order was officially published in the Federal Register.
OCC to Host Credit Risk and Operational Workshops for Directors of National Community Banks and Federal Savings Associations; Banking Agencies to Conduct Webinar to Introduce New FFIEC Call Report
On March 2, the Office of the Comptroller of the Currency (OCC) announced that it will host two workshops in Phoenix on April 11-12 for directors of OCC supervised national community banks and federal associations. The Credit Risk workshop (April 11) will cover strategies to recognize trends and problems in credit risk within the loan portfolio, and the Operational Risk workshop (April 12) will discuss key components of operational risk, governance, third-party risk, vendor management, and cybersecurity.
Also on March 2, four members of the Federal Financial Institutions Examination Council (FFIEC) (Federal Reserve Board, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, and the Conference of State Bank Supervisors) announced the implementation of the new streamlined FFIEC 051 Call Report, effective March 31, 2017, that will introduce burden-reducing changes to the existing versions of the Call Report and will be available to eligible small institutions. “’Eligible small institutions’ are [defined as] institutions with domestic offices only and total assets of less than $1 billion, excluding those that are advanced approaches institutions for regulatory capital purposes.” The revisions to the requirements are subject to approval by the OMB. On March 8, the FFIEC will conduct a webinar from 2:00 p.m. to 3:30 p.m. ET to introduce the new Call Report and explain the revisions.
CFPB Releases Supervisory Highlights Focused on Credit Reporting
On March 2, the CFPB released its Supervisory Highlights for winter 2017 that outlines supervisory and oversight actions the Bureau has taken to address issues in the credit reporting market. According to the CFPB’s February Monthly Complaint Report, the Bureau has handled approximately 185,700 credit reporting complaints since the Bureau’s inception. Examples of these complaints include that no action happens when consumers dispute items on their reports, that paid debts often show up as “unpaid,” and that consumers’ files are not updated to reflect changes or deletions which negatively affect their credit scores.
The new Supervisory Highlights outlines the actions the Bureau has taken to address concerns, including the following:
- Fixing data accuracy at consumer reporting companies, including instituting quality control programs and tests to identify mix-ups as well as improving corrective actions and preventative measures.
- Directing consumer reporting companies to improve dispute investigation systems.
- Directing furnishers supplying data to consumer reporting companies to ensure the integrity of the information, an effort that “includes better investigations and handling of disputes, notifying consumers of results, and taking corrective action when inaccurate information has been supplied.”
As further explained, the CFPB uses the same supervision approach for credit reporting activities that it uses for other activities of supervised entities, which “includes a review of compliance systems and procedures, on-site examinations, discussions with relevant personnel, and requirements to produce relevant reports . . . [and, if violations are discovered], enforcement actions.” In addition, on the same day, the Bureau posted to its blog a guide to help consumers learn ways to monitor their credit history, including a list of several companies that claim to offer existing customers free access to credit scores.
Special Alert: District Court Confirms Telephonic Consent to Preauthorized ACH Debits Complies with ESIGN and EFTA
On February 17, a U.S. District Court in Nashville, TN found that a creditor complied with both the Electronic Signatures in Global and National Commerce Act[1] (“ESIGN”) and the Electronic Fund Transfer Act[2] and its implementing regulation, Regulation E[3] (collectively “EFTA”) when it obtained a consumer’s “written” authorization over the telephone to enroll in recurring ACH payments and mailed a paper copy of the authorization to the consumer two days later.[4] This case (“Blatt”) is significant because it clarifies and confirms much of the existing understanding of the interaction between ESIGN and the Uniform Electronic Transactions Act, and provides precedent for advancing the validity of widespread industry practices in other courts.
[1] 15 U.S.C. § 7001, et seq.
[2] 15 U.S.C. § 1693, et seq.
[3] 12 C.F.R. §1005.1, et seq.
[4] Blatt v. Capital One Auto Finance, [Memorandum and Order] No. 2:15-cv-00015, 2017 WL 660677 (M.D.Tenn. Feb. 17, 2017).
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Click here to read full special alert.If you have questions about the ruling or other related issues, visit our FinTech and Auto Finance practice pages for more information, or contact a Buckley Sandler attorney with whom you have worked in the past.
Special Alert: Madden Class Action Moves Forward
On February 27, the U.S. District Court for the Southern District of New York issued a ruling in Madden v. Midland Funding, LLC,[1] holding that New York’s fundamental public policy against usury overrides a Delaware choice-of-law clause in the plaintiff’s credit card agreement. The court allowed the plaintiff to proceed with Fair Debt Collection Practices Act (“FDCPA”) claims (and related state unfair or deceptive acts or practices claims) against the defendants, a debt buyer that had purchased the plaintiff’s charged-off credit card debt and its affiliated debt collector. The court did not allow plaintiff’s claims for violations of New York’s usury law to proceed, as it held that New York’s civil usury statute does not apply to defaulted debts and that the plaintiff cannot directly enforce the criminal usury statute. The court also granted the plaintiff’s motion for class certification.
[1] No. 11-CV-8149, 2017 WL 758518 (S.D.N.Y. Feb. 27, 2017).
Click here to read full special alert* * *
If you have questions about the ruling or other related issues, visit our Class Actions practice for more information, or contact a Buckley Sandler attorney with whom you have worked in the past.
FTC Issues New Top 10 Consumer Complaint Categories in Annual Summary
On March 3, the Federal Trade Commission (FTC) issued an annual summary of consumer complaints, highlighting trends in the various categories of consumer complaints received by the Commission over the past year. The agency released its overview in the form of the Consumer Sentinel Network Data Book for January - December 2016 (2016 Data Book)—which provides category breakdowns and state specific data extrapolated from the Consumer Sentinel Network (CSN)—a secure online database of millions of consumer complaints available only to law enforcement, including, but not limited to, the FTC. In compiling the 2016 Data Book, the CSN collected more than 3.1 million consumer complaints, which the FTC sorted into 30 top complaint categories.
Florida, Georgia and Michigan were (again) the top three states for fraud and other complaints, while Michigan, Florida and Delaware were the top three states for identity theft complaints. The 2016 Data Book also reveals that debt-collection complaints remained the top category, comprising 28 percent of all complaints. The Commission attributes this “high number of reported debt collection complaints” to, among other things, “complaints submitted by a data contributor who collects complaints via a mobile app.” The Commission also identifies “imposter scams” as a “serious and growing problem.” In response to this trend, Acting Director of the FTC’s Bureau of Consumer Protection, Thomas Pahl, indicates that the agency “will use all the tools at its disposal to address it,” including “law enforcement actions against scammers and consumer education to help consumers avoid losing money.”
Another category that saw some movement was identity theft. While overall complaints in this category declined from 16 percent to 13 percent, 29 percent were consumers reporting that their data was used to commit tax fraud. Furthermore, there was a jump in those who reported “that their stolen data was used for credit card fraud. . .[a number that] rose from nearly 16 percent in 2015 to more than 32 percent in 2016.” And, rounding out the “Top Ten” consumer complaints for 2016 after debt-collection, imposter scams, and identify theft, were: telephone and mobile services, banks and lenders, prizes/sweepstakes/lotteries, shop-at-home/catalog sales, auto-related complaints, credit bureaus/information furnishers/report users, and television and electronic media complaints.
More information about the Consumer Sentinel Network and Data Book is available through www.FTC.gov/sentinel.