Skip to main content
Menu Icon
Close

InfoBytes Blog

Financial Services Law Insights and Observations

Filter

Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.

  • CFPB partially modifies two CIDs

    Federal Issues

    On May 21, the CFPB issued two orders partially modifying civil investigative demands (CID) issued by the Bureau in 2017 and 2018. In 2017, a revised CID was issued to a provider of tax debt relief products and services concerning potential violations of UDAAP provisions under the Consumer Financial Protection Act (CFPA). Thereafter, the company petitioned the Bureau to set aside or modify the CID, arguing, among other things, that (i) the CFPA does not empower the CFPB to issue a CID to a tax preparation company given it does not provide a “‘consumer financial product or service’”; (ii) the investigation should be limited initially to information relevant to determining whether the Bureau has enforcement authority over the company; and (iii) the CID is overly broad because the notification of purpose does not comply with the CFPA’s requirements for authorizing Bureau CIDs. In the order, the Bureau rejected the company’s argument that it is not subject to the Bureau’s enforcement authority, stating that the agency is authorized to issue a CID to any person who may have information relevant to a violation, and moreover, the Bureau need not accept as true the company’s factual assertions that its business conduct does not include any activities covered by the CFPA. It also declined the company’s request that the CID be modified to focus solely on information relevant to determining whether the Bureau has enforcement authority over the company, stating that an agency may simultaneously investigate jurisdictional facts and possible violations. The Bureau further noted that the CFPA does not require a notification of purpose to identify particular persons who engaged in the conduct at issue or whether the company itself is under investigation. However, the CFPB modified the notification of purpose to include a statement reflecting that an additional purpose of the investigation is to determine whether false and misleading representation have been made to consumers regarding tax debt relief products and services.

    In 2018 a second CID was issued to a financial services company to investigate whether it has engaged in any potential UDAAP violations concerning its marketing and servicing of deferred- interest financing. The company petitioned the Bureau to set aside the CID on the grounds that it (i) provides an inadequate notification of purpose; (ii) seeks information not relevant to any investigation; (iii) is unduly broad and burdensome; and (iv) “is fundamentally at odds” with the Bureau’s mission. Among other things, the Bureau’s order rejected the company’s argument that oral misrepresentations related to deferred-interest financing “are not relevant because no such representations were made to consumers (or, if they were, they were not so numerous as to merit the Bureau’s attention),” or they were not made by the company. According to the Bureau, these objections go to whether the company complied with the law, not whether the information the Bureau seeks is relevant. The Bureau also rejected the company’s arguments related to whether the agency could seek information related to transactions outside of the limitations period for potential violations of the CFPA, stating that the information may allow the Bureau to develop an understanding of the company’s practices and operations. However, while the Bureau emphasized that the company failed to demonstrate that complying with the CID would be overly burdensome, it did make some modifications to the notification of purpose on the recommendation of enforcement counsel, and extended the production timeline.

    Federal Issues CFPB CIDs

  • Freddie and Fannie address new rules for private flood insurance

    Federal Issues

    On June 5, Fannie Mae issued a Selling Notice to address new regulations on private flood insurance taking effect July 1. (See previous InfoBytes coverage here.) While the joint final rule issued by the federal banking agencies in February applies the private flood insurance provisions of the Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters Act) to supervised financial institutions, Fannie Mae stated that it is not subject to the final rule and will continue to apply its current Selling Guide eligibility standards and procedures to all loans in FEMA-designated special flood hazard areas (SFHA), or to loans secured by residences that are in a SFHA at the time of origination. Under the Selling Guide, “private flood insurance policies may be delivered as an alternative to National Flood Insurance Program (NFIP) policies” provided the terms and amount of coverage meet the specified qualifications and the property insurer meets the rating requirements.

    On June 6, Freddie Mac released Guide Bulletin 2019-11, which, among other things, also emphasizes that it is not subject to the final rule, and is separately authorized by the Biggert-Waters Act to accept private flood insurance policies and establish requirements for issuers of these policies on premises securing Freddie Mac Mortgages. Specifically, Freddie Mac stated that it will continue to apply its current criteria when accepting private flood insurance policies, and that its requirements will “apply to all Seller/Servicers, including an institution subject to the federal banking agencies’ rule regardless of the rule provision (mandatory or discretionary) used to accept a private flood insurance policy.”

    Federal Issues Freddie Mac Fannie Mae Flood Insurance Mortgages Biggert-Waters Act

  • OCC extends Dodd-Frank stress test compliance date

    Agency Rule-Making & Guidance

    On June 4, the OCC extended the deadline for national banks and federal savings associations (FSAs) with consolidated assets between $100 billion and $250 billion to comply with the Dodd-Frank stress test (DFAST) requirements to November 25. In December 2018, the OCC issued a letter noting that prior DFAST exams and OCC supervision have indicated that qualifying banks with consolidated assets within these thresholds have adopted effective stress testing programs and integrated them into their general risk management tools, and as such, “requiring DFAST submissions for these banks in 2019 would provide limited supervisory value.” According to the OCC, the extension is consistent with the Economic Growth, Regulatory Relief, and Consumer Protection Act’s goal of reducing regulatory burden for applicable national banks and FSAs.

    Agency Rule-Making & Guidance OCC Stress Test Compliance Dodd-Frank EGRRCPA

  • CFPB delays underwriting compliance of Payday Rule

    Agency Rule-Making & Guidance

    On June 6, the CFPB released a final rule to delay the August 19, 2019 compliance date for the mandatory underwriting provisions of the agency’s 2017 final rule covering “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (the Rule). Compliance with these provisions of the Rule is now due by November 19, 2020.

    As previously covered by InfoBytes, in February, when the CFPB released two notices of proposed rulemaking (NPRM) related to certain lending requirements under the Rule—one proposing the delay to the compliance date for mandatory underwriting provisions, and the other proposing to rescind the underwriting portion of the Rule that would make it an unfair and abusive practice for a lender to make covered high-interest rate, short-term loans, or covered longer-term balloon payment loans without reasonably determining that the consumer has the ability to repay—the Bureau emphasized that the NPRM extending the compliance date for mandatory underwriting provisions did not extend the effective date for the Rule’s provisions governing payments. 

    Notably, on May 30, the U.S. District Court for the Western District of Texas entered an order continuing the stay of the original compliance date for both the underwriting provisions and the payment provisions of the Rule in a payday loan trade group’s litigation challenging the Rule. (Previous InfoBytes coverage on the litigation is available here.) The order requires the parties to file a joint status report no later than August 2.

    Agency Rule-Making & Guidance CFPB Payday Rule Courts Payday Lending Underwriting

  • FCC approves robocall blocking

    Agency Rule-Making & Guidance

    On June 6, the FCC approved a Declaratory Ruling and Notice of Proposed Rulemaking to address unwanted robocalls to consumers. The Declaratory Ruling affirms that voice service providers may block unwanted robocalls “based on reasonable call analytics, as long as their customers are informed and have the opportunity to opt out of the blocking.” Among other things, the Declaratory Ruling clarifies that voice providers (i) may offer call blocking tools to their customers as a default, as opposed to an opt-in basis; and (ii) may offer customers tools that would allow customers to block calls from any number that is not listed in the customer’s contact list or other “white lists.” The FCC notes that a “white list” could be based on a customer’s contact list and would be updated as customers add and remove contacts from their phone. According to reports, the FCC also adopted language that was added to the May proposal, which encourages voice providers to devise a system for addressing complaints made by legitimate companies whose calls to customers are being blocked. The final Declaratory Ruling is effective upon its publication on the FCC’s website.

    The FCC also adopted a Notice of Proposed Rulemaking (NPRM) (available in the May proposal) requiring voice providers to implement the “STIR/SHAKEN” caller ID authentication framework—an “industry-developed system to authenticate Caller ID and address unlawful spoofing by confirming that a call actually comes from the number indicated in the Caller ID, or at least that the call entered the US network through a particular voice service provider or gateway.” The FCC asserts that once the “STIR/SHAKEN” is implemented, it would “reduce the effectiveness of illegal spoofing and allow bad actors to be identified more easily.” The deadline for comments in response to the NPRM will be established upon publication in the Federal Register.

    Agency Rule-Making & Guidance Federal Issues FCC Robocalls

  • Splitting from the 6th Circuit, 7th Circuit holds mere procedural violation of FDCPA not sufficient harm for standing

    Courts

    On June 4, the U.S. Court of Appeals for the 7th Circuit held that the receipt of an incomplete debt collection letter is not a sufficient harm to satisfy Article III standing requirements to bring a FDCPA claim against a debt collector. According to the opinion, a consumer received a collection letter which described the process for verifying a debt but did not specify that she had to communicate with the collector in writing to trigger the protections under the FDCPA. The consumer filed a class action against the debt collector alleging the omission “‘constitute[d] a material/concrete breach of her rights’” under the FDCPA. In the complaint, the consumer did “not allege that she tried—or even planned to try—to dispute the debt or verify that [the stated creditor] was actually her creditor.” The district court dismissed the action, concluding that the consumer had not alleged that the FDCPA violation “caused her harm or put her at an appreciable risk of harm” and therefore, the consumer lacked standing to sue.

    On appeal, the 7th Circuit affirmed the district court’s decision, concluding that because the consumer did not allege that she tried to dispute or verify the debt orally, leaving her statutory protections at risk, she suffered no harm to her statutory rights under the FDCPA. The appellate court emphasized that “procedural injuries under consumer‐protection statutes are insufficiently concrete to confer standing.” The court acknowledged that its opinion creates a conflict with a July 2018 decision by the U.S. Court of Appeals for the 6th Circuit, which held that consumers had standing to sue a debt collector whose letters allegedly failed to instruct them that the FDCPA makes certain debt verification information available only if the debt is disputed “in writing.” (Covered by InfoBytes here.) The appellate court also agreed with the district court’s decision to deny the consumer’s request for leave to file an amended complaint, noting that she did not indicate what facts she would allege to cure the jurisdictional defect.

    Courts Spokeo Seventh Circuit Sixth Circuit Appellate FDCPA

  • OFAC amends three Venezuela-related General Licenses

    Financial Crimes

    On June 6, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) amended three General Licenses (GL), (i) GL 7B, which supersedes GL 7A; (ii) GL 8A, which supersedes GL 8; and (iii) GL 13A, which supersedes GL 13, to clarify that these general licenses do not authorize transactions or dealings related to the exportation or re-exportation of diluents, directly or indirectly, to Venezuela. Additionally, OFAC is issuing corresponding FAQ 672 to provide further guidance with respect to restrictions regarding diluents.

    Visit here for additional InfoBytes coverage of actions related to Venezuela.

    Financial Crimes Venezuela Sanctions

  • 9th Circuit upholds rejection of consumer’s class action against auto finance company

    Courts

    On May 30, the U.S. Court of Appeals for the 9th Circuit affirmed summary judgment in favor of an auto finance corporation and various dealerships (collectively, “defendants”) in a putative class action alleging the defendants failed to provide add-ons the plaintiff purchased with the vehicle. The case, which was originally brought in Washington state superior court, was removed to federal court over the consumer’s objection, where the consumer amended the complaint to include a federal TILA claim. 

    According to the opinion, plaintiff alleged that his purchased vehicle did not come with three add-ons listed in the “Dealer Addendum,” which was a sticker affixed to the car. At the time of purchase, the customer was not aware of what the add-ons were, nor were they explained to him; the add-ons were only listed in the addendum. Plaintiff  argued that if he had known what the add-ons were, he would have declined them and paid a lower price for the vehicle. The district court rejected plaintiff’s arguments and granted summary judgment for the defendants on all claims.

    On appeal, the 9th Circuit upheld the entirety of the district court’s ruling, concluding the consumer offered no evidence that the add-ons identified in the Dealer Addendum were made part of the vehicle purchase transaction. Moreover, the appellate court upheld the district court’s decision not to remand the case back to state court, determining that while the district court did not have subject-matter jurisdiction at the time of removal, it had subject-matter jurisdiction at the time it rendered its final decision, due to the consumer’s voluntary addition of the TILA claim to the complaint. The appellate court also found that the district court did not abuse its discretion in denying the consumer’s request for additional discovery based on plaintiffs failure to “identif[y] the specific facts that further discovery would have revealed or explained[ed].”

    Courts Appellate Ninth Circuit Auto Finance Class Action

  • SFO fines shipping and logistics company over $1 million for bribery scheme

    Financial Crimes

    On June 3, the UK Serious Fraud Office (SFO) announced that it had fined a shipping and logistics company £850,000 (approximately $1.08 million) for bribes paid to secure contracts in Angola. The SFO started investigating the company in September 2014 and announced in July 2016 that it had charged the company and seven individuals with making corrupt payments. The company pleaded guilty in 2017. The SFO found that executives had bribed an agent of the Angolan state oil company to obtain $20 million worth of shipping contracts.

    Financial Crimes UK Serious Fraud Office Anti-Corruption Bribery

  • Class action alleges national bank’s grace period practices breach terms of cardholder agreement

    Courts

    On June 3, a consumer filed a class action complaint against a national bank alleging that the bank charges interest on credit card accounts even when consumers’ balances are paid in full by the billing cycle due date, in breach of the bank’s cardholder agreement. The complaint alleges that the cardholder agreement and monthly billing statements disclose to consumers that interest will not be charged on new purchases if those new purchases are paid off by the billing cycle’s due date, but that in practice the grace period is eliminated for new purchases “[i]f a consumer leaves even $1 on her account balance after a billing period due date.” The complaint alleges that the bank’s practice of only providing a grace period on new purchases for consumers “who have paid off their balances in full for two prior months” directly contradicts the cardholder agreement and consumer disclosures. In addition to breach of contract, the consumer alleges a violation of Delaware’s Consumer Fraud Act and breach of the covenant of good faith and fair dealing. The consumer is seeking certification of a class of similarly situated consumers; damages and restitution; and injunctive relief.

    Courts Class Action Credit Cards Consumer Finance Interest

Pages

Upcoming Events