Consumer Finance Regulatory News and Trends

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This regular publication by DLA Piper lawyers focuses on helping clients navigate the ever-changing consumer finance regulatory landscape.

Regulatory developments

Federal

  • CFPB issues warning to mortgage servicers. The Consumer Financial Protection Bureau (CFPB) issued an announcement warning mortgage servicers to take “all necessary steps now to prevent a wave of avoidable foreclosures” when pandemic-related protections expire. The CFPB stated that it will “closely monitor how servicers engage with borrowers, respond to borrower requests, and process applications for loss mitigation” and advised servicers to “plan now” for the expected need to increase capacity to “reach out and respond to the large number of homeowners likely to need loss mitigation assistance.” This is consistent with the CFPB’s recent announcement that one of its priorities will be preventing lasting harm to consumers related to COVID-19 financial hardships.
  • CFPB rescinds policy statement on abusive acts and practices. The CFPB issued an announcement that it has rescinded its January 24, 2020 “Statement of Policy Regarding Prohibition on Abusive Acts or Practices,” under which the CFPB stated it would decline to seek civil money penalties and disgorgement for certain abusive acts or practices. The CFPB has instead pledged going forward to exercise the full scope of its supervisory and enforcement authority under the Dodd-Frank Act in order to better protect consumers from abusive acts or practices in the marketplace. This likely foreshadows an expansion of regulatory authority in this area.
  • CFPB issues interpretive rules on sexual orientation and gender identity discrimination under the ECOA. The CFPB issued an interpretive rule clarifying that sex discrimination under the Equal Credit Opportunity Act (ECOA) and Regulation B includes discrimination on the basis of sexual orientation and gender identity, including discrimination based on perceived nonconformity with traditional sex- or gender-based stereotypes and applicants’ social or other associations. The CFPB also stated that it will be reviewing its publication and examination guidance documents to reflect this interpretive rule. This is consistent with another of the Bureau’s recent announcement that it will seek to broadly address inequalities in consumer financial services.
  • CFPB and FTC issue joint statement on preventing illegal evictions. The CFPB and FTC issued a joint statement on the agencies’ collective efforts to prevent unlawful evictions. The statement pledged that both agencies will be monitoring and investigating eviction practices to ensure compliance with CDC, state and local laws and moratoria on evictions. The statement also asserted that failure to comply with applicable moratoria may constitute “deceptive or unfair practices” in violation of both the FTCA and the FDCPA.
  • CFPB issues statement encouraging financial institutions and debt collectors to allow stimulus payments to reach consumers. The CFPB issued a statement expressing concern that consumers’ COVID-19 relief stimulus payments will be “intercepted by financial institutions or debt collectors to cover overdraft fees, past-due debts, or other liabilities,” rather than reaching consumers in full. The CFPB is encouraging institutions to be flexible in working with consumers to alleviate “the extraordinary financial challenges facing so many families across the country.” The CFPB’s letter is merely advisory; however, some states have passed legal and regulatory measures that prohibit institutions from applying consumers’ COVID-19 payments towards past-due balances and overdraft charges. The CFPB has stated that it will continue to closely monitor consumer complaints to ensure that institutions are not collecting such consumer relief funds in violation of applicable consumer protection laws.
  • CFPB rescinds seven policy statements on regulatory flexibility related to COVID-19. The CFPB issued an announcement that it would be rescinding seven policy statements that were issued between March 26 and June 3, 2020 in response to COVID-19. According to the CFPB, the recissions “reflect the Bureau’s commitment to consumer protection, and the fact that financial institutions have had a year to adapt their operations to the difficulties posed by the pandemic.” The CFPB also rescinded a 2018 bulletin on supervisory communications and replaced it with a revised bulletin – CFPB Bulletin 2021-01 – describing its use of matters requiring attention. The rescinded policy statements and bulletin are:
    • Statement on Bureau Supervisory and Enforcement Response to COVID-19 Pandemic (March 26, 2020)
    • Statement on Supervisory and Enforcement Practices Regarding Quarterly Reporting Under the Home Mortgage Disclosure Act (March 26, 2020)
    • Statement on Supervisory and Enforcement Practices Regarding CFPB Information Collections for Credit Card and Prepaid Account Issuers (March 26, 2020)
    • Statement on Supervisory and Enforcement Practices Regarding the Fair Credit Reporting Act and Regulation V in Light of the CARES Act (April 1, 2020)
    • Statement on Supervisory and Enforcement Practices Regarding Certain Filing Requirements Under the Interstate Land Sales Full Disclosure Act (ILSA) and Regulation J (April 27, 2020)
    • Statement on Supervisory and Enforcement Practices Regarding Regulation Z Billing Error Resolution Timeframes in Light of the COVID-19 Pandemic (May 13, 2020)
    • Statement on Supervisory and Enforcement Practices Regarding Electronic Credit Card Disclosures in Light of the COVID-19 Pandemic (June 3, 2020)
    • Bulletin 2018-01: Changes to Types of Supervisory Communications
  • CFPB provides consumer response annual report to Congress. The CFPB provided to Congress its annual complaint report. The CFPB noted that the effects of the COVID-19 pandemic are reflected in the report, as the CFPB handled approximately 542,300 complaints last year, which was nearly a 54-percent increase from the 352,400 complaints from 2019. Per the report, credit and consumer reporting complaints accounted for more than 58 percent of complaints received, followed by debt collection (15 percent), credit card (7 percent), checking or savings (6 percent) and mortgage complaints (5 percent). Many of these complaints are connected to COVID-19-related financial distress.
  • 2020 HMDA data on mortgage lending now available. The 2020 data from The Home Mortgage Disclosure Act (HMDA) Modified Loan Application Register (LAR) is now available here from the Federal Financial Institutions Examination Council’s HMDA Platform. The LAR contains loan-level information from financial institutions for approximately 4,400 HMDA filers.
  • CFPB proposes delay of mandatory compliance date for General Qualified Mortgage final rule. The CFPB issued a notice of proposed rulemaking to delay the date for mandatory compliance with the General Qualified Mortgage (QM) final rule from July 1, 2021 to October 1, 2022. According to the CFPB, extending the mandatory compliance date will give lenders more time to offer QM loans based on homeowners’ debt-to-income ratio, rather than based on a pricing cut-off. This will allow lenders more time to utilize the GSE Patch, which provides QM status to loans that are eligible for sale to Fannie Mae or Freddie Mac. The CFPB believes this extension will give consumers struggling with the impact of the COVID-19 pandemic better access to affordable, responsible mortgage credit and better allow them to retain housing.
  • CFPB issues statement regarding protecting consumers in the small-dollar lending market. The CFPB published a post stating that the CFPB is acutely aware of the consumer harms in the small-dollar lending market. Specifically, the CFPB noted that the prior administration issued a rule that revoke parts of the CFPB’s 2017 small-dollar lending rule, including requirements for assessing a borrower’s ability to repay. Although the small-dollar lending rule is still being challenged in court – and thus is currently not in effect – the CFPB stated that it believes the harms identified in the 2017 still exist and that it will address those harms through vigorous market monitoring, supervision, enforcement and, if appropriate, rulemaking.
  • FTC announces new rulemaking group. The FTC announced the creation of a new rulemaking group formed with the intention of “reinvigorating” the commission’s rulemaking authority. This decision was made in light of the pending Supreme Court case, AMG Capital Management, LLC v. Federal Trade Commission, which has the potential to significantly curtail the FTC’s authority to seek monetary relief from violators via enforcement actions under section 13(b) of the FTCA. Given this possibility, FTC states the new rulemaking group will help refocus efforts towards developing “effective deterrence” against market harms, with an emphasis on new rulemakings to prohibit unfair or deceptive practices and unfair methods of competition.
  • Federal financial regulatory agencies announce joint request for views on the use of artificial intelligence by financial institutions. The Federal Reserve Board, CFPB, Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration (NCUA) and Office of the Comptroller of the Currency (OCC) announced a request for input on the growing use of AI by financial institutions. The agencies have specifically requested comments on issues such as (i) the use of machine learning; (ii) governance, risk management and controls; (iii) the challenges that financial institutes face in developing, adopting and managing AI; and (iv) whether any regulatory clarifications would be particularly helpful.

State

  • New York DFS issues letter to US Secretary of Education on behalf of multi-state coalition of regulators regarding protections for student loan borrowers. The New York Department of Financial Services (DFS) sent a letter to the new Department of Education Secretary on behalf of itself and regulators from California, Colorado, Connecticut, Illinois, Maine, Massachusetts, New Jersey, Rhode Island, Washington and Wisconsin. The letter urges Secretary Cardona to reverse two policies instituted by former Secretary Betsy DeVos that inhibited states’ ability to regulate the student loan servicing industry. The first policy was guidance form the Department stating that federal law preempts state law with respect to regulation of private companies that service federal student loans. The second policy was the Department’s use the Privacy Act of 1974 to bar states from getting information on loans and loan servicers, preventing them from effectively regulating the same.
  • Illinois enacts Predatory Loan Prevention Act. Illinois Governor JB Pritzker signed into law SB 1792, which includes the Predatory Loan Prevention Act, which takes effect immediately. The new law makes all loans made under the Consumer Installment Loan Act, Motor Vehicle Retail Installment Sales Act, the Retail Installment Sales Act, the Sales Finance Agency Act and the Payday Loan Reform Act, made by non-exempt entities are subject to an interest rate limit of 36 percent that is calculated in accordance with the Military Annual Percentage Rate under the federal Military Lending Act, and accompanying regulations. While banks and credit unions are generally exempt, it eliminates any exemption under the act for (1) the person or entity holds, acquires or maintains, directly or indirectly, the predominant economic interest in the loan; or (2) the person or entity markets, brokers, arranges or facilitates the loan and holds the right, requirement or first right of refusal to purchase loans, receivables or interests in the loans; or (3) the totality of the circumstances indicate that the person or entity is the lender and the transaction is structured to evade the requirements of this Act. Circumstances that weigh in favor of a person or entity being a lender include, without limitation, where the person or entity (i) indemnifies, insures or protects an exempt person or entity for any costs or risks related to the loan; (ii) predominantly designs, controls or operates the loan program; or (iii) purports to act as an agent or service provider or in another capacity for an exempt entity while acting directly as a lender in other states.

Enforcement actions

Federal

  • Federal court dismisses CFPB enforcement action against student loan debt collectors. The US District Court for the District of Delaware has dismissedSeila Law LLC v. CFPB, which held that the restriction on the president’s authority to remove its director violated separation of powers. Based on Selia, the district court reasoned that the CFPB lacked authority to institute the enforcement action and Director Kathy Kraninger’s post-Selia ratification of the enforcement action was ineffective because it occurred after the statute of limitations for filing the enforcement action had expired. The district court also rejected the CFPB’s argument that the statute of limitations should be tolled with respect to ratification because the enforcement action was timely filed in the first instance. The district court reasoned that, because the CFPB knew its authority was being legally questioned, it should have taken additional acts to preserve its rights pending the resolution of the Selia case, such as by seeking a tolling agreement. Our previous coverage of the Selia decision is available here.
  • CFPB files suit against student loan debt relief company for unlawful marketing and sales practices. The CFPB filed a complaint in the United States District Court for the Central District of California against a California-based debt relief company, its owner and chief executive for violations of the Telemarketing Sales Rule (TSR) by charging illegal advance fees. The CFPB alleges that the defendant charged consumers upfront fees to file paperwork to access debt-relief programs that are otherwise free to the public. The CFPB also brought claims against the defendant’s owner and chief executive for their roles in facilitating the TSR violations, including by editing the scripts used by sales staff and supervising customer payments and merchant accounts. The complaint seeks injunctive and monetary relief, as well as civil penalties.
  • CFPB files suit against payment processor and its former CEO for facilitating consumer fraud scheme. The CFPB filed a complaint in the US District Court for the Northern District of Illinois against an Illinois-based check payment processing company and its founder and former CEO for UDAP and TSR violations concerning their role in an internet-based technical support scam. The CFPB alleged that the defendants violated the TSR by processing more than $71 million in payments for companies that sold fraudulent software and IT services, often to senior citizens, while ignoring clear red flags of illegal conduct such as warnings from financial institutions, inquiries from law enforcement agencies, exceptionally high return rates and voluminous customer complaints. The CFPB also alleged that, by processing payments related to the fraud scheme, the defendants engaged in unfair practices because consumers could not reasonably avoid the harm of being misled about the fraudulent software and services.
  • FTC announces $16 million settlement with two debt collection agencies over attempts to collect “phantom” debts. The FTC announced a consent order with two South Carolina-based companies over alleged UDAP violations in connection with a phantom debt collection scheme. The FTC alleged that the defendants (i) used illegal robocalls to threaten consumers with lawsuits over debts that never existed in the first place or had previously been paid off, (ii) misrepresented themselves as mediators or attorneys to consumers and (iii) threatened consumers with legal action ranging from lawsuits to arrest. The consent order also requires the companies to (i) turn over the contents of certain bank accounts and (ii) implement enhanced recordkeeping, compliance monitoring and compliance reporting policies.
  • FTC announces $2.6 million settlement with operator of mobile banking app over deceptive marketing practices. The FTC has announced a consent order with a California-based company and its CEO over alleged UDAP violations concerning the marketing of a mobile banking application. The FTC alleged that the company engaged in deceptive practices by (i) promising users of the free mobile banking app that they could make transfers out of their accounts and would receive their requested funds within three to five business days, but some users waited weeks or even months to receive their money, or never received their money at all; (ii) misrepresenting the interest rates that consumers would receive; and (iii) ceasing to pay interest on deposits after a customer requested a withdrawal, but prior to actually transferring the funds out of the consumer’s account. The settlement agreement requires the defendants to (i) repay at least $2.6 million in customer funds, (ii) cease using any customer information obtained prior to the settlement for any marketing purposes and (iii) implement enhanced recordkeeping, compliance monitoring and compliance reporting policies.

State

  • Texas attorney general sues retail power provider over UDAP violations in connection with Winter Storm Uri. The State of Texas filed a complaint against a retail power provider over deceptive marketing and payment processing practices under the Texas Deceptive Trade Practices Act. The complaint alleges that the company misrepresented the risk associated with purchasing variable-rate power and – particularly relevant to the financial services context – the company’s use of an automatic system for debiting customer’s checking accounts. During Winter Storm Uri, the market price of electricity was set by the state regulator at approximately $9,000 per megawatt hour, which the defendant then passed on to consumers through automatic withdrawals from customer bank accounts. The complaint alleges that the company’s automatic withdrawal system harmed consumers by causing unavoidable overdrawn accounts, overdraft fees and other financial difficulties, and that the company’s billing practices prevented consumers from taking other measures to prevent incurring additional charges. Additional law enforcement actions relating to Winter Storm Uri may be on the horizon.



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