Skip to main content
Menu Icon Menu Icon
Close

InfoBytes Blog

Financial Services Law Insights and Observations
Section Content

Upcoming Events

Filter

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

  • CFPB’s Summer Edition of Supervisory Highlights Discloses Findings Across Many Financial Services Areas

    Consumer Finance

    On September 12, the CFPB released its summer 2017 Supervisory Highlights, which outlines its supervisory and oversight actions in areas such as auto loan servicing, credit card account management, debt collection, deposit account supervision, mortgage origination and servicing, remittances, service provider programs, short-term small-dollar lending, and fair lending. According to the Supervisory Highlights, recent supervisory resolutions have “resulted in total restitution payments of approximately $14 million to more than 104,000 consumers during the review period” between January 2017 and June 2017.

    As examples, in the area of auto loan servicing, examiners discovered vehicles were being repossessed even though the repossession should have been cancelled. Coding errors, document mishandling, and failure to timely cancel the repossession order were cited causes. Regarding fair lending examination findings, the CFPB discovered, in general, “deficiencies in oversight by board and senior management, monitoring and corrective action processes, compliance audits, and oversight of third-party service providers.” Examiners also conducted ECOA Baseline Reviews on mortgage servicers and discovered weaknesses in servicers’ fair lending compliance management systems. Findings in other areas include the following:

    • consumers were provided inaccurate information about when bank checking account service fees would be waived, and banks misrepresented overdraft protection;
    • debt collectors engaged in improper debt collection practices related to short-term, small-dollar loans, including attempts to collect debts owed by a different person or contacting third parties about consumers’ debts;
    • companies overcharged mortgage closing fees or wrongly charged application fees that are prohibited by the Bureau’s Know Before You Owe mortgage disclosure rules; and
    • borrowers were denied the opportunity to take full advantage of the mortgage loss mitigation options, and mortgage servicers failed to “exercise reasonable diligence in collecting information needed to complete the borrower’s application.”

    The Bureau also set forth new examination procedures for HMDA data collection and reporting requirements as well as student loan servicers, in addition to providing guidance for covered persons and service providers regarding pay-by-phone fee assessments.

    Consumer Finance CFPB Enforcement Auto Finance Credit Cards Debt Collection Fair Lending ECOA Compliance Mortgage Origination Mortgage Servicing HMDA Student Lending

    Share page with AddThis
  • FTC Announces Agenda for Joint Conference on Protecting Military Consumers

    Consumer Finance

    On August 22, the FTC released the agenda for the Protecting Military Consumers: A Common Ground Conference to be held on September 7 in Los Angeles. As previously discussed in InfoBytes, the conference is geared towards military attorneys, law enforcement personnel, and consumer protection officials to provide training on consumer fraud and other issues affecting servicemembers and their families, and will be held in partnership with state and local authorities. Topics for discussion on the agenda include, among things:

    • higher education;
    • identity theft and imposter scams;
    • real estate fraud;
    • auto financing;
    • debt collection;
    • lending; and
    • privacy issues such as data collection, storage, and sharing.

    Consumer Finance Agency Rule-Making & Guidance FTC Servicemembers Student Lending Mortgages Debt Collection Privacy/Cyber Risk & Data Security Auto Finance

    Share page with AddThis
  • Colorado UCCC Administrator Opinion Provides Guidance on Debt Cancellation and Suspension Agreement Fees

    State Issues

    On August 7, the Colorado Attorney General’s Office, through the Administrator of the Uniform Consumer Credit Code (UCCC), issued an Administrator Opinion to provide clarification on fees related to debt cancellation and suspension agreements. The UCCC has adopted and authorized rules permitting additional charges to be assessed in addition to a finance charge, such as fees for Single Premium Non-Credit Insurance, Involuntary Unemployment Insurance Premiums, and Guaranteed Automobile Protection. However, because the UCCC has not yet adopted by rule permissible fees for debt cancellation and suspension agreements, those fees must be included in the calculation of the finance charge, even if they are “permitted by federal or state law or regulation—including debt cancellation and suspension agreements offered by Colorado-[c]hartered [b]anks, Colorado-[c]harted [i]ndustrial [b]anks, and Colorado-[c]hartered [c]redit [u]nions.” This Administrator Opinion rescinds the November 9, 2004 Advisory Opinion titled “Debt Cancellation and Suspension Agreements Offered by Colorado-Chartered Banks, Colorado-Chartered Industrial Banks, and Colorado Chartered Credit Unions.” Organizations have 120 days to comply with the newly issued guidance.

    State Issues State AG Auto Finance Debt Cancellation UCCC

    Share page with AddThis
  • Massachusetts Regulator Fines Auto Finance Companies for Violations of State Fair Lending Rules

    Lending

    On August 7, the Division of Banks of the Massachusetts Office of Consumer Affairs and Business Regulation (Division) announced it had entered into consent orders with several motor vehicle sales finance companies to address allegations of unlicensed and illegal auto lending practices uncovered during an investigation of approximately 200 car dealerships. According to a press release issued by the Division, the investigation resulted in “five enforcement actions, 135 cease directives, $170,000 in fines and penalties, and more than $200,000 in consumer reimbursements.” Violations include, among others, (i) pricing vehicles far above blue book value; (ii) charging interest rates that approach or are at, or exceed the state’s maximum level, which is set at 21 percent, including interest rate violations occurring as a result of the financing of debt cancellation (GAP) coverage premiums; (iii) assessing interest and/or late fees after repossession of a vehicle “on which a repossession of the collateral has been executed”; and (iv) failure to obtain a motor vehicle sales finance company license through the Division, failure to address license renewal application deficiencies, or operating without a valid license. According to one consent order, the company allegedly failed to provide consumers an opportunity to “cure a default” before using starter interrupt devices to shut down their cars. A different consent order ordered the company to identify borrowers for whom their finance charges were calculated incorrectly, or those who overpaid due to a total loss insurance claim, and reimburse borrowers the amount that was overcharged or overpaid. A third consent order was issued to a California-based auto lender who purchased finance contracts from Massachusetts auto dealers without being licensed through the Division and engaged in several of the aforementioned violations.

    None of the companies entering into the consent orders admitted to any of the allegations or the existence of any violation of state or federal law concerning their operations as motor vehicle sales finance companies.

    Lending Fair Lending Auto Finance Consumer Finance UDAAP

    Share page with AddThis
  • Class Action Complaint Filed Against National Bank Related to Auto Insurance Coverage

    Courts

    On July 30, consumers accused a national bank of requiring them to pay for unnecessary auto insurance in a class action complaint filed in the Northern District of California. See Hancock v. Wells Fargo & Co., Case No. 17-cv-04324 (N.D. Cal. Jul. 30, 2017). The consumers allege that they paid for protection against vehicle loss or damage while making monthly loan payments, even though many drivers allege that they already had their own policies. According to the complaint, the bank allegedly received kickbacks from an auto insurance company through shared commissions on policies for more than 800,000 auto loans, which resulted in nearly 250,000 loans becoming delinquent and nearly 25,000 “unlawful vehicle repossessions.” The consumers allege that when they took out auto loans, both the bank and the insurance company failed to check whether the consumer already had coverage or ignored the information, and then created Collateral Protection Insurance (CPI) policies which were “secretly” added to the auto loan bills and the costs automatically deducted from consumer bank accounts.

    In addition to the costs incurred for the unlawful forced-placed insurance policies, consumers also claim to have experienced financial harm in the form of (i) inflated premiums and interest rates; (ii) delinquency charges and late fees; and (iii) repossession costs and damage to credit reports. Consumers seek restitution, disgorgement of revenues and/or profits, and compensatory damages.

    Notably, before the class action complaint was filed, the bank issued a press release on July 27, announcing plans to remediate approximately 570,000 consumers who may have been financially harmed—less than the 800,000 cited in the complaint. The bank stated that it had conducted a review of CPI policies placed between 2012 and 2017 and stated, ““We take full responsibility for our failure to appropriately manage the CPI program and are extremely sorry for any harm this caused our customers, who expect and deserve better from us. . . . Upon our discovery, we acted swiftly to discontinue the program and immediately develop a plan to make impacted customers whole.”

    Courts Consumer Finance Force-placed Insurance Auto Finance UDAAP Class Action Litigation

    Share page with AddThis
  • FTC to Host Military Consumer Financial Workshop

    Lending

    On July 19, the FTC will host a free public workshop in San Antonio, entitled 2017 Military Consumer Financial Workshop: Protecting Those Who Protect Our Nation, to educate military consumers on financial issues and scams that they may face.

    The workshop with consist of five panel discussions led by FTC personnel as well as military consumer advocates, attorneys, legal services clinics, industry representatives, and government agencies. The panels will include the following topics:

    • auto purchase, financing, and leasing;
    • lending including student loans and installment loans;
    • debt collection;
    • legal rights and remedies; and
    • financial literacy and capability.

    Additionally, the workshop will include presentations on online promotions and protecting sensitive information, as well as encouraging financial readiness along with financial resources for military consumers.

    The FTC will hold the workshop at Trinity University in the Chapman Auditorium beginning at 8:30 am and preregistration is not required.

    Lending FTC Auto Finance Student Lending Debt Collection Installment Loans Consumer Finance Consumer Education Financial Literacy

    Share page with AddThis
  • Maine Passes Law to Notify Secretary of State About Abandoned Motor Vehicles

    State Issues

    On June 21, LD 1251, “An Act Regarding Certain Abandoned Vehicles and Notice to the Secretary of State Regarding Those Vehicles” became law in Maine. The law applies to a vehicle left at a business after authorized repairs were made at the request of the vehicle owner, and to a vehicle left in storage when the vehicle owner has not paid the storage fee. The law requires the owner of a repair or storage facility or the owner’s agent to notify the Secretary of State within 14 days after the earliest date that the vehicle owner becomes responsible for unpaid repair or storage and towing fees. After notice is provided by the facility (or facility’s agent), the Secretary of State must notify the vehicle’s owner and lienholder that the vehicle is being claimed unless the charges against the vehicle are paid. If the Secretary of State is not notified within 14 days using the prescribed form, the owner of the auto repair business or storage facility cannot charge the vehicle owner more than 14 days of storage fees. The law will take effect 90 days following the adjournment of the legislative session.

    State Issues State Legislation Auto Finance Debt Collection

    Share page with AddThis
  • Texas Passes Law Repealing Vehicle Protection Product Regulatory Act

    State Issues

    On June 15, Texas Governor Greg Abbott signed SB 2065. The law modifies a number of motor vehicle-related regulations and licensing requirements. Specifically, the law:

    • eliminates the Vehicle Protection Product Act;
    • abolishes the Vehicle Protection Product Warrantor Advisory Board;
    • requires the warrantor of a vehicle protection product to pay expenses to the person who purchases the product or system if loss or damage occurs due to failure of the product or system;
    • prohibits a retail seller from requiring a vehicle buyer—“as a condition of a retail installment transaction or the cash sale of a commercial vehicle”—to buy a vehicle protection product that is not installed on the vehicle at the time of the transaction, classifying this violation as a “false, misleading, or deceptive act or practice” actionable under the Deceptive Trade Practices-Consumer Protection Act; and
    • eliminates the licensing requirements for boot operators and boot companies, but requires a booting company to remove a boot within an hour of being contacted by the owner or forfeit all removal fees.

    The law takes effect September 1.

    State Issues State Legislation Consumer Finance Lending Consumer Lending Licensing Auto Finance

    Share page with AddThis
  • Gap Waiver Act Promulgated in Maine

    State Issues

    On June 12, Maine Governor Paul LePage signed into law S.P. 531, “An Act To Amend the Usage and Consumer Protections of Guaranteed Asset Protection [GAP] Waivers.” The Act applies to finance agreements for motor vehicles in which the creditor offers, for a separate charge, to “cancel or waive all or part of the amount due on a borrower’s finance agreement . . . in the event of a total physical damage loss or unrecovered theft.” The GAP waiver agreement must either be included in the auto finance agreement or attached to it as an addendum, and the waiver remains part of the finance contract when the contract is assigned, sold, or transferred. Additionally, the Act provides that the waiver may be sold in the state for a single or monthly payment, but “may not be considered a finance charge or interest” when disclosed in compliance with the Truth in Lending Act.

    A required disclosure with a GAP waiver is a “free-look” period during which the borrower can cancel the waiver agreement and receive a full refund of costs paid for the waiver as long as no waiver benefits have been provided. The waiver contract must also provide clear instructions for the borrower to follow in order to obtain waiver benefits, and the method for calculating the amount of the refund due if the contract is cancelled or terminated early.

    The law takes effect on January 1, 2018.

    State Issues State Legislation Truth in Lending Act Auto Finance Installment Loans

    Share page with AddThis
  • Texas Governor Passes Legislation Related to Vehicle Installment Contracts, Documentary Fees, and Deferred Presentment Transactions for Military Borrowers

    State Issues

    On June 9, Texas Governor Greg Abbott signed legislation (H.B. 2339) amending the state’s Finance Code provisions governing trade-in credit agreements related to motor vehicle retail installment contracts. The law now authorizes a seller—upon execution of a contract—to offer to sell to a buyer a “trade-in credit agreement,” which is “a contractual arrangement under which a retail seller agrees to provide a specified amount as a motor vehicle trade-in credit for the diminished value of the motor vehicle that is the subject of the retail installment contract in connection with which the trade-in credit agreement is offered if the motor vehicle is damaged but not rendered a total loss as a result of a collision accident, with the credit to be applied toward the purchase or lease of a different motor vehicle from the retail seller or an affiliate of the retail seller.” Specifically, a trade-in credit agreement is separate from a retail installment contract, not a term of the retail installment contract, and not insurance. The law further outlines changes related to the amount charged for a trade-in credit agreement as well as terms and conditions of the retail installment contract. The law takes effect September 1, 2017.

    On June 15, the governor signed legislation (H.B. 2949) relating to the maximum amount a retail seller of motor vehicles can charge for a documentary fee. Under the changed provisions, a seller is now required to provide written notice to the finance commission of the amount it intends to charge unless the documentary fee is considered reasonable, which is established as an amount “less than or equal to the amount of the documentary fee presumed reasonable . . . by rule of the finance commission.” In determining whether a fee is reasonable, the commissioner considers the resources a retail seller may need to employ to perform its duties when handling and processing documents related to the sale and financing of the vehicle. The law takes effect September 1, 2017.

    Separately on June 15, the governor signed legislation (H.B 2008) amending the Texas Finance Code to require a lender that enters into a deferred presentment transaction with a military servicemember or a dependent of a servicemember to comply with the Military Lending Act (MLA) (10 U.S.C. § 987) and its implementing regulation. The MLA prohibits creditors from extending consumer credit if the “creditor rolls over, renews, repays, refinances, or consolidates any consumer credit extended to the covered borrower by the same creditor with the proceeds of other consumer credit extended by that creditor to the same covered borrower.” Creditors engaged in deferred presentment transactions or similar payday loan transactions are subject to these limitations “provided however, that the term does not include a person that is chartered or licensed under Federal or State law as a bank, savings association, or credit union.” The law takes effect September 1, 2017.

    State Issues State Legislation Military Lending Act Servicemembers Auto Finance

    Share page with AddThis

Pages