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  • NY District Court holds CFPB structure is unconstitutional

    Courts

    On June 21, the U.S. District Court for the Southern District of New York terminated the CFPB as a party to an action against a New Jersey-based finance company and its affiliates (defendants), concluding that the CFPB’s organizational structure is unconstitutional and therefore, the agency lacks authority to bring claims under the Consumer Financial Protection Act (CFPA). As previously covered by InfoBytes, the Bureau and the New York Attorney General’s office (NYAG) filed a lawsuit in in February 2017, claiming the defendants engaged in deceptive and abusive acts by misleading first responders to the World Trade Center attack and NFL retirees with high-cost loans by mischaracterizing loans as assignments of future payment rights, thereby causing the consumers to repay far more than they received. The defendants sought dismissal of the case, arguing that, among other things, “the CFPB’s unprecedented structure violates fundamental constitutional principles of separation of powers, and the CFPB should be struck down as an unconstitutional administrative agency.”

    The court denied the defendants’ motion as to the NYAG, finding that it had plausibly alleged claims under the CFPA and New York law and had the independent authority to pursue those claims.  But the court concluded that the CFPB lacked such authority, noting that it was not bound by the recent decision of the D.C. Circuit upholding the Bureau’s constitutionality in PHH v. CFPB (covered by a Buckley Sandler Special Alert).  The court instead adopted portions of two separate dissents from that decision to conclude that the Bureau’s single director structure is unconstitutional and that the defect cannot be remedied by striking the limitations on the president’s authority to remove the Bureau director because the “removal for cause” provision is “at the heart of Title X” of Dodd-Frank.  Quoting one of the PHH dissents, the court stated, “I would strike Title X in its entirety.” 

    The court also rejected an attempt by acting Director Mulvaney to salvage the Bureau’s claims.  Although the action was initiated by Director Cordray, the Bureau filed a notice in May ratifying that decision and arguing that, because the Bureau is currently led by an acting director who can be removed by the president at will, defendants’ motion to dismiss the Bureau’s claims should be denied.  The court disagreed, concluding that the constitutional issues presented in the case “are not cured by the appointment of Mr. Mulvaney” because “the relevant provisions of the Dodd-Frank Act that render the CFPB’s structure unconstitutional remain intact.”

    Courts PHH v. CFPB State Attorney General CFPB CFPB Succession Consumer Finance CFPA

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  • CFPB fines installment lender $5 million for improper collection and credit reporting practices

    Federal Issues

    On June 13, the CFPB ordered a South Carolina-based installment lender and its subsidiaries to pay $5 million in civil money penalties for allegedly making improper in-person and telephonic collection attempts in violation of the Consumer Financial Protection Act (CFPA) and inaccurately furnishing information to credit reporting agencies in violation of the Fair Credit Reporting Act (FCRA). According to the consent order, between 2011 and 2016, the company and its subsidiaries (i) initiated collection attempts at consumers’ homes and places of employment; (ii) routinely called consumers at work to collect debts, sometimes after being told they were not allowed to receive calls; and (iii) contacted third parties and disclosed or were at risk of disclosing the existence of the consumer’s debt. The CFPB also alleges that the company and its subsidiaries failed to implement reasonable credit reporting procedures and failed to correct inaccurate information furnished to credit reporting agencies. In addition to the $5 million civil money penalty, the company and its subsidiaries must (i) cease improper collection practices; (ii) correct the credit reporting errors; and (iii) develop a comprehensive compliance plan.

    Federal Issues CFPB CFPA UDAAP FCPA Enforcement Debt Cancellation

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  • Court denies attorney’s move for summary judgment against CFPB as premature

    Courts

    On June 4, the U.S. District Court for the District of Maryland issued a Memorandum to Counsel denying defendants’ dispositive motions in a UDAAP action brought by the CFPB alleging the defendants employed abusive practices when purchasing structured settlements from consumers in exchange for lump-sum payments. As previously covered by InfoBytes, in September 2017, the court allowed the CFPB to move forward with its UDAAP claim against the company, its affiliates, and its officers but dismissed claims related to an attorney, finding that he satisfied the requirements for an exemption under the Maryland Consumer Financial Protection Act (MCFPA) for attorneys engaged in the practice of law. In December 2017, the CFPB filed an amended complaint, arguing that the consumers typically did not know the defendant was an attorney or acting as their attorney. The court agreed, holding that “it is logically impossible for a ‘client’ to form an attorney-client relationship with someone she does not know is an ‘attorney,’” and allowed the CFPB to resume the actions against the attorney.

    The attorney again moved to dismiss the amended complaint, or in the alternative for summary judgment on the claims. The court denied the motion to dismiss because it was based on the attorney’s disagreement with the CFPB’s allegation that the consumers were never informed he was an attorney—an inappropriate ground for such a motion. As for the motion for summary judgment, the court agreed with the CFPB that the motion was premature because discovery was ongoing.

    Courts CFPB Structured Settlement UDAAP CFPA

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  • Court enters default judgment in favor of CFPB against debt relief companies

    Courts

    On May 22, the U.S. District Court for the District of Maryland entered a default judgment, in favor of the CFPB, against two debt relief companies, their service provider, and their owners (defendants) for allegedly misleading consumers about their debt validation program. As previously covered by InfoBytes, the CFPB filed a complaint in October 2017 against the defendants for allegedly violating the Telemarketing Sales Rule and the Consumer Financial Protection Act by, among other things, purportedly claiming to be affiliated with the federal government and misrepresenting the abilities of their services. In granting the CFPB’s request for default judgment, the court held that the defendants failed to defend the action and ordered they pay almost $5 million in restitution, as well as $16 million in civil money penalties. In addition to the fines, the defendants are prohibited from engaging in telemarketing, debt relief and credit repair activities in the future.

    Courts CFPB Consumer Finance Debt Relief Enforcement CFPA Telemarketing Sales Rule UDAAP

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  • 5th Circuit will hear CFPB constitutionality challenge

    Courts

    On April 24, the U.S. Court of Appeals for the 5th Circuit agreed to hear a challenge by two Mississippi-based payday loan and check cashing companies to the constitutionality of the CFPB’s single-director structure. The CFPB filed a complaint against the two companies in May 2016 alleging violations of the Consumer Financial Protection Act for practices related to the companies’ check cashing and payday lending services, previously covered by InfoBytes here. The district court denied the companies’ motion for judgment on the pleadings, rejecting their arguments that the structure of the CFPB is unconstitutional and that the CFPB’s claims violate due process. However, the district court granted the companies’ motion to certify an interlocutory appeal as to the question of the constitutionality of the CFPB’s structure, referencing the D.C. Circuit’s decision in PHH Corp. v. CFPB, (covered by a Buckley Sandler Special Alert here), and noting the “substantial ground for difference of opinion as to this issue as exhibited by the differences of opinion amongst the jurists in the [D.C. Circuit] who have considered this issue.” The district court emphasized that the question is a “controlling question of law” that the 5th Circuit has yet to decide and, if the CFPB were determined to be an unconstitutional entity, this would materially advance the underlying action’s termination. A panel of the 5th Circuit has now granted the companies’ motion for leave to appeal from the interlocutory order on the issue of the constitutionality of the CFPB’s structure.

    Courts Fifth Circuit Appellate Federal Issues CFPB PHH v. CFPB CFPB Succession Dodd-Frank CFPA Payday Lending

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  • District Court denies payment company’s request to set aside judgment

    Courts

    On March 12, the U.S. District Court for the Northern District of California denied a company’s post-trial motions to set aside September 2017 judgments in a lawsuit brought by the CFPB for alleged violations of the Consumer Financial Protection Act (CFPA). Specifically, the bi-weekly payments company requested that the court set aside its injunction and reconsider a $7.93 million penalty in light of “new evidence” that demonstrated the company’s inability to pay the penalty. As previously covered by Infobytes, the CFPB filed the lawsuit in 2015, alleging, among other things, that the company made misrepresentations to consumers about its bi-weekly payment program by overstating the savings provided by the program and creating the impression the company was affiliated with the consumers’ lender. In denying the company’s motion, the court held that the company failed to present new evidence that would justify the relief. Additionally, the court rejected the argument that the permanent injunction placed on the company was overly burdensome, stating “in light of the evidence of defendants[’] prior practices…the limitations of the injunction reflect appropriate safeguards ‘to avoid deception of the consumer.’”

    Courts CFPB Payment Processors UDAAP CFPA

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  • District judge enters final judgment against company posing as a direct lender; rules in favor of CFPB

    Consumer Finance

    On January 30, a federal judge for the U.S. District Court for the Southern District of New York ordered a New Jersey-based company along with two associated individuals (defendants) to pay civil money penalties totaling $75,000 for allegedly offering loans to consumers who were awaiting payouts from legal settlements or victim-compensation funds. As previously covered in InfoBytes, the order stems from a complaint filed against defendants for allegedly engaging in deceptive acts and practices in violation of the Consumer Financial Protection Act by purportedly representing itself as a direct lender, when in actuality it did not provide loans to consumers, but instead brokered transactions while charging a commission for the service. Defendants neither admitted nor denied the allegations in the complaint. In addition to civil money penalties, the order permanently bans defendants from participating either directly or indirectly in any activities related to funding post-settlement litigation or victim compensation funds.

    Consumer Finance CFPB Lending UDAAP CFPA Enforcement

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  • CFPB Fines Large Bank for Alleged Student Loan Servicing Issues

    Lending

    On November 21, the CFPB announced it had entered into a consent order with a large national bank over allegations that the bank engaged in unfair and deceptive practices in violation of the Consumer Financial Protection Act of 2010 (CFPA) related to its student loan servicing activities. The order, which the bank consented to without admitting or denying the findings, asserts that for the student loan accounts it was servicing, the bank (i) misrepresented information to borrowers about tax benefits; (ii) failed to refund interest and fees inaccurately charged; (iii) misstated minimum monthly payment amounts in bills; and (iv) failed to provide required information when denying co-signer release requests. In addition to imposing a civil money penalty, the CFPB’s order requires the bank to pay restitution to certain consumers and implement certain policies.

    Lending Student Lending CFPB Enforcement UDAAP CFPA

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  • CFPB Fines Loan-Servicing Software Company $1.1 Million for Flaws Leading to the Reporting of Inaccurate Consumer Information

    Consumer Finance

    On November 17, the CFPB ordered a loan-servicing software company to pay a $1.1 million penalty for errors that resulted in the company furnishing incorrect consumer information related to over one million borrowers to the credit reporting agencies. The consent order alleges that the company violated the Consumer Financial Protection Act when its third-party software application generated and furnished inaccurate and incomplete information to consumer reporting agencies because of known software defects. The company allegedly did not share the existence of the defects with its auto-lender clients. In addition to the civil money penalty, the company was ordered to: (i) explain its errors to its clients; (ii) fix the faulty software; and (iii) provide the Bureau with a compliance plan outlining how it plans to identify and fix the defects, as well as ensure that the software is capable of reporting accurate information.

    Consumer Finance CFPB Enforcement Credit Reporting Agency Credit Scores CFPA UDAAP

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  • CFPB Initiates Complaint Against Company for Deceptive, Unfair, and Abusive Loan Collection Practices

    Consumer Finance

    On November 15, the CFPB announced it had filed a complaint against a Texas-based service provider, alleging that it had assisted in the collection of loans that were, in whole or in part, void under state law. The complaint filed in the U.S. District Court for the District of Montana alleges that the service provider, which provided services to three tribal lending entities engaged in the business of extending online installment loans and lines of credit, along with two companies responsible for the collection process (collectively defendants), assisted in the collection of loans that consumers were not legally obligated to pay based on identified states’ usury laws or licensing requirements. Although the specific claims vary by defendant, the complaint alleges that the defendants engaged in deceptive, unfair, and abusive acts and practices in violation of the Consumer Financial Protection Act (CFPA) by:

    • misrepresenting that consumers were responsible for money owed on loans that were void in whole or in part, or did not exist, because the loans were void under state licensing or usury laws (voided loans);
    • demanding repayment from consumers on voided loans by issuing “demand letters,” electronically debiting funds from consumer bank accounts, and placing phone calls to consumers;
    • failing to disclose to consumers that defendants had no legal right to collect on certain voided loans and that consumers were not legally obligated to repay the loans;
    • causing injury to consumers by servicing and collecting on the voided loans;
    • taking advantage of consumers’ “lack of understanding” regarding the voided loans; and
    • providing assistance in, or administering, the origination and collection of the voided loans.

    The CFPB is seeking monetary relief, civil money penalties, injunctive relief, and a prohibition of the service provider’s ability to commit future violations of the CFPA.

    Consumer Finance CFPB Debt Collection Installment Loans UDAAP CFPA

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