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  • CFPB Urges Supreme Court to Reject Tribal Lenders' Petition

    Courts

    On November 9, the CFPB filed a brief with the Supreme Court opposing the petition for a writ of certiorari submitted by online tribal lending entities.  The lenders are challenging a January decision by the Ninth Circuit Court of Appeals, which ordered the entities to comply with a CFPB investigation (previously covered by Infobytes). The litigation stems from the issuance of a civil investigative demand (CID) by the CFPB to online lending entities owned by Native American tribes. The entities argue that due to tribal sovereignty, the CFPB does not have jurisdiction over the small-dollar lending services in question. The district court and the Ninth Circuit concluded that the Consumer Financial Protection Act (CFPA) did not expressly exclude tribes from the CFPB’s enforcement authority and therefore, the entities cannot claim tribal sovereign immunity.

    In its brief opposing the certiorari petition, the CFPB argues that the Ninth Circuit’s holding does not conflict with any prior Supreme Court or court of appeals decision, making further review unwarranted. The CFPB also argues, among other things, that Supreme Court review is unnecessary because “[t]he question at this juncture is solely whether the Bureau may obtain information from petitioners pursuant to a CID,” not “whether petitioners are subject to the Bureau’s regulatory authority.” 

    Courts CFPB Payday Lending Consumer Lending U.S. Supreme Court Appellate Ninth Circuit

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  • Federal Reserve Releases Survey on Bank Lending Practices

    Lending

    On November 6, the Federal Reserve Board (Fed) released its October 2017 Senior Loan Officer Opinion Survey on Bank Lending Practices. Responses came from both domestic banks and U.S. branches and agencies of foreign banks, and focused on bank loans made to businesses and households over the past three months. The October survey results indicated that over the third quarter of 2017, on balance, lenders eased their standards on commercial and industrial loans with demand for such loans decreasing. However, lenders left their standards on commercial real estate (CRE) loans unchanged and reported that demand for CRE loans weakened. As to loans to households, banks reported that standards for all categories of residential real estate (RRE) lending “either eased or remained basically unchanged,” and that the demand for RRE loans also weakened.

    The survey also included two sets of special questions addressing changes in household lending conditions.

    The first set of these special questions asked banks to specify the reasons for changing this year their credit policies on credit card and auto loans to prime and subprime borrowers. Respondents’ most reported reasons for tightening standards or terms on these types of loans were (i) “a less favorable or more uncertain economic outlook”; (ii) “a deterioration or expected deterioration in the quality of their existing loan portfolio”; and (iii) “a reduced tolerance for risk.” Auto loan reasons also focused on “less favorable or more uncertain expectations regarding collateral values.”

    The second set of these special questions asked banks for their views as to why they have experienced stronger or weaker demand for credit card and auto loans over this year. Respondents’ reported that a strengthening of demand for credit card and auto loans from prime borrowers could be attributed to customers’ confidence as well as their improved ability to manage debt service burdens. The most reported reasons for weakened demand for credit card and auto loans from prime borrowers were an increase in interest rates and a shift in customers’ borrowing “from their bank to other bank or nonbank sources.”

    For additional details see:

    Lending Federal Reserve Consumer Lending Auto Finance Credit Cards Consumer Finance

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  • OCC Releases Spring 2017 Semiannual Risk Report

    Agency Rule-Making & Guidance

    On July 7, the Office of the Comptroller of the Currency (OCC) announced the release of its Semiannual Risk Perspective for Spring 2017 indicating key risk areas for national banks and federal savings associations. Acting Comptroller of the Currency Keith Noreika pointed out in his remarks that, “[w]hile these are risks that the system faces as a whole, we note that the risks differ from bank to bank based on size, region, and business model. Compliance, governance, and operational risk issues remain leading risk issues for large banks while strategic, credit, and compliance risks remain the leading issues for midsize and community banks.”

    The report details the four top risk areas:

    • Elevated strategic risk—banks are expanding into new products and services as a result of fintech competition. According to the report, this competition is increasing potential risks. The OCC hopes to finish developing a special purpose banking charter for fintech companies soon.
    • Increased compliance risk—banks must comply with anti-money laundering rules and the Bank Secrecy Act in addition to addressing increased cybersecurity challenges and new consumer protection laws.
    • Upswing in credit risk—underwriting standards for commercial and retail loans have been relaxed as banks exhibit greater enthusiasm for risk and attempt to maintain loan market share as competition increases.
    • Rise in operational risk—banks face increasingly complex cyber threats while relying on third-party service providers, which may be targets for hackers.

    The report used data for the 12 months ending December 31, 2016.

    Agency Rule-Making & Guidance OCC Risk Management Consumer Finance Payments Consumer Lending Privacy/Cyber Risk & Data Security Anti-Money Laundering Military Lending Act Compliance Bank Regulatory Vendor Management

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  • FTC Announces Settlement of More Than $104 Million with Company for Selling Sensitive Financial Information

    Privacy, Cyber Risk & Data Security

    On July 5, the FTC issued a press release announcing a settlement of more than $104 million with a lead generation company for allegedly misleading loan applicants with promises of matching consumers with lenders that could offer the best loan terms. Actually, the FTC asserts, defendants were selling the applications, including sensitive personal information such as Social Security numbers and bank account numbers, to anyone who would pay for them “without regard for how the information would be used or whether it would remain secure.”

    The proposed order accompanying the settlement states that defendants used deceptive and unfair acts or practices in the course of their lead generation activities, and permanently prohibits defendants from misrepresenting financial products or services to consumers. It also enjoins defendants from selling or transferring a consumer’s personal information unless the consumer has provided consent and provides that defendants may not benefit from any consumer information collected before the entry of the order. Further, defendants must destroy all personal consumer information in any form within 30 days after the order.

    In addition to the above settlement terms, the defendants agreed to (i) compliance monitoring, (ii) creating certain records for ten years after the date of entry of the order, and (iii) compliance reporting

    Although defendants have filed for bankruptcy, they agreed that the amount owed to the FTC in the settlement will not be dischargeable.

    Privacy/Cyber Risk & Data Security Courts Consumer Lending Internet Lending FTC

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  • North Carolina Changes Retail Installment Sales Act Default Fee

    State Issues

    On June 12, the General Assembly of North Carolina ratified Senate Bill 577, which amends the North Carolina Retail Installment Sales Act. Specifically, Senate Bill 577 modifies the late charge on an installment sale contract to be a flat fee of fifteen dollars, which is an increase from the prior limit of the lesser of five percent of the installment payment amount or six dollars. The amendment became effective on June 26 and applies to defaults from that day forward.

    State Issues CFPB State Legislation Consumer Finance Lending Consumer Lending

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  • 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

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  • Iowa Enacts Amendments to Consumer Credit Code

    State Issues

    Two amendments to the Iowa Consumer Credit Code (ICCC) recently signed into law by Iowa Governor Terry Branstad will go into effect July 1. The ICCC applies to, among others, consumer credit transactions, retail installment sales, lending transactions, and motor vehicle financing.

    Senate File 502, which relates to banks, credit unions, and specific consumer credit transactions, adds a new subsection 2A to the ICCC, which states a supervised loan made in violation of subsection 2 is void and “the consumer is not obligated to pay either the amount financed or the finance charge.” Additionally, “[i]f the consumer has paid any part of the amount financed or the finance charge, the consumer has the right to recover the payment from the [lender] . . . or from an assignee . . . who undertakes direct collection of payments or enforcement of rights arising from the debt.” Open-end loans have a statute of limitations of two years from the date of the violation, and closed-end loans have a statute of limitations of one year after the due date of the last scheduled payment. Other changes under Senate File 502 include a removal of the ban prohibiting returned check fees, an increase in the maximum late fee applied to transactions, and a clause that allows credit reporting charges to be excluded from finance charges.

    Senate File 503, which concerns “the deferral of unpaid installments and deferral charges for certain interest-bearing consumer credit transactions,” contains the following changes, among others: (i) parties may agree in writing to the deferral of unpaid installments before or after default, and (ii) deferral charges are permitted on closed-end, interest-bearing transactions and limited to $30.

    State Issues State Legislation Debt Collection Consumer Lending Consumer Finance

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  • CFPB Monthly Complaint Snapshot Highlights Complaints from Older Consumers

    Consumer Finance

    On May 31, the CFPB released Vol. 23 of its Monthly Complaint Report. This month’s report highlights complaints from “older consumers” defined as those who voluntarily report their age as 62 or older. Since it began accepting complaints, the Bureau has received over 1 million complaints—more than 100,000 from older consumers. The report focuses on these complaints, with some of the most common in 2017 including:

    • Reverse mortgage servicing issues, which are unique to this group of consumers. Many of the complaints surround older consumers attempting to stay in their home after the death of the borrowing spouse, occasionally ending in foreclosure;
    • Financial scams and identity theft issues are often difficult to recover from—especially for consumers on fixed-incomes;
    • Credit card issues such as introductory offers may cause confusion for older consumers in understanding credit terms and conditions or the difference between zero interest and deferred interest. Additionally, many older consumers struggle with billing disputes, unwanted subscription services and credit monitoring; and
    • Escrow issues, especially when the consumer is trying to benefit from tax relief programs.

    The graph shown in a blog on the Bureau’s website compares complaints from consumers 62 and older with complaints from consumers under 62. Although both groups of consumers reported complaints for many of the same products, the graph shows that mortgages, debt collection and credit cards, in that order, are the top three products for those 62 and older—whereas debt collection, mortgages and credit reporting are the top three for those under 62. Additionally, the report reveals that almost a quarter of all complaints from older consumers came from residents of California, Texas, and Florida.

    Consumer Finance CFPB Mortgage Servicing Credit Cards Consumer Complaints Consumer Lending Fair Lending Privacy/Cyber Risk & Data Security

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  • Nation's Biggest Bank Agrees to $55 Million Settlement with DOJ Regarding Allegations of Discriminatory Lending Practices

    Courts

    On January 18, the DOJ filed a lawsuit in the United States District Court for the Southern District of New York accusing a national bank of discriminating against minorities in home lending. According to the government’s complaint, the DOJ alleges, among other things, that the bank “failed to adequately monitor for and fully remedy the effects of race and national origin disparities in APR” and did not “maintain adequate data to determine whether it was discriminating” before ending its wholesale lending practice in late 2009. Two days later, on January 20, the bank agreed to settle the matter and will pay $55 million, while denying any wrong doing. The bank maintains its view that the DOJ’s case is based on legacy allegations that concern pricing decisions of independent third-party brokers. The details of the settlement have not been released as of the publication date of this post.

    Courts Banking Mortgages Consumer Lending DOJ Discrimination

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  • OCC Comptroller Curry Addresses Regulatory Concern Related to Fintech Industry; Outlines Possible Fintech Charter

    Consumer Finance

    On September 13, OCC Comptroller Curry delivered remarks at the Marketplace Lending Policy Summit, an inaugural event during which policy implications and regulatory concerns prevalent in the marketplace lending industry were discussed. Similar to past reports and remarks about marketplace lending, Curry expressed concern that the underwriting and business models used by the industry have yet to go through a complete credit cycle: “A less favorable credit cycle will test this business in ways it hasn’t yet experienced, and how sources of funding will hold up under stress remains to be seen.” In addition, drawing attention to the “long-term performance” issues related to marketplace lending, Curry posed the following inquiries: (i) whether new credit underwriting technologies and algorithms comply with existing laws and regulations, such as the Equal Credit Opportunity Act; (ii) whether existing laws, such as the Community Reinvestment Act, should be “amended radically” to ensure that consumers are sufficiently protected against nonbank lenders; (iii) whether an entirely new regulation or law is needed to “protect the public’s interest or prevent risk to the broader financial system”; and (iv) whether innovation itself should be regulated, and, if so, by which primary regulator(s). Notably, Comptroller Curry revealed that the OCC is in the process of developing a potential federal “fintech charter,” a framework that is expected to be released this fall. Comptroller Curry emphasized that, if the OCC grants limited-purpose fintech charters, institutions receiving the charters “will be held to the same strict standards of safety, soundness, and fairness that other federally chartered institutions must meet.”

    OCC Fair Lending ECOA Consumer Lending Fintech Marketplace Lending

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