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  • Mississippi passes amendment concerning open-end credit finance charges

    State Issues

    On March 15, the Mississippi governor signed House Bill 1338, which amends sections of the Mississippi Code by authorizing state chartered or domiciled banks that offer open-end credit to assess finance charges, credit service charges, and other fees and charges “at rates and amounts . . . that financial institutions domiciled in other states are permitted to impose and collect when extending credit to Mississippi customers. . . .” In doing so, the amendment strives to retain existing financial services within the state. The amendment takes effect July 1.

    State Issues State Legislation Credit Cards Debit Cards

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  • 10th Circuit says FCBA claim ends if credit account is paid

    Consumer Finance

    On January 26, the U.S. Court of Appeals for the 10th Circuit affirmed a District Court’s decision dismissing a consumer’s claim that, under the Fair Credit Billing Act (FCBA), two credit card providers (collectively, defendants) must refund his accounts after a  merchant failed to deliver goods purchased using credit cards issued by the defendants. The FCBA allows consumers to raise the same claims against credit card issuers that can be raised against merchants, but limits such claims to the “amount of credit outstanding with respect to [the disputed] transaction.” According to the opinion, the consumer ordered nearly $1 million in wine from a merchant and prior to delivery of the complete order, the merchant declared bankruptcy. The consumer filed lawsuits against each credit card provider in the U.S. District Court for the District of Colorado seeking a refund to his credit accounts for the amounts of the undelivered wine. The District Court dismissed the suits against both defendants because the consumer had fully paid the balance on his credit cards. In affirming the District Court’s decision, the 10th Circuit concluded that because “‘the amount of credit outstanding with respect to’ the undelivered wine is $0” the consumer had no claim against the defendants under the FCBA.

    Consumer Finance Courts Credit Cards Tenth Circuit Appellate

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  • Ninth Circuit Rules Banning Credit Card Surcharges Violates First Amendment

    Courts

    On January 3, the U.S. Court of Appeals for the Ninth Circuit issued an opinion affirming a district court decision that a California law banning credit card surcharges violated the First Amendment because it was an unconstitutional restriction of speech and unconstitutionally vague. California Civil Code Section 1748.1(a) prohibits retailers from imposing surcharges on customers who pay with credit cards, but allows businesses to offer discounts for cash or debit card payments. In 2014, plaintiffs challenged the constitutionality of the law, and the district court granted summary judgment in favor of the plaintiffs and permanently enjoined its enforcement, holding that the statute violated the First Amendment because it amounted to “a content-based restriction on commercial speech rather than an economic regulation.” The California Attorney General's Office appealed.

    The Ninth Circuit affirmed the district court decision, finding that California Civil Code Section 1748.1(a) could not withstand intermediate scrutiny because (i) the plaintiffs’ speech was not misleading, (ii) Section 1748.1(a) failed to promote California’s interest in protecting consumers from deception, and (iii) Section 1748.1(a) was more extensive than necessary to achieve California’s stated interest for the regulation. Though the panel affirmed the district court’s ruling, it also modified the district court’s injunction to apply only to the plaintiffs, and only with respect to the specific pricing practice they seek to employ.

    See previous InfoBytes coverage here on court decisions regarding credit card surcharges

    Courts Ninth Circuit Credit Cards

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  • Buckley Sandler Insights: OMB releases updated and possibly outdated CFPB rulemaking agenda

    Agency Rule-Making & Guidance

    OMB has released the CFPB’s Fall 2017 rulemaking agenda. Although this is the first update to the agenda since Richard Cordray left the agency in November 2017, delays in the publication of rulemaking agendas are common so the updated agenda may not reflect the views of new CFPB leadership. The updated agenda does not appear on the Bureau’s website. Further:

    • HMDA & ECOA Amendments: The updated agenda states that the Bureau planned to determine by December 2018 whether to make permanent adjustments to the threshold for reporting open-end lines of credit. However, as discussed in greater detail here, the CFPB stated on December 21 that it intended to engage in a broader rulemaking to (i) re-examine the criteria determining whether institutions are required to report data; (ii) adjust the requirements related to reporting certain types of transactions; and (iii) re-evaluate the required reporting of additional information beyond the data points required by the Dodd-Frank Act.
    • Prepaid Cards: The updated agenda states that the CFPB expected to finalize amendments to its rule on prepaid cards in November 2017, but no final amendments have been issued. Instead, on December 21, the CFPB announced its intent to adopt final amendments “soon after the new year” and stated that it expects to extend the April 1, 2018 effective date to allow more time for implementation.
    • Debt Collection: The updated agenda states that the CFPB expects to issue a proposed rule in February 2018 “concerning FDCPA collectors’ communications practices and consumer disclosures.” However, on December 14, OMB announced that the CFPB had withdrawn its planned survey regarding debt collection disclosures because “Bureau leadership would like to reconsider the information collection in connection with its review of the ongoing related rulemaking.”

    See previous InfoBytes coverage on the HMDA, Prepaid, and Debt Collection rulemaking updates.

    Other noteworthy aspects of the updated agenda include:

    • Regulation Reviews: The updated agenda reiterates the Bureau’s intent to review the regulations inherited from other agencies and “clarify ambiguities, address developments in the marketplace, and modernize or streamline regulatory provisions.” The updated agenda lists “pre-rule activities” as continuing through February 2018, rather than September 2017 under the prior agenda.
    • “Larger Participants” in Installment Lending: Consistent with the prior agenda, the CFPB states that it is preparing a proposed rule to define the “larger participants” in the personal loan market (including consumer installment loans and vehicle title loans) that will be subject to Bureau examinations. The updated agenda also states that the Bureau is still considering “whether rules to require registration of these or other non-depository lenders would facilitate supervision, as has been suggested to the Bureau by both consumer advocates and industry groups.” However, while the prior agenda indicated that a proposal was expected in September 2017, the new agenda lists May 2018.
    • Overdrafts: The updated agenda states only that the CFPB is “continuing to engage in additional research and consumer testing initiatives relating to the opt-in process” for overdraft protection and that “pre-rule activities” will continue through this month.  Under the prior agenda, pre-rule activities were scheduled to continue through June 2017.
    • Small Business Lending: The agenda indicates that the long-delayed implementation of the small business data reporting provisions of the Dodd-Frank Act will be delayed even longer. The last agenda listed “pre-rule activities” as continuing through June 2017, stating that the CFPB “is focusing on outreach and research to develop its understanding of the players, products, and practices in the small business lending market and of the potential ways to implement section 1071.” The new agenda states that these activities will continue until May 2018, after which the Bureau “expects to begin developing proposed regulations concerning the data to be collected, potential ways to minimize burdens on lenders, and appropriate procedures and privacy protections needed for information-gathering and public disclosure.”
    • TRID/Know Before You Owe Amendments: The updated agenda lists April 2018 as the expected release date for finalization of the July 2017 proposed rule addressing the “black hole” issue, which is discussed in a Buckley Sandler Special Alert. The prior agenda listed March 2018.
    • Mortgage Servicing Amendments: In October 2017, the CFPB issued proposed amendments to the mortgage periodic statement requirements to further address circumstances in which servicers transition between modified and unmodified statements in connection with a consumer’s bankruptcy case. The updated agenda does not provide an expected release date for final amendments.
    • Credit Card Agreement Submission: The agenda continues to state that the Bureau is considering rules to modernize its database of credit card agreements to reduce the submission burden on issuers and to make the database more useful for consumers and the general public. The agenda lists “pre-rule activities” as continuing through February 2018. Under the prior agenda, pre-rule activities were scheduled to continue through October 2017.

    Agency Rule-Making & Guidance CFPB HMDA ECOA Prepaid Cards Debt Collection Installment Loans Overdraft Small Business Lending TRID Mortgage Servicing Credit Cards

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  • CFPB Releases Biennial Credit Card Report

    Consumer Finance

    On December 27, the CFPB released its biennial report on the state of the U.S. credit card market, finding that the total amount of credit lines, the total number of credit accounts, the total number of enrollments in online services, and the total amount of debt have increased since 2015. The report also found that the overall credit card cost to consumers has “proved largely stable” since 2015. Among other things, the report concludes:

    • The total amount of credit lines has increased steadily since the recession but still remains below the mid-2008 high of $4.4 trillion.
    • Over the last two years, credit card debt averages have increased by more than nine percent.
    • Credit card originations have increased by roughly 50 percent since 2010 but still remain below pre-recession volumes.
    • More than 60 percent of active credit card accounts enroll in online services.

    Consumers average fewer credit cards than before the recession, and more consumers are signing up for secured credit cards.

    Consumer Finance CFPB Credit Cards

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  • FTC Seeks Order to Stop Alleged Telemarketing Debt Relief Scam

    Consumer Finance

    On December 4, the FTC announced that it charged two debt relief companies and five individuals with violations of the FTC Act and the Telemarketing Sales Rule (TSR) in connection with their sale of “bogus” credit card interest rate reduction services. According to the complaint, the defendants contacted consumers using illegal robocalls and made false guarantees to “substantially and permanently” lower the consumers’ credit card interest rates and/or save the consumer thousands of dollars in interest payments. However, the scheme rarely obtained the promised results. In some instances where consumers did get lower interest rates, those rates were only temporary “teaser” rates that did not result in a permanent rate reduction. In addition, defendants failed to disclose the associated balance transfer fees that accompanied the lower teaser rates. The FTC also charged the defendants with TSR violations for (i) collecting illegal upfront fees; (ii) making illegal robocalls; (iii) contacting consumers on the National Do Not Call Registry; and (iv) not paying the required fees to the Registry. The FTC charged one additional individual defendant with substantially assisting the two debt relief operations with the allegedly illegal conduct. The FTC is seeking a temporary restraining order (TRO) against the defendants, requesting the appointment of a receiver to control the two corporate entities, and an asset freeze to assist in potential consumer redress.

    Consumer Finance FTC Credit Cards Debt Settlement Telemarketing Sales Rule

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  • OFAC Penalizes Credit Card Issuer for Violations of Cuban Assets Control Regulations

    Financial Crimes

    On November 17, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced that it had reached a $204,277 settlement with a U.S. financial institution for alleged violations of the Cuban Assets Control Regulations (CACR). The settlement involves actions taken by an international credit card company which, at the time of the apparent violations, was a wholly owned subsidiary of an entity that was itself 50 percent owned by the U.S. financial institution. According to the announcement, between 2009 and 2014, credit cards that the company issued to over 100 corporate customers were used to make purchases in Cuba or otherwise involved Cuba. OFAC asserts that the company failed to implement controls to prevent this even though it had policies and procedures in place to review transactions for compliance with CACR.

    In determining the settlement amount, OFAC considered that (i) employees within the company had reason to know of the conduct that led to the alleged violations; (ii) none of the entities involved appeared to appreciate the risk that the credit cards might be used in Cuba; (iii) at the time they occurred, the actions resulted in harm to the US sanctions program objectives; (iv) the U.S. financial institution is a large and sophisticated financial entity; and (v) during the investigation, the entities provided “verifiably inaccurate or incomplete, including material omissions.” OFAC also considered the fact that the entities voluntarily self-disclosed the alleged violations and the U.S. financial institution took “swift and appropriate remedial action” upon discovery.

    OFAC recently announced updates to CACR, covered by InfoBytes here.

    Financial Crimes OFAC Department of Treasury Enforcement Settlement Credit Cards

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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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  • Federal Reserve Board Issues Consent Order for the Alleged Deceptive Marketing of Balance Transfer Credit Cards

    Consumer Finance

    On October 26, the Federal Reserve Board (Fed) announced it had entered into a consent order with Mid America Bank & Trust Company (Mid America) over allegations that the bank engaged in deceptive practices in violation of the FTC Act involving balance transfer credit cards issued to consumers through third party independent service organizations. On the same day, the Fed announced its approval of an application by Reliable Community Bankshares, Inc. to acquire Mid America’s holding company, Mid America Banking Corporation. The allegations pertain to the adequacy of marketing materials, disclosures and other customer communications that described certain terms of the balance transfer cards such as credit reporting, available credit, and application of the statute of limitations to transferred balances. The Fed’s order requires the bank to refund certain fees, account balances and payments to its cardholders and other non-monetary actions, including compliance program enhancements. The order did not impose a civil money penalty.

    Consumer Finance Credit Cards Settlement FTC Act Federal Reserve

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  • New York AG, Credit Card Servicer Enter Into Agreement to Refund Credit Card Fees

    State Issues

    On October 30, New York Attorney General Eric T. Schneiderman announced an agreement with a credit card servicer and marketer to resolve allegations that the servicer failed to disclose upfront fees in its direct mail marketing materials. According to Attorney General’s office, the servicer failed to disclose a $125 “off-the-top first year fee” for a low-limit card product, which effectively reduced the card’s credit limit from $500 to $375. Under the terms of the agreement, the servicer is required to improve the disclosures in its direct mail marketing and issue refunds of the $125 fee to affected New York consumers.

    State Issues State Attorney General Consumer Finance Credit Cards

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