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  • CFPB submits brief alleging “forum shopping,” banking groups defend their choice of venue

    Courts

    On March 12, the CFPB submitted a brief to the U.S. District Court for the Northern District of Texas in opposition to a motion for preliminary injunction filed by a group of industry associations, urging the court to block the implementation of a new rule that would limit the ability of large credit card issuers to charge late fees (covered by InfoBytes here).

    The CFPB defended the rule by stating that it has considered all relevant factors and that the rule aimed to prevent credit card issuers from charging excessive late fees. The CFPB also argued that the case is not properly situated, as the plaintiffs lack a significant connection to the district in which they filed the lawsuit and do not have the standing to sue on behalf of others, stating “it seems not one large card issuer wants its name on the marquee… [t]he rule applies to only the largest card issuers—approximately 30–35 total entities nationwide. Plaintiffs have not identified a single one that is based in this District.” The CFPB suggested that plaintiffs have engaged in “forum shopping”—i.e., choosing this court because they believe it will be more favorable to their case, despite a lack of substantial connection to the district. The brief stated that the plaintiffs are unlikely to succeed on the merits of their claims under the Administrative Procedure Act because they failed to establish proper venue and associational standing. Additionally, the CFPB argued that an injunction was not warranted because the rule was designed to protect consumers and that preventing its implementation would be against the public interest.

    On March 13, plaintiffs submitted a brief defending its motion for preliminary injunction and their choice of venue in Texas as part of an ongoing suit against the CFPB. The brief stated that according to law, the venue was appropriate if one plaintiff resided in the district, which applied to one of the Texas-based chamber plaintiffs, and if a significant portion of the related events occurred in the district, which is true as the rule impacted the local area. That plaintiff argued they have standing to sue because the issues are relevant to its “mission of cultivating a ‘thriving business climate in the Fort Worth region’” and its trade members included credit card issuers affected by the rule. Despite the CFPB’s counterarguments that the plaintiff lacked standing and that a transactional venue was not applicable, the plaintiff asserted it represented members that would be directly impacted by the rule, fulfilling the requirements for standing. Additionally, plaintiff contended that the rule's effects within the district justify the court's jurisdiction over the case.

    Courts CFPB Consumer Finance Fees Agency Rule-Making & Guidance Litigation

  • Senator Romney et al. pen letter confirming nonbank lending regulations, specifically on the ILC charter

    On March 13, Senator Mitt Romney (R-UT) with 11 other senators penned a brief letter to the heads of the FDIC, OCC, and CFPB that supported the FDIC’s regulation of the industrial loan company (ILC) charter but expressed concerns about delay in processing ILC charter applications. According to the letter, ILCs provide “critical access to credit opportunities within the regulated banking sector.” The letter stated the senators “strongly oppose” regulatory actions against lawful ILC charter applications that may further delay FDIC review and decision-making.

    Bank Regulatory Federal Issues ILC FDIC OCC CFPB

  • U.S. SDNY grants partial summary judgment in favor of bank’s FCRA case

    Courts

    Recently, the U.S. District Court for the Southern District of New York opined on a bank’s motion for partial summary judgment, granting the motion as to whether the bank “knowingly” violated the FCRA but denying whether the bank acted “recklessly.” The complaint originated when the individual plaintiff opened a credit card and the plaintiff, along with other cardholders, was enrolled in a disaster relief program (DRP) that provided short-term relief for customers negatively impacted by the Covid-19 pandemic. The plaintiff alleged that the bank reported an outstanding account balance to the credit bureaus as delinquent despite promising that the balance would not be reported due to the protections of the DRP. Upon discovering this, the plaintiff disputed the reporting with the bank. The bank then investigated the plaintiff’s payment history, concluding that there had been no error because there was in fact an outstanding delinquent balance. The plaintiff eventually filed complaints with the CFPB in 2022 and proceeded to file suit later that year.

    The plaintiff alleged that the Bank failed to conduct a reasonable investigation by limiting the investigation to the plaintiff’s payment history, and by failing to consider whether the delinquent balance should have been reported due to the protections of the DRP. The court found that a reasonable jury could determine the bank recklessly reported the outstanding account balance to the credit bureaus without performing a reasonable investigation, and thus denied summary judgment. The court noted that the bank’s investigation relied on automated computer programs as to some items, and a manual review that was limited to the account history as to other items. 

    The bank argued it did not “knowingly” violate the FCRA. The court agreed and found the bank could not be “consciously aware” that a violation would come about as a result of its investigation, concluding the bank is entitled to summary judgment on whether it “knowingly” violated § 1681s-2(b) of FCRA. 

    Courts SDNY FCRA Covid-19 CFPB

  • Trusts are covered persons subject to the CFPA, 3rd Circuit upholds CFPB FDCPA case

    Courts

    On March 19, the U.S. Court of Appeals for the Third Circuit filed an opinion remanding a case between the CFPB and defendant statutory trusts to the District Court. After issuing a civil investigative demand in 2014, the CFPB initiated an enforcement action in September 2017 against a collection of 15 Delaware statutory trusts that furnished over 800,000 private loans and their debt collector for, among other things, allegedly filing lawsuits against consumers for private student loan debt that they could not prove was owed or was outside the applicable statute of limitations (covered by InfoBytes here). Then, early last year, the parties settled and asked the court to enter a consent judgment, which was denied (covered by InfoBytes here).

    The 3rd Circuit addressed two questions: (i) whether the trusts are covered persons subject to the CFPA; and (ii) whether the CFPB was required to ratify the underlying action that questioned a constitutional deficiency within the Bureau. On the statutory issue, the court found that the trusts fell within the purview of the CFPA because trusts “engage” in offering or providing a consumer financial product or service, specifically student loan servicing and debt collection, as explicitly stated in the trust agreements each trust entered. Regarding the constitutional question, the defendants argued that the Bureau needed to ratify the underlying suit because it was initiated while the agency head was improperly insulated, and since the Bureau ratified it after the statute of limitations had run, the suit was untimely. The court disagreed and found that the defendants’ analysis of the here-and-now injury “doesn’t go far enough,” therefore the CFPB did not need to ratify this action before the statute of limitations had run because the impermissible insulation provision does not, on its own, cause harm.  

    Courts Federal Issues CFPB Third Circuit FDCPA Student Lending Debt Collection Enforcement Consumer Finance CFPA

  • Chopra pens comment letter on appraisal issues, including bias, related to not-for-profit player’s oversight

    Federal Issues

    On March 18, the Director of the CFPB, Rohit Chopra, in his capacity as a voting member of the FFIEC, released a comment letter regarding the recent Appraisal Subcommittee hearings. He opened on how the appraisal process was governed not by a governmental agency, but instead by a not-for-profit corporation leading to “key issues” related to appraisal bias. Despite its private status, this organization was governed by the Appraisal Subcommittee which monitors and reviews the organizational structure of the not-for-profit appraisal corporation. Chopra outlined several issues gleaned from the four hearings: First, Chopra noted “severe deficiencies” with the not-for-profit’s conflict of interest policies, noting that the Executive Branch’s conflict of interest policies for employees spanned 77 pages, while the not-for-profit’s policy was less than 10. Second, the not-for-profit has an “insular and contorted governance structure” that favors private over public interests. And third, the Appraisal Foundation’s governance processes, such as electing its President, lack transparency. Chopra highlighted these three examples and described the overall lack of accountability as “deeply troubling” because the not-for-profit was one of the most powerful players when it comes to appraisals.

    Federal Issues Appraisal Nonprofit CFPB

  • Chopra discusses open banking and standard-setting

    Federal Issues

    On March 13, the Director of the CFPB, Rohit Chopra, delivered prepared remarks at the Financial Data Exchange Global Summit and discussed advancing the U.S. towards open banking. Chopra outlined the current efforts and considerations surrounding the development of industry standards that would help transition consumers with switching financial products. The CFPB had been finalizing rules on Section 1033 of the CFPA which would grant consumers the right to access their financial data and would aim to protect sensitive personal financial information while promoting open banking (covered by InfoBytes here).

    Chopra highlighted the importance of creating industry standards for data sharing and communication protocols, drawing parallels with existing standards in electronics and financial services. While the CFPB's proposal acknowledged the role of standards, Chopra noted that it intentionally avoided being overly “prescriptive” to avoid stifling innovation, among other things.

    The speech also addressed the potential for anticompetitive behavior in the standard-setting process. Chopra noted historical instances of anticompetitive behavior, a concern that the CFPB had been monitoring closely. The Bureau will be working with the DOJ to prevent such practices.

    The Bureau sought to codify what standard-setting organizations must demonstrate to be recognized under the proposed rule, then invite those organizations to begin the process of receiving formal recognition from the CFPB. Based on the comments received on the proposed rule, Chopra expects that by this fall, the final rule will “identify the areas where standards are relevant to the requirements of the final rule.” Chopra also noted the CFPB considered whether standard-setting organizations should be balanced so no entity or group of entities can “dominate[] decision making.” He noted that the Bureau will investigate the makeup of entities’ standard-setting/modification groups and funding structure, warning if an entity’s composition or funding suggests favoritism, then “that will be a problem.” Chopra noted that if the CFPB cannot identify standard-setting organizations, it is prepared to implement more detailed guidance.

    Federal Issues CFPB Open Banking CFPA Agency Rule-Making & Guidance

  • Banking associations petition District Court for summary judgment against CFPB’s Final Rule on small business lending

    Courts

    On March 1, several banking associations (plaintiffs) petitioned a district court under a motion for summary judgment in an ongoing case against CFPB’s Final Rule in §1071, claiming that the Final Rule goes beyond the scope of the CFPB’s rulemaking authority. (For rule, see 88 Fed. Reg. 35150 from May 31, 2023). As previously covered by InfoBytes, the Court last ordered granting motions for a preliminary injunction against the CFPB and its small business loan rule. The rule expanded the number of data points to 81 so certain lenders––including women-owned, minority-owned, and small businesses––would be required to disclose to covered financial institutions. The plaintiffs argued that the Final Rule would be a “fruitless attempt to capture the complexity of small business lending” given the number of extraneous data fields and would not fulfill the underlying purpose of the rule set forth by ECOA. That purpose would be to “facilitate enforcement of fair lending laws and enable communities, government entities, and creditors to identify business and community development needs and opportunities for credit for women-owned, minority-owned, and small businesses.”

    In their argument, the banking associations alleged that the CFPB had exceeded its statutory authority by requiring the extra data disclosures, that the data would not provide any tangible benefit, and that implementation of the rule is arbitrary and capricious as it ignores the significant costs that will be incurred by requiring lenders to provide such a large amount of extra information. The plaintiffs emphasized that while Congress granted the CFPB the power to add data points to information a lender might be expected to disclose, the CFPB exceeded its authority in adopting the Final Rule and that its only consequence “will be the imposition of a staggering compliance burden on lenders” and ultimately reduce opportunities for small businesses.

    Courts CFPB Small Business Section 1071 ECOA Congress

  • CFPB releases consumer advisory for student borrowers notifying them of April deadline to cancel

    Federal Issues

    On March 11, the CFPB published a consumer advisory notifying student loan borrowers that they may have an opportunity to cancel or receive credits toward the cancellation of their student loans but some borrowers will need to consolidate their loans by April 30 in order to obtain the benefit. The Department of Education has implemented a “one-time adjustment” to help borrowers receive credit toward federal student loan cancellation. This adjustment is designed to enable the counting of more payments, including all payments made on federally managed loans since July 1, 1994, as well as certain periods of deferment, economic hardship, and forbearance. Generally, federal student loans are eligible for Income Driven Repayment (IDR) plans, which offer loan cancellation after 10, 20, or 25 years of qualifying payments, or after 10 years for those pursuing Public Service Loan Forgiveness (PSLF), provided other eligibility criteria are met. The Bureau also noted that consolidation is free, warning against scammers who would charge for that service.

     

    Federal Issues CFPB Consumer Finance Student Lending Department of Education Income-Driven Repayment

  • Business groups sue the CFPB over credit card late fee rule

    Courts

    On March 7, several business groups (plaintiffs) sued the CFPB rule in the U.S. District Court for the Northern District of Texas over its announced credit card late fee rule. As previously covered by InfoBytes, the Bureau’s new final rule limited most credit card late fees to $8, among other actions, and was met immediately with criticism from banks and legislators.

    The plaintiffs’ complaint claimed the CFPB completed the rule hastily to implement a pledge made by President Biden around his State of the Union Address to reduce credit card late fees by 75 percent. The complaint further asserted the CFPB skipped necessary steps, made economic miscalculations, and otherwise breached the Administrative Procedure Act. As alleged, the Bureau likely understated “the volatility of card issuers’ cost-to-fee ratios pertaining to late fees” and improperly relied on data which does not allow for the recovery of a “reasonable and proportional” penalty fee. On the Bureau’s use of the Y-14M data, the complaint alleged the new rule ignored peer-reviewed studies and instead opted to base the rule on an internal study using confidential data that was not available for examination during the period allocated for public comment. The plaintiffs argued the final rule would incur “substantial compliance costs” by amending printed disclosures, using the cost-analysis provisions, and notifying consumers of changes in interest rates to recoup costs, among other problems. The complaint also cited TILA’s effective-date provisions and the Bureau’s embattled funding structure to support the argument that the final rule would cause irreparable harm.

    Courts Federal Issues CFPB Litigation Credit Cards Agency Rule-Making & Guidance Fees Consumer Finance Consumer Protection

  • House Financial Services Committee holds a hearing to address the “moving target” of CFPB’s recent actions

    Federal Issues

    On March 7, the House Committee on Financial Services held a hearing entitled, “Politicized Financial Regulation and its Impact on Consumer Credit and Community Development” to discuss recent actions and proposals, like mandated fee caps and government price fixing, by federal financial regulatory agencies. During the hearing, Congressman Barr (R-KY) criticized recent regulatory actions by federal authorities, particularly the Biden Administration and the CFPB, which he saw as politically-motivated interventions in the financial sector. He expressed concern over the implementation of fee caps and price controls, like the CFPB’s new rule on credit card late fees (covered by InfoBytes here), which he believed could impact consumer access to credit and competition. Barr argued that these regulations served political interests rather than protecting consumers, dismissing the concept of "junk fees" as undefined and hypocritical as the CFPB charges fees itself. Barr also discussed the need for clear standards in enforcement actions under UDAAP to provide certainty to financial institutions and foster a more inclusive market. He criticized other regulatory proposals, such as the Community Reinvestment Act final rule and the new certification process for the Community Development Financial Institutions Fund, for potentially overreaching into the operations of financial institutions.

    Barr contended the timing of the CFPB's most recent rule announcement, which was close to President Biden's State of the Union address, alleged a political agenda rather than an independent regulatory action. A witness policy analyst also shared that using financial regulation for political gain can negatively impact consumer credit. The analyst addressed the CFPB’s recent actions against overdraft fees and cited a May 2023 CFPB report which noted that revenue from overdraft and insufficient fund fees in the fourth quarter of 2022 was $1.5 billion lower than in the fourth quarter of 2019 and that many banks have already adjusted their overdraft practices––making the Bureau’s proposals unwarranted. Witnesses also argued how smaller banks and credit unions do not boast the same revenue nor goals as some larger banks, and that regulations should not be a “one size fits all” model.

    Federal Issues Hearing House Financial Services Committee CFPB Federal Reserve Overdraft

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