InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
CFPB will not alter credit reporting guidance deadline relief
On November 9, CFPB Director Kathy Kraninger sent a letter to the National Consumer Law Center (NCLC) stating that the Bureau is not planning to make any changes to the guidance it issued in April (covered by InfoBytes here), which informed furnishers that the Bureau will refrain from taking enforcement actions and citing during exams in certain situations as long as furnishers make “good faith efforts” to investigate consumer disputes as quickly as possible. The letter was sent in response to a request made by the NCLC and several other consumer advocacy groups in September, which urged the Bureau to revoke the policy based on an alleged rise in consumer complaints received by the Bureau about dispute investigation delays. The advocacy groups claimed that the significant increase was “likely as a result of the CFPB guidance,” and requested that—at a minimum—the Bureau “limit the extra time provided to the CRAs and furnishers to 15 days, or at most 30 days beyond the FCRA-mandated 30-day deadline for investigation disputes.”
“I want to make clear that all companies continue to remain responsible for FCRA compliance with dispute resolutions in a timely fashion,” Kraninger responded. “However, during the extraordinary times in which we find ourselves, the Bureau does not intend to cite in an examination or bring an enforcement action against firms who exceed the deadlines to investigate such disputes—but only as long as efforts are made in good faith to do so as quickly as possible.” (Emphasis in the original.)
OCC warns of key banking risks
On November 9, the OCC released its Semiannual Risk Perspective for Fall 2020, which reports on key risk areas that pose a threat to the safety and soundness of national banks and federal savings associations. In particular, the OCC noted the financial impacts of the Covid-19 pandemic on the federal banking industry, emphasizing that while economic activity rebounded in the third quarter, there is significant ongoing risk. The report discusses, as a special topic in emerging risks, growing trends in payment products and services. The report also highlights several key risk areas for banks: credit, strategic, operational, and compliance. Specifically, the report notes that credit risk is increasing as government assistance programs expire and the economic downturn has led to elevated unemployment levels. The report further notes that strategic risks affecting profitability is an emerging issue due to low interest rates, which historically have negatively affected profitability when low for a long period of time. Moreover, the report notes elevated operational risks due to complex operating environments with cybersecurity being a key concern. The increase in large-scale telework has created unique security and internal control challenges. Lastly, the report discusses elevated compliance risks due to the expedited implementation of a number of Covid-19-related assistance programs.
Rhode Island Division of Banking issues guidance on workplace practices to mitigate spread of Covid-19
On November 6, the Rhode Island Department of Business Regulation, Division of Banking issued Banking Bulletin 2020-6 announcing certain standards for personnel and office operations that it encourages financial institutions to implement to mitigate further spread of Covid-19. These standards include, among others, guidelines for employee mask-wearing and congregation, and arrangement of office furniture to encourage social distancing.
Fed report highlights banks’ Covid-19 responses
On November 6, the Federal Reserve Board (Fed) issued its Supervision and Regulation Report, which summarizes banking system conditions and the Fed’s supervisory and regulatory activities. The current report discusses the safety and soundness of the banking industry, especially with respect to economic and financial stresses resulting from Covid-19 containment measures. The report highlights, among other things, that Fed programs “have helped to preserve the flow of credit” and that banks have taken several actions to maintain financial and operational resiliency. These actions include providing access to substantial lines of credit for corporate borrowers and playing a significant role in supporting small businesses through the Paycheck Protection Program. In addition, the report notes that loan growth has grown slightly since the beginning of the year and that capital positions and liquidity conditions remain strong. However, the report cautions that while “economic indicators have shown marked improvement since the second quarter, a high degree of uncertainty persist.” The report also details the Fed’s current areas of supervisory focus and describes how banks have adapted to a largely remote working environment.
The same day, the Fed also announced updates to the list of firms supervised by its Large Institution Supervision Coordinating Committee Program, which is responsible for supervising the largest and most complex firms. As a result, “certain foreign banks with U.S. operations that have substantially decreased in size and risk over the past decade will move to the Large and Foreign Banking Organization supervision portfolio, where they will be supervised with other banks of similar size and risk.” The Fed stresses that the “portfolio move will have no effect on the regulatory capital or liquidity requirements of any firm.”
Bank gets NAL from CFPB using small-dollar template
On November 5, under the CFPB’s revised no-action letter (NAL) policy, the Bureau issued a NAL to a national bank regarding certain small-dollar credit products offered by the bank. As previously covered by InfoBytes, in May, the Bureau approved a template in response to a request by a nonpartisan public policy, research and advocacy group for banks that would assist depository institutions in offering a standardized, small-dollar credit product under $2,500 with a repayment term between 45 days and one year. The bank submitted its application using this template.
Among other things, the NAL notes that the bank’s application includes (i) each of the “13 Guardrail Certifications” described in the template; (ii) a copy of the small-dollar credit product’s terms and conditions the bank intends to provide to consumers; (iii) marketing materials intended to be used to market the product; and (iv) substantially similar consumer benefits and consumer risks as described in the advocacy groups’ template application. A copy of the bank’s application is available here.
Additionally, the Bureau released a Paperwork Reduction Act (PRA) notice, covering research efforts to “identify information that could be disclosed to consumers during the payday loan process to help them make better-informed decisions.”
California voters approve expanded privacy rights
On November 3, California voters approved a ballot initiative, the California Privacy Rights Act of 2020 (CPRA), that expands on the California Consumer Privacy Act (CCPA). While there are a number of differences between the CPRA and the CCPA, some key provisions include:
- Adding expanded consumer rights, including the right to correction and the right to limit sharing of personal information for cross-context behavioral advertising, whether or not for monetary or other valuable consideration.
- Changing the definitions of various entities, including increasing the numerical threshold for being a business to 100,000 from 50,000 consumers and households and removing devices from this threshold.
- Adding the category of sensitive personal information that is subject to specific rights.
- Creating a new privacy agency, the California Privacy Protection Agency, to administer, implement, and enforce the CPRA.
It is important to note that the Gramm-Leach-Bliley Act and Fair Credit Reporting Act exemptions are in the CPRA, and the act extends the employee and business-to-business exemption to January 1, 2023.
Implementation deadlines
The CPRA becomes effective January 1, 2023, with enforcement delayed until July 1, 2023. However, the CPRA contains a look-back provision (i.e., the CPRA will apply to personal information collected by a business on or after January 1, 2022). The new privacy agency also is required to begin drafting regulations starting on July 1, 2021, with final regulations to be completed one year later.
Learn more
Please refer to a Buckley article for further information on the differences between the CCPA and the CPRA: 6 Key Ways the California Privacy Rights Act of 2020 Would Revise the CCPA (Corporate Compliance Insights), as well a continuing InfoBytes coverage here.
Nebraska voters approve initiative capping payday loan APRs at 36 percent
On November 3, according to reports, voters passed Nebraska Initiative 428, which proposed an amendment to Nebraska statutes to prohibit delayed deposit services licensees (otherwise known as payday lenders) from offering loans with annual percent rates (APRs) above 36 percent. Under the amendment, loans with APRs that exceed this cap will be deemed void, and lenders who make such loans will not be authorized to collect or retain fees, interest, principal, or any other associated charges. Specifically, Initiative 428 proposed removal of the existing limit that prohibited lenders from charging fees in excess of $15 per $100 loaned and replaced it with the 36 percent APR cap. It would additionally prohibit lenders from offering, arranging, or guaranteeing payday loans with interest rates exceeding 36 percent in Nebraska regardless of whether the lender has a physical location in the state.
Maryland appeals court reverses dismissal of property inspection fee case
On October 1, the Court of Special Appeals for Maryland reversed in part and affirmed in part a dismissal of an action alleging that a mortgage servicer and Fannie Mae (collectively, “defendants”) violated Maryland state law by charging improper property inspection fees. According to the opinion, after defaulting on her mortgage, a consumer was charged $180 for twelve property inspections ordered by her mortgage servicer. After accepting a loan modification, the property inspection fees were rolled into the balance of the consumer’s loan. The consumer subsequently filed a complaint against the defendants alleging violations of, among other things, (i) Section 12-121 of the Maryland Commercial Law Article, “which prohibits a ‘lender’ from imposing a property inspection fee ‘in connection with a loan secured by residential property’”; (ii) the Maryland Consumer Debt Collection Practices Act (MCDCA), with a derivative claim under the Maryland Consumer Protection Act (MCPA); and (iii) the Maryland Mortgage Fraud Protection Act (MMFPA). The defendants moved to dismiss the action, alleging that they were not “lenders” as defined in Section 12-121. The district court dismissed the action.
On appeal, the appellate court disagreed with the defendants’ narrow interpretation of “lender” under Section 12-121, finding that such interpretation is “inconsistent with the structure and purpose of the legislation enacting it.” Specifically, the appellate court held that the lower court erred in finding the defendants not liable as a lender under Section 12-121, as it would be “inconsistent with the purpose of Subtitle 12 to allow an assignee of a note or its agents to charge fees that the originating lender cannot.” The appellate court further held that the lower court erred in determining the property inspection fees were waived through the course of the modification and therefore erred in dismissing the MMFPA claim. However the appellate court upheld dismissal of the MDCPA claim and its derivative MCPA claim, rejecting, among other arguments, the consumer’s argument that the filing of a deed of trust qualified as a communication that “purports to be ‘authorized, issued, or approved by a government, governmental agency, or lawyer’” under state law. Lastly, the appellate court affirmed dismissal of the MMFPA claim, concluding the consumer failed to connect elements of the theory, such as intent to defraud, with any alleged facts in the complaint.
North Carolina Appeals Court: Original creditors’ intent required for assignment of arbitration rights
On November 3, the Court of Appeals of North Carolina issued a pair of orders (see here and here) affirming lower courts’ decisions denying a debt collector’s (defendant) motion to compel arbitration. According to the orders, the defendant purchased charged-off accounts belonging to the plaintiffs and filed individual lawsuits in several state courts seeking to collect on the debt. Default judgments were obtained against the plaintiffs in each of the actions. The plaintiffs filed suit, alleging the defendant violated certain sections of North Carolina’s Consumer Economic Protection Act by “not comply[ing] with certain statutorily enumerated prerequisites to obtain default judgments.” The defendant eventually moved to compel arbitration pursuant to an underlying agreement between the plaintiffs and the original creditor. The lower court denied the motion, ruling that the defendant—“as a nonsignatory to the credit card agreements”—had not shown it was assigned the right to arbitrate claims when it purchased the charged-off accounts. The defendant appealed the decision.
The Appeals Court considered whether there was a valid arbitration agreement between the plaintiffs and the defendant and agreed with the trial court, holding that “without any showing of the additional intent by the original creditors to assign to [the defendant], at the very least, ‘all of the rights and obligations’ of the original agreements, the right to arbitrate was not assigned in the sale and assignment of the Plaintiffs’ Accounts and Receivables as set forth in the Bills of Sale.” Moreover, the Appeals Court determined that the “trial court correctly concluded [the defendant] has not met its burden of showing a valid arbitration agreement between each Plaintiff and [the defendant] and did not err” by denying the defendant’s motion to compel arbitration.
CFPB and South Carolina settle with loan broker for veteran pension loans
On October 30, the CFPB and the South Carolina Department of Consumer Affairs filed a proposed final judgment in the U.S. District Court for the District of South Carolina to settle an action alleging that two companies and their owner (collectively, “defendants”) violated the Consumer Financial Protection Act and the South Carolina Consumer Protection Code by offering high-interest loans to veterans and other consumers in exchange for the assignment of some of the consumers’ monthly pension or disability payments. As previously covered by InfoBytes, in October 2019, the regulators filed an action alleging, among other things, that the majority of credit offers that the defendants broker are for veterans with disability pensions or retirement pensions and that the defendants allegedly marketed the contracts as sale of payments and not credit offers. Moreover, the defendants allegedly failed to disclose the interest rate associated with the offers and failed to disclose that the contracts were void under federal and state law, which prohibit the assignment of certain benefits.
If approved by the court, the proposed judgment would require the defendants to pay a $500 civil money penalty to the Bureau and a $500 civil money penalty to South Carolina. The proposed judgment would permanently restrain the defendants from, among other things, (i) extending credit, brokering, and servicing loans; (ii) engaging in deposit-taking activities; (iii) collecting consumer-related debt; and (iv) engaging in any other financial services business in the state of South Carolina. Additionally, the proposed judgment would permanently block the defendants from enforcing or collecting on any contracts related to the action and from misrepresenting any material fact or conditions of consumer financial products or services.