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  • DFPI reports significant decline in payday lending during pandemic

    State Issues

    On July 22, DFPI reported that California payday lenders made fewer than 6.1 million loans during the Covid-19 pandemic—a 40 percent decline from 2019. Key findings in the 2020 Annual Report of Payday Lending Activity Under the California Deferred Deposit Transaction Law, include: (i) nearly 61.8 percent of licensees reported serving consumers who received government assistance; (ii) borrowers who take out subsequent loans accounted for 69 percent of payday loans in 2020; (iii) licensees collected $250.8 million in payday loan fees, of which 68 percent came from borrowers who made at least seven transactions during the year; (iii) 49 percent of borrowers had average annual incomes of $30,000 or less, and 30 percent had average annual incomes of $20,000 or less; (iv) online payday loans made up one-third of all payday loans (41 percent of borrowers took out payday loans over the internet); and (v) cash disbursement continued to decrease in 2020, while other forms of disbursement, such as wire transfers, bank cards, and debit cards increased. DFPI also noted that during this time period the number of payday loan borrowers referred by lead generators declined by 69 percent, and that the number of licensed payday lending locations also dropped by 27.7 percent. DFPI acting Commissioner Christopher S. Shultz commented that the decrease in payday loans during the pandemic may be attributable to several factors, “such as stimulus checks, loan forbearances, and growth in alternative financing options,” adding that DFPI continues to closely monitor financial products marketed to consumer in desperate financial need.

    State Issues State Regulators DFPI Payday Lending Covid-19 Lead Generation

  • CFPB issues summer supervisory highlights

    Federal Issues

    On June 29, the CFPB released its summer 2021 Supervisory Highlights, which details its supervisory and enforcement actions in the areas of auto loan servicing, consumer reporting, debt collection, deposits, fair lending, mortgage origination and servicing, payday lending, private education loan origination, and student loan servicing. The findings of the report, which are published to assist entities in complying with applicable consumer laws, cover examinations that generally were completed between January and December of 2020. Highlights of the examination findings include:

    • Auto Loan Servicing. Bureau examiners identified unfair acts or practices related to lender-placed collateral protection insurance (CPI), including instances where servicers charged unnecessary CPI or charged for CPI after repossession. Examiners also identified unfair acts or practices related to payoff amounts where consumers had ancillary product rebates due, and also found unfair or deceptive acts or practices related to payment application.
    • Consumer Reporting. The Bureau found deficiencies in consumer reporting companies’ (CRCs) FCRA compliance related to the following requirements: (i) accuracy; (ii) security freezes applicable to certain CRCs; and (iii) ID theft block requests. Specifically, examiners found that CRCs continued to include information from furnishers despite receiving furnisher dispute responses that “suggested that the furnishers were no longer sources of reliable, verifiable information about consumers.” Additionally, the report noted instances where furnishers failed to update and correct information or conduct reasonable investigations of direct disputes.
    • Debt Collection. The report found that examiners found instances of FDCPA violations where debt collectors (i) made calls to a consumer’s workplace; (ii) communicated with third parties; (iii) failed to stop communications after receiving a written request or a refusal to pay; (iv) harassed consumers regarding their inability to pay; (v) communicated, and threatened to communicate, false credit information to CRCs; (vi) made false representations or used deceptive collection means; (vii) entered inaccurate information regarding state interest rate caps into an automated system; (viii) unlawfully initiated wage garnishments; and (ix) failed to send complete validation notices.
    • Deposits. The Bureau discussed violations related to Regulation E and Regulation DD, including error resolution violations, issues with provisional credits, failure to investigate, failure to remediate errors, and overdraft opt-in and disclosure violations.
    • Fair Lending. The report noted instances where examiners cited violations of HMDA/ Regulation C involving HMDA loan application register inaccuracies, and instances where lenders, among other things, violated ECOA/Regulation B “by engaging in acts or practices directed at prospective applicants that would have discouraged reasonable people in minority neighborhoods in Metropolitan Statistical Areas (MSAs) from applying for credit.”
    • Mortgage Origination. The Bureau cited violations of Regulation Z and the CFPA related to loan originator compensation, title insurance disclosures, and deceptive waivers of borrowers’ rights in security deed riders and loan security agreements.
    • Mortgage Servicing. The Bureau cited violations of Regulation X, including those related to dual tracking violations, misrepresentations regarding foreclosure timelines, and PMI terminations.
    • Payday Lending. The report discussed violations of the CFPA for payday lenders, including falsely representing an intent to sue or that a credit check would not be run, and presenting deceptive repayment options to borrowers that were contractually eligible for no-cost repayment plans.
    • Private Education Loan Origination. Bureau examiners identified deceptive acts or practices related to the marketing of private education loan rates.
    • Student Loan Servicing. Bureau examiners found several types of misrepresentations servicers made regarding consumer eligibility for the Public Service Loan Forgiveness (PSLF) program, and identified unfair acts or practices related to a servicer’s “failure to reverse negative consequences of automatic natural disaster forbearances.” Additionally, examiners identified unfair act or practices related to failing to honor consumer payment allocation instructions or providing inaccurate monthly payment amounts to consumers after a loan transfer.

    The report also highlights recent supervisory program developments and enforcement actions.

    Federal Issues CFPB Supervision Consumer Finance Consumer Reporting Redlining Foreclosure Auto Finance Debt Collection Deposits Fair Lending Mortgage Origination Mortgage Servicing Mortgages Payday Lending Student Lending

  • 9th Circuit reverses $1.3 billion judgment following Supreme Court’s decision

    Courts

    On June 8, the U.S. Court of Appeals for the Ninth Circuit issued an order vacating its December 2018 judgment, reversing a district court’s award of equitable monetary relief following the U.S. Supreme Court’s recent decision in FTC v. AMG Capital Management, and remanding the case to the district court for further proceedings consistent with the Supreme Court’s opinion. The decision impacts defendants—a Kansas-based operation and its owner—who were ordered in 2016 to pay an approximately $1.3 billion judgment for allegedly operating a deceptive payday lending scheme and violating Section 5(a) of the FTC Act by making false and misleading representations about loan costs and payments (covered by InfoBytes here). The 9th Circuit previously upheld the judgment (covered by InfoBytes here) by, among other things, rejecting the defendant owner’s challenge, which was based on an argument that the district court overestimated his “wrongful gain” and that the FTC Act only allows the court to issue injunctions. At the time, the 9th Circuit concluded that the defendant owner failed to provide evidence contradicting the wrongful gain calculation and that a district court may grant any ancillary relief under the FTC Act, including restitution. However, as previously covered by InfoBytes, the Supreme Court reversed the 9th Circuit and held that Section 13(b) of the FTC Act “does not authorize the Commission to seek, or a court to award, equitable monetary relief such as restitution or disgorgement.”

    Courts Appellate Ninth Circuit FTC FTC Act Payday Lending TILA Disclosures U.S. Supreme Court

  • CFPB reports on use of payday, auto title, and pawn loans

    Federal Issues

    On May 5, the CFPB released a new report surveying the prevalence, persistence of use, and other credit sources accessible for consumers who utilize payday, auto title, and pawn loans. The report uses the first two rounds of the Bureau’s Making Ends Meet survey, which was conducted before the Covid-19 pandemic in June 2019, and offers a nationally representative assessment of consumers with credit records (covered by InfoBytes here). As such, the survey allows the possibility of combining a survey of the same consumers spanning over two years with credit record data to understand consumers’ decisions about debt. Report highlights include:

    • “In June 2019, 4.4 percent of consumers had taken out a payday loan in the previous six months, 2.0 percent had taken out an auto title loan, and 2.5 percent had taken out a pawn loan.” These consumers are more concentrated in the age group between 40 and 61. The report discloses that “because the number of consumers using these loans in the survey is small, there is some survey uncertainty in these estimates.”
    • “77 percent of consumers using alternative financial services experienced a shock and had difficulty paying a bill or expense during the same timeframe in which they also reported borrowing a payday, auto title, or pawn loan.”
    • “Payday, auto title, and pawn users who experience difficulty paying a bill or expense tend to also use other available credit, suggesting that for some consumers, these loans might be part of a broader and more complicated debt portfolio to deal with difficulties.”

     

    Federal Issues CFPB Consumer Finance Payday Lending Auto Lending

  • PA AG settles with collector over payday loan scheme

    State Issues

    On April 9, the Pennsylvania attorney general announced settlements with the former CEO of a since-dissolved lender and a debt collector to resolve claims that the collector charged borrowers interest rates as high as 448 percent on loans and lines of credit. The AG alleged that the former CEO “participated in, directed and controlled” business activities related to the allegedly illegal online payday lending scheme, while the debt collector collected more than $4 million related to Pennsylvania consumers’ loan accounts. The terms of the settlement require the individual defendant to comply with relevant consumer protection laws and limits the individual defendant’s ability to work in the consumer lending industry in Pennsylvania for the next nine years. Additionally, the individual defendant is required to pay the Commonwealth $3 million.

    The AG’s office noted that the U.S. District Court for the Eastern District of Pennsylvania also approved a settlement with the debt collector, which requires the company to comply with relevant consumer protection laws and, among other things, undertake the following actions: (i) ensure that all acquired debts, for which it attempts to collect, comply with applicable laws and regulations; (ii) cancel all balances on applicable accounts, take no further action to collect debts allegedly owed by Pennsylvania consumers on these accounts, and notify consumers of the cancellations; (iii) “refrain from engaging in [c]ollections on any [d]ebts involving loans made over the internet by [n]on-bank lenders that violate Pennsylvania laws,” including its usury laws; and (iv) will not sell, re-sell, or assign debt related to applicable accounts, including accounts subject to a previously-negotiated nationwide class action settlement agreement and Chapter 11 bankruptcy plan. Previous InfoBytes coverage related to the payday lending scheme can be found here, here, and here.

    State Issues Courts State Attorney General Interest Rate Usury Consumer Finance Settlement Enforcement Debt Collection Payday Lending

  • Idaho Department of Finance once again extends “work from home” guidance

    State Issues

    On March 31, the Idaho Department of Finance extended its temporary regulatory guidance (previously covered here, here, here) permitting mortgage brokers and lenders, mortgage loan originators, regulated lenders, title lenders, payday lenders, and collection agency licensees and registrants to work from home under certain circumstances. The original guidance (previously covered here) permits employees to work from home where the residence is not a licensed branch and certain data security requirements are met. The guidance is extended through December 31, 2021.

    State Issues Covid-19 Idaho Mortgage Broker Mortgage Origination Payday Lending Title Loans Licensing

  • CFPB to address harm created from revocation of payday rule’s ability to repay standard

    Federal Issues

    On March 23, CFPB acting Director Dave Uejio published a blog post highlighting the Bureau’s belief that harms in the small dollar lending market identified by its 2017 final rule covering “Payday, Vehicle Title, and Certain High-Cost Installment Loans” still exist. As previously covered by InfoBytes, in 2020, the Bureau issued a final rule revoking certain underwriting provisions of the 2017 final rule, including (i) the provision that makes it an unfair and abusive practice for a lender to make covered high-interest rate, short-term loans or covered longer-term balloon payment loans without reasonably determining that the consumer has the ability to repay the loans according to their terms; (ii) the prescribed mandatory underwriting requirements for making the ability-to-repay determination; (iii) the “principal step-down exemption” provision for certain covered short-term loans; and (iv) related definitions, reporting, and recordkeeping requirements. Uejio stressed that the Bureau intends to “use the authority provided by Congress to address these harms, including through vigorous market monitoring, supervision, enforcement, and, if appropriate, rulemaking.” Additionally, he noted that the Bureau “continues to believe that ability to repay is an important underwriting standard. To the extent small dollar lenders’ business models continue to rely on consumers’ inability to repay, those practices cause harm that must be addressed by the CFPB.”

    Federal Issues CFPB Small Dollar Lending Payday Lending Ability To Repay Payday Rule Underwriting

  • CFPB declines to stay $51 million order for online payday lender

    Federal Issues

    On March 9, the CFPB denied a request made by a Delaware online payday lender and its CEO (collectively, “respondents”) to stay a January 2021 final decision and order requiring the payment of approximately $51 million in restitution and civil money penalties, pending appellate review. As previously covered by InfoBytes, in 2015, the Bureau filed a notice of charges alleging the respondents (i) continued to debit borrowers’ accounts using remotely created checks after consumers revoked the lender’s authorization to do so; (ii) required consumers to repay loans via pre-authorized electronic fund transfers; and (iii) deceived consumers about the cost of short-term loans by providing them with contracts that contained disclosures based on repaying the loan in one payment, while the default terms called for multiple rollovers and additional finance charges. Former Director Kathy Kraninger issued the final decision and order in January, affirming an administrative law judge’s recommendation that the respondents’ actions violated TILA, EFTA, and the CFPA’s prohibition on unfair or deceptive acts or practices by, among other things, deceiving consumers about the costs of their online short-term loans.

    The Bureau’s March 9 administrative order determined that respondents (i) failed to show they have a substantial case on the merits with respect to their argument regarding ratification as an appropriate remedy for the respondents’ alleged constitutional violation; (ii) failed to show they “suffered irreparable harm” because the Bureau’s final decision does not infringe on the respondents’ constitutional rights and merely requires them to pay money into an escrow account; and (iii) failed to demonstrate that staying the final decision would not harm other parties and the public interest because the respondents might “dissipate assets during the pendency of further proceedings,” potentially impacting future consumer redress. The administrative order, however, granted a 30-day stay to allow respondents to seek a stay from the U.S. Court of Appeals for the Tenth Circuit.

    Federal Issues CFPB Online Lending Enforcement Payday Lending TILA EFTA CFPA Unfair Deceptive UDAAP Appellate Tenth Circuit

  • FTC settles with payday lender

    Federal Issues

    On February 11, the FTC announced a settlement with the owners and operators of a payday lending enterprise (collectively, “defendants”) for allegedly deceptively overcharging consumers and withdrawing money from consumers’ accounts without permission. The FTC filed a complaint against the defendants last year claiming, among other things, that the defendants violated the FTC Act, the Telemarketing Sales Rule, TILA/Regulation Z, and EFTA/Regulation E, by advertising loans with fixed payback terms and promising consumers that their loans would be repaid after a pre-determined number of payments. However, the FTC claimed that in many cases the payback terms defaulted to debiting the financial fee only, and the U.S. District Court for the District of Nevada granted a temporary restraining order against the defendants (covered by InfoBytes here). Under the terms of the stipulated final order, the FTC ordered that any consumer debt for loans issued and assigned to the defendants are “deemed paid in full to the extent that such [e]xisting [d]ebt exceeds the amount financed plus one finance charge. . . .” The defendants are also (i) permanently banned from the payday lending industry, including making loans or extending credit of any kind; (ii) prohibited from making any misrepresentations related to the collection of any debt; (iii) prohibited from making unauthorized electronic fund transfers from consumers’ bank accounts; and (iv) permanently banned from creating, or causing to be created, any remotely created payment orders. A $114 million monetary judgment will be partially suspended upon completion of asset transfers from all financial institutions holding accounts in the defendants’ names.

    Federal Issues FTC Enforcement Payday Lending FTC Act Deceptive UDAP

  • CFPB seeks comment on payday loan disclosure testing

    Federal Issues

    On November 12, the CFPB published a notice and request for comment in the Federal Register detailing a plan for payday loan disclosure testing. The Bureau notes that a contractor will conduct one-on-one consumer interviews to evaluate potential options for payday loan disclosures. The interviews will focus on how consumers use the disclosure information to assess the cost, payment, and timing of the loan. The results of the testing, which are estimated to conclude in September 2021, will be used to inform a future potential rulemaking covering payday loan disclosures. Comments on the notice must be submitted by December 14.

    Federal Issues CFPB Payday Lending Payday Rule Disclosures

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