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  • Buckley Sandler Insights: CFPB Updates Rulemaking Agenda

    Consumer Finance

    On July 20, the CFPB released its Spring 2017 rulemaking agenda. The agenda was last updated in Fall 2016. The summer release date, and the fact that certain deadlines listed in the updated agenda have already passed, indicates that the agenda’s release may have been delayed after the CFPB drafted it. The following aspects of the updated agenda are particularly noteworthy:

    • Regulation Reviews: The Bureau plans to begin “the first in a series of reviews of existing regulations that we inherited from other agencies through the transfer of authorities under the Dodd-Frank Act,” noting that “other federal financial services regulators have engaged in these types of reviews over time, and believe that such an initiative would be a natural complement to our work to facilitate implementation of new regulations.” The Bureau has formed “an internal task force to coordinate and deepen the agency’s focus on concerns about regulatory burdens and projects to identify and reduce unwarranted regulatory burdens….” The agenda lists “pre-rule activities” as continuing through September 2017. Separately, the Bureau notes its ongoing assessments of the effectiveness of the Mortgage Servicing Rules, the Ability-to-Repay/Qualified Mortgage Rule, and the Remittance Transfer Rule pursuant to the Dodd-Frank Act’s five-year lookback provision.
    • Small Dollar Lending: The Bureau reports that it received more than one million comments on its June 2016 proposed rule to impose ability-to-repay requirements for payday, vehicle title, and similar installment loans. The Bureau states that it “continue[s] to believe that the concerns articulated in the [proposed rule] are substantial” but does not provide an expected release date for a final rule.
    • “Larger Participants” in Installment Lending: The agenda lists September 2017 as the expected release date for “a proposed rule that would define non-bank ‘larger participants’ in the market for personal loans, including consumer installment loans and vehicle title loans.” Designation as a larger participant brings a non-bank entity within the CFPB’s supervisory jurisdiction. The agenda indicates that a companion rule requiring payday, vehicle title lenders, and other non-bank entities to register with the Bureau is also underway, as noted below.
    • Debt Collection: In July 2016, the Bureau released an outline of proposals under consideration for debt collection and convened a panel under the Small Business Regulatory Enforcement Fairness Act in conjunction with the Office of Management and Budget and the Small Business Administration’s Chief Counsel for Advocacy to consult with representatives of small businesses that might be affected by the rulemaking. The Bureau notes that, “[b]uilding on feedback received through [that] panel, we have decided to issue a proposed rule later in 2017 concerning debt collectors’ communications practices and consumer disclosures.” The agenda states that a proposed rule is expected in September 2017. The Bureau also states that, in a departure from the July 2016 outline of proposals, the Bureau “intend[s] to follow up separately at a later time about concerns regarding information flows between creditors and FDCPA collectors and about potential rules to govern creditors that collect their own debts.”
    • Overdrafts: The Bureau states that the current opt-in regime “produces substantially different opt-in rates across different depository institutions” and that its “supervisory and enforcement work indicates that some institutions are aggressively steering consumers to opt in.” The Bureau reports that it is “engaged in consumer testing of revised opt-in forms and considering whether other regulatory changes may be warranted to enhance consumer decision making.” The agenda lists “pre-rule activities” as continuing through June 2017.
    • Small Business Lending: The agenda lists “pre-rule activities” on the implementation of the small business data reporting provisions of the Dodd-Frank Act as continuing through June 2017. Specifically, the agenda states that, at this juncture, 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.”
    • HMDA & ECOA Amendments: The agenda lists October 2017 as the expected release date for the April 2017 proposed ECOA amendments to clarify requirements for collecting information on ethnicity, race, and sex, but does not list an expected release date for finalization of the April 2017 proposed technical corrections to the 2015 HMDA rule, or the July 2017 proposed amendments to the 2015 HMDA rule’s requirements for reporting home equity lines of credit. 
    • TRID/Know Before You Owe Amendments: The agenda lists March 2018 as the expected release date for finalization of the July 2017 proposed rule addressing the “black hole” issue, which is discussed in our special alert.
    • Mortgage Servicing Amendments: The Bureau states that it expects to issue a proposal in September 2017 “to make one or more substantive changes to the rule in response to . . . concerns” raised by the industry. 
    • Arbitration: Interestingly, the agenda states that the Bureau’s final rule on mandatory arbitration clauses, which was released this month to significant controversy, was not expected until August.
    • Non-Bank Registration: The Bureau states that it is “considering whether rules to require registration of [installment lenders] or other non-depository lenders would facilitate supervision, as has been suggested to us by both consumer advocates and industry groups.”
    • Prepaid Cards: The agenda does not provide an expected release date for finalization of the June 2017 proposed amendments addressing error resolution and limitations on liability, application of the rule’s credit-related provisions to digital wallets, and other issues. 
    • Credit Card Agreement Submission: The Bureau is “considering rules to modernize our database of credit card agreements to reduce burden on issuers that submit credit card agreements to us and make the database more useful for consumers and the general public.” The agenda lists “pre-rule activities” as continuing through October 2017.

    Consumer Finance Agency Rule-Making & Guidance CFPB Regulator Enforcement Lending Installment Loans Debt Collection Overdraft Small Business Lending HMDA ECOA TRID Mortgages Arbitration Prepaid Cards Credit Cards

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  • FTC Announces Charges Against Debt Collection Operation for FDCPA and FTC Act Violations

    Consumer Finance

    On July 17, the FTC issued a press release announcing charges against a Florida-based debt collection operation for allegedly posing as lawyers and threating individuals with lawsuits or prison time if they failed to pay debt they did not actually owe. According to the complaint filed by the FTC, the defendants’ violated the FTC Act by making false, unsubstantiated, or misleading representations regarding debt owed and threatened legal action. Additionally, the defendants allegedly violated the Fair Debt Collection Practices Act by (i) engaging in “unlawful third-party communications” without obtaining prior consumer consent; (ii) failing to disclose they were debt collectors; (iii) making false, deceptive, or misleading representations by withholding the true status of the debt, impersonating attorneys, and threatening legal action, among others; and (iv) failing to provide consumers written verification of their debt within the required time frame. As a result, the FTC announced a federal court has temporarily halted the operation and frozen its assets.

    Consumer Finance FTC Debt Collection FDCPA

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  • Fifth Circuit Affirms Debt Collector Violation of FDCPA

    Consumer Finance

    On July 6, the U.S. Court of Appeals for the Fifth Circuit held that a debt collector violated the Fair Debt Collection Practices Act (FDCPA) when it failed to notify credit reporting agencies that a consumer had disputed a debt. The Fifth Circuit further determined that this failure was sufficient to comprise a concrete injury conferring standing for the consumer to sue.

    In its opinion, the appellate court focused on FDCPA § 807(8) and § 809(b), since the debt collector argued that the requirements in § 809 apply to § 807(8), relieving it of its notification duty under § 807(8). Although the appellate court found that the consumer had not disputed his debt under § 809, it agreed with the district court that this failure did not obviate the debt collector’s responsibility under § 807(8). The appellate court found that the debt collector was in violation of the FDCPA for passing on “credit information which is known or which should be known to be false, including the failure” to notify credit agencies of consumer’s disputed debt. Additionally, the appellate court determined that the debt collector’s violation of § 807(8) “exposed [the consumer] to a real risk of financial harm caused by an inaccurate credit rating.”

    Consumer Finance Courts Federal Issues Debt Collection FDCPA Fifth Circuit Litigation

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  • CFPB Monthly Complaint Snapshot Focuses on State-Level Consumer Complaints

    Consumer Finance

    On June 27, the CFPB released its monthly complaint report, highlighting complaints from around the country. According to the Bureau, it has handled over 1.2 million complaints from 2011 through June 1 of this year. The report shows nationwide complaint statistics and statistics for service members and older consumers. In addition, the report breaks down statistics on the state level covering financial products and services, company responses to complaints, as well as number of complaints. The vast majority of consumers report high company response rates to complaints averaging in the high 90 percent range, although the volume of complaints is trending upward. The top five products receiving complaints across the country in descending order are: (i) debt collection; (ii) mortgages; (iii) credit reporting; (iv) credit cards; and (v) bank accounts or services.

    Consumer Finance Lending Consumer Complaints Internet Lending CFPB Debt Collection Credit Cards Mortgage Servicing

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  • Buckley Sandler Insights: CFPB Releases Proposed Changes to Final Rule on Prepaid Accounts

    Consumer Finance

    On June 15, 2017, the Consumer Financial Protection Bureau (CFPB) released proposed changes (Proposal) to its final rule, published last November, which created consumer protections for prepaid accounts under Regulation E and Regulation Z (Final Rule). The CFPB is proposing these revisions because of feedback it received through its outreach to industry participants regarding the Final Rule combined with comments received in response to its effective date proposal (which was later finalized and which delayed the effective date by six months to April 1, 2018). Comments on the Proposal must be received by August 14, 2017.

    The CFPB also released an updated version of its Small Entity Compliance Guide. The update reflects the effective date delay as well as other clarifications on the Final Rule. The update does not include any of the proposed changes included within the June 15, 2017 Proposal.

    Click here to read the full post.

    Consumer Finance Prepaid Cards

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  • CFPB Sues Credit Repair Companies for $2 Million

    Consumer Finance

    On June 27, the CFPB filed two complaints in the District Court for the Central District of California against several credit repair companies and affiliated individuals. The CFPB alleged that these defendants violated the Consumer Financial Protect Act and the Telemarketing Sales Rule by charging consumers illegal fees and misleading consumers about services (see complaints here and here).

    According to a CFPB press release, the defendants allegedly “[c]harged illegal advance fees” such as initial consultation fees, and set-up fees prior to providing certain services. Defendants also allegedly “[f]ailed to disclose limits on ‘money-back guarantees’” and “[m]isled consumers about the benefits of their services” by suggesting they could remove negative information from credit reports and “substantial[ly] increase” credit scores.

    The CFPB submitted a proposed final judgment for each suit. In the first suit, the CFPB proposed a civil money penalty of over $1.5 million, and restrained defendants from working in credit repair services or maintaining an ownership interest in any company that provides credit repair services for a period of five years. In the second suit, the CFPB sought similar injunctive relief, and also proposed “equitable monetary relief in the form of disgorgement . . . in the amount of $500,000.”

    Consumer Finance Courts Enforcement CFPB Litigation Credit Scores CFPA Telemarketing Sales Rule

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  • CFPB Issues Semi-Annual Report to Congress

    Consumer Finance

    On June 26, the CFPB issued its eleventh semi-annual report to Congress, covering the period October 1, 2016 through March 31, 2017. The report highlights various supervisory and enforcement actions, regulations, and other guidance. The report focuses on Regulations E and Z, which “create a comprehensive set of consumer protections for prepaid products.” In addition, the report notes ongoing efforts to develop rules with respect to payday loans, auto title loans, installment loans, arbitration agreements, and overdraft programs.

    Consumer Finance Federal Issues Agency Rule-Making & Guidance Enforcement Congress

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  • CFPB Director Challenges House Financial Services’ Report on Bureau’s Role in Fraudulent Accounts Scandal Investigation

    Consumer Finance

    On June 14, CFPB Director Richard Cordray issued a letter to Rep. Jeb Hensarling (R-Tex.) in response to the House Financial Services Committee’s (Committee) June 6 interim majority staff report on the investigation of the role federal financial regulators played in detecting and remedying a major national bank’s practice of opening unauthorized bank accounts. As previously covered in InfoBytes, the Bureau issued a consent order to the bank last September over allegations that the bank employees’ improper sales practice of opening unauthorized accounts as part of an incentive compensation program was unfair and abusive. In his letter, Director Cordray defended the CFPB’s role in the investigation and detailed inaccuracies and errors in the Committee’s report.

    The Committee’s report notes that immediately after the September 8 CFPB announcement, the House Financial Services Committee began a “comprehensive investigation” to answer two questions: (i) “how and why [the bank] allowed these fraudulent activities to occur at a disturbing scale across the [b]ank for well over a decade”; and (ii) “whether or not federal financial regulators were effective in detecting and remedying [the bank’s] fraudulent branch sale practices.” According to the report, “[o]ver the course of six months, the CFPB only produced 1,010 pages of records comprised almost entirely of records easily obtainable from [the bank] or the OCC”—both of which, the report contends, have cooperated fully with the investigation. In April 2017, the CFPB received a subpoena but allegedly provided records previously produced by the bank. Due to a lack of cooperation, the Committee staff recommended the possibility of issuing deposition subpoenas to CFPB employees to investigate Director Cordray’s alleged failure to respond, as well as the suggestion of bringing contempt proceedings against Director Cordray to enforce compliance with the subpoena.

    Director Cordray responded that, among others things, the majority staff of the Committee refused to receive a September 2016 follow-up briefing from Bureau staff and failed to respond to his offer to publicly testify at a Committee hearing. Furthermore, Director Cordray states that the CFPB has submitted over 57,000 pages of records “in an effort to comply with the Committee’s broadly worded requests.” He notes the complaint about the documents in the CFPB’s production being “redundant of documents received from either [the bank] or the OCC, though the same point could be made in reverse,” and that his staff has repeatedly sought guidance from the Committee to narrow the scope but has yet to receive a response.

    In response to the Committee’s query as to why it took more than a decade to uncover the bank’s practice of opening unauthorized accounts, Director Cordray responded that the Bureau opened its doors in 2011—more than 10 years after the bank’s activities commenced according to the Committee’s report—and wasn't fully operational until 2014.

    Consumer Finance Litigation Mortgages CFPB House Financial Services Committee

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  • Bipartisan HOME Act Introduced to Protect Access to Affordable Housing

    Consumer Finance

    On June 13, Representatives Randy Hultgren (R-Ill.) and Gwen Moore (D-Wis.) introduced legislation to strengthen the Federal Home Loan Bank (FHLB) System by ensuring access to mortgage credit and affordable housing assistance for millions of consumers. As set forth in a June 15 press release issued by Rep. Hultgren’s office, the Housing Opportunity Mortgage Expansion (HOME) Act (H.R. 2890) would allow lenders to regain membership in the FHLB System provided they (i) joined before the Federal Housing Finance Agency (FHFA) proposed its recently finalized membership rule, and (i) are able to “demonstrate a commitment to residential mortgage activities.”

    As previously discussed in InfoBytes, FHFA’s final rule added a revision intended to help streamline membership applications. However, Hultgren asserts that the rule “restricts FHLB membership eligibility” by excluding “captive insurers” under its definition of an “insurance company” thereby prohibiting membership. The HOME Act, Hultgren states, “would clarify that companies with a history and mission of supporting residential housing should be able to continue to serve our communities.”

    Consumer Finance Federal Issues Federal Legislation Mortgages Affordable Housing FHLB FHFA

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  • CFPB Encourages Alternatives to Deferred Interest Promotional Offers to Provide Transparency to Consumers

    Consumer Finance

    On June 8, the CFPB reported that it sent letters encouraging top retail credit card companies to consider consumer financing promotions that are more transparent than the often-used deferred-interest credit card. These deferred-interest cards offer no interest on the promotional balance, but only if it is paid off by the end of the promotional period. If any promotional balance remains when the promotional period ends, consumers are charged retroactive interest on the entire promotional balance from the time of purchase.

    The CFPB suggests that a zero percent introductory interest rate is a better option for consumers who are sometimes confused by the retroactive interest in the deferred-interest products. Unlike with deferred interest, under 0% interest promotions, consumers are not assessed interest retroactively if the promotional balance is not paid in full by the end of the promotional period. As previously reported in InfoBytes, some consumers may have difficulty understanding the different credit terms when comparing deferred-interest promotions to zero interest promotions. According to the letters, because deferred-interest programs may be more difficult to understand than zero interest promotions, they require credit card companies to have robust compliance management systems and third party oversight measures to ensure consumers are fully informed of the true costs of the promotional financing.

    In a blog post from June 8, the CFPB explains the differences between zero interest promotions and deferred-interest promotions, and offers examples of each promotion.

    Consumer Finance CFPB Credit Cards Debit Cards Prepaid Cards Compliance Deferred Interest

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