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Financial Services Law Insights and Observations

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  • CFPB Turns Attention to Bank Overdraft Practices

    Consumer Finance

    On February 22, the CFPB launched an inquiry into overdraft practices with a coordinated release of information. The official announcement came during a CFPB Roundtable discussion at Hunter College in New York City. At that event, CFPB Director Richard Cordray drew similarities between overdraft practices and payday lending, which was the subject of a prior CFPB field event. Mr. Cordray expressed his “concern[] that overdraft practices employed by some banks unnecessarily increase consumer costs by making it difficult to anticipate and avoid fees.” He also identified some practices the CFPB views as problematic, including those related to (i) ordering of transactions, (ii) missing or confusing information, and (iii) misleading marketing. To address those and other practices, the CFPB issued a request for information from consumers, third party processors, and financial institutions, regarding overdraft programs and their costs, benefits and risks to consumers. The CFPB also released and is seeking comment on a prototype “penalty fee box” that would appear on checking account statements to highlight overdraft activity and fees. Finally, the CFPB is collecting data from several large banks to inform a study of the effects of prior federal regulations and guidance regarding overdraft fees. While conducting these initiatives, Director Cordray promised to employ the CFPB’s supervisory and enforcement authorities to take action against financial institutions engaged in deceptive marketing related to overdrafts.

    CFPB

  • Colorado State Court Rules Payday Lending Firms Affiliated with Native American Tribes are Immune from State Investigation and Prosecution

    Consumer Finance

    On February 13, the District Court for the City and County of Denver ruled that online payday lending businesses affiliated with two Native American tribes are protected from state investigation and enforcement. Colorado v. Cash Advance, No. 05-1143 (Col. Dist. Ct. Feb. 13, 2012). For several years the state had been trying to investigate and regulate the payday lending practices of the firms and brought suit to enforce subpoenas and cease and desist orders issued with regard to the firms’ operations. The state claimed that, among other things, the businesses were in violation of state laws that require firms doing business with Colorado consumers over the internet to have a valid state license. The defendants moved to dismiss, arguing that the firms are immune from those subpoenas and enforcement orders under the doctrine of tribal sovereign immunity. The defendant’s motion to dismiss was denied. On appeal, the state supreme court held that tribal sovereign immunity applies to state investigative subpoena enforcement actions and remanded the case to the trial court for additional inquiry into the immunity status of the tribes’ affiliated businesses. On remand, the state claimed that sovereign immunity did not apply because the firms engaged non-tribal members in some of their operations and designed their affiliation with two online payday lending firms to avoid state regulation and oversight, a practice sometimes referred to as “rent-a-tribe.” After discovery, the court disagreed and ruled for the defendant tribes and their businesses, holding that the companies are extensions of the tribes and therefore immune from state investigatory actions and judicial enforcement.

    Payday Lending State Attorney General

  • FTC Takes Action Against Collectors of Alleged Phantom Payday Loan Debts

    Consumer Finance

    On February 21, the FTC announced that, at its request, a U.S. federal court stopped the operations of entities the FTC alleges collected over $5 million of payday loan debts that either did not exist or were owed to another entity. The FTC asked the court to freeze the assets of the firm while it continues its investigation and prosecution. The FTC charges that the defendants, California-based American Credit Crunchers LLC and affiliated entities and individuals, violated the FTC Act and the Fair Debt Collection Practices Act by posing as law enforcement and demanding immediate payment of payday loan debts from consumers that had no such debt.

    FTC Payday Lending

  • FTC Seeks Public Input Regarding Motor Vehicle Financing

    Consumer Finance

    On February 21, the FTC issued a reminder  that public comments may be submitted through April 1, 2012 as part of the FTC’s ongoing project to gather information on consumer experiences in the sale, financing, and leasing of motor vehicles at dealerships. The FTC held multiple events on the topic last year. A recent FTC report identified automobile finance as an area of focus in 2012.

    Auto Finance

  • CFPB Proposes Rule to Define "Larger Participants" in the Consumer Debt Collection And Consumer Reporting Markets

    Consumer Finance

    On February 16, the CFPB released a proposed rule to define “larger participants” in the markets for consumer debt collection and consumer reporting, thereby beginning the process by which the CFPB will determine which such entities are subject to its supervision. In short, the proposal uses annual receipts as the metric for determining larger participants. Under the Dodd-Frank Act, the CFPB has authority to supervise, regardless of size, nonbanks that provide to consumers (i) origination, brokerage, or servicing of residential mortgage loans secured by real estate, and related mortgage loan modification or foreclosure relief services; (ii) private education loans; and (iii) payday loans. The CFPB also has the power to supervise “larger participants” in any other market for consumer financial products or services, and the Act grants the CFPB authority to define “larger participants.” In this first effort to define larger participants in specific markets, the CFPB proposes to supervise debt collectors with more than $10 million in annual receipts from debt collection activities, which would cover approximately 175 debt collection firms that collectively account for 63 percent of annual receipts from the debt collection market. Consumer reporting agencies with more than $7 million in annual receipts from consumer reporting activities also would be covered, capturing approximately seven percent of consumer reporting agencies, or about 30 firms, which the CFPB estimates account for approximately 94 percent of the annual receipts from consumer reporting. Stakeholders and the public can submit comments on the proposal through April 17, 2012. The CFPB plans to issue larger participant proposed rules for other markets. Final rules for all markets must be published by July 21, 2012.

    CFPB Dodd-Frank Nonbank Supervision

  • Legislators Move Forward on Bill to Address Non-Waiver of Privileged Documents Submitted to CFPB

    Consumer Finance

    On February 16, the House Financial Services Committee approved H.R. 4014, which would mandate that providing information to the CFPB for any purpose as part of the supervisory process will not be construed as waiving, destroying, or otherwise affecting any privilege applicable to such information. The bill would accomplish this by amending the Federal Deposit Insurance Act to create the same non-waiver of privilege protections already afforded to information submitted by supervised entities to federal, state, and foreign banking regulators. A substantially identical bill, S. 2099, recently was introduced in the Senate by Chairman Johnson and Ranking Member Shelby of the Senate Banking Committee.

     

     

     

     

     

     

     

     

     

     

     

     

    CFPB Examination

  • FTC Submits Information Regarding 2011 Enforcement Actions and Planned 2012 Activities

    Consumer Finance

    On February 10, the FTC released a letter it recently submitted to the Federal Reserve Board (FRB) that reviews the FTC’s efforts in 2011 to enforce certain consumer financial services laws. The information provided in the letter will be used by the FRB in its 2011 Annual Report to Congress. In addition to reviewing past activity, the letter also outlines the FTC’s plans to exercise new authorities provided by the Dodd-Frank Act, including new or enhanced authority with regard to payment cards, motor vehicles, and mortgage disclosures.

    FTC Dodd-Frank

  • Senate Banking Chairman Requests Audits of Community Bank and Credit Union Exam Processes

    Consumer Finance

    On February 10, Senator Tim Johnson, Chairman of the Senate Banking Committee, sent a letter to the inspectors general of the Department of Treasury, the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the National Credit Union Administration seeking audits of each agency's exam process for community banks and credit unions. The letter cites community bank and credit union complaints of unclear standards and inconsistent application of policies and procedures. Sen. Johnson asked that the audit review (i) the overall exam process, (ii) examination timelines, and (iii) the ability of an institution to question or appeal exam results. The House Financial Services Committee has been considering legislation, H.R. 3461, that would mandate changes to the examination process. To date, no corresponding bill has been introduced in the Senate.

    FDIC Examination Federal Reserve NCUA

  • Buckley Sandler Advises EverBank on Acquisition of MetLife Bank's Warehouse Finance Business

    Consumer Finance

    On February 9, EverBank announced it had reached an agreement to acquire MetLife Bank's Warehouse Finance business. The acquisition, which is expected to close in the first half of 2012, will leverage EverBank's residential lending expertise and increase EverBank's assets by approximately $400 million. The acquisition has been approved by both parties' boards of directors and remains subject to regulatory approvals. EverBank is being advised by the law firms of Alston & Bird LLP and BuckleySandler LLP and the investment banking firm of Goldman, Sachs & Co.

  • FTC Announces Settlement With Debt Relief Service Operators

    Consumer Finance

    On February 8, the FTC announced it had settled with four defendants alleged to have operated a phony debt relief service.  According to the FTC, the defendants used illegal robocalls to falsely promise consumers lower credit card interest rates in exchange for a $995 fee, and falsely promised refunds. The operation allegedly netted over $13 million from over 13,000 consumers. The FTC’s complaint alleges that instead of negotiating lower rates for consumers, the defendants at most tried to arrange three-way phone calls with credit card companies for some consumers. The defendants agreed in the settlement to be banned from robocalling consumers and from selling debt relief services, and to pay a $13.1 million judgment, which will be suspended upon payment of $159,000 by the settling defendants. Defendants’ assets are subject to sale by a receiver to recover additional funds. The settlement also bars the defendants from a variety of misleading or illegal practices related to phone contacts to consumers.

    Credit Cards NCUA

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