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VA issues circular to address loan holder fees on assuming a VA-guaranteed loan
On February 26, the Department of Veterans Affairs published a circular to address assumption fees, specifically permitting a loan holder to charge an additional assumption-related fee based on the location of the relevant property when the assumption of a VA-guaranteed loan closes. This additional fee is in addition to the previously permitted assumption fees which must be less than $300 for loan holders with maximum authority or $250 for loan holders without automatic authority. The VA set the amount of the additional assumption fee allowed in Exhibit A to the circular, which can be found here.
FTC takes action against tax prep company for alleged unfair and deceptive practices
On February 23, the FTC announced an action against a tax preparation company for alleged unfair and deceptive acts and practices related to the sale of tax preparation products and services. The FTC alleged in its redacted administrative complaint that the defendant unfairly pushed consumers into paying for more expensive tax preparation products. The FTC further alleged the company made it unnecessarily difficult to downgrade the consumer’s tax preparation plan, both by requiring the consumer to first speak with a representative and by requiring the consumer to re-input the data if the consumer chooses to downgrade to the lower-priced product. The FTC also stated that the company’s upgrade policy, in contrast, is notably simple compared to its downgrade policy, and consumers’ “data seamlessly moves to the more expensive product instantly.” The FTC also claimed that the company’s “file for free” advertisements are deceptive because not all consumers’ tax situations are eligible for the free service.
This action follows the FTC’s action against another tax preparation software provider last month (covered by InfoBytes here).
FTC alleges a common enterprise’s software misrepresented consumers’ sensitive browsing data
On February 22, the FTC released a complaint and decision against multiple software companies operating as a common enterprise for allegedly violating three counts of Section 5 of the FTC Act for (1) unfairly collecting consumers’ browsing information; (2) deceptively failing to disclose tracking of consumers; and (3) stating false representations on data aggregation and anonymization. From 2014 to 2020, the FTC alleged that the companies distributed software with several privacy claims including that the software would block cookies and prevent browser tracking without obtaining consumers’ consent and deceiving consumers about the true nature of their actions.
The FTC alleged the companies collected browser information through browser extensions and antivirus software. While the companies claimed that these extensions provided security and privacy services, the companies used the extensions to collect browser information from users including URLs of visited webpages, URLs of background resources (e.g., cookies or images pulled from other domains), consumers’ search queries, and cookie values. While the companies made claims about the privacy and security of their products, they failed to disclose to consumers that their browsing information was sold to third parties and misrepresented how the data was shared. This browsing information can comprise sensitive data, possibly revealing a consumer’s religious beliefs, health information, political ideology, location, finances, and “interests in prurient content.” The FTC noted that when the companies in 2019 asked software users to opt-in to collect browser information, less than 50% of consumers agreed.
Under the FTC’s Decision, the companies must pay $16.5 million in monetary relief. Additionally, the FTC enjoined the companies from licensing or selling any browsing data from branded products to third parties for advertising purposes, and the companies are required to (a) obtain consent from consumers before selling consumers’ browsing data from non-branded products for advertising; (b) delete consumer web browsing information and certain products or algorithms derived from that data; (c) notify consumers whose information was previously sold without their consent; and (d) implement a privacy program.
CFPB claims special, risk-based oversight over lender
On February 23, the CFPB released a supervisory designation over a nonbank, small-loan consumer finance company (the Company). This is the first time the CFPB has used its authority under Section 1024(a)(1)(C) of the Consumer Financial Protection Act (CFPA) to designate a company for supervision based on a determination that the company’s conduct poses “risk to consumers” after a contested proceeding. This provision of the CFPA only required the CFPB to have “reasonable cause to determine” that a covered person’s conduct posed risks to consumers––which the CFPB stated is a “less demanding” legal standard than the preponderance-of-the-evidence standard generally used in civil proceedings.
The CFPB described the relevant statutory framework of the proceeding with particularity since this proceeding was “one of the first” under Section 1024(a)(1)(C). The CFPB found the company to be a covered person and stated that the CFPB had reasonable cause to determine that the Company’s conduct poses risks to consumers, including its alleged bundling of loans with insurance coverage, harmful collection practices, inaccurate credit reporting, and serial refinancing. The CFPB alleged that consumer complaints are sufficient to establish reasonable cause that the Company’s actions put consumers at risk.
FTC provides its 2023 ECOA activities to CFPB
On February 12, the FTC provided the CFPB with an annual summary of its 2023 enforcement, research and policy development, and educational-related initiatives on ECOA, as Dodd-Frank allows the Commission to enforce ECOA and any CFPB rules applicable to entities within the FTC’s jurisdiction. The letter emphasized the commitment of each agency to enforce laws protecting civil rights, fair competition, consumer protection, and equal opportunity in the development and use of automated systems and artificial intelligence. Additionally, the letter stated the FTC continued its involvement in initiatives such as military outreach and participation in interagency task forces on fair lending. Its initiatives focused on consumer and business education regarding issues related to Regulation B and guiding fair lending practices. The Commission also highlighted (1) an enforcement action against a group of auto dealerships alleging ECOA and its implementing Regulation B violations in connection with the sale of add-on products; (2) refund checks sent as a result of the settlement of two enforcement actions against auto dealerships in which it was alleged that the dealerships violated ECOA and Regulation B by discrimination against Black and Latino consumers by charging them higher financing costs; and (3) an amicus brief submitted to an appeals court in support of the CFPB’s appeal to the U.S. Court of Appeals for the Seventh Circuit of the lower court’s decision regarding the applicability of ECOA to individuals other than “applicants.”
CFPB revises its supervisory appeals process
On February 16, the CFPB issued a procedural rule updating its process for financial institutions that appeal the Bureau’s supervisory findings. The CFPB examined financial institutions to ensure they followed federal consumer financial law. After an examination or targeted review, supervised entities may appeal their compliance rating or any other findings.
First, the procedural rule expanded the pool of potential members for the appeals committee within the CFPB. Now, any CFPB manager with relevant expertise who did not participate in the original matter being appealed can be considered, rather than previously only managers from the Supervision department. The CFPB’s General Counsel will assign three CFPB managers and legal counsel to advise them. Second, the revised process introduced a new option for resolving appeals—in addition to upholding or rescinding the original finding, matters can now be remanded back to supervision staff for further consideration, potentially resulting in a modified finding. The Bureau also recommended in its procedural rule that entities engage in “open dialogue” with supervisory staff to discuss their preliminary findings to attempt to resolve disputes before an examination is final.
Third, institutions now can appeal any compliance rating issued to them, not just negative ratings, as was the case previously. Fourth, the updated process included additional clarifications and specifies that it applied to pending appeals at the time of its publication.
Agencies issue 2023 Shared National Credit Program Report
On February 16, the FDIC, Fed, and OCC issued the 2023 Shared National Credit (SNC) Report, which found that while large, syndicated bank loans generally have moderate credit quality, there appears to be a trend of declining credit quality stemming from higher interest rates and tighter profit margins in certain industries. The report found that credit risk remains high in leveraged loans and specific sectors like technology, telecom, healthcare, and transportation. Also, the real estate and construction sector showed mixed trends.
FTC encourages potential defendants to sign tolling agreements to avoid "undue delay"
On February 20, Samuel Levine, the director of the FTC’s Bureau of Consumer Protection, said in an FTC blog post, that although the FTC welcomes open dialogue with parties in open investigations, the Commission is prepared to quickly pivot to litigation in cases should companies cause “undue delay” to redress for consumers. In light of a 2021 Supreme Court ruling in AMG Capital Management, LLC v. FTC, the FTC can no longer pursue monetary relief under Section 13(b) of the FTC Act, which lacks a statute of limitations. Instead, the FTC said, it frequently turns to Section 19, 15 U.S.C. § 57b, which allows courts to order defendants to provide redress only if violations occurred within three years of the Commission’s action. To facilitate timely productive discussions, the FTC Bureau of Consumer Protection often requests tolling agreements from potential defendants to provide time for information gathering and dialogue while preserving the possibility of a pre-litigation settlement or closing the investigation in appropriate cases. Parties are encouraged to sign these agreements, as refusal may impact extension requests and meeting opportunities. If necessary, the FTC will recommend litigation to protect consumer interests.
CFPB reports larger banks charge higher interest rates on credit cards than smaller banks
On February 16, the CFPB published the results of a report that found, on average, larger banks charged higher credit card interest rates than smaller banks and credit unions. The CFPB’s data suggested larger banks charge interest rates eight to 10 points higher than non-large banks. If a consumer were to pick a large bank credit card over a smaller bank, the consumer would see an estimated difference of “$400 to $500” in additional annual interest.
Other findings from the report suggested that large issuers offered higher rates across credit scores: e.g., the median interest rate for people with scores between 620 and 719 was 28.20 percent for large banks and 18.15 percent for small ones. The CFPB also found that 15 bank-issued credit cards with interest rates above 30 percent: nine of the largest issuers reported at least one product over that rate. Lastly, the report found that large banks were more likely to charge annual fees, with 27 percent of large banks charging an annual fee, compared to 9.5 percent of small banks. The CFPB published a table between large and small banks that showed median purchase APR by credit tier.
House Democrats urge agencies to finalize Basel III Endgame rule
On February 16, the Ranking Member for the House Committee on Financial Services, Maxine Waters (D-CA), and 41 other House Democrats sent a letter to the FDIC, Fed, and OCC regarding the Basel III Endgame and the proposed rule which would impose higher capital requirements. The letter urged the agencies to finalize the rule, highlighting the purpose of capital requirements “to shield banks from unexpected losses, preventing their failure, while serving as a source of funding that banks use…” The letter commended the agencies for providing the public with almost six months to comment and argued the endgame rule’s impact on access to credit is low. The letter also noted that the expected funding impact on a large bank’s average lending portfolio is expected to increase by just 0.03 percent, which it describes as “insignificant” compared to Fed interest rate increases. The letter specifically urged the heads of the agencies to finalize the rules this year “to ensure we have a banking system that will promote stable economic growth.”