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Washington state Attorney General sues towing company for alleged state SCRA violation
On September 11, the Washington state Attorney General announced the filing of a lawsuit against a towing company for allegedly auctioning off a servicemember’s car while he was deployed, in violation of the Washington Servicemembers’ Civil Relief Act (WSCRA). The complaint argues that the towing company impounded and unlawfully sold a deployed servicemember’s car without first determining the military status of the car’s owner and without obtaining a court order, as required by the WSCRA. The complaint rejects the towing company’s arguments that the responsibility fell on the servicemember’s creditor to redeem the vehicle as the legal owner because the law places the duty for determining military status on the party enforcing the lien. The complaint seeks restitution for the servicemember and a permanent injunction. Additionally, the complaint seeks civil penalties of up to $55,000 for a first offense and up to $110,000 for subsequent offenses, as allowed by the WSCRA.
CFPB issues summer 2018 Supervisory Highlights
On September 6, the CFPB released its summer 2018 Supervisory Highlights, which outlines its supervisory and oversight actions in the areas of auto loan servicing, credit card account management, debt collection, mortgage servicing, payday lending, and small business lending. The findings of the report cover examinations that generally were completed between December 2017 and May 2018. Highlights of the examination findings include:
- Auto loan servicing. The Bureau determined that billing statements showing “paid-ahead” status after insurance proceeds from a total vehicle loss were applied, where consumers were treated as late if they failed to pay the next month, were deceptive. The Bureau also found that servicers unfairly repossessed vehicles after the repossession should have been canceled because the account was not coded correctly, or because an agreement with consumer was reached.
- Credit card account management. The Bureau found that companies failed to reevaluate accounts for eligibility for a rate reduction under Regulation Z or failed to appropriately reduce annual percentage rates.
- Debt collection. The Bureau found that debt collectors failed to mail debt verifications to consumers before engaging in continued debt collection, activities as required by the FDCPA.
- Mortgage servicing. The Bureau found that mortgage servicers delayed processing permanent modifications after consumers successfully completed their trial modifications, resulting in accrued interest and fees that would not otherwise have accrued, which the Bureau determined was an unfair act or practice.
- Payday lending. The Bureau found that companies threatened to repossess consumer vehicles, notwithstanding that they generally did not actually do so or have a business relationship with an entity capable of doing so, which the Bureau determined was a deceptive practice. The Bureau also found that companies did not obtain valid preauthorized EFT authorizations for debits initiated using debit card numbers or ACH credentials provided for other purposes, in violation of Regulation E.
- Small business lending. The Bureau found that some institutions collect and maintain only limited data on small business lending decisions, which it determined could impede the institution’s ability to monitor ECOA risk. The Bureau noted positive exam findings including, (i) active oversight of an entity’s CMS framework; (ii) maintaining records of policy and procedure updates; and (iii) self-conducted semi-annual ECOA risk assessments, which included small business lending.
The report notes that in response to most examination findings, the companies have already remediated or have plans to remediate affected consumers and implement corrective actions, such as new policies in procedures.
Finally, the report highlights, among other things, (i) two recent enforcement actions that were a result of supervisory activity (covered by InfoBytes here and here); (ii) recent updates to the mortgage servicing rule and TILA-RESPA integrated disclosure rule (covered by InfoBytes here and here); and (iii) HMDA implementation updates (covered by InfoBytes here).
NYDFS releases updated guidance regarding indirect auto lending fair lending compliance
On August 23, the New York Department of Finance Services (NYDFS) released updated guidance reminding institutions engaged in indirect auto lending through third parties that they must comply with the state’s Fair Lending Law, despite the May repeal of the CFPB’s Bulletin 2013-02 on indirect auto lending and compliance with the Equal Credit Opportunity Act (ECOA). (The repeal was previously covered by InfoBytes here.) The updated guidance “consolidates, streamlines and reinforces previous guidance issued by [NYDFS]’s predecessor, the New York State Banking Department,” which applies to supervised financial institutions and their subsidiaries and affiliates (lenders). The guidance provides a list of actions lenders should take to develop a fair lending compliance program for indirect auto lending, including (i) submitting all applications for loans that are rejected or withdrawn to an automatic review by a higher-level supervisor; (ii) implementing a fair lending training program for both new hires and current employees; (iii) obtaining written agreements from all dealers that certify that the dealer acknowledges its responsibility to comply with fair lending laws and the policies and procedures contained in the fair lending plan; and (iv) extending fair lending plan principles to refinancing and collection practices.
FTC announces charges against auto dealerships for falsifying consumer information on auto financing documents
On August 1, the FTC announced charges against a group of four auto dealers (defendants) with locations in Arizona and New Mexico near the Navajo Nation’s border alleging, among other things, that the defendants advertised misleading discounts and incentives through their vehicle advertisements, and falsely inflated consumers’ income and down payment information on certain financing applications. The charges brought against the defendants allege violations of the FTC Act, the Truth in Lending Act, and the Consumer Leasing Act. According to the complaint, by allegedly falsifying the customers’ income and down payments, the defendants “inaccurately made consumers appear more creditworthy” on the false financing applications. Moreover, the FTC claims the defendants often prevented consumers from reviewing the falsified information provide in the financing applications prior to signing. As a result, credit was extended to consumers—many of whom are members of the Navajo Nation—who then subsequently “defaulted at a higher rate than properly qualified buyers.” Furthermore, the complaint asserts that the defendants’ deceptive advertising practices concealed the true nature and terms of the financing or leasing offers, and were in violation of federal law for failing to disclose the required terms. The complaint seeks, among other remedies, a permanent injunction to prevent future violations, restitution, and disgorgement.
CFPB announces settlement with Alabama-based operation for allegedly failing to properly disclose finance charges
On July 19, the CFPB announced a settlement with a small-dollar lending operation that allegedly failed to properly disclose finance charges and annual percentage rates associated with auto title loans in violation of the Truth in Lending Act (TILA) and the prohibition on deceptive practices in the Consumer Financial Protection Act (CFPA). According to the consent order, the Alabama-based operation, which owned and operated approximately 100 retail lending outlets in Alabama, Mississippi, and South Carolina under several names, materially misrepresented the finance charges consumers would incur for Mississippi auto title loans by disclosing a finance charge based on a 30-day term while having consumers sign a 10-month payment schedule. The Bureau asserts that “[c]onsumers acting reasonably likely would not understand that the finance charge disclosed in the loan agreement does not actually correspond to their loan payment term.” Furthermore, the Bureau contends that the operation also failed to disclose the annual percentage rate on in-store advertisements as required under TILA. The order requires the operation to pay redress in the amount of $1,522,298, which represents the total undisclosed finance charges made directly or indirectly by affected consumers on their loans. However, based on defendants’ inability to pay this amount, full payment is suspended subject to the operation’s paying $500,000 to affected consumers. In addition to the penalties, the operation is prohibited from continuing the illegal behavior and the operation’s board must ensure full compliance with the consent order.
New York Attorney General announces settlement with auto dealership over deceptive practices targeting non-English speakers
On July 5, the New York Attorney General announced a settlement with an auto dealership to resolve allegations that it engaged in deceptive practices targeted towards non-English speakers. The auto dealership allegedly misled consumers about the actual cost of their purchases and offered false refinancing promises. According to the announcement, the dealership allegedly (i) provided English documents to non-English speaking consumers containing loan terms and aftermarket items different from those discussed during the actual sale, including “supplemental service contracts, gap insurance policies, or special protections for tires, fabric, glass, or paint that added thousands of dollars to the auto sale or lease contracts”; and (ii) told consumers it would refinance their loans at a lower rate after receiving complaints of overcharges and unwanted aftermarket items. However, the Attorney General asserts that the dealership failed to honor the refinancing promises. Under the terms of the settlement, the dealership is required to reform its business practices, refrain from engaging in the alleged deceptive business practices, modify its employee training and complaint handling process, and produce sales and lending documents in languages for non-English speakers prior to the signing of any documentation in English. The dealership must also pay over $423,000 to cover restitution, penalties, fees, and costs to the state.
Court dismisses “convenience fee” action against bank for lack of damages
On June 25, the U.S. District Court for the District of Maryland dismissed a proposed class action alleging a national bank violated the Maryland Credit Grantor Closed End Credit (CLEC) law by charging “convenience fees” in connection with secured vehicle financing. According to the opinion, after the consumer defaulted on vehicle payments, the bank repossessed the consumer’s vehicle and demanded the consumer pay the deficiency balance. In August 2017, the consumer, on behalf of herself and others similarly situated, filed a class action against the bank for allegedly charging convenience fees in connection with over 500 retail installment sales contracts for vehicles governed under the CLEC. Upon removal to federal court, the consumer sought to amend her complaint to replace the CLEC claim with a breach of contract claim based on the same violation in her original complaint and the bank sought dismissal of the claim. The court granted the bank’s motion to dismiss, concluding that even if the bank did charge a convenience fee in violation of the CLEC, the bank (i) did not collect payments in excess of the original principle amount of the loan; and (ii) did not seek a deficiency judgment against the consumer. Additionally, the consumer did not seek injunctive or declaratory relief. Therefore, the court held that the consumer is not entitled to damages under CLEC and her corollary breach of contract claim is “futile and must be dismissed.”
Auto finance company agrees to $19.7 million preliminary class action settlement over extra lease fees
On June 15, the lead plaintiff filed a motion in the U.S. District for the Southern District of Florida for preliminary approval of an approximately $19.7 million class action settlement between a group of consumers and an auto finance company over allegations that extra fees were charged beyond the set purchase option price disclosed in certain vehicle lease contracts. According to the motion, the lead plaintiff alleged that after he chose to purchase his vehicle at the end of his lease term and he was charged extra third-party fees not included in his original lease contract. The class action complaint alleges violations of the Consumer Leasing Act and breach of contract. The settlement class consists of consumers nationwide who entered into certain lease contracts with the company, purchased their leased vehicle after June 4, 2009, and that were required to pay a documentary or dealer fee not disclosed in the lease contract, which allegedly averages about $238 per consumer. The settlement would allow prospective opt-in members to submit a claim for repayment of 100% of the extra fees charged. The $19.7 million settlement figure was determined using a statistically significant sample of the transactional records available and includes up to $2.95 million in attorneys costs and fees. The settlement is awaiting the court’s approval.
FTC reports on certain 2017 enforcement activities to the CFPB
On May 17, in response to a request from the CFPB, the FTC transmitted a letter summarizing its 2017 enforcement activities related to Regulation Z (TILA), Regulation M (Consumer Leasing Act), and Regulation E (Electronic Fund Transfer Act) for the CFPB’s use in preparing its 2017 Annual Report to Congress. The FTC highlighted numerous activities related to the enforcement of the pertinent regulations, including:
- Payday Lending. The FTC acknowledged the continued litigation against two Kansas-based operations and their owner for allegedly selling lists of counterfeit payday loan debt portfolios to debt collectors in violation of the FTC Act, previously covered by InfoBytes here.
- Military Protection. The FTC identified the July 2017 military consumer financial workshop and the launch of the new Military Task Force (previously covered by InfoBytes here and here) among the activities the agency engaged in related to protecting the finances of current and former members of the military. The FTC also noted continued participation in the interagency group working with the Department of Defense on amendments to its rule implementing the Military Lending Act.
- “Negative Option.” For actions under the Regulation E/EFTA, the FTC highlighted numerous “negative option” enforcement actions, in which the consumer agrees to receive goods or services from a company for a free trial option, but if the consumer does not cancel before the trial period ends, the consumer will incur recurring charges for continued goods or services. Among the actions highlighted is a case in which the FTC imposed a $179 million judgment (suspended upon the payment of $6.4 million) settling allegations that the online marketers’ offers of “free” and “risk free” monthly programs for certain weight loss and other products were deceptive.
- Auto Loans. The letter highlighted, among others, the FTC action against a Southern California-based group of auto dealerships that allegedly violated a prior consent order with the FTC by misrepresenting the cost to finance or lease a vehicle, previously covered by InfoBytes here.
Trump signs legislation repealing CFPB auto guidance, Mulvaney praises action; CFPB to reexamine ECOA requirements
On May 21, President Trump signed resolution S.J. Res. 57, which repeals CFPB Bulletin 2013-02 on indirect auto lending and compliance with the Equal Credit Opportunity Act (ECOA). The president’s signature completes the disapproval process under the Congressional Review Act (CRA), which began after the Government Accountability Office (GAO) issued a letter in December 2017 to Senator Pat Toomey (R-Pa) stating that “the Bulletin is a general statement of policy and a rule” that is subject to override under the CRA. The Senate passed the disapproval measure in April and the House approved it in the beginning of May. (Previously covered by InfoBytes here.)
The repeal responds to concerns that the bulletin improperly attempted to regulate auto dealers, which the Dodd-Frank Act excluded from the Bureau’s authority. In a statement after the president’s signing, CFPB acting Director Mick Mulvaney praised the action and thanked the president and Congress for “reaffirming that the Bureau lacks the power to act outside of federal statutes.” He also stated that the repeal “clarifies that a number of Bureau guidance documents may be considered rules for purposes of the CRA, and therefore the Bureau must submit them for review by Congress. The Bureau welcomes such review, and will confer with Congressional staff and federal agency partners to identify appropriate documents for submission.”
Additionally, acting Director Mulvaney announced plans to reexamine the requirements of ECOA, “[g]iven a recent Supreme Court decision distinguishing between antidiscrimination statutes that refer to the consequences of actions and those that refer only to the intent of the actor.” Although the decision is not identified, it is likely the June 2015 Supreme Court decision in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., which concluded that disparate impact claims are permitted under the Fair Housing Act but acknowledged some limitations on its application. (Covered by a Buckley Sandler Special Alert.)