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FTC bans all non-competes for workers and new non-competes for senior executives
On April 23, the FTC released a final rule titled the “Non-Compete Clause Rule,” in a 570-page release, to “categorically ban” non-compete clauses in employment contracts with all workers after the effective date of the rule pursuant to the FTC’s UDAP authority, by rendering such clauses an unfair method of competition pursuant to Section 5 of the FTC Act. The final rule also renders most existing noncompete clauses unenforceable after the effective date of the final rule, with an exception for existing noncompete clauses for senior executives, which remain enforceable. The FTC explained that it viewed noncomplete clauses as “restrictive and exclusionary” with negative impacts on earnings, innovation, and market competition. The final rule defines “non-compete clause” as “a term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from (1) seeking or accepting work in the United States with a different person where such work would begin after the conclusion of the employment that includes the term or condition; or (2) operating a business in the United States after the conclusion of the employment that includes the term or condition.”
While the FTC decided against adopting a rescission requirement for non-competes in the final rule, it adopts notice requirements for all workers who are not senior executives requiring “the person who entered into the non-compete” to provide “clear and conspicuous notice to the worker by the effective date that the worker’s non-compete clause is no longer in effect and will not be, and cannot legally be, enforced against the worker.” The Commission noted that employers concerned about protecting confidential business information, may avail themselves of the protections of trade secret law and further noted that there are several states that have already substantially banned non-competes, and that within these states employers have found alternative methods to protect their investments.
The FTC’s final rule will go into effect 120 days after publication of the final rule in the Federal Register.
FHFA seeks public input on new closed-end second mortgage product
On April 22, the FHFA sent to the Federal Register a notice of a proposed new product from Freddie Mac to begin purchasing certain single-family closed-end second mortgages. According to the proposal, Freddie Mac would purchase certain closed-end second mortgage loans from approved and active sellers and on properties for which Freddie Mac already owns the first mortgage, subject to additional product and term limitations. FHFA’s stated goal is to offer borrowers a second mortgage at a lower interest rate than other financing alternatives given the higher interest rate environment, and increased competition among second mortgage lenders. FHFA requested comments on nine questions, with comments to be received by May 22.
FTC amends the TSR on recordkeeping and prohibiting misrepresentations
On April 16, the FTC issued a final rule amending the Telemarketing Sales Rule (TSR) to add requirements for telemarketers to maintain transaction records, prohibit misrepresentations, and add a new definition for “previous donor” in the context of robocalls on behalf of charitable organizations. This will be the fifth time the TSR has been amended since its enactment in 1995, with previous amendments creating the National Do Not Call Registry in 2003, prohibiting sellers to use prerecorded messages (i.e., robocalls) in 2008, banning debt relief services from requiring an advance fee in 2010, and most recently, barring certain payment mechanisms used in fraudulent transactions in 2015. The FTC’s new amendments to the TSR will require telemarketers to retain a copy of each prerecorded message, call detail records, records to show an established business relationship, records on charitable donations and the do-not-call registry. On the rule’s efforts to prohibit misrepresentations, marketers will be prohibited from making misrepresentations about the good or service they are selling or false statements to induce a charitable contribution. The final rule also will update the definition of “previous donor” to allow telemarketers to place robocalls on behalf of a charity only to customers who have donated to a charity within the previous two years. The amendment will go into effect on May 16 with mandatory compliance beginning October 16.
FTC issues NPRM to extend TSR coverage for inbound calls on elder fraud
On April 16, the FTC published an NPRM for the Telemarketing Sales Rule (TSR) in the Federal Register to extend the TSR’s coverage to inbound telemarketing calls by consumers to include technical support service – i.e., calls that consumers would make in response to an advertisement. The FTC noted this extension of the TSR would allow the FTC to “obtain stronger relief,” such as civil penalties and consumer redress, when consumers would be affected by tech support scams. The FTC argued that this proposed expansion of the TSR would be necessary given the rise in consumer complaints regarding tech support scams, explaining that consumer complaints rose from 40,000 complaints in 2017 to nearly 115,000 complaints in 2021. Additionally, the FTC explained that in 2018, consumers reported losses totaling over $55 million from these scams and noted that the scams disproportionately affected consumers over 60 years old. The proposed rule would define technical support services as a program or service that would be marketed to repair, maintain or improve the performance and security of electronic devices. The FTC explained that this broad definition will be necessary because scammers purport to offer such services as they evolve with changes to technology and consumer behavior; additionally, scammers would aim to profit from a consumer’s problems or unfamiliarity with technology. In sum, the proposed rule would add “tech support services” to the list of categories excluded from the TSR exemptions for inbound calls, specifically when such calls are in response to an advertisement “through any medium”; this exclusion will also extend to inbound calls in response to “a direct mail solicitation” including email. The FTC will seek comments on its proposed rule, including on nine specific questions, and comments must be received by June 17.
CFPB finalizes rule to change its supervision designation procedures for nonbanks
On April 16, the CFPB issued a procedural rule to change how the Bureau will designate nonbanks for supervision. Under the CFPA, the CFPB was authorized to supervise a nonbank covered person if the Bureau had reasonable cause to determine if the nonbank covered person was engaged in financial services-related conduct that posed a risk to consumers. In 2013, the CFPB issued a rule providing procedures to govern supervisory designation proceedings under this authority; in 2022, the CFPB published a final rule amending the procedural rule to allow it to publicize its resolution of any contested designation proceeding (covered by InfoBytes here). In late February 2024, the CFPB transitioned to a new organizational structure for its supervision and enforcement work, and this rule will reflect the technical changes of the new structure in the context of supervisory designation proceedings.
According to the Bureau, there were small differences between two separate provisions under the 2013 rule that allowed nonbanks to consent to the CFPB’s exercise of supervisory authority. The new procedural rule will combine these provisions and clarify a few points of distinction from the two original provisions, including (i) a consent agreement does not constitute an admission; and (ii) supervision durations following consent agreements can be negotiated on a case-by-case basis, instead of applying a default duration of two years.
Regarding the Supervision Director’s notice of reasonable cause, the rule will expand the possible methods of delivery to include other methods that are “reasonably calculated to give notice.” Additionally, the rule states that the initiating official may withdraw a notice, and that they may file a written reply to the notice recipient’s response, neither of which was not contemplated under the previous rule. The Bureau said these changes could allow for more transparency in the decision-making process.
Concerning a supplemental oral response, the Bureau noted under the previous rule, a respondent nonbank entity presented supplemental oral responses to the Associate Director for Supervision, Enforcement, and Lending. In light of the elimination of the Associate Director position pursuant to a recent reorganization that split the Division of Supervision, Enforcement, and Fair Lending into a Division of Enforcement and a Division of Supervision, the rule provided that the Director of the Bureau will assume the Associate Director’s adjudicative roles and supervision-related functions. Therefore, the Director will be responsible for issuing a decision and order subjecting an entity to the Bureau’s supervision or terminating a proceeding.
The rule further stipulated that (i) an additional time limit for mail and delivery services are no longer warranted, since email would be “generally instantaneous”; (ii) there will be a 13,000-word limit for the proceeding filings; (iii) any changes to time or word limits can be decided between the initiating official and the respondent with a notice to the Director and will be subject to change by the Director.
Regarding the confidentiality of proceedings, the rule maintained a process for the CFPB to decide whether to publicly release final decisions and orders, including orders entered as a result of respondent failing to file a response and therefore defaulting. The Bureau did note, however, consent agreements entered into between the initiating official and the respondent will not be subject to public release under the rule.
The rule also established an issue exhaustion requirement, requiring respondents to raise arguments they have in their written response to the Bureau to avoid waiving the argument in future proceedings. The Bureau will invite public comments which must be submitted 30 days after publication in the Federal Register, although the rule will be exempt from the notice-and-comment rulemaking requirements under the APA as a rule of agency organization, procedure, or practice. The rule will be effective upon publication to the Federal Register, and it will apply to proceedings pending on the effective date, unless the Director determined that it will be “not practicable.”
CFPB Director speaks on new and proposed rules for data brokers
On April 2, the Director of the CFPB, Rohit Chopra, delivered a speech at the White House Office of Science and Technology Policy highlighting President Biden’s recent Executive Order (EO) to Protect Americans’ Sensitive Personal Data and how the CFPB will plan to develop rules to regulate “data brokers” under FCRA. As previously covered by InfoBytes, the EO ordered several agencies, including the CFPB, to better protect Americans’ data. Chopra highlighted how the EO not only covered data breaches but also regulated “data brokers” that ingest and sell data. According to the EO, “Commercial data brokers… can sell [data] to countries of concern, or entities controlled by those countries, and it can land in the hands of foreign intelligence services, militaries, or companies controlled by foreign governments.”
Consistent with the EO, the CFPB will plan to propose rules this year that will regulate “data brokers,” as per its authority under FCRA. Specifically, the proposed rules would include data brokers within the definition of “consumer reporting agency”; further, a company’s sale of consumer payment or income data would be considered a “consumer report” subject to requirements, like accuracy, customer disputes, and other provisions prohibiting misuse of the data.
FinCEN seeks public comment for changing SSN requirements during customer identification
On March 29, FinCEN published a request for information (RFI) and comment in the Federal Register, in consultation with the OCC, FDIC, NCUA, and the Fed, to receive more information on the Customer Identification Program (CIP) Rule requirement. This announcement extended the comment period as the regulators explored how banks can better collect a customer’s social security number (SSN). Specifically, FinCEN sought information on the “potential risks and benefits” if banks were to be allowed to collect partial SSNs from customers, and then used a “reputable” third-party source to obtain the full SSN. FinCEN noted there has been “expressed interest” in permitting this practice. Written comments must be received on or before May 28.
Agencies extend applicability date of certain provisions of their Community Reinvestment Act final rule
On March 21, the FDIC, Fed, and OCC jointly issued an interim final rule to extend the applicability date of certain provisions of the Community Reinvestment Act (CRA) final rule and requested comments on the extension. As previously covered by InfoBytes, the final rule was intended to modernize how banks comply with the CRA, a law that encouraged banks to help meet the credit needs of low- and moderate-income communities.
Stated “[t]o promote clarity and consistency,” the agencies have postponed the applicability date of the facility-based assessment areas and public file provisions from April 1, 2024, to January 1, 2026. As a result, banks would not be required to modify their assessment areas or public files in response to the final rule until the new 2026 date. This extension would put these elements on the same timeline as other components of the 2023 CRA final rule that also would take effect on January 1, 2026, including the performance tests and geographic area provisions.
The agencies also made technical, non-substantive updates to the CRA final rule and related agency regulations that reference it. One of these technical adjustments specified that banks are not required to update their public CRA Notices until January 1, 2026. Public comments on the postponed implementation date must be received 45 days following the rule's publication in the Federal Register.
FHA implements changes to branch office registration requirements
On March 19, the FHA issued Mortgagee Letter 2024-04 to implement the provisions of a Final Rule, “Changes in Branch Office Registration Requirements.” The Final Rule will eliminate the requirement for mortgagees and lenders to register with HUD in each branch office from which they conduct FHA business, making branch registration optional and branch registration fees applicable only to branch offices that mortgagees or lenders choose to register with FHA. As previously covered by InfoBytes, FHA proposed the rule last March. Following public comments, HUD published the Final Rule without changes from the proposed rule, and the Final Rule became effective on March 4.
The Final Rule will exclude branch offices not registered with HUD from the HUD Lender List Search page. The Mortgagee Letter will summarize changes that will be incorporated into Handbook 4000.1 to implement the Final Rule, including updating the policy for registering branch offices, clarifying the “Area Approved for Business” for home offices and branch offices, updating the definitions for Branch Manager and Regional Manager, and clarifying the policy requirements that apply to registered branch offices. Although the Mortgagee Letter will go into effect immediately, it will not impact annual recertifications due to be completed by March 31; rather, the recertification fee “will be calculated based on the registered branches as of the last business day of the mortgagee’s certification period (fiscal year end).”
CFPB submits brief alleging “forum shopping,” banking groups defend their choice of venue
On March 12, the CFPB submitted a brief to the U.S. District Court for the Northern District of Texas in opposition to a motion for preliminary injunction filed by a group of industry associations, urging the court to block the implementation of a new rule that would limit the ability of large credit card issuers to charge late fees (covered by InfoBytes here).
The CFPB defended the rule by stating that it has considered all relevant factors and that the rule aimed to prevent credit card issuers from charging excessive late fees. The CFPB also argued that the case is not properly situated, as the plaintiffs lack a significant connection to the district in which they filed the lawsuit and do not have the standing to sue on behalf of others, stating “it seems not one large card issuer wants its name on the marquee… [t]he rule applies to only the largest card issuers—approximately 30–35 total entities nationwide. Plaintiffs have not identified a single one that is based in this District.” The CFPB suggested that plaintiffs have engaged in “forum shopping”—i.e., choosing this court because they believe it will be more favorable to their case, despite a lack of substantial connection to the district. The brief stated that the plaintiffs are unlikely to succeed on the merits of their claims under the Administrative Procedure Act because they failed to establish proper venue and associational standing. Additionally, the CFPB argued that an injunction was not warranted because the rule was designed to protect consumers and that preventing its implementation would be against the public interest.
On March 13, plaintiffs submitted a brief defending its motion for preliminary injunction and their choice of venue in Texas as part of an ongoing suit against the CFPB. The brief stated that according to law, the venue was appropriate if one plaintiff resided in the district, which applied to one of the Texas-based chamber plaintiffs, and if a significant portion of the related events occurred in the district, which is true as the rule impacted the local area. That plaintiff argued they have standing to sue because the issues are relevant to its “mission of cultivating a ‘thriving business climate in the Fort Worth region’” and its trade members included credit card issuers affected by the rule. Despite the CFPB’s counterarguments that the plaintiff lacked standing and that a transactional venue was not applicable, the plaintiff asserted it represented members that would be directly impacted by the rule, fulfilling the requirements for standing. Additionally, plaintiff contended that the rule's effects within the district justify the court's jurisdiction over the case.