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CFPB’s credit card late fee rule stayed
On May 10, the U.S. District Court for the Northern District of Texas entered an opinion and order granting the plaintiffs, comprising several trade organization, its motion for preliminary injunction and placed a stay on the CFPB’s credit card late fee rule. As previously covered by InfoBytes, a suit was filed against the CFPB by multiple trade organizations to challenge the Bureau’s final rule to amend Regulation Z and limit most credit card late fees to $8.
The court decided not to address the plaintiffs’ arguments regarding the CARD Act, TILA, and APA violations due to the Court of Appeals for the Fifth Circuit opinion that the CFPB's funding structure was unconstitutional; therefore, any regulations promulgated by the CFPB would be unconstitutional. For that reason, due to the CFPB’s unconstitutional structure found by the 5th Circuit, the District Court decided that all factors weighed in favor of issuing a preliminary injunction and thus staying the final rule.
Maryland enacts new powers for regulators to examine third parties
On May 9, the Governor of Maryland approved HB 250 (the “Act”) which will authorize the Commissioner of Financial Regulation to examine third parties that service entities under the supervision of the state’s Office of Financial Regulation (OFR). Such licensed entities include both depository and non-depository financial institutions. Currently, the OFR lacks the authority to examine third parties until the Act goes into effect. The Act will define third-party service providers as a “person who performs activities relating to financial services on behalf of a regulated entity for that regulated entity’s customers,” and include data processing centers, activities that support financial services, and internet-related services. On enforcement, the Act will authorize the OFR to enforce the law against any third party that refuses to submit to an examination, refuses to pay a fee, or engages in “unsafe or unsound” behaviors as determined by the OFR. The Act will outline several authorities of the OFR, including notifying the licensed person, which information the OFR can access, and levying fees. Following a notice and hearing, the Commissioner may issue a cease-and-desist order, suspend or revoke a violator’s license, or issue a penalty of up to $10,000 for the first violation and up to $25,000 for each subsequent violation. The Act takes effect on October 1.
House questions CFPB's rules on NSF fees and impact on small businesses
On May 9, the House Committee on Small Business expressed concerns in a letter addressed to CFPB Director, Rohit Chopra, on a proposed rule that would ban charging insufficient fund fees (NSF fees) on declined transactions (covered by InfoBytes here). The Committee argued this proposed rule could unduly complicate existing UDAAP regulations and impose additional burdens on small financial institutions.
The letter stated the CFPB did not convene a Small Business Advocacy Review (SBAR) panel and questioned the CFPB’s claims that the rule would not significantly affect a substantial number of small businesses. The Committee suggested that the CFPB’s analysis, which minimizes the impact of NSF fees on small institutions’ revenue, might be flawed and that the rule could have a significant economic impact in terms of reporting requirements and compliance, warranting a review by an SBAR panel. The Committee also challenges the CFPB’s assertion that NSF fees for certain transactions are inherently “abusive,” arguing that the CFPB is overstepping its authority by attempting to ban “business practices” altogether rather than limiting abusive practices. Finally, the Committee requests information from the CFPB on several fronts, including the number of small financial institutions affected by the rule, the compliance burden, the CFPB’s methodology for identifying UDAAP, and the CFPB's stance on disclosures compared to other financial regulations and the FTC's approach.
CFPB releases report on costs of HSAs
On May 1, the CFPB released a report on health savings accounts (HSAs). The CFPB reported that consumers owned 36 million HSAs in 2023, and these HSAs held over $116 billion in assets – a 500 percent increase over the past decade. The CFPB believed this growth was likely due to HSAs’ tax-advantage status. According to the CFPB, HSAs differ from other healthcare spending accounts in ways that can “present increased costs, primarily in the form of fees and low interest rates.” The CFPB reported, for example, that suppliers of HSAs charged various fees, including monthly maintenance fees, paper statement fees, outbound transfer fees, and account closure fees. In the report, the CFPB indicated that the three largest HSA suppliers charge monthly fees at or around $4. Some suppliers reportedly did not make these fee schedules available publicly, and the fee responsibility varied between the company and the individual. On switching costs, one company charged a $20 outbound transfer fee for moving funds to a different HSA account. On closing costs, some companies charged a $25 account closure fee. The CFPB believed these “exit fees” were uncommon in deposit accounts. There were also delays in the transfer of funds from two to eight weeks. On other fees, the CFPB found some suppliers charge paper statement fees and ATM transaction fees.
CFPB Director, Rohit Chopra, released a statement with the Bureau’s report. In it, Director Chopra described the “captive consumer” model where consumers are often given an HSA automatically that better meets the needs of the employer than those of the consumer.
5th Circuit reverses District Court’s decision to transfer credit card late fee case
On April 5, the U.S. Court of Appeals for the Fifth Circuit held that the U.S. District Court for the Northern District of Texas lacked jurisdiction to transfer a case challenging a CFPB rulemaking to the U.S. District Court for the District of Columbia. The 5th Circuit’s decision did not examine whether the transfer order was proper, but rather whether the court had jurisdiction to enter it. As previously covered by InfoBytes, the U.S. District Court for the Northern District of Texas granted the CFPB a change of venue on March 28 because only one of the six plaintiffs resided in Fort Worth. The 5th Circuit found that the lower court erred by granting the CFPB’s motion to change venues instead of ruling on the plaintiffs’ motion for preliminary injunction. The plaintiffs filed a writ of mandamus and argued the lower court “abused its discretion” by transferring the case while the plaintiffs’ appeal was outstanding, and that the lower court did not have jurisdiction to order the transfer. The 5th Circuit agreed and ruled that once a party appeals a district court’s decision, the district court “has zero jurisdiction to do anything” to change the case. The 5th Circuit granted the plaintiffs’ petition of mandamus, vacated the district court’s transfer order, and ordered the district court to reopen the case.
This case has been brought by multiple trade organizations to challenge the CFPB’s attempt to alter the structure and amount of credit card late fees through its alleged authority under the CARD Act, as covered by InfoBytes here.
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.
Business groups sue the CFPB over credit card late fee rule
On March 7, several business groups (plaintiffs) sued the CFPB rule in the U.S. District Court for the Northern District of Texas over its announced credit card late fee rule. As previously covered by InfoBytes, the Bureau’s new final rule limited most credit card late fees to $8, among other actions, and was met immediately with criticism from banks and legislators.
The plaintiffs’ complaint claimed the CFPB completed the rule hastily to implement a pledge made by President Biden around his State of the Union Address to reduce credit card late fees by 75 percent. The complaint further asserted the CFPB skipped necessary steps, made economic miscalculations, and otherwise breached the Administrative Procedure Act. As alleged, the Bureau likely understated “the volatility of card issuers’ cost-to-fee ratios pertaining to late fees” and improperly relied on data which does not allow for the recovery of a “reasonable and proportional” penalty fee. On the Bureau’s use of the Y-14M data, the complaint alleged the new rule ignored peer-reviewed studies and instead opted to base the rule on an internal study using confidential data that was not available for examination during the period allocated for public comment. The plaintiffs argued the final rule would incur “substantial compliance costs” by amending printed disclosures, using the cost-analysis provisions, and notifying consumers of changes in interest rates to recoup costs, among other problems. The complaint also cited TILA’s effective-date provisions and the Bureau’s embattled funding structure to support the argument that the final rule would cause irreparable harm.
CFPB blog post tackles mortgage closing costs, seeks consumer feedback
On March 8, the CFPB published a blog post seeking consumer input on experiences with the closing process of consumer mortgages, and in particular, closing costs. The blog post posited that closing costs significantly impact a borrower’s financial commitment and, potentially, monthly payments and identified a “noticeable increase” in closing costs, with median total loan expenses on home purchase loans increasing by 21.8 percent between 2021 and 2022. In particular, the Bureau singled out title insurance fees and credit reporting fees. It labeled title insurance as a fee that borrowers are charged and for which they have no control over the cost, alleging that “the amount that borrowers pay for lender’s title insurance is often much greater than the risk.” With respect to credit reports, the Bureau remarked that the highly concentrated industry dictates the price of credit reports, citing anecdotal evidence of cost increases of 25 to 400 percent.
The blog post also indicated that borrowers with smaller mortgages, including those with lower incomes, first-time homebuyers, and individuals residing in Black and Hispanic communities, are often disproportionately affected by closing costs, because they are typically fixed costs and do not change based on the size of the loan. The Bureau requested that consumers provide input on their experience with mortgage or closing costs, signaling that it will continue to analyze and if necessary “issue rules and guidance to improve competition, choice, and affordability.”
Agencies adjust civil money penalties for 2024
Recently, the CFPB, NCUA, FDIC, FTC, and OCC provided notice in the Federal Register of adjustments to the maximum civil money penalties due to inflation pursuant to the Federal Civil Penalties Inflation Adjustment Act of 1990, as amended by the Debt Collection Improvement Act of 1996 and further amended by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. Each notice or final rule (see CFPB here, FDIC here, OCC here, FTC here, and NCUA here) adjusts the maximum civil money penalties available and documents the inflation-adjusted maximum amounts associated with the penalty tiers for each type of violation within a regulator’s jurisdiction. For violations occurring on or after November 2, 2015, the OCC’s adjusted maximum penalties go into effect as of January 8; the CFPB and FDIC’s adjustments go into effect January 15; and the FTC and NCUA’s adjustments go into effect January 10.
Large bank agrees to proposed settlement agreement; to be decided in February
On November 27, 2023, a large Canadian bank agreed to pay $15.9 million to accountholders in a proposed settlement agreement stemming from a class action suit in which the bank allegedly charged improper non-sufficient fund (NSF) fees. NSF fees are charges by a financial institution when they decline to make a payment from an accountholder’s account after determining the account lacks sufficient funds. Plaintiffs alleged that from February 2, 2019, to November 27, 2023, the bank charged accountholders multiple NSF fees on a single attempted transaction. In the agreement, the bank continues to deny liability. While an agreement has been reached between the two parties, the agreement has yet to be approved by the courts. A hearing has been scheduled for February 13, 2024, in the Ontario Superior Court of Justice to approve the settlement and award the payouts. Accountholders will receive their payouts, “estimated to be in the range of approximately $88 CAD,” deposited directly to their account with the bank. Under the proposed settlement agreement, the representative plaintiff will receive an honorarium of $10,000. As previously covered by InfoBytes, the FDIC warned that supervised financial institutions that charge multiple NSF fees on re-presented unpaid transactions may face increased regulatory scrutiny and litigation risk.