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CFPB Reaches Agreement With Title Lender
On September 26, the CFPB entered into a consent agreement with a Georgia-based automobile-title lender and its affiliates, based on allegations that the lender violated the Unfair and Abusive prongs of the Consumer Financial Protection Act. The CFPB alleged that the lender “lur[ed] consumers into costly loan renewals by presenting them with misleading information about the deals’ terms and costs.” The CFPB specifically indicated the lender’s use of a “Payback Guide” that focused the consumer’s attention on the monthly payment, and not on the total cost of the transaction, including the costs to roll over the loan to an additional period, materially interferes with the consumer’s ability to understand the terms of the transaction. The CFPB also alleged that the lender committed unfair debt-collection practices by visiting consumers’ homes, references, and places of employment, and revealing information about past-due debt to third parties, including neighbors, roommates, family members, supervisors, and co-workers. Under the terms of the consent order, the lender is prohibited from using the Payback Guide and from encouraging consumers to exceed the original term of repayment. The order also prohibits the lender from making in-person visits to collect payments. Under the agreement, the lender must pay $9 million as a civil penalty to the CFPB.
CFPB Sues Credit Repair Company in Federal Court
On September 22, the CFPB filed a complaint in federal district court against a credit repair company, claiming that the company charged consumers a series of illegal fees, including a fee to access the consumer’s credit report, a fee to set up the consumer’s account, and a monthly fee that continues to accrue until the consumer affirmatively cancels the service. The CFPB also alleged that the company misrepresented the cost and effectiveness of its services, stating that it could “remove virtually any negative information from a consumer’s credit report,” and that it raises customer’s credit scores by an average of more than 100 points, without proper substantiation for either claim. The CFPB alleged that the company’s actions violate the Telephone Sales Rule, and the deceptive prong of the Consumer Financial Protection Act.
Revised MLA Examination Procedures Released
On September 29, the Federal Reserve released the interagency examination procedures for the DOD’s Military Lending Act (MLA) final rule published in July of 2015. Also on September 29, the CFPB released its own examination procedures under the final rule, providing guidance as to how the CFPB will conduct reviews under what will be a broader scope of coverage under the MLA, including credit cards, deposit advance products, overdraft lines of credit (not traditional overdraft services), and certain types of installment loans. The final rule goes into effect on Monday, October 3 for most extensions of consumer credit to active duty servicemembers and their dependents.
Fed Proposal Would Modify Stress Tests for Large, Noncomplex Bank Holding Companies
On September 26, the Federal Reserve released a proposed rule that would essentially remove bank holding companies defined to be “large and noncomplex” from the qualitative portion of annual Comprehensive Capital Analysis and Review (CCAR) assessment process (“stress tests”). Under the proposed rule, large and noncomplex bank holding companies are those with total consolidated assets of at least $50 billion, but less than $250 billion, less than $10 billion in foreign exposure, and less than $75 billion in average nonbank assets. Currently, the Fed applies the CCAR process to bank holding companies with more than $50 billion in total consolidated assets. Fed Governor Daniel Tarullo indicated that the Fed was also considering adoption of a “stress capital buffer” approach for larger, global systemically important banks (GSIB). The new approach would replace the uniform 2.5-percent capital conservation buffer, and would instead require GSIBs to retain capital “equal to the maximum decline in a firm's common equity tier 1 capital ratio under the severely adverse scenario of the supervisory stress test before the inclusion of the firm's planned capital distributions.”
DOJ and OCC Reach Consent Agreement With Bank Over Alleged SCRA Violations
On September 29, the DOJ and OCC announced separate settlement agreements with a major U.S. bank regarding alleged violations of the Servicemembers Civil Relief Act (SCRA). The DOJ’s complaint alleged that the bank repossessed vehicles owned by active duty servicemembers without the required court orders. Under the DOJ consent order, the bank agreed to pay $10,000 to each affected servicemembers whose vehicles were repossessed between from January 2008 to July 2015 not in compliance with SCRA, plus any lost equity in the repossessed vehicle, with interest. The DOJ identified 413 affected servicemembers and the bank agreed to set aside $4,130,000 (or more if needed) to pay the required compensation. The bank also agreed to pay a $60,000 civil penalty. The DOJ acknowledged that the bank had in 2014, prior to the investigation, taken steps to ensure SCRA compliance with a full-scale review of its portfolio to identify servicemembers for SCRA protection, and had previously and voluntarily commenced efforts to compensate any affected borrowers. In the OCC consent order, the OCC found errors and deficiencies by the bank in four areas: (i) applying the 6% interest rate cap; (ii) filing accurate military status affidavits; (iii) repossessing servicemembers automobiles while they were on active duty; and (iv) implementing its SCRA compliance program. Under the consent order for a civil money penalty, the bank agreed to pay a civil money penalty of $20 million, to create a remediation plan for affected servicemembers, and to bolster its SCRA-related policies and procedures.
OCC Hints At AML Guidelines to Come
On September 28, OCC Comptroller Thomas J. Curry announced Wednesday during a speech at the Association of Certified Anti-Money Laundering Specialists (ACAMS) conference that the OCC is developing guidance for banks to manage AML/BSA risks in their foreign correspondent banking relationships.
Second Circuit Overturns Credit Card Antitrust Violation
On September 26, the U.S. Court of Appeals for the Second Circuit ruled that a credit card company did not unreasonably restrain trade in violation of the Sherman Act by prohibiting merchants from directing customers to use other, less costly forms of payment. The appeals court reversed based on the lower courts definition of the market as limited to the “core enabling functions provided by networks which allow merchants to capture, authorize, and settle transactions for customers who elect to pay with their credit or charge card.” According to the decision, this definition was too limited in this case, because the credit card network derived its market share from cardholder satisfaction, providing “no reason to intervene and disturb the present functioning of the payment‐card industry.” The court noted that the outcome in this case is different than in previous credit card exclusionary rule cases because here, the payment clearing network and the card issuing function are completely integrated, meaning that the issuer and the network are the same company.
D.C. Circuit Finds District Court Lacks Jurisdiction in Case Alleging Violations of D.C. Consumer Protection Laws
On July 26, the U.S. Court of Appeals for the D.C. Circuit vacated the district court’s ruling, opining that the plaintiffs in a putative class action failed to establish Article III standing to file suit in federal court. Hancock v. Urban Outfitters, Inc., No. 14-7047, WL 3996710 (D.C. Cir. July 26, 2016). In 2013, the consumer plaintiffs filed a complaint alleging that two D.C. retail stores violated the Identification Information Act, D.C. Code § 47-3151 et seq., and D.C. Consumer Protection Procedure Act, D.C. Code § 28-3901 et seq., by requesting the plaintiffs’ zip codes at the time of purchase. The district court dismissed the complaint, concluding that the plaintiffs had failed to state a claim. As such, the district court ruled that it was unnecessary to address the stores’ jurisdictional argument that the plaintiffs failed to plead an injury sufficient for Article III standing. Citing the recent Spokeo v. Robins Supreme Court ruling, the U.S. Court of Appeals for the D.C. Circuit disagreed: “The Supreme Court’s decision in Spokeo thus closes the door on [the plaintiffs’] claim that the Stores’ mere request for a zip code, standing alone, amounted to an Article III injury.” “Because the plaintiffs have not alleged any concrete injury in fact stemming from alleged violations of D.C. law,” the D.C. Circuit held that “the district court lacked jurisdiction to decide the merits of the case.” The D.C. Circuit vacated the district court’s judgment on the merits and remanded with instructions to dismiss the complaint.
CFPB Announces Community Bank Advisory Council Meeting, April 21
On Thursday, April 21, the CFPB will hold its next Community Bank Advisory Council meeting in Washington, DC. According to the April 5 Federal Register publication providing notice of the meeting, both the CFPB’s strategic outlook and elder financial abuse are discussion topics included in the agenda.
CFPB Readies Guidance to Help Prevent Elder Financial Exploitation
On July 13, CFPB Director Richard Cordray delivered remarks at the White House Conference on Aging, expressing the need to protect older consumers in light of recent studies that have found that financial exploitation is the most prevalent form of elder abuse. Accordingly, Cordray revealed that the Bureau intends to issue an advisory “later this year” to assist financial institutions with preventing, recognizing, and reporting elder financial abuse, adding that “[f]inancial institutions are especially well-positioned” to prevent fraud, scams, or theft that victimize seniors.