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FTC shares 2019 enforcement report with CFPB
On June 4, the FTC announced that it submitted its 2019 Annual Financial Acts Enforcement Report to the CFPB. The report covers the FTC’s enforcement activities regarding the Truth in Lending Act (TILA), the Consumer Leasing Act (CLA), and the Electronic Fund Transfer Act (EFTA). Highlights of the enforcement matters covered in the report include:
- TILA and CLA. FTC enforcement actions concerning TILA/Regulation Z and CLA/Regulation M include: (i) efforts to combat deceptive automobile dealer practices; (ii) a payday lending action involving undisclosed, inflated fees; (iii) credit repair and debt relief schemes, including the failure to make clear, conspicuous written disclosures for closed-end financing; and (iv) consumer electronics financing.
- EFTA. The FTC reported 12 new or ongoing cases related to EFTA/Regulation E. These include: (i) negative option plans involving, among other things, companies applying recurring charges to consumers’ debit or credit card numbers for goods or services without obtaining proper written authorization; and (ii) unfair loan servicing practices.
Additionally, the report addresses the FTC’s research and policy efforts related to truth in lending and leasing, and electronic fund transfer issues, including (i) a study of consumers’ experiences in buying and financing automobiles at dealerships; (ii) a small business financing forum to examine “trends and consumer protection issues in the small business marketplace, including. . .online loans and alternative financing products”; and (iii) the FTC’s Military Task Force’s work on military consumer protection issues. The report also outlines the FTC’s consumer and business education efforts, which include several blog posts warning of new scams and practices.
CFPB settles with short-term lenders for $2 million
On June 2, the CFPB announced a settlement with a payday and auto title loan lender and its subsidiaries (collectively, “lender”) resolving allegations that the lender violated the Consumer Financial Protection Act (CFPA) and TILA. Specifically, the Bureau asserts that the lender—which is based in Cleveland, Tennessee and operates 156 stores in eight states—violated the CFPA and TILA by (i) disclosing finance charges that were substantially lower than what the consumer would actually incur if repaid according to the amortization schedules; (ii) delayed refunds of consumer credit balances for months; (iii) made repeated debt collection calls to third-parties, including workplaces after being told to stop; and (iv) improperly disclosed, or risked disclosure, of consumer debt information to third parties. The Bureau alleges that the lender received over $3.5 million in finance charges that exceeded the amount stated in required TILA disclosures.
The consent order requires the lender to pay $2 million of the $3.5 million in consumer redress and $1 civil money penalty, based on a demonstrated inability to pay. The consent order also prohibits the lender from misrepresenting finance charges or engaging in unlawful collection practices and requires certain compliance and reporting measures to be undertaken.
CFPB provides E-Sign consent flexibility due to Covid-19
On June 3, the CFPB released a statement on temporary and targeted flexibility for credit card issuers regarding electronic provision of certain disclosures during the Covid-19 pandemic. The statement highlights that certain credit card issuers are receiving far more calls from consumers seeking relief as a result of the pandemic, but are unable to provide such relief without first providing certain written disclosures required by Regulation Z. Because such disclosures can only be provided electronically after consent sufficient under the Electronic Signatures in Global and National Commerce Act (E-Sign Act) is obtained, credit card issuers may be unable to move quickly to assist consumers. To address this issue, the statement provides that the CFPB “will take a flexible supervisory and enforcement approach during this pandemic regarding card issuers’ electronic provision of disclosures required to be in writing for account-opening disclosures and temporary rate or fee reduction disclosures mandated under provisions governing non-home secured, open-end credit.”
Specifically, the Bureau states that it does not intend to cite a violation in an examination or bring an enforcement action against an issuer that, during a phone call, does not obtain the formal E-Sign consent required by Regulation Z to receive electronic written disclosures, as long as the issuer obtains both (i) oral consent to electronic delivery of the written disclosures, and (ii) oral affirmation of the consumer’s ability to access and review the electronic written disclosures. The Bureau states that it expects issuers to take “reasonable steps during the phone call to verify consumers’ electronic contact information,” including verifying the accuracy of email addresses already on file.
FDIC releases April enforcement actions
On May 29, the FDIC released a list of administrative enforcement actions taken against banks and individuals in April. The FDIC issued 23 orders and 2 notices of changes, which “consisted of 12 Section 19 orders, 3 orders of prohibition, 1 order to pay, 3 consent orders, 1 order to cease and desist, 4 orders terminating consent orders, and 1 order terminating an order of restitution.” Among the actions is a cease and desist order and civil money penalty issued against a Louisiana-based bank for allegedly violating the Bank Secrecy Act, EFTA, RESPA, TILA, the National Flood Insurance Program, and HMDA. The order follows the issuance of a 2019 recommended decision on remand by an FDIC administrative law judge (ALJ), who also found that the bank failed to comply with a majority of the provisions outlined in a 2011 memorandum of understanding entered into with the FDIC two years prior to the filing of this action. Specifically, the recommended decision found that the bank, among other things, “violated the independence requirement of the FDIC’s rules and regulations pertaining to appraisals by allowing a lending officer originating loans to appraise the collateral underlying the loan,” and “allow[ing] a high ranking officer to repeatedly overdraw his bank account without being charged overdraft fees” in violation of Regulation O of the Federal Reserve Board. Other violations included that the bank failed to: (i) conduct independent property evaluations and appraisals; (ii) disclose unauthorized fees or investigate reports of erroneous charges; (iii) assess flood insurance needs or inform borrowers of force-placed flood insurance rules; (iv) file suspicious activity reports and currency transaction reports; (v) implement a “meaningful compliance program” to ensure the bank did not engage in foreign financial transactions with prohibited persons identified by the Office of Foreign Assets Control; and (v) “conduct proper compliance training or maintain an effective audit program for consumer compliance matters.” The FDIC’s order affirmed the ALJ’s recommended decision to subject the bank to an order to cease and desist and pay a $500,000 civil money penalty.
Additionally, the FDIC entered a consent order against an Illinois-based bank relating to alleged weaknesses in its Bank Secrecy Act compliance program.
FTC reaches settlement with dealership to resolve UDAP and fair lending allegations
On May 27, the FTC announced settlements with a New York City auto dealer and its general manager (collectively, “defendants”) to resolve allegations that the defendants engaged in illegal auto financing sales practices and maintained a policy of charging African-American and Hispanic car buyers more for financing that similarly situated non-Hispanic white consumers. The complaint alleges that the defendants violated the FTC Act, TILA, and ECOA. According to the complaint, the defendants engaged in deceptive and unfair practices by, among other things, allegedly (i) advertising low sales prices but failing to honor them; (ii) inflating the cost through a variety of methods, including telling buyers that they had to pay unnecessary charges to purchase “certified pre-owned” cars, double-charging consumers for taxes and fees without their consent, and altering the terms in the middle of a sale; and (iii) charge higher financing “markups” and fees to African-American and Hispanic customers.
The defendants—who neither admit nor deny the allegations—have each agreed under the terms of the settlements (see here and here) to pay $1.5 million in consumer redress. The orders also prohibit the defendants from misrepresenting the cost or terms to purchase, lease, or finance a car, and require the defendants to obtain express, informed buyer consent for all charges and provide clear financing disclosures. The defendants are also banned from engaging in unlawful credit discrimination, and are prohibited from engaging in credit transactions unless they establish a fair lending program that will, among other things, provide training for employees and cap the allowed rate markups.
The Commission vote authorizing the filing of the complaint and stipulated final order was 5-0. Commissioner Chopra issued a concurring statement addressing disparate impact and unfair discrimination in the auto industry, and emphasized it is time for the FTC to use its rulemaking authority to establish protections for car buyers and honest auto dealers. Commissioner Slaughter agreed that there is a need for auto financing and sales market reform, and suggested that the FTC can begin by initiating a rulemaking under Dodd-Frank to regulate dealer markups.
New York AG announced proposed settlement with student debt relief companies
On May 22, the New York attorney general (NYAG) announced a proposed settlement with three student loan debt relief companies and two of the companies’ executive officers (collectively, “defendants”), resolving allegations that the defendants participated in a broader scheme that fraudulently, deceptively, and illegally marketed, sold, and financed student debt relief services to consumers nationwide. As previously covered by InfoBytes, the September 2018 complaint alleged that a total of nine student loan debt relief companies, along with their financing company, and the two individuals violated several federal and state consumer protection statutes, including the Telemarketing Sales Rule, New York General Business Law, the state’s usury cap on interest rates, disclosure requirements under TILA, and the Federal Credit Repair Organization Act. Specifically, the NYAG asserted, among other things, that the defendants (i) sent direct mail solicitations to consumers that deceptively appeared to be from a governmental agency or an entity affiliated with a government agency; (ii) charged consumers over $1,000 for services that were available for free; (iii) requested upfront payments in violation of federal and state credit repair and debt relief laws; and (iv) charged usurious interest rates.
If approved by the court, the proposed consent judgment would require the five defendants to pay $250,000 of a $5.5 million total judgment, due to their inability to pay. Additionally, the defendants are also permanently banned from advertising, marketing, promoting, offering for sale, or selling any type of debt relief product or service—or from assisting others in doing the same. Additionally, the defendants must request that any credit reporting agency to which the defendants reported consumer information in connection with the student loan debt relief services remove the information from those consumers’ credit files. The defendants also agreed not to sell, transfer, or benefit from the personal information collected from borrowers.
The NYAG previously settled with two other defendants in February, covered by InfoBytes here.
FTC temporarily halts payday lending enterprise
On May 22, the FTC announced that the U.S. District Court for the District of Nevada granted a temporary restraining order against a group of 11 defendants operating a payday lending enterprise for allegedly deceptively overcharging consumers and withdrawing money from consumers’ accounts without permission. According to the complaint filed by the FTC, the defendants advertised loans with fixed payback terms, but in many cases, the payback terms would default to debiting the financial fee only. In some circumstances, consumers would receive an email with payback options, including “full payoff, loan extension, and loan buy down,” but the defendants would still require the consumer to notify them three days in advance if they wanted to pay off the entire loan amount, if not, only the “financial fee” would be debited. The FTC argues that the defendants violated the FTC Act, the Telemarketing Sales Rule, TILA/Regulation Z, and the Electronic Funds Transfer Act/Regulation E by, among other things, (i) marketing loan products as having a fixed number of payments when funds were only being applied to finance charges and payment withdrawals continued beyond the promised number of payments; (ii) failing to make the required loan disclosures; (iii) failing to obtain proper authorization for reoccurring bank account withdrawals; and (iv) unlawfully using remotely created checks. Beyond the temporary restraining order, the FTC is seeking a permanent injunction, contract rescission, restitution, and disgorgement.
FDIC updates Consumer Compliance Examination Manual
On May 13, the FDIC announced the April updates to its Consumer Compliance Examination Manual (CEM). The CEM includes supervisory policies and examination procedures for FDIC examination staff for evaluating financial institutions’ compliance with federal consumer protection laws and regulations, and is designed to promote consistency and efficiency in the FDIC’s examination process. The recent updates include, among other things, (i) changes to the pre-examination planning process; (ii) incorporation of threshold changes for TILA, HMDA, and the Consumer Leasing Act; and (iii) changes to asset-based definitions for small and intermediate banks for the Community Reinvestment Act.
CFPB issues policy statement on billing error responsibilities, two sets of Covid-19 FAQs
On May 13, the CFPB released a policy statement and two FAQ documents outlining the responsibilities of financial firms during the Covid-19 pandemic. The policy statement covers Regulation Z’s billing error resolution timeframe in light of the operational disruptions faced by many merchants and small businesses, causing delays in responses to creditors’ inquiries and thus making it difficult for creditors to accurately and timely resolve consumers’ billing error notices. The statement emphasizes that the CFPB will be flexible with its supervisory and enforcement approach during the pandemic as it relates to billing error resolution set forth in §1026.13(c)(2), stating “the Bureau intends to consider the creditor’s circumstances and does not intend to cite a violation in an examination or bring an enforcement action against a creditor that takes longer than required by [Regulation Z] to resolve a billing error notice, so long as the creditor has made good faith efforts to obtain the necessary information and make a determination as quickly as possible, and complies with all other requirements pending resolution of the error.” The Bureau notes that creditors are still expected to fully comply with the other requirements of billing error disputes in Regulation Z.
The Bureau also released payment and deposit rule FAQs related to the Covid-19 pandemic, which state that financial or depository intuitions may change account terms due to the pandemic so long as they provide appropriate notice to consumers. However, if a change is favorable to the consumer, it can be implemented immediately without advance notice. Additionally, the Bureau released open-end (not home-secured) rule FAQs related to the Covid-19 pandemic, which state that creditors may change account terms in response to the pandemic but most changes will require advance notice. However, changes that may help a consumer in need—such as reducing a finance charge—do not require advance notice.
CFPB issues TRID interpretive rule, ECOA FAQ
On April 29, the CFPB issued an interpretive rule (IR) “clarifying that consumers can exercise their rights to modify or waive certain required waiting periods” in order to allow borrowers impacted by Covid-19 to access mortgage credit faster. The IR states that if, as a result of the Covid-19 pandemic, a mortgage borrower determines that a mortgage transaction must be completed prior to the end of the waiting period for either the TRID Rule or the Regulation Z right of rescission rule, the borrower may waive the waiting period. Further, the IR asserts that the Covid-19 pandemic qualifies as a “changed circumstance” for purposes of certain TRID Rule provisions, permitting the use of revised estimates of settlement charges. In addition, the Bureau issued a frequently asked question that addresses the Equal Credit Opportunity Act Valuations Rule, which states that a first-lien loan borrower may also waive the requirement that a lender provide the borrower with appraisals and valuations at or before settlement of the loan.