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Court grants injunctive relief against pension advance company
On February 22, the U.S. District Court for the District of South Carolina granted the CFPB’s motion for default judgment and appointment of receiver in an action alleging defendants violated the CFPA and TILA by falsely representing that their lump-sum pension advances were not loans and that they carried no applicable interest rate. As previously covered by InfoBytes, the Bureau filed a complaint against the defendants in 2018 claiming that consumers were actually required to pay back advances with interest and were charged various fees for the product. The Bureau also alleged, among other things, that the defendants failed to provide customers with TILA closed-end-credit disclosures, and provided income streams from the advance payments as 60- or 120-month cash flow payments to third-party investors, promising between 6 and 12 percent interest rates.
In its decision, the court upheld a magistrate judge’s report and recommendations, which concluded that the Bureau’s complaint sufficiently stated “a deception claim” under the CFPA, as well as violations of TILA and Regulation Z by the corporate defendants. The magistrate judge recommended that the court grant the Bureau “a permanent injunction to prevent future violations of the law,” redress and a civil money penalty awarded jointly and severally against the defendants, and appointment of a receiver. The court overruled various objections raised by the individual defendant’, including for failure to timely raise the objection before the magistrate judge, and because certain claims were without merit. Ultimately, the court granted the Bureau a default judgment against the defendants and adopted the report and recommendations of the magistrate judge for injunctive relief, consumer redress, a civil money penalty, and the appointment of a receiver.
Court holds Arizona car dealerships violated TILA and CLA
On February 5, the U.S. District Court for the District of Arizona granted in part and denied in part summary judgment in favor of the FTC, concluding the owners of a car dealership with locations in Arizona and New Mexico (collectively, “defendants”) failed to include legally required information in violation of TILA and the Consumer Leasing Act (CLA). As previously covered by InfoBytes, in August 2020, the FTC brought charges against the defendants for violations of TILA, the CLA, and FTC Act, on the grounds that the defendants purportedly falsified consumers’ income and down payments on credit applications in order to make the consumers seem more creditworthy, which resulted in consumers “default[ing] at a higher rate than properly qualified buyers.” The FTC asserted that these advertising practices were deceptive in that they concealed the true nature and terms of the financing or leasing offers and thus were in violation of federal law for failing to disclose the required terms.
Subsequently, the corporate defendants stipulated to a permanent injunction and monetary judgment and the FTC moved for summary judgment against the co-owners. As against the owners, the court granted summary judgment in favor of the FTC on the TILA and CLA claims, concluding that the advertisements were “missing legally required information such as the terms of repayment or the annual percentage rate.” However, the court denied summary judgment as to the FTC Act claims, after the defendants provided declarations from a small sample of consumers admitting to knowing the down payment and income information was misreported. The court determined that based on the declarations, a reasonable jury could infer that “consumers were not likely deceived or misled, only led astray and persuaded to participate in a lie.” However, the court did not grant full relief requested by the FTC. In particular, the court did not grant summary judgment on the FTC Act claims and held it was premature to hold one of the owners individually responsible for the TILA and CLA claims. Provided these findings presented unresolved factual issues, the court found reason to delay the entry of judgment.
CFPB files action against mortgage lender for unlawful practices
On January 15, the CFPB announced a complaint filed in the U.S. District Court for the District of Connecticut against a mortgage lender and four executives (collectively, “defendants”) alleging the defendants engaged in unlawful mortgage lending practices in violation of TILA, FCRA, ECOA, the Mortgage Acts and Practices—Advertising Rule (MAP Rule), and the CFPA. According to the complaint, from as early as 2015 until August 2019 (i) unlicensed sales people would take mortgage applications and offer and negotiate mortgage terms, in violation of TILA and Regulation Z; (ii) company policy regularly required consumers to submit documents for verification before receiving a Loan Estimate, in violation of TILA and Regulation Z; (iii) employees would deny consumers credit without issuing an adverse action notice, as required by the FCRA or ECOA; and (iv) defendants regularly made misrepresentations about, among other things, the availability and cost savings of a FHA streamlined refinance loan, in violation of the MAP Rule. The Bureau is seeking an injunction, as well as, damages, redress, disgorgement, and civil money penalties.
Court vacates mandatory disclosures and 30-day credit linking restriction in Prepaid Accounts Rule
On December 30, the U.S. District Court for the District of Columbia granted a payment company’s motion for summary judgment against the CFPB, vacating two provisions of the agency’s Prepaid Account Rule: (i) the short-form disclosure requirement “to the extent it provides mandatory disclosure clauses”; and (ii) the 30-day credit linking restriction. As previously covered by InfoBytes, the company filed a lawsuit against the Bureau alleging, among other things, that the Bureau’s Prepaid Account Rule exceeds the agency’s statutory authority “because Congress only authorized the Bureau to adopt model, optional disclosure clauses—not mandatory disclosure clauses like the short-form disclosure requirement.” The Bureau countered that it had authority to enforce the mandates under federal regulations, including the Electronic Fund Transfer Act (EFTA), TILA, and Dodd-Frank, arguing that the “EFTA and [Dodd-Frank] authorize the Bureau to issue—or at least do not foreclose it from issuing—rules mandating the form of a disclosure.” The Bureau also claimed that its general rulemaking power under either TILA or Dodd-Frank provides authority for the 30-day credit-linking restriction.
With respect to the mandatory disclosure clauses of the short-form requirement in 12 CFR section 1005.18(b), the court concluded, among other things, that the Bureau acted outside of its statutory authority. The court stated that “Congress underscored the need for flexibility by requiring the Bureau to ‘take account of variations in the services and charges under different electronic fund transfer systems’ and ‘issue alternative model clauses’ for different account terms where appropriate” and it could not “presume—as the Bureau does—that Congress delegated power to the Bureau to issue mandatory disclosure clauses just because Congress did not specifically prohibit them from doing so.”
In striking the mandatory 30-day credit linking restriction under 12 CFR section 1026.61(c)(1)(iii), the court determined that “the Bureau once again reads too much into its general rulemaking authority.” First, the court determined that neither TILA nor Dodd-Frank vest the Bureau with the authority to promulgate substantive regulations on when consumers can access and use credit linked to prepaid accounts. Second, the court deemed the regulatory provision to be a “substantive regulation banning a consumer’s access to and use of credit” under the disguise of a disclosure, and thus invalid.
CFPB issues two new CAS approval orders
On December 30, the CFPB issued two compliance assistance sandbox (CAS) approval orders covering a dual-feature credit card and an earned wage access product. The first approval was issued to a federal savings bank regarding its proposal to develop a “dual-feature credit card,” which would be offered to consumers with limited or damaged credit history to help reestablish more favorable credit history. According to the approval order, the consumer would be required to provide a security deposit to be used with the secured credit card feature and after “at least one year” and meeting certain eligibility requirements, the consumer would be offered to “graduate” to unsecured use of the credit card. The three-year approval order, by operation of TILA section 130(f), provides the bank a safe harbor from liability under TILA and Regulation Z, to the fullest extent permitted by section 130(f), as to any act done in good faith compliance with the order.
The second approval order covers certain aspects of an earned wage access (EWA) payment program, which allows employees access to their earned but unpaid wages prior to payday. According to the CAS application, an employee of a participating employer can download the company’s app and agree to the company’s terms prior to engaging in an EWA program. Among other things, the company notes that it will not engage in any debt collection activities related to the EWA program or submit reports to a consumer reporting agency regarding the transactions. The two-year approval order, by operation of TILA section 130(f), provides the company a safe harbor from liability under TILA and Regulation Z, to the fullest extent permitted by section 130(f) as to any act done in good faith compliance with the order.
CFPB releases annual HMDA and TILA adjustments
On December 22, the CFPB announced final rules adjusting the asset-size thresholds under HMDA (Regulation C) and TILA (Regulation Z). Both rules took effect January 1.
Under HMDA, institutions with assets below certain dollar thresholds are exempt from the collection and reporting requirements. The final rule increases the asset-size exemption threshold for banks, savings associations, and credit unions from $47 million to $48 million, thereby exempting institutions with assets of $48 million or less as of December 31, from collecting and reporting HMDA data in 2021.
TILA exempts certain entities from the requirement to establish escrow accounts when originating higher-priced mortgage loans (HPMLs), including entities with assets below the asset-size threshold established by the CFPB. The final rule increases this asset-size exemption threshold from $2.202 billion to $2.230 billion, thereby exempting creditors with assets of $2.230 billion or less as of December 31, from the requirement to establish escrow accounts for HPMLs in 2021.
District court advances CFPB action against bank for alleged TILA, CFPA violations
On December 1, the U.S. District Court for the District of Rhode Island denied a national bank’s motion to dismiss a CFPB lawsuit alleging violations of the Consumer Financial Protection Act (CFPA) and TILA, rejecting the bank’s arguments that, among other things, the CFPB’s claims were time-barred and that the case cannot proceed because the CFPB’s structure violates constitutional separation-of-powers identified in Seila Law LLC v. CFPB. As previously covered by InfoBytes, the CFPB filed suit in January against the bank alleging, among other things, that when servicing credit card accounts, the bank failed to properly (i) manage consumer billing disputes for unauthorized card use and billing errors; (ii) credit refunds to consumer accounts resulting from such disputes; or (iii) provide credit counseling disclosures to consumers. According to the CFPB, the alleged conduct “began in 2010 or earlier and ended, depending on the violation, sometime in 2015 or 2016.” The CFPB also noted that the parties signed agreements tolling all relevant statutes of limitations from February 23, 2017, until January 31, 2020. The bank argued that the CFPB’s claims are governed by section 1640 of TILA with its one-year statute of limitations, but the CFPB countered that its claims were brought pursuant to section 1607 of TILA, which provides a “three-year discovery period.”
In denying the bank’s motion to dismiss, the court concluded that the tolling agreements were valid and that the three-year limit under section 1607 applied because “plain language indicates that § 1640 only governs cases brought by individuals or state attorneys general,” whereas § 1607 “provides the cause of action for federal enforcement agencies such as the CFPB.” Furthermore, the court determined that because § 1607 “does not contain a statute of limitations,” and “instead stat[es] that cases brought by the CFPB ‘shall be enforced under. . . subtitle E of the [CFPA],’ the action is governed by subtitle E’s requirement that cases be brought within three years of discovery by the CFPB.” The court also dismissed the bank’s constitutional claims, ruling, among other things, that the argument is moot following the U.S. Supreme Court’s decision in Seila, which held that the director’s for-cause removal provision was unconstitutional but was severable from the statute establishing the CFPB (covered by a Buckley Special Alert).
Agencies finalize certain 2021 thresholds
On November 18, the CFPB, OCC, and the Federal Reserve Board announced a final rule, which increases the TILA smaller loan exemption threshold for the special appraisal requirements for higher-priced mortgage loans (HPMLs). TILA requires creditors to obtain a written appraisal before making a HPML unless the loan amount is at or below the threshold exemption. Each year the threshold must be readjusted based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The exemption threshold for 2021 is $27,200, which remains at the same level it was in 2020.
Additionally, the CFPB and the Federal Reserve Board finalized the annual dollar threshold adjustments that govern the application of TILA (Regulation Z) and Consumer Leasing Act (Regulation M) (available here and here), as required by the Dodd-Frank Act. The exemption threshold for 2021, based on the annual percentage increase in the CPI-W, remains unchanged at $58,300 or less, except for private education loans and loans secured by real or personal property used or expected to be used as the principal dwelling of a consumer, which are subject to TILA regardless of the amount.
The final rules take effect on January 1, 2021.
CFPB releases TRID five-year lookback assessment
On October 1, the CFPB released the assessment report required by Section 1022(d) of the Dodd-Frank Act for the TILA-RESPA Integrated Disclosure Rule (TRID), concluding that the TRID Rule “made progress towards several of its goals.” The assessment report was conducted using the Bureau’s own research and external sources. In opening remarks, Director Kraninger noted that the Bureau was “unable to obtain or generate the data necessary” to include a cost-benefit analysis, but documented the benefits and costs when possible. In addition to studying the effectiveness of the TRID Rule, the report also summarized the public comments the Bureau received from its November 2019 request for information (covered by InfoBytes here).
The Bureau issued the TRID Rule in November 2013, and the Rule took effect on October 3, 2015. Among other things, the TRID Rule integrated TILA’s Good Faith Estimate (GFE) and RESPA’s settlement statement (HUD-1), as well as other Dodd-Frank required disclosures, into the “Loan Estimate” and “Closing Disclosure” forms. Key findings of the assessment include:
- The TRID disclosure forms improved borrower abilities to locate key mortgage information, and compare costs and features of different mortgage offers;
- Evidence was mixed as to whether the TRID disclosure forms improved borrower abilities to understand loan estimates and transactions, and the TRID Rule increased consumer shopping for mortgages;
- The median response for one-time costs for lenders of implementing the rule was roughly $146 per mortgage originated in 2015;
- Evidence was unclear regarding ongoing costs for lenders, noting that over the last decade, lenders’ costs have increased steadily, but the data does not show a clear increase from the time the TRID Rule took effect; and
- Purchases and refinances dropped notably (around 14 percent and eight percent, respectively) in the first two months after the effective date, and purchase closing times lengthened by about 13 percent. However, both changes returned to pre-TRID Rule amounts and durations.
Additionally, the Bureau released a Data Point report titled, “How mortgages change before origination,” which details how the terms and costs of a mortgage loan may change during the origination process. The Bureau examined about 50,000 mortgages originated between March 2016 and November 2017, and found, among other things, that (i) APR changes occurred in more than 40 percent of mortgages; (ii) loan amount and the loan to value ratio changed for nearly 25 percent of mortgages; and (iii) interest rate changed for eight percent of mortgages.
FFIEC adopts revised interagency examination procedures for TILA
On September 30, On September 30, the OCC issued Bulletin 2020-84 announcing the Task Force on Consumer Compliance of the Federal Financial Institutions Examination Council’s adoption of revised interagency examination procedures for TILA, as implemented by Regulation Z. The updated interagency procedures reflect changes made to Regulation Z that relate to the TILA-RESPA Integrated Mortgage Disclosure Rule. Updates also reflect amendments to TILA that relate to the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA), such as (i) special provisions relating to high-cost loans, appraisals, and student lending; (ii) “an additional type of qualified mortgage for insured depository institutions with less than $10 billion in assets”; and (iii) “an additional type of escrow exemption for insured depository institutions with less than $10 billion in assets.” The bulletin rescinds the “Truth in Lending Act” booklet of the Comptroller’s Handbook, as well as OCC Bulletin 2018-31, “Truth in Lending Act: Revised Comptroller's Handbook Booklet and Rescissions.” Going forward, examiners should only rely on the revised interagency examination procedures.
The CFPB also updated its TILA examination procedures to reflect 2017 and 2018 amendments to Regulation Z and EGRRCPA on September 29.