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District Court denies motion to dismiss State Attorneys’ General case against “subprime lender”
On January 12, the U.S. District Court for the Eastern District of Pennsylvania denied a defendant’s motion to dismiss a case brought by five State Attorneys General (State AGs) from Pennsylvania, New Jersey, Oregon, Washington, and D.C. seeking to enforce the CFPA. The State AGs allege the defendant engaged in “predatory lending practices” that violate state and federal law. As covered by InfoBytes, in Spring 2022, the CFPB issued an interpretive rule clarifying that states have the authority to enforce federal financial consumer protection laws, such as the CFPA. This interpretive rule led to partisan attacks claiming the CFPB was “colluding” with state regulators, as covered by InfoBytes here.
The defendant is a state-licensed and regulated “subprime installment lender” operating in 28 states. As noted in the opinion, the defendant offers loans between $1,000 and $25,000, with terms between 12 and 60 months and charges interest at rates ranging from 18.99% to 35.99% with an average APR of 28%, and average loan size of around $3,650.
In addition to the complaint regarding subprime loans, the State AGs assert that the defendant “deceptively ‘adds-on’” various insurance options to consumers’ loans and targets a financially vulnerable population: those with a credit score of 629 or less who “often already have significant… debt[.]”. The State AGs seek injunctive and other relief.
26 State Attorneys General opine on FCC’s Notice of Inquiry regarding AI telemarketing
On January 17, the State Attorneys General from 26 states submitted reply comments to the FCC’s Notice of Inquiry (the Notice) on how artificial intelligence (AI) technologies are impacting consumers. The information gleaned in response to the Notice is intended to help the FCC better protect consumers from AI-generated telemarketing in violation of the TCPA. The State AGs urged that any AI-generated voice should be considered an “artificial voice” under the TCPA to avoid “opening the door to potential, future rulemaking proceedings” that allow telemarketing agencies to use AI-assisted technologies in outbound calls without the prior written consent of a consumer.
States endorse the CFPB’s rule to regulate fintechs
Recently, 19 state attorneys general submitted a comment letter supporting the CFPB’s proposed rule that would expand the CFPB’s supervisory authority to regulate nonbank fintech firms that offer digital payment services. They emphasized the importance of regulating nonbank financial institutions, including popular digital payment applications. The proposed rule aims to protect consumers from fraud, unregulated investment risks, and data privacy concerns. It addresses issues such as the lack of FDIC insurance for funds stored in digital payment applications, customer service problems, and potential risks associated with investment activities. The state attorneys general commend the CFPB for exercising its authority to improve the regulation of consumer financial products and urge prompt publication and implementation of the final rule.
U.S. district court holds state laws partially preempted by FCRA
On January 9, the U.S. District Court of Maine entered judgment, determining that Maine law is only partially preempted by the federal Fair Credit Reporting Act (FCRA). The plaintiff, a trade association that represents the major credit reporting agencies, filed the suit as a facial challenge to certain provisions of Maine law, naming the Maine Attorney General and the Superintendent of the Maine Bureau of Consumer Credit Protection as defendants.
According to the complaint, the Maine Medical Debt Reporting Act and the Maine Economic Abuse Debt Reporting Act amended the Maine Fair Credit Reporting Act, adding state-specific restrictions on information inclusion in consumer credit reports. The plaintiff argued that the federal FCRA preempts these provisions and that enforcing these amendments threatens the accuracy, integrity, and reliability of consumer report information.
The court held that while federal law does not “preempt all state laws relating to information contained in consumer reports,” the federal FCRA did preempt provisions of the Maine Medical Debt Reporting Act related to the timing of reporting on veterans’ medical debts by nationwide consumer reporting agencies. The court noted, however, that sections §§ 1681c(a)(7) and (a)(8) of the federal FCRA do not preempt the Maine Medical Debt Reporting Act to the extent that they regulate non-veterans’ medical debt.
Regarding the Maine Economic Abuse Debt Reporting Act, the court held that the provisions related to identity-theft in the federal FCRA preempt state law requirements when identify theft is the only method of economic abuse identified by the consumer. In such cases, the court held that “the blocking of reporting activity on identity-theft-related grounds must proceed according to federal requirements and state requirements are of no effect.” The court noted that its ruling does not “support preemption of Maine’s Economic Abuse Debt Reporting Act insofar as a consumer’s debt is alleged to be the product of economic abuse carried out by means other than or in addition to identity theft.”
Title lender reaches settlement with Pennsylvania AG
On January 10, Pennsylvania AG Michelle Henry announced a settlement with a national auto title lending company, resolving alleged violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Law and the Loan Interest and Protection Law (LIPL). According to the settlement, since 2016, the lender made thousands of vehicle title loans to Pennsylvania residents, with interest rates exceeding 100 percent without the necessary license required by the Consumer Discount Company Act.
The AG also noted that some of the loans resulted from leads that they bought from third parties who purported to have physical offices in Pennsylvania, when in fact, neither the lender nor its lead generators were in Pennsylvania. The AG also said that most Pennsylvania-based borrowers drove to one of the lender’s Delaware locations. Nonetheless, the AG said, “Pennsylvania usury laws apply because [the lender] collected money from Pennsylvania consumers and repossessed vehicles in Pennsylvania.” In the settlement, the lender denies all allegations of unlawful conduct, including the assertion that it knowingly acquired leads from third parties leading to loans for Pennsylvania residents. The lender explained its position that until the U.S. Court of Appeals for the Third Circuit rendered its opinion in another matter in January 2022, it held a “good faith and reasonable belief” based on then-existing law, particularly the Commerce Clause of the U.S. Constitution, that its operations were lawful.
Among other things, the settlement (i) requires the lender to pay $2.2 million in consumer restitution; (ii) requires the lender to cancel approximately $3.7 million in existing loans; (iii) enjoins and prohibits the lender from violating the LIPL; and (iv) requires the lender to return any repossessed vehicles at no charge and refund consumers of all repossession fees previously charged.
Montana AG opines that EWA products are not loans
On December 22, the Attorney General from the State of Montana opined that Earned Wage Access (EWA) products are not loans under a certain set of conditions. EWA products provide employees with fast access to cash by accessing cash before they are paid by their employer. In Montana, the Speaker from the House of Representatives asked the Attorney General whether EWA products meet the definition of either a “consumer loan” or “deferred deposit loan” under the Montana Code. If so, then EWAs would have a right to repayment and a presumption of interest or other fees, as do other loans under Montana law. The Attorney General opined, however, that EWAs are not loans given a certain set of conditions: (i) they are fully non-recourse, (ii) they do not have interest fees or other expenses, and (iii) they do not exceed the cash value of the consumer’s accrued income. The Attorney General cited the CFPB’s Payday Lending Rule as evidence that the “accrued cash value of income is effectively the worker’s own money and providing no-cost access to that income does not constitute a loan.”
Crypto platform to pay $22 million to resolve NY AG suit
On December 13, the New York State Supreme Court entered a stipulation and consent order resolving a suit brought in March against a crypto platform for operating as an unregistered broker-dealer, among other things. As previously covered by InfoBytes, the suit was brought by New York State Attorney General Letitia James who noted this was one of the first times a regulator claimed in court that one of the largest cryptocurrencies available in the market qualified as a security.
As a result of the consent order, the platform is obligated to refund over $16.7 million worth of crypto in its control “by allowing users to withdraw those balances and transferring any remaining balances after ninety days to a third-party fund administrator,” to more than 150,000 investors in New York. In addition, the platform must pay an additional $5.3 million to the state. As part of the agreement, the platform is barred from trading securities and commodities in New York or from making its platform available to New York residents.
NY AG and others demand cooperation and accountability from big banks; write to CFPB and OCC
On December 7, the Attorney General for the State of New York, Letitia James, led a group of 20 attorneys general in submitting letters to the OCC and the CFPB urging the agencies to ensure that national banks cooperate with state attorneys’ general investigations into violations of state laws. The letters state that in the beginning of the 2000s, banks began to claim immunity from state oversight. The attorneys general argue that this position was furthered by a 2002 OCC advisory letter directing states to refer potential violations of state law to the OCC, and a 2004 rule which expanded the test for when national banks were exempted from state laws. The attorneys general allege that states’ have been limited “in their ability to address a wide range of unfair and deceptive practices that affect their citizens, including bait-and-switch practices and the failure to clearly and conspicuously disclose rate changes, late fees and overdraft fees.” As a result, the attorneys general ask the OCC to “issue supervisory guidance… advising that it is unsafe and unsound, and that it creates a material risk of unfair or abusive acts or practices, for any [b]ank to refuse to cooperate with State AG information requests that seek to further enforcement of applicable state laws.”
Mass AG proposes legislation to combat “junk fees”
On November 30, the Massachusetts Attorney General’s office proposed regulations to combat so-called “junk fee” practices and make business payment methods more transparent, according to this press release
The purpose of the new rules is to help define unfair and deceptive practices for imposing fees as well as establishing standards for automatic renewal or continuous service contracts. Under the proposed regulations, the following acts performed by a business would be considered an “unfair and deceptive practice”: failing to disclose the total price of a product; failing to disclose any fees, interest, charges, or other expenses related to a product; and failing to disclose the total price before requiring a consumer to provide any personal information. The proposed regulations also state that, for recurring fees and trial offers, companies must provide a means of contact so that a consumer may cancel and must offer a way for a consumer to terminate a trial period in the same way it was entered.
The AG’s office will be holding a public hearing on the proposal on December 20 and is accepting public comments until then. If enacted, Massachusetts would be only the second state (following California) to issue a rule specifically targeting “junk fees.”
CFPB obtains stipulated judgment ordering student financing company to pay over $30 million in damages
On November 20, the United States Bankruptcy Court for the District of Delaware entered a stipulated judgment in favor of the CFPB and 11 other state enforcement agencies in connection with an adversary proceeding against a vocational training program. As previously covered by InfoBytes, the complaint alleged that the education firm (company) engaged in deceptive practices by misrepresenting its income share agreement as not a loan and not debt, and misleading borrowers into believing that no payments would need to be made until they received a job offer. According to the CFPB, the company trained consumers to become sales development representatives, an entry-level role that requires “little or no prior sales experience or training,” and made promises it could not deliver on, such as promising a “6-figure” career in software sales. The company also initially priced its services at $2,500 in 2018, and then increased it to $15,000 the following year without any value justification. The company would recoup its payment through income share agreements (ISA). The CFPB alleged multiple causes of action against the company, including violations of the CFPA, TILA, and the FDCPA, among others. The stipulated judgment includes orders requiring the company to refund student borrowers, cancel outstanding loans, and permanently shut down.