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Credit repair trade association sues CFPB over TSR six-month waiting period
On May 21, a credit repair trade association filed a complaint against the CFPB in the U.S. District Court for the Southern District of Florida alleging the Bureau violated the credit repair organizations’ First Amendment rights under the Constitution by enforcing a six-month payment waiting period in the FTC’s Telemarketing Sales Rule (TSR). The association is challenging Section 310.4(a)(2)(ii) of the TSR, which prohibits credit repair organizations from requesting or receiving payment for services rendered for a minimum of six months after the services have been performed. The complaint alleges that the prohibition (i) exceeds the FTC’s statutory authority under the Telemarketing and Consumer Fraud and Abuse Prevention Act; (ii) conflicts with the Credit Repair Organizations Acts (CROA); and (iii) is an infringement on the First Amendment rights of credit repair organizations by improperly impairing fully protected speech. Specifically, the association argues that the TSR is only applicable to credit repair organizations in certain situations, and the CROA—which does not require the six-month waiting period nor proof that “results were achieved”—is “the final and decisive law concerning credit repair organizations, including the time and manner of their billing practices.” Moreover, the complaint argues that the Bureau does not have the authority to enforce the TSR against credit repair organizations, as the Dodd-Frank Act did not explicitly transfer the authority from the FTC. The complaint is seeking a declaratory judgment that the TSR is unenforceable, invalid, and unlawful.
CFPB updates HMDA Small Entity Compliance Guide
On May 27, the CFPB issued an updated HMDA Small Entity Compliance Guide to reflect the changes made to Regulation C by the April final rule, which permanently raised coverage thresholds for collecting and reporting data about closed-end mortgage loans and open-end lines of credit (covered by InfoBytes here). The final rule, which amends Regulation C, increases the permanent threshold from 25 to 100 loans starting July 1, 2020, for both depository and nondepository institutions. The final rule also increases the permanent threshold for collecting and reporting data about open-end lines of credit from 100 to 200, but this change will not take effect until January 1, 2022, when the current temporary threshold of 500 open-end lines of credit expires. Beginning in 2022, both depository and nondepository institutions that meet this threshold must report data on open-end lines of credit by March 1 of the following calendar year. The Guide also notes the CFPB’s statement that, as of March 26, 2020, it “does not intend to cite in an examination or initiate an enforcement action against any institution for failure to report its HMDA data quarterly.”
OCC issues Comptroller’s Handbook booklet updating sampling methodologies
On May 26, the OCC issued Bulletin 2020-56 announcing the revision of the Sampling Methodologies booklet of the Comptroller’s Handbook. Among other things, the revised booklet (i) discusses the differences between statistical and judgmental sampling; (ii) details the OCC’s statistical sampling methodologies; and (iii) includes look-up tables covering statistical sample sizes and upper confidence bounds. The revised booklet is effective for supervisory activities beginning on or after June 15.
CFPB and Massachusetts AG sue credit-repair telemarketers
On May 22, the CFPB and the Massachusetts attorney general announced a joint lawsuit against a credit repair organization and the company’s president and owner (collectively, “defendants”) for allegedly committing deceptive acts and practices in violation of the Consumer Financial Protection Act (CFPA) and the Massachusetts Consumer Protection Law. The complaint also alleges the defendants engaged in deceptive and abusive telemarketing acts or practices in violation of the Consumer Financial Protection Act’s (CFPA) prohibition against deceptive acts or practices and the FTC’s Telemarketing Sales Rule (TSR). According to the complaint filed in the U.S. District Court for the District of Massachusetts, the defendants allegedly enrolled tens of thousands of consumers by deceptively claiming that their credit-repair services could help consumers substantially improve their credit scores. The services also allegedly promised to fix “unlimited” amounts of negative items from consumers’ credit reports. However, the complaint asserts that in “numerous instances,” the defendants failed to achieve these results. The defendants also allegedly engaged in abusive acts and practices in violation of the TSR by requesting and collecting fees before achieving any results related to repairing a consumer’s credit. Among other things, the complaint further alleges that the defendants claimed to have more than 60 credit repair experts but actually only employed a handful of Boston-based employees, only some of whom interacted with consumers. The majority of the interactions, the complaint alleges, were conducted by telemarketers located in Central America who were paid “almost entirely by commission” based on the number of consumers they enrolled.
The complaint seeks injunctive relief; “damages and other monetary relief against [the defendants] as the Court finds necessary to redress injury to consumers resulting from [the defendants’] violations, which may include, among other things, rescission or reformation of contracts, refund of monies paid, and restitution; and civil money penalties.”
OCC releases recent enforcement actions
On May 21, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such entities. Included among the actions is an April 14 consent order to resolve the OCC’s claims that a California-based bank engaged in Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance program violations. According to the consent order, an OCC examination identified deficiencies in the bank’s BSA/AML compliance program, including failure to implement a compliance program that “adequately covered the required BSA/AML program elements,” and failure to correct a previously identified BSA/AML compliance program problem. The consent order requires the bank to, among other things, (i) appoint a compliance committee of independent directors ; (ii) submit a written strategic plan to the OCC covering at least the next three years; (iii) ensure competent management and staff is in place to ensure compliance with the order, applicable laws, and rules and regulations; (iv) appoint a “permanent, qualified, and experienced BSA Officer”; (v) create and adopt a “written program of policies and procedures to provide for compliance with the BSA”; (vi) adopt a “written risk-based program of internal controls and processes to ensure compliance with the requirements to file SARs”; (vi) develop policies and procedures for performing customer due diligence; (vii) implement a program to manage BSA/AML and Office of Foreign Assets Control risk associated with processing wire transfers; and (viii) conduct a SAR “look-back” review, implement an independent BSA/AML audit program, and develop a comprehensive training program for bank employees.
SBA clarifies PPP loan forgiveness process, lender and borrower responsibilities
Recently, the Small Business Administration released two interim final rules (IFR) to provide guidance on the Paycheck Protection Program (PPP) loan forgiveness process, as well as directions on lender and borrower responsibilities. Both IFRs are effective immediately, and comments will be received for 30 days following publication in the Federal Register.
The loan forgiveness IFR outlines PPP loan forgiveness requirements for borrowers and lenders. Among other things, lenders must confirm that they received the borrower certifications in the loan forgiveness application form (covered by InfoBytes here) and verify the borrower’s calculations. The IFR also clarifies several questions, including those related to employee status, payroll calculations, and nonpayroll expenses eligible for forgiveness.
The lender and borrower responsibilities IFR provides additional guidance on the SBA PPP loan review, the loan forgiveness process for lenders, and lender eligibility for processing fees. While the IFR recommends that lenders work with borrowers to correct identified “errors in the borrower’s calculation or material lack of substantiation in the borrower’s supporting documents,” it does not require lenders to “independently verify the borrower’s reported information if the borrower submits documentation supporting its request for loan forgiveness and attests that it accurately verified the payments for eligible costs.” Lenders must report their decisions on forgiveness applications to the SBA and request payment from the SBA for borrowers that are eligible for forgiveness no later than 60 days after receiving a complete application. The SBA also has the authority to review any PPP loan, although it will evaluate a loan based on the “rules and guidance available at the time of the borrower’s PPP loan application.” In addition, the IFR notes that lenders may lose fees for any loans deemed to be ineligible, and that the SBA may claw back already issued-fees if it determines the lender has failed to fulfill its obligations under the PPP. According to the IFR, lenders will receive payment from the SBA on eligible loans, plus any accrued interest through the date of payment, no later than 90 days after a lender reports its decision to SBA.
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.
Brian Brooks named acting Comptroller, Otting steps down
On May 21, the OCC announced that Comptroller of the Currency, Joseph Otting will step down from office on May 29, and Brian P. Brooks will become acting Comptroller of the Currency. Brooks currently serves as First Deputy and Chief Operating Officer. Prior to joining the OCC, Brooks was Chief Legal Officer of a digital currency exchange, and prior to that, he served as Executive Vice President, General Counsel, and Corporate Secretary of Fannie Mae.
Minnesota Department of Commerce extends certain licensing application deadlines for insurance producers and real estate brokers
On May 27, the Minnesota Department of Commerce issued an order modifying certain regulatory deadlines as set forth in Regulatory Guidance 20-29, 20-30, 20-31, 20-32, and 20-33. Guidance 20-29 through 20-32 extends the deadlines for insurance producer and adjuster renewal applications, and Guidance 20-33 extends the deadline for certain real estate broker license applicants to complete their applications.
Federal agencies issue FAQs covering CRA and Covid-19
On May 27, the Federal Reserve Board, the OCC, and the FDIC posted Community Reinvestment Act (CRA) FAQs related to Covid-19. The FAQs acknowledge that while Covid-19 affected states are categorized by the Federal Emergency Management Agency (FEMA) as Category B, which would normally not be considered designated disasters under the CRA, the agencies will grant consideration for activities that revitalize or stabilize affected areas by protecting public health and safety. The FAQs frequently cite to the joint statement on CRA consideration for activities in response to Covid-19, issued by the agencies in March (covered by InfoBytes here). Among other things, the FAQs discuss how Paycheck Protection Program and Main Street Lending Program loans may be eligible for CRA consideration and how bank examiners will consider affordable housing measures under the CRA.