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Colorado Banking and Financial Services commissioners provide guidance on Safer at Home orders
On May 15, the Colorado Banking and Financial Services commissioners provided additional guidance on the Safer at Home orders. The commissioners continue to encourage Colorado state-chartered financial institutions to work with affected borrowers and customers, and provide payment relief to consumers impacted by Covid-19. For example, financial institutions are encouraged to waive fees for services (e.g., overdraft fees, ATM fees) and provide accommodations such as eliminating minimum balance requirements on accounts and increasing daily withdrawal limits on ATMs.
FINRA updates guidance on verification of Form U4 for individual registration
On May 15, FINRA updated its response to a frequently asked questions regarding verification on Form U4 for individual registration. Under FINRA Rule 3110(e), members are required to have written procedures to verify the accuracy and completeness of an applicant’s initial or transfer Form U4 within 30 calendar days after the Form U4 is filed with FINRA. In light of challenges posed by Covid-19, if a firm is unable to verify the information within 30 days following submission, the firm must document which information could not be verified and the reasons and maintain an appropriate record, including steps taken to verify the information. For an initial or transfer Form U4, firms should make reasonable efforts to verify the information contained therein by June 30, 2020, and, if necessary, file an amended Form U4 to correct any discrepancies.
Texas regulator urges credit access businesses to consider emergency measures, extends reporting deadlines
On May 15, the Texas Office of the Consumer Credit Commissioner revised an advisory bulletin to credit access businesses, extending the deadline to file 2020 first quarter reports until May 31, 2020 (previously covered here). The office also encouraged credit access businesses to work with third-party lenders to provide relief to consumers negatively impacted by the Covid-19 pandemic.
Texas regulator extends annual report deadline for regulated lenders
On May 15, the Texas Office of Consumer Credit Commissioner revised an advisory bulletin extending the deadline for regulated lenders to file 2019 annual reports from May 1, 2020 to June 1, 2020 (previously covered here). The regulator also urged regulated lenders to work with borrowers negatively impacted by the Covid-19 pandemic.
7th Circuit: CRAs not required to determine legal validity of disputed debt
On May 11, the U.S. Court of Appeals for the Seventh Circuit affirmed a district court’s dismissal of a putative class action, holding that the FCRA does not compel a consumer reporting agency (defendant) to determine the legal validity of a debt when investigating a dispute. The plaintiffs alleged that they obtained payday loans with allegedly usurious interest rates from online entities affiliated with Native American tribes. After both plaintiffs stopped making monthly payments, the lenders reported the delinquent amounts to the defendant. One of the plaintiffs disputed the accuracy of his credit report, arguing that because the loan was “illegally issued” he was not obligated to make payments. The defendant conducted an investigation and verified the furnished information was accurate. However, the defendant did not investigate whether the debt was legal. The plaintiffs filed suit, alleging two FCRA violations: (i) Section 1681e(b) which requires consumer reporting agencies “to assure maximum possible accuracy of the information” contained in credit reports; and (ii) Section 1681i(a) which “requires consumer reporting agencies to reinvestigate disputed items.” According to the plaintiffs, the defendant’s credit reports “contained ‘legally inaccurate’ information because they posted ‘legally invalid debts.’” The district court granted judgment on the pleadings to the defendant, ruling that the plaintiffs’ FCRA claims fell short because they never alleged that the information that was reported was factually inaccurate and, “until a formal adjudication invalidates the plaintiffs’ loans,” the reported information would not be factually inaccurate.
On appeal, the 7th Circuit held, among other things, that only furnishers—“such as banks, credit lenders, and collection agencies”—are required under the FCRA to correctly report liability, stating it is not the defendant’s responsibility to determine the enforceability of the debt because the “power to resolve these legal issues exceeds the competencies of consumer reporting agencies.” Moreover, the appellate court determined that the defendant cannot be liable under either of the plaintiffs’ FCRA claims if it did not report inaccurate information.
6th Circuit denies stay of injunction against PPP Ineligibility Rule
On May 15, the U.S. Court of Appeals for the Sixth Circuit denied the SBA’s emergency motion for a stay of the district court’s injunction against the agency’s Paycheck Protection Program (PPP) Ineligibility Rule. As previously covered by InfoBytes, the district court granted a preliminary injunction against the SBA’s PPP Ineligibility Rule—which, in relevant part, excludes from PPP loan eligibility “sexually oriented businesses that present entertainment or sell products of a ‘prurient’ (but not unlawful) nature.” The district court concluded that the Rule was in conflict with the Congressional purpose of the CARES Act, which houses the PPP, to protect workers in need during the Covid-19 pandemic, including workers for businesses that have been historically excluded from SBA financial assistance.
The 6th Circuit agreed with the district court, denying the motion for a stay. The court noted that the CARES Act specifies that eligibility “is conferred on ‘any business concern,’” which “encompasses sexually oriented businesses.” It went on to state that “the public interest is served in guaranteeing that any business, including plaintiffs, receive loans to protect and support their employees during the pandemic.”
In dissent, one judge argued that it is “unclear whether Congress meant that any business concern was eligible for a PPP loan regardless of SBA restrictions,” and therefore, the injunction should be stayed pending a decision on the merits.
SEC issues exemption for broker-dealer TALF Agents
On May 15, the SEC granted an exemption to broker-dealers designated by the Federal Reserve Bank of New York (NY Fed) as Term Asset-Backed Securities Loan Facility (TALF) Agents from certain requirements of Section 11(d)(1) of the Exchange Act. As previously covered by InfoBytes, under the TALF, the NY Fed will provide loans to U.S. companies that are secured by certain eligible consumer and small business asset-backed securities, such as student loans, auto and credit card loans, loans guaranteed by the SBA and certain other assets. The exemption for broker-dealers was requested by the NY Fed on May 12, because Section11(d)(1) would prevent TALF Agents from arranging nonrecourse loans in which the broker-dealer participated as a member of a selling syndicate or group.
The SEC granted the exemption with respect to asset-backed securities that are or may be designated as “eligible collateral,” declaring that any broker-dealer designated as a TALF Agent and participating in TALF 2020 is exempted from the requirements of Section 11(d)(1).
FTC alleges telemarketer charged organizations for unordered subscriptions
On May 13, the FTC filed a complaint against a Pennsylvania-based telemarketing operation for allegedly misrepresenting “no obligation” trial offers to organizations and then enrolling recipients in subscriptions for several hundred dollars without their consent. The complaint also charged a New York-based debt collector with violating the FTC Act by illegally threatening the organizations if they did not pay for the unordered subscriptions. The FTC alleged that the telemarketing operation violated the FTC Act and the Unordered Merchandise Statute by calling organizations such as businesses, schools, fire and police departments, and non-profits to offer sample books or newsletters without disclosing that they were selling subscriptions and then sending publications without the recipients’ consent. The FTC alleged that, if the organizations agreed to accept what they believed to be free publications, the defendants enrolled the organizations in a negative option program without their consent, and automatically charged the organizations for annual subscriptions. The telemarketer worked with a debt collection firm that allegedly misrepresented that the debts were valid and used false threats to collect outstanding balances. According to the FTC, the debt collection firm handled collections nationwide despite not having a valid corporate registration in any state and only being licensed to collect debt in Washington State. The FTC seeks a permanent injunction against the defendants, along with monetary relief “including rescission or reformation of contracts, restitution, the refund of monies paid, and the disgorgement of ill-gotten monies.”
CFPB reaches $18 million settlement in credit-report scheme
On May 14, the CFPB filed a proposed stipulated final judgment and order in the U.S. District Court for the Central District of California against a mortgage lender and several related individuals and companies (collectively, “defendants”) for alleged violations of the Consumer Financial Protection Act (CFPA), Telemarketing Sales Rule (TSR), and Fair Credit Reporting Act (FCRA). As previously covered by InfoBytes, the CFPB filed a complaint in January claiming the defendants violated the FCRA by, among other things, illegally obtaining consumer reports from a credit reporting agency for millions of consumers with student loans by representing that the reports would be used to “make firm offers of credit for mortgage loans” and to market mortgage products, but instead, the defendants allegedly resold or provided the reports to companies engaged in marketing student loan debt relief services. The defendants also allegedly violated the TSR by charging and collecting advance fees for their debt relief services. The CFPB further alleged that defendants violated the TSR and CFPA when they used telemarketing sales calls and direct mail to encourage consumers to consolidate their loans, and falsely represented that consolidation could lower student loan interest rates, improve borrowers’ credit scores, and change their servicer to the Department of Education.
If approved by the Court, the Bureau’s proposed settlement would (i) impose an $18 million redress judgment against the mortgage lender, of which all but $200,000 would be suspended due to the lender’s limited ability to pay; (ii) require one of the individuals and his company to disgorge $403,750 in profits to provide redress; (iii) impose a $406,150 judgement against a second individual and his company, which will be suspended due to the defendants’ inability to pay; (iv) impose a total $450,001 civil money penalty against the defendants; (v) permanently ban the defendants from the debt-relief industry and from using or obtaining prescreened consumer reports; and (vi) prohibit the defendants from on using or obtaining consumer reports for “any business purpose other than underwriting or otherwise evaluating mortgage loans.”
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.