Consumer Finance Regulatory News and Trends

This regular publication by DLA Piper lawyers focuses on helping clients navigate the ever-changing consumer finance regulatory landscape.

Enforcement actions

CFPB announces a new inquiry into employer-driven debt products and practices.  The Consumer Financial Protection Bureau (CFPB) announced a new inquiry regarding practices by employers that may make employees indebted to employers.  In particular, the CFPB expressed concerns about practices such as requiring employees to purchase equipment and supplies that are essential for work and requiring employees to repay debt if the employer leaves before a certain date (such as for training costs).  The CFPB also expressed concern about the impact of employer-driven debt in employment markets and the potential harm to competition that could result.

CFPB and New York Attorney General announce a $4 million settlement with a debt collection enterprise over deceptive and abusive debt collection practices.  The CFPB and New York Attorney General announced a proposed stipulated judgment with a debt collection enterprise over alleged unfair or deceptive acts or practices (UDAP) and Fair Debt Collection Practices Act (FDCPA) violations.  According to the complaint, the companies threatened consumers with 0 claims of arrest, imprisonment or other legal action; misrepresented the amount of debts owed; harassed consumers with repeated phone calls; and failed to provide legally mandated disclosures. Additionally, companies allegedly created “smear campaigns” against consumers by using social media and other platforms to broadcast consumers’ debts to their family, friends, landlords, employers and other associates. Under the proposed settlement, the companies will pay a total of $4 million within six months, or a total of $5 million if payment is not timely made, and the individual employees who were responsible for the conduct will be permanently banned from the debt collection industry.

FTC announces a receivership order against companies over a $467 million deceptive credit repair scheme. The FTC announced a temporary restraining order shutting down the operations of a group of companies and placing them into receivership for alleged UDAP and Telemarketing Sales Rule (TSR) violations.  According to the FTC’s complaint, the companies engaged in deceptive practices by 0ly promising consumers that they could successfully and permanently remove negative information from credit histories or creditor reports and taking illegal upfront fees for services.  The companies also encouraged consumers to become marketers for the operation and to extensively advertise using purported success stories on social media platforms such as YouTube, Facebook and Instagram. 

CFPB announces a $175,000 settlement with individual operator of a re-opened student loan debt relief provider. The CFPB announced a complaint and a proposed stipulated judgment against an individual who was the sole principal of a student loan debt relief business that entered into a consent order requiring it to cease business in 2016.  The principal subsequently re-hired an employee and used customer information from the closed business to start a new enterprise to continue operations, which was subsequently shut down.  In addition to the $175,000 fine, the proposed settlement would permanently ban the principal, his agents, or anyone in concert or participation with them from providing debt relief products or services, or using, or causing to be used, any consumer information from either of the businesses.

Regulatory developments

Federal

CFPB publishes an Interpretive Rule outlining state enforcement authority under the Consumer Financial Protection Act. The CFPB published an Interpretive Rule to provide further clarity on the scope of state enforcement actions under the Consumer Financial Protection Act (CFPA). The CFPB explained that (1) section 1042 of the CFPA allows states to enforce any provision of the CFPA, including the provision that makes it unlawful for covered persons or service providers to violate federal consumer financial laws; (2) limitations on the CFPB’s authority found in sections 1027 and 1029 of the CFPA generally do not constrain a state’s enforcement authority under section 1042; and (3) section 1042 does not prohibit states from bringing concurrent enforcement actions with the CFPB. 

Federal regulators announce a joint proposal on modernization of Community Reinvestment Act regulations. The Federal Reserve, Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency (OCC) issued a joint proposal announcing and requesting feedback on changes to the Community Reinvestment Act (CRA).  The proposal primarily focuses on changes to the regulatory framework for evaluating CRA compliance, but also would require new significant data collection and reporting applicable to large financial institutions.  This would provide the agencies with more granular deposits and lending data, which in turn could facilitate a broader range of fair lending enforcement activity.  The comment period closes on August 1, 2022.

CFPB issues an advisory opinion on coverage of fair lending laws.  The CFPB issued an advisory opinion stating that the provisions of Equal Credit Opportunity Act (ECOA) and Regulation B continue to apply after the initial credit decision, and therefore companies that negatively change the terms on which credit has already been provided must comply with ECOA and Regulation B’s notice requirements.

CFPB publishes a circular clarifying protections to the public from black-box credit models using complex algorithms. The CFPB issued a circular stating that ECOA and Regulation B do not permit creditors to use “black-box” algorithms if creditors cannot provide specific and accurate reasons if a credit application is denied.  The CFPB stated that noncompliance cannot be justified on the basis that the technology used to evaluate the application is “too complicated or opaque to understand” and that a creditor’s “lack of understanding of its own methods” through the use of complex algorithms, such as artificial intelligence or machine learning, is not a cognizable defense against liability under ECOA and Regulation B.  The circular did not provide any information regarding steps that creditors may take to ensure compliance.

CFPB opens a new office aimed at improving competition and innovation in consumer financial services.  The CFPB announced the opening of the Office of Competition and Innovation (OCI), which is part of a broader initiative by the CFPB to analyze obstacles to open markets and make it easier for consumers to switch financial providers.  According to the announcement, the OCI will focus on “walking rights” for consumers who decide to switch providers, analyzing structural problems in consumer financial services markets that limit competition and helping develop new regulations granting consumers rights to their personal data.  As part of the implementation of the OCI, the CFPB is encouraging rulemaking petitions to help facilitate greater clarity on new rules.  In announcing the OCI, the CFPB stated:

The Office of Competition and Innovation replaces the Office of Innovation, which opened in 2018, and Project Catalyst, launched in 2014. The Office of Innovation’s primary purpose was to process applications for No Action Letters and Sandboxes that applied to an individual company’s specific product offering. After a review of these programs, the agency concludes that the initiatives proved to be ineffective and that some firms participating in these programs made public statements indicating that the Bureau had conferred benefits upon them that the Bureau expressly did not.

State

California DFPI seeks public comment on new regulations relating to crypto-asset-related financial products and services. The California Department of Financial Protection and Innovation (DFPI) is seeking public comment and input from stakeholders in developing guidance and regulatory oversight of cypto-asset-related financial products and services under California’s Consumer Financial Protection Law.  The DFPI has formulated topics and questions to assist interested parties in providing input, but comments may be provided in any potential area for rulemaking related to crypto-asset-related financial products and services.  The comment period closes on August 5, 2022.

Upcoming events

Austin Brown and Isabelle Ord will join Tim Burniston and Wolters Kluwer in a free webinar on July 14, titled CFPB Authority to Protect Consumers: Reading the Fair Lending Tea Leaves.  Details to come.

For more information about our consumer finance regulatory work, please contact Margo H.K. Tank; Isabelle Ord; Jeffrey L. Hare; Austin Brown; Andrew Grant; Braden Dotson; or Noah Schottenstein, Editor-in-Chief, Consumer Finance Regulatory News and Trends.

Please read the latest issues of our newsletters, Blockchain and Digital Assets News and Trends, eSignature and ePayment News and Trends and Bank Regulatory News and Trends.