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.

Regulatory developments

Federal

CFPB issues RFI on Equal Credit Opportunity Act and Regulation B. On July 28, 2020, the Consumer Financial Protection Bureau (CFPB) issued a request for information (RFI) seeking public input on how it can continue to create a regulatory environment that expands access to credit, helps ensure all consumers and communities are protected from discrimination in all aspects of a credit transaction, encourages responsible innovation and addresses regulatory compliance challenges under the Equal Credit Opportunity Act (ECOA) and Regulation B. Specifically, the CFPB seeks comment on whether it should provide additional clarity under ECOA and Regulation B regarding the following issues:

• The CFPB’s approach on disparate impact analysis
• How creditors can be encouraged to provide assistance, products and services in languages other than English to expand credit access for limited English proficiency borrowers
• How to facilitate increased utilization of special purpose credit programs
• Ways in which creditors can develop affirmative advertising campaigns to disadvantaged groups
• How the CFPB can support efforts to meet small business credit needs, particularly those that are minority- and women-owned
• Whether the CFPB’s interpretation of ECOA’s prohibition of discrimination on the basis of sex should be impacted by the Bostock v Clayton County Supreme Court decision, which ruled that sex discrimination under Title VII encompasses sexual orientation discrimination and gender identity discrimination
• The scope of federal preemption of state law when it is inconsistent with ECOA and Regulation B
• How creditors should address situations where all or part of a credit applicant’s income derives from any public assistance program
• Underwriting when decisions are based in part on models using artificial intelligence or machine learning and
• Adverse action notices.

Comments must be received by October 2, 2020.

CFPB issues interpretive rule on method for determining underserved areas. Effective June 26, 2020, the CFPB issued an interpretive rule to provide guidance to the mortgage origination industry regarding how counties qualify as underserved in a calendar year, for purposes of the regulations governing higher-priced mortgage loans under Regulation Z. The rule supersedes a previous interpretation of how data from the Home Mortgage Disclosure Act (HDMA) would be used to determine underserved status to account for amendments to HMDA regulations. The determination will now be made by counting first-lien originations from HMDA data for the preceding calendar year, with certain exceptions. The list of rural and underserved counties determined through the methods described in the new rule can be found here. A CFPB press release concerning this rule is available here.   

CFPB proposes changes to Qualified Mortgage definition under Regulation Z. The CFPB proposes amendments to the Qualified Mortgage (QM) provisions under Regulation Z. The first proposal is a change that would remove the maximum 43% ratio of consumers’ debt to monthly income and replace it with a price-based threshold under the General QM loan definition. The second is a proposal to replace the sunset date applicable to QMs that are eligible for purchase or guarantee by Fannie Mae or Freddie Mac (government-sponsored entities, or GSEs) while the GSEs are under conservatorship (Temporary GSE QM loans). This QM category was established as a temporary measure and is set to expire no later than January 10, 2021 – the sunset date – or when the GSEs exit conservatorship. The proposal would extend the Temporary GSE QM loan definition to expire upon the effective date of final amendments to the General QM loan definition in Regulation Z, or when the GSEs cease to operate under the conservatorship of the FHFA, if that happens earlier. Comments are due by September 8, 2020.

Office of the Comptroller of the Currency (OCC) issues proposed “true lender” rule. On July 20, 2020, the OCC proposed a rule governing when a national bank or federal savings association makes a loan and is the “true lender” in the context of a partnership with a third party. The rule specifies that a bank makes a loan and is the true lender if, as of the date of origination, it (i) is named as the lender in the loan agreement or (ii) funds the loan. Comments are due by September 3, 2020.

CFPB revokes regulations on payday, vehicle titles and certain high-cost installment loans. On July 7, 2020, the CFPB issued a final rule that amended regulations on payday, vehicle titles and certain high-cost installment loans. The rule revokes provisions that (i) provide that it is an unfair and abusive practice for a lender to make a covered short-term or longer-term balloon-payment payday or vehicle title loan without reasonably determining that consumers have the ability to repay such loans according to their terms, (ii) set mandatory underwriting requirements for determining consumers’ ability to repay, (iii) exempt certain loans from mandatory underwriting requirements and (iv) establish related definitions, reporting and recordkeeping requirements. The CFPB published an unofficial redline to assist in reviewing the changes.

CFPB announces plan to issue ANPR on consumer-authorized access to financial data. On July 24, 2020, the CFPB announced plans to issue an advance notice of proposed rulemaking (ANPR) later in the year which will address consumer-authorized third-party access to financial records.  The ANPR is expected to help the CFPB understand and address competing perspectives by (i) soliciting stakeholder input on ways to effectively and efficiently implement the financial access rights described in Section 1033 of the Dodd-Frank Act, (ii) seeking information regarding the possible scope of data that would be subject to protected access, as well as information that might bear on other terms of access, and (iii) examining whether regulatory uncertainty may be having a detrimental effect on consumers. Along with the announcement, the CFPB provided a summary of proceedings of a symposium that the CFPB held on February 26, 2020 on this topic. 

FinCEN issues advisory on cybercrime and cyber-enabled crime that exploits COVID-19 pandemic. In an effort to help financial institutions detect, protect against and report malicious cyber activity during the COVID-19 pandemic and to protect legitimate relief efforts, the Financial Crimes Enforcement Network (FinCEN) issued an advisory on July 30, 2020 that alerts financial institutions to COVID-19-related scams and red flag indicators. The advisory identifies the following methods by which cybercriminals and other bad actors are exploiting the pandemic:

• Targeting and exploitation of remote platforms and processes. With significant migration toward remote access in the pandemic environment, cybercriminals have targeted vulnerabilities in these remote applications to steal sensitive information, compromise financial activity and disrupt business operations. These risks include digitally manipulating identity documentation in an attempt to undermine online verification processes and leveraging compromised customer login credentials across multiple accounts.
• Malware phishing schemes and extortion. Schemes aimed primarily at healthcare and pharmaceutical companies have attempted to lure companies with offers of COVID-19 information and supplies. These scams appear to originate from legitimate sources to collect victims’ personal and financial data and potentially infect their devices by convincing them to download malicious programs including ransomware.
• Business email compromise schemes. Schemes targeting municipalities and the healthcare industry supply chain have convinced companies to redirect payments to new accounts, claiming that the modification is due to pandemic-related changes in business operations.

Within these risk areas, FinCEN lists 20 red flag indicators that financial institutions should consider when evaluating whether a transaction is indicative of fraudulent COVID-19-related activity. 

FTC announces staff reports on auto buying and the financing experience. On July 30, 2020, the Federal Trade Commission (FTC) released two staff reports addressing challenges consumers face when buying and financing a car. The reports were based, in part, on in-depth interviews with consumers about the car buying and financing process. The first report, from the FTC’s Bureau of Consumer Protection (BCP), addressed how consumers were sometimes unaware of key terms when buying or financing a car, including focusing on monthly payments rather than other important terms like the car’s total price and the length of financing. The second report was jointly issued by the BCP and the FTC’s Bureau of Economics and it addressed, in part, overall lessons regarding consumers’ approaches to buying and financing cards and noted a number of areas where consumers did not understand the process.

State

New York Department of Financial Services issues alerts on recent amendments to New York’s Community Reinvestment Act (CRA) and CRA credit opportunities for regulated banking institutions in connection with COVID-19 activities. On June 30, 2020, the DFS issued two industry letters to New York-regulated banking institutions. The first letter concerns banks’ responsibilities under 2020 amendments to New York State’s Community Reinvestment Act (CRA) with respect to minority- and women-owned businesses. The recent amendments require DFS to consider, as part of its CRA performance evaluations, a banking institution’s “record of performance…in helping to meet the credit needs of its entire community, including…minority- and women-owned businesses, consistent with safe and sounds operation of the banking institution.” The DFS will examine banks’ participation and investment in technical assistance programs and loan originations for such businesses. The second letter encourages banks to engage in pandemic-relief-related activities, especially those aimed at assisting people of color and minority- and women-owned businesses, noting that certain PPP loans may qualify as community development loans and that DFS will consider related retail banking and lending services in COVID-19-related impact areas in its CRA evaluations.

Illinois Department of Financial and Professional Regulation (IDFPR) publishes proposed student loan servicing rules. On August 10, 2020, the IDFPR published a notice of proposed rules implementing the Student Loan Servicing Act. The rules require licensees to, among other things, provide borrowers with information about alternative repayment and loan forgiveness options (1010.150), maintain loan records (1010.170, .190) and file an independent audit report (1010.210). Comments are due by August 24, 2020.

Enforcement actions

Federal

On July 6, 2020, the CFPB filed a lawsuit asserting UDAP claims against My Loan Doctor LLC (d/b/a Loan Doctor) and its founder, Edgar Radjabli. The CFPB alleges that the defendants obtained over $15 million from at least 400 consumers by misrepresenting that (i) consumers’ money would be deposited into Loan Doctor’s HCF High Yield CD accounts and would be used to originate loans for healthcare professionals; (ii) Loan Doctor had buyers lined up in advance to purchase such loans; (iii) when not used to originate loans, consumers’ money would be held in FDIC-insured accounts; and (iv) Loan Doctor was a commercial bank that offered accounts that were safe and comparable to traditional savings accounts. In reality, consumers’ funds were invested in actively traded securities or used to make stock-backed loans. The CFPB seeks damages, disgorgement, injunctive relief and civil penalties. A copy of the complaint, filed in the Southern District of New York, is available here.

CFPB sues student-loan debt-relief operation for taking illegal advance fees. The CFPB filed a lawsuit against GST Factoring, Inc., two of its owners, a related customer service and marketing company and its owner, and four attorneys for alleged violations of the Telemarketing Sales Rule (TSR). The complaint, filed in the Central District of California, alleges that the defendants operated a nationwide telemarketing scheme in which they illegally extracted nearly $12 million in fees from approximately 2,600 consumers in violation of the TSR’s prohibition against collecting fees for debt-relief services before the debt is settled or renegotiated. Four of the defendants agreed to stipulated final judgments that were filed alongside the complaint. The CFPB seeks redress to consumers, injunctive relief and civil monetary penalties.

CFPB sues mortgage originator for illegal redlining. On July 15, 2020, the CFPB filed a lawsuit asserting anti-discrimination claims against Townstone Financial, Inc., a non-bank retail-mortgage creditor for violations of the ECOA, Regulation B and the Consumer Financial Protection Act (CFPA). Townstone is alleged to have drawn few or no applications for properties in predominantly Black neighborhoods in Chicago's Naperville-Elgin Metropolitan Statistical Area (Chicago MSA) and few applications from Black people. The Bureau alleges that Townstone engaged in illegal "redlining" activities by, among other things, making statements in radio shows and podcasts designed to (i) discourage Black people from applying for mortgage loans from Townstone and (ii) discourage applications for mortgages on properties located in predominantly Black neighborhoods in the Chicago MSA. The CFPB seeks injunctive relief, damages, restitution for consumers and civil monetary penalties. A copy of the CFPB’s complaint, filed in the Northern District of Illinois, is available here.

Other legal developments

States sue OCC seeking to set aside OCC’s “Madden” fix. On July 29, 2020, California, Illinois and New York sued the OCC, seeking to set aside the OCC’s recently enacted Rule Regarding Permissible Interest on Loans that are Sold, Assigned, or Otherwise Transferred. The states’ main allegations are that the OCC violated the Administrative Procedures Act because (1) the OCC action was arbitrary, capricious, an abuse of discretion and otherwise not in accordance with law; (2) the OCC exceeded its statutory authority; and (3) the OCC did not observe the procedures required by law to enact the rule. Specifically, the states allege that the rule is contrary to the statutory law it purports to interpret (12 U.S.C. §§ 85 and 1463(g)), it is contrary to the express will of Congress and the presumption against preemption and it impermissibly seeks to overturn a federal court’s construction of an unambiguous statute (Madden v Midland Funding, LLC, 786 F.3d 246 (2d Cir. 2015), cert. denied, 136 S. Ct. 2505 (2016)).

For more on the OCC’s rule, see our prior alert here.

For more information about our consumer finance regulatory work, please contact Jeffrey L. Hare; Isabelle Ord; or Noah Schottenstein, Editor-in-Chief, Consumer Finance Regulatory News and Trends.