Consumer Finance Regulatory News and Trends

CFPB seeks comments on potential changes to Regulation B

Consumer Finance Regulatory News and Trends

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

Regulatory developments

Federal

CFPB seeks comments on potential changes to Regulation B. The CFPB is seeking comments and information to prevent credit discrimination; encourage responsible innovation; promote fair, equitable and nondiscriminatory access to credit; address potential regulatory uncertainty; and develop viable solutions to compliance challenges posed by the Equal Credit Opportunity Act and Regulation B. The comment period closes December 1, 2020.

FTC seeks comments on Fair Credit Reporting Act Rule changes. The FTC is seeking comments on proposed changes to the rules implementing the Fair Credit Reporting Act (FCRA). The FTC is seeking comment on the effectiveness of five FCRA rules: the Address Discrepancy Rule, the Affiliate Marketing Rule, the Furnisher Rule, the Prescreen Opt-Out Notice Rule and the Risk-Based Pricing Rule.  In separate Notices of Proposed Rule Making, the FTC will clarify that these five rules apply only to motor vehicle dealers due to the transfer of authority that occurred under the Dodd-Frank Act.

CFPB issues new report on Home Mortgage Disclosure Act data. The CFPB has issued a new report on certain datapoints concerning the home mortgage market under the Home Mortgage Disclosure Act (HMDA). This is the second year the CFPB was required to report such data. Key points include: (1) the top 25 open-end lenders accounted for about 573,000 or 53.6% of all open-end originations under HMDA; (2) conventional jumbo loans have the highest mean and media credit scores – 765 and 773 respectively – among closed-end mortgages, while FHA borrowers have the lowest mean (668) and median (663); and (3) combined loan-to-value and debt-to-income ratios are higher among Black and Hispanic White homebuyers as compared to Asian and non-Hispanic White buyers. The CFPB press release on the report is available here.

CFPB issues proposal to create new Seasoned QM Loan definition. The CFPB has issued a proposal to create a new category of qualified mortgages under Regulation Z, entitled Seasoned Qualified Mortgages, for first-lien, fixed-rate covered transactions that have met certain performance criteria over a 36-month seasoning period, are held in portfolio over that period and meet certain underwriting requirements. The objective of this proposal is to improve access to responsible, affordable mortgage credit. The comment period ended October 1, 2020.

CFPB announces outline of proposals for small business lending data collection.  The CFPB released an outline of the proposals under consideration to implement Section 1071 of the Dodd-Frank Act, which requires financial institutions to collect and report data on credit applications from women-owned, minority-owned and small businesses on an annual basis. The proposed covered institutions would include a variety of entities engaged in small business lending, including banks, credit unions, online lenders and platform lenders, community development financial institutions and institutions involved in vehicle and equipment financing, and commercial finance companies, among others. The proposed covered products include term loans, lines of credit and business credit cards. A high-level summary of the full outline is available here.

State

California creates new Department of Financial Protection and Innovation. California Governor Gavin Newsome signed the California Consumer Financial Protection Law (CCFPL) into law, which renames the state’s Department of Business Oversight to the Department of Financial Protection and Innovation (DFPI) and significantly expands the agency’s legal authority to regulate and bring enforcement actions against financial services providers.  Among other things, the law expands the agency’s authority to target unfair, deceptive and abusive facts and practices by financial services providers, expands the scope of entities subject to regulatory supervision, creates a new Official of Financial Technology Innovation to address virtual currency and other technological solutions, and provides for the hiring of an additional 90 positions, including dozens of new investigators and attorneys.  Please see California enacts consumer financial protection legislation and establishes the Department of Financial Protection and Innovation for a more detailed analysis of the law. 

Enforcement actions

Federal

FTC sues cash merchant advance company for UDAP violations.  The FTC brought a suit asserting UDAP claims against a merchant cash advance (MCA) company and two of its officers. The FTC alleges that the defendants engaged in a pattern of deceptive and unfair conduct in marketing MCA services, including by misrepresenting key aspects of their products, such as collateral and personal guarantee requirements, charging fees not authorized under customer contracts and making unauthorized withdrawals from customers’ accounts.

CFPB announces $122 million settlement with bank concerning overdraft service.  The CFPB announced a settlement with a major bank regarding the marketing and sale of its optional overdraft service and credit reporting activities. The case centered on allegations that the bank deceptively marketed and enrolled customers by representing the service as a free feature that came with new consumer-checking accounts, when in reality the service was optional and resulted in a $35 charge for each overdraft transaction. The CFPB alleged that the bank engaged in abusive practices under the UDAAP provisions of the Consumer Financial Protection Act (CFPA) and the Electronic Fund Transfer Act.  The CFPB also alleged that the bank violated the Fair Credit Reporting Act (FCRA) and Regulation V by failing to implement written policies concerning reporting to consumer reporting agencies and responding to related consumer credit report disputes. The bank will pay $97 million in restitution and $25 million in civil penalties.

CFPB announces $625,000 and $260,000 settlements with mortgage brokers over deceptive marketing practices. The CFPB announced a $625,000 settlement and a $260,000 settlement with California-based mortgage brokers over the use of direct mail advertisements for VA-guaranteed mortgages. The CFPB alleged the brokers sent millions of direct mail solicitations to servicemembers and veterans that misrepresented credit terms and did not include mandatory disclosures. Since late July, the CFPB has issued multiple consent orders against mortgage brokers for similar violations.

US attorney brings criminal charges in connection with mortgage modification scam.  The US Attorney for the Southern District of New York filed a criminal complaint against a mother and son team who ran various purported mortgage modification companies that allegedly ensnared desperate homeowners with promises of pre-approved mortgage modifications and money-back guarantees. The defendants were ordered to cease conducting such business in 2018 by a California federal court in connection with a civil suit brought by the FTC. The criminal complaint alleges they violated those orders and continued to defraud consumers.

CFPB and New York Attorney General bring joint action against debt collectors. The CFPB and New York Attorney General filed a suit asserting federal and state consumer protection claims against five different debt collection companies and certain individual owners and officers of the companies.  The complaint alleges that the defendants violated the Fair Debt Collection Practices Act (FDCPA), the UDAAP provisions of the CFPA and related consumer protection provisions under the New York General Business Law. According to the complaint, the defendants allegedly harassed consumers by, among other things, threatening arrest or legal action, threatening to tell their employers about the debt and telling the consumers they owed more than they actually did to pressure them into paying.

CFPB sues San Diego-based debt collection and debt buying companies.  The CFPB brought a suit asserting claims that the defendants violated a 2015 consent order and engaged in new UDAAP and FDCPA violations in their debt collection and buying activities.  The complaint alleges the defendants sued consumers without possession of required documentation, used an internal legal department to engage in collection efforts without providing required disclosures, failed to provide consumers with required loan documentation, failed to disclose to consumers that different fees applied to different payment methods and sued consumers to collect debts after the statute of limitations had run.

CFPB announces settlement with private student loan lenders. The CFPB announced a settlement with lenders over claims that the lenders committed UDAP violations in connection with marketing and issuing private student loans. The complaint alleged that the lenders knew, or were reckless in not knowing, that many of the student borrowers did not understand their loans, could not afford them and, in some cases, were unaware of the loans’ existence. The proposed stipulated judgment will require the lenders to forgive approximately $330 million in debt for about 35,000 borrowers. This case arises from a 2014 CFPB action against a private college and its partners that were pushing private student loans that had default rates in excess of 80% and were leaving students saddled with high-cost loans and damaged credit.

State

Challenges to Madden Rule under New York law dismissed.  Two recent credit card securitization cases were decided in the Eastern District of New York and the Western District of New York.  In both cases, the plaintiff challenged the defendants’ ability to securitize credit card receives because the interest rate exceeded the permissible rate allowed by New York law.  In both cases, the courts’ held that the National Bank Act preempted New York State law, and thus granted the defendants’ motion to dismiss.  Also in both cases, the courts distinguished their cases from Madden in that the defendant retained rights in the underlying accounts and had not sold them outright.  Finally, neither case ruled on the legality of the Office of the Comptroller’s recently enacted Madden Fix rule.  For additional coverage on this issue, see here.  Opinions on the cases can be found here and here.

State AGs file lawsuit challenging Madden Rule.  The Attorneys General (AG) from California, the District of Columbia, Illinois, Massachusetts, Minnesota, New Jersey, New York and North Carolina filed a lawsuit in the Northern District of California challenging the validity of the FDIC’s interest rate authority rule (the Madden Fix). The state AGs are asking the court to declare the rule unlawful and set aside the regulations implementing the Madden Fix.

California launches “true lender” investigation of auto title company. On September 3, 2020, the California Department of Business Oversight (DBO) launched an investigation into whether an auto title lender is evading California’s interest-rate caps through its partnership with a state-chartered bank. California caps interest rates on most loans made by state-licensed lenders at about 36%. The DBO is seeking to ascertain whether title lender’s arrangement with the state-chartered is a direct effort to evade California’s laws governing interest rate caps. Responses to the subpoena are due in October.

For additional information on COVID-19-related disputes in the financial sector, see here.

For more information about our consumer finance regulatory work, please contact Margo H.K. Tank; Mike Hazzard; Paul Hall; David Whitaker, Jeffrey L. Hare; Isabelle Ord; Andrew Grant; Barrett Robin; or Noah Schottenstein, Editor-in-Chief, Consumer Finance Regulatory News and Trends.