Consumer Finance Regulatory News and Trends

CFPB issues rule implementing the Fair Debt Collection Practices Act

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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

Federal Reserve Board proposed rulemaking on modernization of implementing regulations for the Community Reinvestment Act. The Board of Governors of the Federal Reserve System published an advance notice of proposed rulemaking (ANPR) concerning changes to Regulation BB, the implementing regulation for the Community Reinvestment Act (CRA). Among other proposed changes, the proposal seeks to tailor CRA supervision of financial institutions to account for differences in bank sizes, business models and local markets. The proposed framework breaks the Retail Test and Community Development Test into four subtests: the Retail Lending Subtest, the Retail Services Subtest, the Community Development Financing Subtest and the Community Development Services subtest. Smaller banks may elect to be evaluated under the Retail Lending Subtest alone, while large retail banks would be evaluated under all four. The Board also proposes exemptions for small banks from new data collection requirements. The comment period ends on February 16, 2021.    

CFPB issues final rule extending Government-Sponsored Enterprise Patch concerning qualified mortgage definition. CFPB issued a final rule extending the temporary Government-Sponsored Enterprise (GSE) Patch concerning the Qualified Mortgage (QM) definition under the Truth in Lending Act (TILA). The Dodd-Frank Act amended TILA to establish ability-to-repay requirements for most residential mortgage loans. QMs are a defined category of loans that are presumed to comply with ability-to-pay requirements. The 2013 Ability-to-Repay/Qualified Mortgage (ATR/QM) rule set a general QM standard for loans where the borrower’s debt-to-income ratio is 43% or less. The ATR/QM rule also created the Government-Sponsored enterprise (GSE) Patch as a temporary QM definition, which gives QM status to loans eligible for purchase or guarantee by either Fannie Mae or Freddie Mac even when the debt-to-income ratio exceeds the standard 43% limit. The CFPB estimates the impending GSE Patch, previously scheduled for January 21, 2020, would affect nearly one million loans. This rule extends the GSE Patch until the mandatory compliance date of final rule amending the General QM loan definition in Regulation Z.

CFPB issues rule implementing the Fair Debt Collection Practices Act. The CFPB issued a final rule to revise Regulation F, which implements the Fair Debt Collection Practices Act (FDCPA). The final addresses, among other topics, communications in connection with debt collection and prohibitions on harassment or abuse, false or misleading representations, and unfair practices in debt collection.  The rule clarifies how consumers may set limits on debt collection communications and the limits on communicating with third parties about a consumer’s debt. The rule requires debt collectors who communicate electronically to offer the consumer a reasonable and simple method to opt out of such communications at a specific email address or telephone number. The rule also provides that consumers may, if the debt collector communicates through an electronic communications medium, use that same medium to place a cease communication request or notify the debt collector that they refuse to pay the debt. The rule further clarifies that the FDCPA’s general prohibition on harassing, oppressive or abusive conduct applies not only to telephone calls, but other communication media, such as email and text messages.

CFPB proposed rulemaking on consumer access to financial records. The CFPB issued an advanced notice of proposed rulemaking (ANPR) seeking input from the public on how it can develop regulations to implement Section 1033 of the Dodd-Frank Act, which concerns consumer rights to access financial records. Financial services providers accumulate data about their consumers and many consumers authorize third parties to access such data on their behalf in order to provide other financial services. For instance, new personal finance and advisory products exist that aggregate a user’s accounts into one platform to help the user understand their personal finances, net worth and spending habits, among other things. These services provide a valuable benefit to consumers, but also present security risks with respect to sensitive consumer data. The CFPB seeks comments on the costs and benefits of consumer data access, competitive incentives, standard setting, access scope, consumer control and privacy, and data security and accuracy. The comment period closes on January 20, 2021.

CFPB issues no-action letter to national bank regarding small-dollar loan product. The CFPB approved a national bank’s application for a no-action letter, which was based on the no-action letter template that the CFPB issued earlier this year.

Final rule on national banks and federal savings associations as lenders. The Office of the Comptroller of the Currency submitted a final rule to determine which party is the "true lender" in transactions involving a third party. The rule resolves uncertainty by specifying that a bank is the true lender when, as of the date of origination, the bank either:

  1. Is named as the lender in the loan agreement or
  2. Funds the loan.   

CFPB private education loan ombudsman issues 2020 annual report. The CFPB’s ombudsman report shows that the CFPB handled approximately 7,000 complaints concerning private or federal student loans, continuing a downward trend since 2017. The report contains analysis of the complaints and the student loan market generally, including discussion of socio-economic and racial gaps. The report notes that potential factors contributing to the decreased number of complaints include improved borrower education and outreach by regulators, borrower education and outreach by consumer advocates, and maturation of industry participants’ compliance management systems. 

FTC proposed rulemaking on Risk-Based Pricing Rule. The FTC issued a Notice of Proposed Rulemaking requesting public comment on a proposed amendment to the Risk-Based Pricing Rule, which requires disclosure to consumers when creditors that adjust the price and terms of credit based in whole or in part on a consumer credit report. The FTC is proposing technical amendments to the rule consistent with the jurisdictional changes that occurred under the Dodd-Frank Act and updated cross-references to the notice requirements that are now administered by the CFPB.

State

Illinois Department of Financial and Professional Regulation releases annual Consumer Lending Trends Report. The agency released its annual Consumer Lending Trends Report, which includes various metrics relating to consumer lending products, including payday loans, installment payday loans, title-secured loans and small consumer loans. Compared to 2018, 2019 saw a 0.9% decrease in the number of unique borrowers and a 5% reduction in transaction volume. The number of payday loans decreased by approximately 1.2%, with an average APR of 297% and 5.9% default rate. The number of installment payday loans decreased by approximately 1.8%, with an average APR of 297% and 12.3% default rate.  The average of title-secured loans decreased by approximately 10.2%, with an average APR of 179% and 2.3% default rate.  The number of small consumer loans increased by approximately 3.0%, although APR and default rates were not reported. Borrowers’ average annual income was $33,217.

Nebraska passes initiative placing 36% cap on payday loans. During the election, Nebraska voters passed Initiative 428, which was a ballot measure that placed a 36% cap on payday loans. The initiative also stated that Nebraska statutes will be amended to deem void and uncollectable any delayed deposit transaction made in violation of the rate cap.

NYDFS publishes letter to regulated entities calling on them to integrate climate-related financial risks into governance frameworks. The New York Department of Financial Services recently published a letter to the state’s banks and regulated non-depository institutions explaining what NYDFS sees as the principal financial risks stemming from climate change. The letter calls on financial institutions regulated by the state to work to incorporate climate-related financial risks into their governance, strategy and risk management. The NYDFS letter highlights both the physical and the transitional risks of climate change facing financial institutions. These risks range from the increased threat of inclement weather to physical assets – both the institution’s proprietary assets and assets securing outstanding loans – and supply chains, to the potential for fossil-fuel assets to become “stranded” in the transition to a renewable energy economy. For more on this letter, please see our recent article.

Enforcement actions

Federal

Federal District Court rules that California licensure requirements for student loan servicers do not apply to federal student loan contractors.  A US District Court in San Francisco dismissed a lawsuit brought by California that sought to enforce the California Student Loan Servicing Act (CSLSA) against the Pennsylvania Higher Education Assistance Agency (PHEAA). The CLSA requires all student loan servicers that service loans in California to be licensed by the California Department of Financial Protection and Innovation (formerly known as the Department of Business Oversight). California was investigating PHEAA’s conduct under its exclusive contract with the US Department of Education’s TEACH Grant program, which provides grants to students who pursue teaching careers in low-income schools and converts such grants to loans in the event borrowers fail to meet program requirements.  California requested information concerning PHEAA’s handling of requests under the program, but PHEAA declined to provide the information, arguing the state’s “examination authority” under the CSLSA is preempted by federal law. The court dismissed California’s suit for injunctive and declaratory relief.  The court held that "[a]s state licensing statutes cannot be applied to federal contractors, and the sole basis on which the [state] seeks relief in the instant case is a licensing statute, it necessarily follows that the [state’s] claim seeking a court order requiring PHEAA to produce documents is subject to dismissal.”

CFPB announces settlement with auto lender for illegal collections and repossession practices. The CFPB announced a consent order against a consumer financing subsidiary of a major automaker concerning UDAAP violations concerning servicing and repossession activities in connection with auto loans and leases originated at dealerships across the country. The alleged violations concerned wrongfully repossessing hundreds of vehicles despite having agreements in place with consumers to prevent repossession, retaining personal property that was in repossessed vehicles until consumers paid a storage fee, charging consumers who paid by phone additional fees they could have avoided by selecting different payment options, and including misleading statements in loan extension agreements concerning consumers’ rights under bankruptcy laws. Under the consent order, the company has agreed to refund the improper fees, pay $1 million in restitution, pay $4 million in civil penalties and adopt new compliance procedures to prevent future violations.

CFPB announces $1.8 million settlement with mortgage company over deceptive ads sent to servicemembers and veterans. The CFPB announced a consent order with a Utah-based mortgage lender and broker over the use of direct mail advertisements for VA-guaranteed mortgages that allegedly violated UDAAP, Regulation N and Regulation Z arising from deceptive direct mail advertisements. According to the CFPB, the company’s mailers misrepresented credit terms by promoting terms it was not prepared to offer, misrepresented the amount of cash or credit available to consumers and failed to include mandatory disclosures required by Regulation Z. Under the consent order, the company must pay $1.8 million as a civil penalty and implement certain compliance measures to ensure its future advertisements comply with mortgage advertising laws.

CFPB announces $200,000 settlement with national bank for inaccurate mortgage data reporting.  The CFPB announced a consent order with a Washington-based national bank that violated the Home Mortgage Disclosure Act (HMDA) and its implementing regulation, Regulation C.  The CFPB alleged the data reported by the bank suffered errors “in many different fields” that indicated broad failures of the bank’s compliance systems and violated a 2013 consent order governing the accurate submission of HMDA data. Under the consent order, the bank must pay a $200,000 fine and adopt certain compliance management system changes.

US Department of Justice announces $24.9 million settlement of False Claims Act case against national mortgage lender. The DOJ announced a settlement with a California-based national mortgage lender to resolve allegations that the company knowingly breached program requirements when it originated and underwrote mortgages insured by the Department of Housing and Urban Development’s Federal Housing Administration (FHA). The government alleged that the company knowingly approved ineligible loans and then submitted claims to the FHA for payment when borrowers defaulted. The suit also alleged that the company failed to maintain quality control programs with respect to its underwriting, thereby facilitating approval of loans that did not meet underwriting standards. The company will pay $24.9 million to resolve the case, nearly $5 million of which will go to the whistleblower, the company’s former head of quality control.

FTC files complaint to shut down Georgia-based debt collection company. The FTC announced a new complaint alleging that the defendant engaged in UDAP and Fair Debt Collection Practices Act (FDCPA) violations by, among other things, misrepresenting the amounts owed, misrepresenting the identity of debt collectors, making false claims about legal actions against consumers who refused to pay, failing to provide mandatory notices to consumers and engaging in abusive communications against consumers. According to the complaint, the company’s collectors threatened to arrest and jail consumers who refused to pay immediately as well as threatened to revoke their drivers’ licenses. In addition, the collectors allegedly contacted consumers at their workplaces or notified their families about the supposed debt, shared consumers’ personal information and threatened serious legal consequences. The FTC has requested that the district court freeze the defendant’s assets and appoint a temporary receiver