Consumer Finance Regulatory News and Trends

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Consumer Finance Regulatory News and Trends

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 delays mandatory compliance date for General Qualified Mortgage Final Rule.  The CFPB has issued a final rule extending the date for mandatory compliance with the General Qualified Mortgage (QM) final rule from July 1, 2021 to October 1, 2022.  The final rule also clarifies the General QM loan definitions available to creditors for applications received on or after March 1, 2021 but prior to October 1, 2022.  It does not make any other changes to the General QM loan definition.  The CFPB also stated that it will consider at a later date whether to initiate another rulemaking to reconsider other aspects of the General QM loan definition.

CFPB issues clarification on tenants’ rights under eviction moratorium.  The CFPB has issued an interim final rule clarifying the rights of tenants’ under the CDC’s eviction moratorium.  The rule requires that debt collectors provide clear and conspicuous written notice to tenants about their rights under the eviction moratorium prior to an eviction for failure to pay rent, which must be provided in writing; phone calls or electronic notice, such as text messages or emails, are prohibited.  The rule further clarifies that failure to provide notice constitutes a violation of the FDCPA, that debt collectors are prohibited from misrepresenting a tenant’s rights or protections under the eviction moratorium and that tenants have a private right of action.  The CFPB also stated that this rule does not pre-empt more protective state laws.  The rule is effective as of May 3, 2021.

CFPB proposes delay for effective date of new debt-collection rules.  The CFPB has issued a Notice of Proposed Rulemaking to delay the effective date of two final rules issued under the FDCPA in late 2020 that were scheduled to take effect on November 30, 2021.  The October 2020 rule concerned what conduct may be considered harassing, abusive, false or misleading misrepresentations in communications with consumers related to debt collection.  The December 2020 rule concerned what disclosures must be made to a consumer during collection communications and prohibits threats of litigation on time-barred debts.  Further, the December 2020 rule required debt collectors to disclose the existence of a debt to the consumer before reporting the debt to any consumer reporting agency.  The CFPB is proposing to extend the effective date by 60 days, until January 29, 2022, to allow stakeholders affected by the pandemic additional time to review and implement the rules.

FTC petitions Congress to restore enforcement authority.  The FTC recently testified before Congress, asking it to pass legislation that would revive the FTC’s ability to seek restitution and disgorgement of profits in civil enforcement actions under the Federal Trade Commission Act (FTCA).  This comes after the United States Supreme Court issued its opinion in AMG Capital Management, LLC v. FTC, which held that Section 13(b) of the FTCA does not authorize the FTC to seek, or a court to award, equitable monetary relief such as restitution or disgorgement of profits.  In light of this ruling, the FTC has petitioned Congress to pass legislation overriding the Court’s decision in AMG Capital Management and restoring these powers.  The FTC’s public statement is available here.

FTC corrects staff guidelines on Holder Rule.  The FTC has issued a note correcting previous staff guidelines regarding the application of the FTC’s Trade Regulation Rule Concerning Preservation of Consumers’ Claims and Defenses – otherwise known as the Holder Rule, which governs consumer credit contracts for financing the retail purchase of consumer goods or services arranged by the seller.  The Holder Rule prohibits use of credit terms that would compel consumers to pay creditors if the seller’s conduct would not entitle the seller to be paid.  Previous FTC staff guidelines indicated that the Holder Rule did not apply to transactions larger than $25,000.  However, as the new staff note points out, no such monetary limitation is found in the text of the Holder Rule.  As a result, the FTC will now apply the Holder Rule to transactions larger than $25,000.

Enforcement actions

Federal

CFPB announces forthcoming action relating to unauthorized withdrawals from consumers’ accounts by mortgage loan servicer.  The Acting Director of the CFPB issued a statement pledging to take immediate action to address and remediate the actions of a mortgage servicer that is alleged to have made unauthorized and duplicitous withdrawals from hundreds of thousands of mortgagees’ accounts, resulting in overdraft fees and other damages. 

CFPB announces $140,000 settlement against reverse mortgage lender for deceptive direct mail advertising.  The CFPB announced a consent order with a reverse mortgage lender for Regulation N (Mortgage Acts and Practices Advertising Rule) violations in connection with a direct mail advertising campaign.  The CFPB alleged that the lender sent advertisements to hundreds of thousands of older borrowers that misrepresented the costs, benefits and risks of obtaining a reverse mortgage through the lender.  Additionally, the CFPB alleged these advertisements falsely represented that the consumer had an existing relationship with the lender and that the consumer was pre-approved for specific loan amounts when they were not.  The consent order also requires the lender to implement a compliance plan that will include an individualized, affirmative review of all future advertisement templates for compliance with federal consumer financial laws.  An in-depth analysis of this settlement is available here.

CFPB and New York Attorney General file complaint to seize debt collectors’ assets concealed from settlement agreement.  The CFPB and New York Attorney General filed a complaint to recover assets that were allegedly transferred and concealed by the operators of a now-shuttered debt collection operation.  Pursuant to a 2019 settlement agreement with the CFPB and New York Attorney General, the company was banned from the debt-collection industry and ordered to pay $60 million in consumer redress and penalties.  To date, the company has not made any payments towards that judgment.  The CFPB and the New York Attorney General now seek to recover assets they allege were fraudulently transferred and concealed, including a $1.6 million New York home belonging to one of the operators.

CFPB announces $1.3 million settlement with debt-settlement company for abusive practices.  The CFPB filed a consent order with a debt-settlement company for UDAP and Telemarketing Sales Rule (TSR) violations for allegedly taking advantage of consumers and charging illegal fees.  The CFPB alleges that the company represented itself as an independent debt-settlement company that helps consumers negotiate with creditors, but led consumers into unfavorable settlements with and into taking out loans from affiliated lenders without disclosing the relationship.  The CFPB also alleged that the company failed to disclose and obtain consumer authorization for settlement fees in violation of the TSR.  The consent order also requires the company to cease engaging in any debt-settlement activities involving creditors with which the company is affiliated and to implement enhanced compliance monitoring and reporting requirements. An in-depth analysis of this settlement is available here.

CFPB announces $1 million settlement with debt collector for deceptive practices.  The CFPB announced a consent order with a debt collector for UDAP and FDCPA violations concerning false statements and threats made against consumers.  The CFPB alleged that the company harassed thousands of consumers by falsely threatening legal action that the company had no intention of taking, falsely accusing consumers of committing crimes, and falsely claiming that consumers would be arrested to pressure them to pay debts.  The consent order also permanently bans the company and its owner from engaging in the debt collection industry.

FTC announces $9.8 million settlement with merchant cash advance company for unfair and deceptive practices. The FTC announced a settlement with a merchant cash advance company and its principals for UDAP violations concerning its automatic withdrawal practices.  The FTC alleged that the defendants took money from small businesses’ bank accounts without permission as well as deceived them regarding the amount of financing that businesses would receive plus other features of its financing products. Under the terms of the settlement, the defendants are prohibited from misleading consumers about the terms of their financing and are prohibited from making bank withdrawals from consumers’ bank accounts without the consumers’ express informed consent.  This settlement is notable for the FTC’s application of consumer protection law to small business lending.  More detailed coverage on this settlement is available here.

State

California DFPI reaches settlement with online web-development school based on misleading statements regarding student debt.  The California DFPI has entered into a settlement agreement with a San Francisco-based web-development school based on allegedly deceptive language contained in deferred tuition agreements in violation of California’s new Consumer Financial Protection Law.  The DFPI alleged that the agreements, under which students would not begin paying tuition to the school until after they graduated and began earning a salary, contained the false statement that the deferred tuition arrangement was a “qualified educational loan . . . subject to the limitations on dischargeability” in bankruptcy proceedings.  Under the settlement, the school will be required to (i) notify students that the dischargeability provisions are false and (ii) retain a third-party consultant to review the school’s contracts to ensure compliance with applicable laws and undergo a review of its marketing materials to ensure that they are not likely to mislead consumers. 

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; Braden Dotson; Austin Brown; or Noah Schottenstein, Editor-in-Chief, Consumer Finance Regulatory News and Trends.