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 compliance bulletin on illegal auto repossessions. The Consumer Financial Protection Bureau (CFPB) issued a compliance bulletin on potential unfair, deceptive or abusive acts or practices (UDAAP) violations in connection with repossessing vehicles. The bulletin stresses the need for auto loan servicers to ensure that each repossession is warranted and lawful, and to maintain adequate internal records on each borrower’s debt and payment history. The CFPB stated its intent to utilize its enforcement powers to hold auto loan servicers accountable for any improper or unlawful repossessions.

CFPB outlines options to prevent algorithmic bias in home evaluations. The CFPB issued an outline of options for businesses to ensure that home valuation computer models are accurate and fair.  Regulatory agencies have focused increased attention recently on appraisal bias, with a particular emphasis on compliance with fair lending laws. 

CFPB issues compliance bulletin on prohibitions applicable to prepaid cards for distributing government benefits. The CFPB issued a compliance bulletin outlining the prohibitions against prepaid cards being the sole method for distributing government benefits under the Electronic Fund Transfer Act (EFTA). The CFPB also confirmed that the EFTA’s consumer protections apply to government benefit accounts, that financial institutions may be held liable for EFTA violations and that the CFPB intends to take action against providers who charge consumers illegal fees for accessing their own government benefits.

CFPB issues compliance bulletin on deceptive conduct in servicing public service loan forgiveness programs. The CFPB issued a compliance bulletin on potential UDAAP violations in connection with deceptive statements by student loan servicers regarding borrowers’ eligibility and benefits under the Public Service Loan Forgiveness (PSLF) and the PSLF Waiver programs. The bulletin states that student loan servicers must maintain adequate internal policies and procedures to (i) recognize when borrowers are expressing interest in the PSLF program or Waiver, or when their files otherwise indicate eligibility for PSLF benefits, and (ii) to provide complete and accurate information about the PSLF program and Waiver to interested or eligible borrowers.

CFPB launches inquiry into “junk fees” charged by financial institutions. The CFPB announced a new initiative to reduce “junk fees,” such as late fees and service fees, on the alleged basis that financial institutions are using the fees to disguise the true cost of services. In connection with the initiative, the CFPB has issued a Request for Information seeking public comment on consumers’ experience with such fees.

CFPB announces examination of college in-house lending practices. The CFPB announced that it will begin examining the operations of post-secondary schools that extend private loans directly to students. Specifically, the CFPB plans to examine whether such institutions engage in any punitive practices against students who are delinquent on loan repayments, including placing restrictions on students’ enrollment, withholding transcripts, improperly accelerating payments and failing to issue refunds to students who withdraw early. The CFPB will also be looking out for any improper relationships between educational institutions and lenders, such as giving preferential treatment to certain lenders and steering students into certain loans.

The Federal Trade Commission (FTC) has issued an advisory opinion stating that the Holder in Due Course Rule (the Holder Rule) does not pre-empt any state, federal or other law permitting recovery of court costs and attorneys’ fees against the holder of a consumer loan for goods or services.  Under the Holder Rule, the consumer can recover from the holder amounts paid to the seller.  Some courts had interpreted the language as precluding any award of fees or costs against a holder because such amounts were amounts paid to the seller. The FTC’s advisory opinion signals that it will oppose that interpretation on a go-forward basis.

State

New York DFS announces emergency regulation on maximum check cashing fee. The New York State Department of Financial Services (DFS) has issued a new emergency regulation to halt any annual increase in check cashing fees and to freeze the maximum fee at the current 2.27 percent, which was set in February 2021.  The DFS implemented the freeze in conjunction with efforts to develop a new methodology for calculating maximum fees, which are currently derived from the Consumer Price Index.  The DFS stated that it will promulgate a proposed regulation and seek public comments before issuing a final regulation.

Enforcement actions

Federal

FTC and Florida Attorney General announce $5.3 million settlement for unfair and deceptive debt relief scheme. The FTC and the Florida Attorney General’s office announced a settlement via a stipulated order with two Florida-based debt relief companies for alleged Telemarketing Sales Rule (TSR) and state and federal unfair or deceptive acts or practices (UDAP) violations. According to the complaint, the plaintiffs alleged that the defendants posed as representatives or affiliates of consumers’ credit card companies and charged unlawful upfront fees in marketing their credit card interest rate reduction services, which in fact consisted of opening new credit card accounts in consumers’ names and transferring their existing debt to the new cards.  The settlement also permanently bans the defendants from advertising or selling debt relief products and services. An action against a third defendant remains pending.

FTC announces $7.5 million settlement with defendants in deceptive student loan debt relief scheme. The FTC announced a settlement via a stipulated order with a California-based debt relief company and its principal for alleged TSR and UDAP violations. The FTC alleged that the defendants used fraudulent advertising in which the defendants pretended to be affiliated with the Department of Education and offered to assist consumers with enrolling in student loan forgiveness, consolidation and repayment programs in exchange for unlawful upfront and monthly fees. The settlement also permanently bans the defendants from offering debt relief products and services.

State

California and Georgia announce settlements with rent-to-own companies. The California Department of Financial Protection and Innovation (DFPI) and the Georgia Attorney General’s office each independently reached settlements in enforcement actions against rent-to-own companies. The California DFPI announced a settlement with a Los Angeles-based rent-to-own furniture provider based on violations of the Karnette Rental-Purchase Act and the California Consumer Financial Protection Law. The DFPI alleges the company overcharged consumers late payment fees, failed to provide consumer disclosures required under California law and failed to disclose whether property subject to a rental-purchase agreement was new or used. Under the California settlement, the company is required to issue refunds to hundreds of consumers and implement changes to ensure compliance with California law. 

Separately, the Georgia State Attorney General’s office announced a settlement with a nationwide rent-to-own company based on allegations it engaged in unlawful marketing and debt collection practices under the federal Fair Debt Collection Practices Act, Georgia Fair Business Practices Act and the Georgia Lease-purchase Agreement Act. The Georgia settlement will require the company to pay $145,590 in civil monetary penalties and implement internal changes to ensure compliance with Georgia law.

For more information about our consumer finance regulatory work, please contact Margo H.K. Tank; Mike Hazzard; 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.

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