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.

Enforcement actions

Federal

CFPB announces $3.7 billion settlement with national bank over unlawful practices across multiple product lines.  The CFPB announced an agreed order resolving a broad spectrum of alleged unfair and deceptive acts and practices:

• On automobile loans, the allegations concerned unfair acts and practices in servicing and repossession operations, including untimely application of borrower payments, applying payments in a manner detrimental to borrowers, assessing improper fees and charges, repossessing vehicles despite payments being made or the existence of forbearance agreements, failing to sell repossessed vehicles within a commercially reasonable amount of time and failing to provide refunds owed to consumers under guaranteed asset protection contracts.
• On mortgage loans, the allegations concerned unfair acts and practices in handling mortgage modification requests, where ongoing software errors resulted in eligible customers being denied modifications.
• On deposit accounts, the allegations concerned (i) unfair acts and practices in handling account freezes for fraud reviews, where the bank would freeze the entire account without considering lesser restraints permissible under Regulation CC such as item-level holds, and charged authorized positive-settle negative overdraft fees; and (ii) deceptive acts and practices in misrepresenting the conditions under which fee waivers were available.

Under the settlement, the bank is required to provide more than $2 billion in redress to consumers, pay $1.7 billion in penalties and implement policy changes to ensure future compliance with identified violations.  This was the second CFPB enforcement action in three months alleging that authorized positive-settle negative overdraft fees on debit card transactions violated UDAAP.  Austin Brown and Isabelle Ord provided a detailed analysis of this issue in September.

CFPB announces $19 million settlement over misleading advertising for high-yield accounts.  The CFPB announced a stipulated judgment with a financial services company and its founder for UDAAP violations.  The CFPB alleged that the company misrepresented that it was a commercial bank, that it would be placing depositor funds into high-yield CDs and that the company would be using the proceeds to fund loans for healthcare professionals. However, the company was allegedly placing funds into a hedge fund controlled by the founder and investing in high-risk crypto assets.  Under the stipulated judgment, the defendants are required to refund $19 million to depositors and agreed to a permanent ban from engaging or assisting others in any deposit taking activities.

CFPB and New York AG announce $600,000 settlement over deceptive 9/11 victim fund payment advances.  The CFPB announced a stipulated judgment with a group of legal funding companies and their founder for UDAAP violations.  The CFPB and NY AG alleged that the companies engaged in deceptive practices in marketing cash advance products to recipients of 9/11 victim-compensation fund payments.  According to the CFPB and NY AG, the companies allegedly mischaracterized their products as involving an assignment of payment rights from the victim compensation fund; misrepresented to consumers that they could help obtain victim compensation payments faster when funds would be disbursed under the cash advance product; and, when the product was characterized as a loan, unlawfully charged interest rates in violation of state usury law.

CFPB and New York AG announce new lawsuit against subprime auto lender for inflating loan principal amounts.  The CFPB and NY AG filed a complaint alleging that the defendant, a subprime auto finance company, violated UDAAP and state-law prohibitions on fraudulent business practices.  According to the CFPB and NY AG, the lender, which controlled dealer pricing via a software program, engaged in deceptive practices by imposing hidden finance charges through artificially inflating the sales price of the vehicle to adjust for risk, rather than adjusting interest rates or other disclosed fees, by up to 15 percent over the Kelly Blue Book value for the vehicle.  When the principal amounts were adjusted for actual market prices, over 90 percent of the loans had an APR in excess of the 25-percent usury cap under New York law.  In addition, the lender was accused of facilitating the deceptive marketing of add-on products for vehicles by refusing to take action against affiliated dealers that misrepresented to customers that certain add-ons were mandatory to obtain financing. 

FTC announces $18.8 million settlement and lifetime ban against operators of deceptive credit repair scheme.  The FTC announced a stipulated judgment with a series of credit repair companies and their owners for UDAP, Telemarketing Sales Rule (TSR), Credit Repair Organizations Act, Business Opportunity Rule and COVID Consumer Protection Act violations. The FTC alleged that the defendants mislead consumers about the nature, legality and effectiveness of their services; filed false identity theft reports as part of their efforts to remove accurate, but negative, information from consumer credit reports; charged illegal advance fees; and offered consumers the opportunity to create their own credit repair scheme.  Under the stipulated judgment, the monetary judgment is partially suspended due to defendants’ inability to pay the full amount, and the defendants are permanently banned from operating or assisting with any kind of credit repair service.

FTC obtains TRO shutting down deceptive credit card debt relief scheme.  The FTC announced that it had obtained a temporary restraining order freezing operations and appointing a receiver for a group of defendants for UDAP and TSR violations.  The FTC alleged that the defendants falsely claimed to be affiliated with credit card issuers, banks or credit reporting agencies; marketed bogus services to eliminate or reduce credit card debt; and charged consumers illegal advance fees and monthly “credit monitoring” fees.

CFPB announces $5.25 million settlement with mortgage servicer over violations related to pandemic protections.  The CFPB announced a consent order with a nonbank mortgage servicer for UDAAP, FCRA and CARES Act violations.  The CFPB alleged that the servicer engaged in deceptive practices by misleading homeowners about pandemic related forbearances, including by telling eligible borrowers that they were (i) not entitled to forbearances; (ii) required to pay late fees; (iii) required to submit specific statements in support of forbearance requests when none were required under law; (iv) required to re-apply for forbearances after 90 days; (v) facing foreclosure proceedings, when in fact no payment was required and the consumer could not face foreclosure proceedings; and (vi) required to make lump-sum payments of forborne amounts at the end of the forbearance period, when they were not required to do so.  The CFPB also alleged that the servicer violated the FCRA by reporting accounts as delinquent when the borrower was current entering into forbearance.  In addition to payment of the $5.25 million fine, the servicer agreed to conduct an audit to ensure all improperly charged late fees are refunded to borrowers and adopt new internal controls to prevent further violations.

CFPB announces $730,000 settlement with remittance provider over unpaid refunds and disclosure violations.  The CFPB announced a consent order with an international remittance company for violations of the Remittance Transfer Rule (a subpart of EFTA Regulation E).  The CFPB alleged that the company (i) did not issue refunds when the sender submitted an error notice concerning receipt of the funds, despite determination that an error did occur; (ii) violated disclosure requirements regarding cancellation rights, availability of funds, other key terms and minimum font sizes; and (iii) had inadequate error resolution policies and procedure.  Under the consent order, the company was required to refund approximately $30,000 to consumers, pay a $700,000 fine and implement new error-resolution policies and procedures.

Regulatory developments

Federal

CFPB proposes repeat offender registry of nonbank covered persons.  The CFPB published a proposed rule that would require nonbank covered persons that are subject to final public orders and judgments for violations of federal consumer financial protection laws or state UDAP laws (Covered Orders) to register with the CFPB and report information regarding Covered Orders to the CFPB.  The proposed rule would also require annual reporting requirements for supervised entities on compliance with Covered Orders.  Under the proposal, the information collected by the CFPB would be made publicly available.

Media

Austin Brown was quoted in Law360 discussing what the US Supreme Court’s likely review of a case involving the CFPB’s funding structure means for CFPB enforcement and rulemaking.

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

Please read the latest issues of our newsletters, Blockchain and Digital Assets News and Trends, eSignature and ePayment News and Trends and Bank Regulatory News and Trends.