Consumer Finance Regulatory News and Trends

Summarized below are selected enforcement and regulatory actions by state and federal consumer financial protection regulatory and enforcement agencies.

Enforcement actions

Federal

CFPB announces $950,000 settlement with money transmitter over allegedly inaccurate disclosures and records.  The Consumer Financial Protection Bureau (CFPB) announced a consent order with a non-bank remittance provider for EFTA, Regulation E and Remittance Transfer Rule violations.  The CFPB alleged that the company (i) failed to accurately disclose exchange rate costs, transfer fee costs and funds availability information; (ii) used improper font size in disclosures; (iii) failed to provide disclosures in both English and Spanish for remittances to Spanish-speaking countries; (iv) failed to include required terms in written disclosures; (v) failed to develop written policies and procedures to govern error resolution; and (vi) failed to maintain adequate recordkeeping related to error investigation and resolution.  In addition to the $950,000 fine, the company also agreed to implement broad corrective action to its compliance management, training, written policies, and audit and monitoring functions.

CFPB announces action against online lender over military lending and refund policies. The CFPB filed a complaint against an online lender for Military Lending Act (MLA) and Unfair, Deceptive or Abusive Acts or Practices (UDAAP) violations.  The CFPB alleged that the lender (i) violated the MLA by charging servicemembers interest rates in excess of the 36 percent cap on loans, requiring servicemembers to submit to arbitration, and failing to make mandatory disclosures to servicemembers; and (ii) engaged in deceptive, unfair and abusive acts by forcing customers to join a “membership program” to access low-APR loans and refused to allow customers to cancel their memberships until the loans were repaid.

CFPB announces $191 million settlement with national bank over surprise overdraft fees. The CFPB announced a consent order with a national bank for UDAP violations.  The CFPB alleged that the bank engaged in both unfair and abusive practices by enacting a policy for processing debit card transactions under which consumers, who had sufficient funds in their account at the time of purchase, would incur overdraft fees if there were insufficient funds in the account at the time the transaction settled.  Under the settlement, the bank is required to pay $141 million in consumer redress and a $50 million fine.  Please see our client alert regarding this matter here.

FTC and California DFPI announce temporary restraining order and receivership appointment against mortgage relief companies.  The Federal Trade Commission (FTC) and California Department of Financial Protection and Innovation (DFPI) announced a temporary restraining order against a group of mortgage relief companies for alleged UDAP, Telemarketing Sales Rule, California Consumer Financial Protection Law, Mortgage Assistance Relief Services Rule and COVID-19 Consumer Protection Act violations.  According to the complaint, the companies allegedly used deceptive marketing to attract consumers for mortgage modification services, for which consumers paid but the companies never provided.  Instead, the companies allegedly required consumers to sign letters requiring mortgage lenders to communicate only with those companies. The entities then provided consumers with falsified documents about specific claims to their mortgages, causing consumers additional financial harm or loss of their home.  The temporary restraining order requires the companies to cease operations and freeze the companies’ assets.  The order also requires repatriation of foreign assets, as well as appoints a receiver to assume control of the companies. 

FTC announces $3 million settlement with credit services company over allegedly deceptive marketing of pre-approved credit card offers.  The (FTC) announced a consent order with a credit services company for alleged UDAP violations.  According to the complaint, the company knowingly advertised that (i) consumers were pre-approved for credit products despite knowing that credit providers had not pre-approved any credit and (ii) mislead consumers about having “90% odds” of approvals without substantiation.  The FTC also noted that the company included disclaimers in the marketing material that there “was not a guarantee of approval,” but this was ineffective because the FTC considered the disclosures to be “buried disclaimers,” such as by placing the terms after a click-through link or by burying them in fine print more than 20 lines below the “Apply Now” button.

State

New York DFS announces $30 million settlement with crypto broker over anti-money laundering, cybersecurity and consumer protection violations. The New York State Department of Financial Services (NY DFS) announced a consent order with a consumer-focused crypto brokerage company for failure to comply with Bank Secrecy Act/anti-money laundering (BSA/AML) and cybersecurity regulations under New York law. According to NY DFS, the company’s compliance monitoring program was inadequately staffed with respect to its cryptocurrency trading platform. NY DFS stated that the company’s chief compliance officer lacked experience commensurate to the needs of the compliance program, resulting in a backlog of 4,378 alerts, and that no automated transaction monitoring system existed despite an average of 106,000 daily transactions.  Furthermore, the company’s cybersecurity program inadequately staffed and further lacked sufficiently detailed written policies and procedures under the New York Cybersecurity Regulation.  In addition to the monetary penalty, the company will also be required to retain an independent consultant to perform a comprehensive evaluation of the company’s compliance remediation efforts.

Regulatory developments

Federal

CFPB publishes supervisory examinations findings of federal law violations by student loan servicers and university-owned lenders. The CFPB published findings, following several supervisory examinations, indicating that university-owned student lenders have violated federal law by withholding transcripts from students who fail to make payments. The CFPB’s examinations also found that certain student loan servicers have misrepresented borrowers’ eligibility for federal student loan payment relief and cancellation programs in violation of federal law. The CFPB has directed servicers to address the harm caused by these actions.

FTC and CFPB file amicus brief on consumers’ ability to dispute credit reports. The FTC has joined the CFPB in submitting an amicus brief to the US Court of Appeals for the Third Circuit in the case of Ingram v Experian, in which they have asked the court to overturn a district court’s decision interpreting the Fair Credit Reporting Act (FCRA). In Ingram, the district court held that the Fair Credit Reporting Act only required a furnisher to investigate “bona fide” indirect disputes and could decline to investigate an indirect dispute it deems frivolous. According to the agencies’ brief, the lower court’s interpretation was not supported by the text of the FCRA and would undermine the right of consumers to an investigation into inaccuracies in their credit reports, which is supported by the plain text of the statute and is central to the remedial purpose of the FCRA.

CFPB releases interpretive rule delineating when digital marketing service providers must comply with federal consumer finance laws.  The CFPB issued an interpretive rule explaining that, when digital marketers are involved in the identification or selection of prospective consumers or the placement of content affecting consumer behavior, they are considered “service providers” and are subject to federal consumer financial protection law.  The CFPB explained that the exception under the Consumer Financial Protection Act for advertising applies only when the company “solely provide time or space for an advertisement” and does not apply when the company is “materially involved in the development of content strategy.”  The CFPB also noted that this could include analytics providers.

State

California DFPI bring action against providers of cryptocurrency accounts. The DFPI brought an action against a provider of interest-bearing cryptocurrency accounts. According to the DFPI, these accounts were marketed to California residents without having been duly registered as securities. The company allegedly promised consumers annual interest rates of up to 36 percent – a rate significantly higher than rates for short-term, investment-grade, fixed-income securities or bank savings accounts. The DFPI’s action signals California’s determination to treat such accounts as securities, thereby subjecting them to the same disclosure and other investor protection requirements applicable to registered securities.

New York State passes legislation facilitating residents’ access to PSLF programs. New York enacted legislation that establishes uniformity around what qualifies as full-time employment for purposes of federal Public Service Loan Forgiveness (PSLF) programs and will allow public service employers to certify employment on behalf of workers directly with the US Department of Education, eliminating a substantial barrier to applying for and accessing PSLF.

Events

Austin Brown will be speaking at the Wolters Kluwer CRA and Fair Lending Colloquium in Las Vegas on November 15, 2022 at 12:45 PT.