This regular publication by DLA Piper lawyers focuses on helping clients navigate the ever-changing consumer finance regulatory landscape.

Regulatory developments

• CFPB’s Taskforce on Federal Consumer Financial Law publishes report and recommendations. The CFPB’s Taskforce on Federal Consumer Financial Law released a report with recommendations on how to best improve consumer protection in the financial marketplace, including reviewing current rules to better enable electronic disclosures and recommendations to Congress for updating the federal Electronic Signatures in Global and National Commerce Act (ESIGN). The Taskforce report is broken up into two volumes: volume one provides a historical overview of consumer finance and covers the key principles that constitute federal consumer financial law and policy, and volume two contains approximately 100 recommendations designed to improve and strengthen the federal consumer financial laws. For example, the Taskforce recommends that the CFPB issue licenses to non-depository institutions that provide lending, money transmission and payments services as well as identify competitive barriers and make appropriate recommendations to policymakers and regulators for expanding access to the payments systems by non-bank providers.  These changes would result in more direct oversight of these entities by the CFPB.
• CFPB issues two final rules related to qualified mortgage definitions.  The CFPB has issued two final rules relating to qualified mortgage (QM) provisions of Regulation Z: the General QM Final Rule and the Seasoned QM Final Rule.

  The General QM Final Rule replaces the current requirement for General QM loans that the consumer’s debt-to-income ratio (DTI) not exceed 43 percent with a limit based on the loan’s pricing.  Under the General QM Final Rule, a loan receives a conclusive presumption that the consumer had the ability to repay if the annual percentage rate does not exceed the average prime offer rate for a comparable transaction by 1.5 percentage points or more as of the date the interest rate is set. A loan receives a rebuttable presumption that the consumer had the ability to repay if the annual percentage rate exceeds the average prime offer rate for a comparable transaction by 1.5 percentage points or more but by less than 2.25 percentage points. In addition, the General QM Final Rule: (i) provides higher pricing thresholds for loans with smaller loan amounts, for certain manufactured housing loans and for subordinate-lien transactions; (ii) retains the General QM loan definition’s existing product-feature and underwriting requirements and limits on points and fees; (iii) requires lenders to consider a consumer’s DTI ratio or residual income, income or assets other than the value of the dwelling, and debts and removes appendix Q and provides more flexible options for creditors to verify the consumer’s income or assets other than the value of the dwelling and the consumer’s debts for QM loans.

  The Seasoned QM Final Rule creates a new category of Seasoned QMs for first-lien, fixed-rate covered transactions that (i) have met certain performance requirements, (ii) are held in portfolio by the originating creditor or first purchaser for a 36-month period, (iii) comply with general restrictions on product features and points and fees and (iv) meet certain underwriting requirements.

  Both rules will take effect February 8, 2021.  The General QM Final Rule will have a mandatory compliance date of July 1, 2021.

• CFPB issues final rule on debt collection consumer disclosures. The CFPB has issued a final rule to implement the FDCPA requirements for disclosures to consumers.  The final rule requires that debt collectors (i) provide, at the outset of collection communications, detailed disclosures about the consumer’s debt and rights in debt collection, along with information to help consumers respond; (ii) to take specific steps to disclose the existence of a debt to consumers, orally, in writing or electronically, before reporting information about the debt to a consumer reporting agency (CRA); and (iii) prohibits making threats to sue, or from suing, consumers on time-barred debt.  The CFPB also provided a new model validation notice that debt collectors may use to comply with the rule.
• CFPB issues advisory opinion on special purpose credit programs.  The CFPB has issued an advisory opinion to clarify the content that a for-profit organization must include in a written plan that establishes and administers a special purpose credit program under the Equal Credit Opportunity Act (ECOA), and its implementing regulation, Regulation B, which allows a creditor to consider what would otherwise be a prohibited basis for extending credit if done for the purpose of increasing access to credit to disadvantaged groups, such as housing credit subsidies for the aged or the poor.  The advisory opinion states that the written plan must contain information that supports the need for the program, including (i) the class of persons that the program is intended to benefit, (ii) the procedures and standards for extending credit pursuant to the program, (iii) either the time period during which the program will last or when the program will be re-evaluated to determine if there is a continuing need for it and (iv) a description of the analysis the organization conducted to determine the need for the program.
• CFPB issues “safe harbor” orders on dual usage credit cards and earned wage access products.  The CFPB issued two orders under its compliance assistance sandbox program.  One safe harbor order grants a request for a lender to offer a secured credit card with a lower interest rate that, after 12 months, may be converted to unsecured use with a higher interest rate.  The other safe harbor order grants a request for a lender to provide employers with access to an Earned Wage Access (EWA) program under which the lender funds payment of earned but unpaid wages to employees prior to their regularly scheduled payday, as a non-recourse factoring transaction.
• OCC proposes Fair Access to Financial Services rule.  The OCC has issued a Notice of Proposed Rulemaking for a regulation to prohibit national banks and federal savings associations from refusing to provide access to financial services to any person based on a categorical exclusion rule.  The OCC has proposed the rule because, despite statements and other informal guidance over the years about the importance of assessing and managing risk on an individual-customer basis, some banks continue to employ category-based risk evaluations to deny customers access to financial services, often as a reaction to pressure from political advocates “whose policy objectives are served when banks deny certain categories of customers access to financial services.”  The OCC proposes that the rule apply to banks with more than $100 billion in assets or with a national market share above certain thresholds with respect to the service provided by the bank.

  Under the proposed rule, covered banks must (i) make each financial service it offers available to all persons in the geographic market served by the covered bank on proportionally equal terms; (ii) not deny any person a financial service the bank offers except to the extent justified by such person’s quantified and documented failure to meet quantitative, risk-based standards established in advance by the covered bank; (iii) not deny any person a financial service the bank offers when the effect of the denial is to prevent, limit or otherwise disadvantage the person from entering or competing in a market or business segment or in such a way that benefits another person or business activity in which the covered bank has a financial interest; and (iv) not deny, in coordination with others, any person a financial service the covered bank offers.

Enforcement actions

• CFPB announces $204,000 settlement with debt collector for deceptive and unlawful debt collection practices.  The CFPB announced a consent order with a New Jersey-based company over alleged UDAAP and Fair Debt Collection Practices Act (FDCPA) violations for collections activity in Connecticut, New Jersey and Rhode Island.  The CFPB alleged that the company (i) falsely implied to consumers that it had a legally enforceable claim for payment and (ii) sent consumers demand letters threatening litigation and filed debt-collection lawsuits without the licensure required to recover through the judicial process under applicable state law.  The consent order also (i) prohibits the company from collecting on judgments or payment agreements from consumers when the company was not licensed and (ii) required the company to take all necessary steps to vacate those judgments and suspend collection of those judgments and to notify consumers with payment agreements that they have been satisfied.
• CFPB files complaint against debt relief agency for unlawful marketing and sales practices.  The CFPB filed a complaint in the United States District Court for the District of Massachusetts against a Massachusetts-based company alleging UDAAP and Telemarketing Sales Rule (TSR) violations by charging illegal advance fees and engaging in deceptive sales practices.  The CFPB alleged that the company engaged in deceptive practices by (i) failing to disclose to consumers before enrollment when it would make a settlement offer to creditors or debt collectors; (ii) not disclosing the amount of money or the percentage of each outstanding debt the consumer had to accumulate before the company would make a settlement offer; (iii) misrepresenting to consumers that it would not charge fees for its services until after it settled a debt and consumers made a payment under the settlement; and (iv) misrepresenting in its contracts the debt amount that it would use to determine its fees.  The CFPB also alleged that the company charged consumers illegal upfront fees using telemarketing campaigns, when it is illegal to request or receive any fees for debt-relief services sold through telemarketing before the terms of the debt are altered or settled, and the consumer has made at least one payment under the newly altered debt.
• CFPB files complaint against debt collector for impersonating local district attorney offices.  The CFPB filed a complaint in the United States District Court for the Western District of Missouri against a Missouri-based company alleging UDAAP and FDCPA violations in connection with a bad-check pretrial-diversion program that it operated for more than 90 district attorneys’ offices nationwide.  The CFPB alleged that the company utilized district-attorney letterheads to threaten more than 19,000 consumers with prosecution if they did not pay the amount of the check, enroll in and pay for a financial-education course, and pay various other fees. The company did not reveal to consumers that it, rather than the applicable district attorney, sent the letter and failed to include other mandatory disclosures required under the FDCPA.
• CFPB and Arkansas Attorney General announce $600,000 settlement with consumer sales company for improper use of consumer credit scores.  The CFPB and Arkansas Attorney General announced a consent order with a Utah-based company resolving claims under the Fair Credit Reporting Act (FCRA) and Regulation V’s Risk-Based Pricing Rule.  The CFPB and Arkansas AG alleged that the company, in extending credit to its customers for its products and services, charged customers who had lower credit scores higher fees, but failed to provide those customers with the required risk-based pricing notice under Regulation V.
• CFPB announces $750,000 settlement with remittance transfer provider for remittance transfer rule violations.  The CFPB announced a consent order with a Colorado-based non-bank remittance provider over alleged violations of the Electronic Fund Transfer Act (EFTA) and Regulation E, known as the Remittance Transfer Rule.  The CFPB alleged that the provider failed to (i) honor cancellation requests, (ii) refund fees and taxes when funds were not available on time, (iii) maintain appropriate error resolution policies and procedures, (iv) classify its international bill pay services as remittance transfers and (v) make appropriate consumer disclosures.  The consent order also requires the provider adopt a new compliance plan to ensure that it complies with all applicable federal consumer financial laws and the consent order.
• CFPB announces $2.17 million settlement with lender for unlawful military lending practices.  The CFPB announced a consent order with a Nevada-based non-bank lender over alleged violations of the EFTA and the Military Lending Act (MLA) in connection with its installment lending program marketed to servicemembers and their dependents.  The CFPB alleged that the lender (i) violated the MLA’s prohibition against requiring servicemembers to repay loans by “allotment,” which allows servicemembers to designate a portion of their paycheck to certain recipients; and (ii) violated the EFTA by requiring consumers to pre-authorize electronic fund transfers as a condition of receiving credit.  The consent order also requires the lender to (i) notify all customers that they may repay loans by methods other than allotment and (ii) cease providing incentives to employees that consider the rate of consumers who choose to repay by allotment.  This action is one of a number of CFPB matters involving military lending issues.
• FTC announces $1.5 million settlement with payment processor for unfair credit card processing practices.  The FTC announced a consent order with a Utah-based credit card processor and its CEO alleging UDAP violations concerning their role in a consumer credit card laundering scheme.  The FTC alleged that the company knowingly facilitated payment processing to help fraudulent enterprises and structured payments to help avoid fraud detection programs established by financial institutions, while ignoring clear red flags of illegal conduct.  The consent order also requires the company to (i) screen potential clients from certain high-risk areas to determine whether the client is engaged in deceptive or unfair business practices or violations of the Telemarketing Sales Rule and (ii) monitor such clients’ transactions on a monthly basis.
• FTC announces settlement with mortgage analytics company for data protection violations.  The FTC announced a consent order with a Texas-based company over alleged violations of Gramm-Leach-Bliley Act’s Safeguards Rule, which requires financial institutions to develop, implement and maintain a comprehensive program to secure consumer data, which must include oversight of third-party vendors for the same.  The FTC alleged that the company did not (i) properly vet its vendors, (ii) require vendors to safeguard consumer data and (iii) conduct risk assessments of its vendors, as required by law, which resulted in a data leak of sensitive consumer information, including names, dates of birth, social security numbers, loan information, credit and debit account numbers, and drivers’ license numbers.  The consent order requires the company to (i) implement a comprehensive data security program, (ii) undergo biennial assessments of the effectiveness of the data security program by an independent monitor subject to FTC approval, (iii) have a senior executive certify compliance with the settlement on an annual basis and (iv) report any future data breaches to the FTC within 10 days of notifying any other federal or state government agency.

  Commissioner Rohit Chopra issued a dissenting statement against the settlement, arguing that the settlement (i) did not provide any compensation for victims of the data breach, (ii) did not apply to corporate affiliates of the company and (iii) did not include obtain relief for unfair practices under UDAP.  Commissioner Chopra also argued that the FTC should partner with state attorneys general and financial regulators in data security cases.

• FTC announces $4.25 million settlement with background report company for FCRA violations.  The FTC filed a complaint in the United States District Court for the District of Columbia against a California-based company alleging FCRA violations concerning its nationwide background report services.  The FTC alleged the company violated the FCRA by (i) improperly including eviction or non-conviction criminal records in reports and (ii) not implementing reasonable procedures to ensure accuracy of criminal and eviction records that it received from a third-party vendor.

To contact the authors, click here.