To keep you informed of recent activities, below are several of the most significant federal and state events that have influenced the Consumer Financial Services industry over the past week.
Federal Activities:
On January 24, ACA International and Specialized Collection Systems, Inc. filed a motion for a preliminary injunction in the U.S. District Court for the Southern District of Texas against the Consumer Financial Protection Bureau (CFPB). The plaintiffs seek to halt the implementation of the CFPB’s medical debt rule set to take effect on March 17. The plaintiffs argue that the rule, which they claim will significantly impact health care providers’ ability to secure payments and result in substantial financial losses, violates the Administrative Procedure Act and the First Amendment. They contend that the rule was politically motivated, lacks proper justification under the Fair Credit Reporting Act, and will cause irreparable harm to their members and the broader health care and credit reporting systems. For more information, click here.
On January 24, a unanimous three-judge panel of the Eleventh Circuit issued its decision in the case of Insurance Marketing Coalition Limited (IMC) v. Federal Communications Commission (FCC) vacating Part III.D of the FCC’s 2023 Order. Part III.D states that a consumer cannot consent to a telemarketing or advertising robocall unless: (1) the consumer consents to calls from only one entity at a time, and (2) consents only to calls whose subject matter is “logically and topically associated with the interaction that prompted the consent.” The court found that the FCC exceeded its statutory authority under the Telephone Consumer Protection Act (TCPA) by imposing the new consent restrictions, which conflict with the ordinary statutory meaning of “prior express consent.” Immediately on the heels of the decision, the FCC issued an order postponing the effective date for revisions to section 64.1200(f)(9) of the FCC’s rules by 12 months, to January 26, 2026, or until the date specified in a public notice following a decision from the court reviewing the challenge to the new rule, whichever is sooner. The FCC found that justice required postponement of the effective date pending judicial review to avoid imposing significant burdens on parties and to prevent texters and callers acting in good faith from facing private suits seeking statutory damages during the period of judicial review. For more information, click here.
On January 24, the CFPB published a report detailing the financial outcomes for cash-out refinance mortgage borrowers. The report found that these borrowers experienced an initial sharp improvement in their credit scores, which gradually worsened over time but remained above pre-refinance levels. The report confirmed that borrowers often use the funds from a cash-out refinance to pay down other debts, particularly credit card and auto loan debt. The analysis, covering borrowers from 2014 to 2021, highlighted that home equity is a significant financial asset for families and a major source of savings for homeowners. While cash-out refinancing can help pay off other debts or fund home repairs, it also increases the risk of foreclosure by converting non-mortgage debt into mortgage debt. Key findings include that more than 50% of borrowers from 2014 to 2019, and more than 40% from 2020 to 2021, used cash-out refinancing to pay off other debts, and that these borrowers had higher credit card balances and lower student loan balances compared to other homeowners. For more information, click here.
On January 23, the CFPB issued a Repossession in Auto Finance report using data from its auto finance data pilot to show that repossession assignments increased for certain consumers post-2020, but many consumers avoided repossession in parts of 2021 and 2022. The data also indicates that repossession forwarders were increasingly involved in repossession activity, potentially resulting in increased repossession costs passed on to consumers. For more information, click here.
On January 22, President Trump designated National Credit Union Administration (NCUA) Vice Chairman Kyle Hauptman as the 13th Chairman of the NCUA Board. In the press release announcing his appointment, Hauptman outlined several key priorities for his tenure: re-examining the NCUA budgeting process; identifying internal efficiencies; promoting the use of artificial intelligence; focusing on financial inclusion; codifying procedures to prevent regulation-by-enforcement; assessing community climate risks; re-assessing policies affecting low-income areas; and right-sizing obligations under the Bank Secrecy Act. For more information, click here.
On January 21, the Supreme Court heard oral arguments in the case of McLaughlin Chiropractic Associates, Inc. v. McKesson Corporation. The primary issue is whether the Hobbs Act, which limits judicial review of FCC “final orders” to appellate courts, requires district courts to accept the FCC legal interpretation of the TCPA. While the Supreme Court previously addressed whether the Hobbs Act applied in private litigation, it ultimately did not resolve whether a district court is required to follow a particular FCC order interpreting the TCPA. The Ninth Circuit’s decision holding that the Hobbs Act’s exclusive jurisdiction provision forecloses a federal district court from considering whether the FCC’s interpretation of the TCPA is wrong highlighted a split among federal courts, as the Fourth Circuit had held that FCC orders interpreting the TCPA fall outside the scope of the Hobbs Act and are not binding on district courts. The Second, Third, and Eighth Circuits have taken a similar position. The Seventh Circuit has held that its district courts are not bound by FCC rules, regardless of whether the rule is an interpretive or final rule. For more information, click here.
On January 21, the Federal Trade Commission (FTC) announced that it is sending more than $5 million in refunds to consumers harmed by an allegedly deceptive credit card debt relief scheme operated by ACRO Services. The FTC had filed a lawsuit in November 2022 against ACRO Services, which operated under various names, for running an allegedly fraudulent telemarketing operation that falsely promised to significantly reduce or eliminate consumers’ credit card debt within 12 to 18 months. The scheme purportedly involved charging consumers unlawful upfront enrollment fees and monthly fees for “credit monitoring” services. The defendants agreed to a settlement that permanently bans them from the debt relief and telemarketing industries and required them to surrender assets for consumer refunds. For more information, click here.
On January 21, the U.S. Securities and Exchange Commission (SEC) Acting Chairman Mark T. Uyeda announced the formation of a new crypto task force aimed at developing a comprehensive and clear regulatory framework for crypto assets. Commissioner Hester Peirce will lead the task force, with Richard Gabbert and Taylor Asher serving as chief of staff and chief policy advisor, respectively. The task force will collaborate with SEC staff and the public to set the SEC on a sensible regulatory path, addressing the current reliance on enforcement actions that have created confusion and stifled innovation. The task force will focus on drawing clear regulatory lines, providing realistic paths to registration, crafting sensible disclosure frameworks, and deploying enforcement resources judiciously. It will operate within the statutory framework provided by Congress and coordinate with federal, state, and international counterparts. Peirce emphasized the importance of input from a wide range of stakeholders to foster a regulatory environment that protects investors, facilitates capital formation, fosters market integrity, and supports innovation. For more information, click here.
On January 21, the U.S. Attorney’s Office for the District of Massachusetts announced that CLS Global FZC LLC, a financial services firm known in the cryptocurrency industry as a “market maker,” has agreed to plead guilty to charges related to fraudulent manipulation of cryptocurrency trading volume, specifically conspiracy to commit market manipulation and wire fraud, and wire fraud. The charges stem from a September 2024 indictment alleging that CLS Global engaged in “wash trading” to artificially inflate the trading volume of the NexFundAI token, thereby misleading investors. As part of the plea agreement, CLS Global will pay $428,059 in fines and seized cryptocurrency, and will be prohibited from participating in U.S. cryptocurrency markets. The SEC has also brought a related civil enforcement action against CLS Global. The firm has committed to making annual certifications to ensure compliance with these prohibitions. For more information, click here.
On January 20, Trump issued an executive order directing all executive departments and agencies to halt the proposal or issuance of any new rules until they are reviewed and approved by a department or agency head appointed or designated by the president. The order also mandates the immediate withdrawal of any rules sent to the Office of the Federal Register but not yet published, and considers postponing the effective date of any published or issued rules for 60 days to review questions of fact, law, and policy. The memorandum aims to ensure that all regulatory actions are thoroughly reviewed and aligned with the administration’s priorities. For more information, click here.
On January 20, Travis Hill became the acting chairman of the Federal Deposit Insurance Corporation (FDIC). In his first statement as acting chairman, Hill highlighted various priorities and mentioned new initiatives, emphasizing a commitment to regulatory reform, innovation, and a focus on core financial risks. Hill’s statement also mentioned the withdrawal of “problematic proposals” (including both the FDIC’s brokered deposit proposal and corporate governance guidelines) and the replacement of the FDIC statement of policy on bank merger transactions. For more information, click here.
On January 20, Trump officially designated Andrew N. Ferguson as chairman of the FTC. Ferguson expressed his honor at being chosen and committed to ending what he described as the previous administration’s assault on the American way of life, aiming to usher in a new era of prosperity for American businesses, workers, and consumers. For more information, click here.
On January 17, the CFPB released its latest Supervisory Highlights report, focusing on the use of advanced technologies in credit scoring models. This edition of Supervisory Highlights concerns select examinations of institutions that use credit scoring models, including models built with advanced technology commonly marketed as AI/ML technology, when making credit decisions. The report repeated the CFPB’s previous statements that there is “no ‘advanced technology’ exception” to federal consumer protection laws and asserted that financial institutions will need to improve their practices to ensure compliance with the Equal Credit Opportunity Act and Regulation B. This includes actively searching for less discriminatory alternatives, critically evaluating the use of alternative data, and rigorously testing and validating adverse action reasons. For more information, click here.
On January 15, the CFPB published an advisory opinion in the Federal Register rescinding a previous advisory opinion which the CFPB issued during the first Trump administration in November 2020. The 2020 advisory opinion had described how a specific type of “earned wage” product did not constitute the offering or extension of “credit” under the Truth in Lending Act (TILA) and Regulation Z. The new advisory opinion is effective immediately. The CFPB’s 2020 advisory opinion had distinguished between two models of earned wage products: employer-partnered and direct-to-consumer. Employer-partnered products involve agreements between providers and employers, with funds recovered through payroll deductions. Direct-to-consumer products, on the other hand, provide funds directly to employees, often recovered through automated bank account withdrawals. The 2020 opinion explained that an earned wage product is not TILA or Regulation Z credit if it meets all of several identified conditions, including: providing the consumer with no more than the amount of accrued wages earned; provision by a third party fully integrated with the employer; no consumer payment beyond recovery of paid amounts via a payroll deduction from the next paycheck, and no other recourse or collection activity of any kind; and no underwriting or credit reporting. The 2020 opinion was silent about whether earned wage products that do not meet all of these conditions were credit. In July 2024, the CFPB proposed an interpretive rule on this topic and sought public comment. The CFPB’s January 15 publication notes that seeking public comment was “voluntary” and that the comment period closed on August 30, 2024, suggesting the CFPB views the interpretation as effective without further action. For more information, click here.
On January 14, the CFPB announced the withdrawal of its proposed rule to prohibit banks and other financial institutions from charging nonsufficient funds (NSF) fees for instantaneously declined transactions, such as declined debit card purchases and ATM withdrawals. The CFPB decided to reconsider a more comprehensive approach that might also prohibit NSF fees for additional types of transactions to better protect consumers from potentially unlawful fees. The proposed rule, initially published on January 31, 2024, aimed to address abusive practices under the Consumer Financial Protection Act but received nearly 8,000 comments highlighting various concerns and suggestions. The CFPB will now evaluate whether a broader rulemaking is appropriate. For more information, click here.
On January 14, the U.S., Japan, and the Republic of Korea issued a joint statement warning the blockchain technology industry about the ongoing cyber threats posed by the Democratic People’s Republic of Korea (DPRK). The statement highlighted the significant risk to the international financial system due to DPRK cyber actors, including the Lazarus Group, engaging in cybercrime campaigns to steal cryptocurrency. In 2024 alone, multiple thefts attributed to the DPRK included $308 million from DMM Bitcoin, $50 million from Upbit, and $16.13 million from Rain Management. The statement emphasized the need for public-private collaboration to disrupt these malicious activities, protect business interests, and secure the financial system. The three countries advised private sector entities to review advisories to mitigate risks and announced ongoing efforts to enhance cybersecurity coordination and impose sanctions on DPRK cyber actors. For more information, click here.
On January 10, the U.S. Attorney’s Office for the Northern District of Georgia announced the indictment of Roman Vitalyevich Ostapenko, Alexander Evgenievich Oleynik, and Anton Vyachlavovich Tarasov for operating the cryptocurrency mixing services Blender.io and Sinbad.io, which were allegedly used to launder funds from ransomware, virtual currency thefts, and other crimes. On January 15, the U.S. Attorney’s Office for the Southern District of New York announced that HDR Global Trading Ltd., also known as BitMEX, was fined $100 million for violating the Bank Secrecy Act by failing to implement adequate anti-money laundering and know-your-customer programs. BitMEX’s executives had previously entered guilty pleas for related charges. For more information, click here and here.
State Activities:
On January 22, New York Attorney General Letitia James announced a significant settlement with Yellowstone Capital of New Jersey and its affiliated companies over allegations of illegal high-interest loans disguised as merchant cash advance (MCA) transactions. Yellowstone Capital provided MCAs to small businesses, which are a form of short-term funding where the funding provider pays a small business for a share of the business’ future receipts. Those receipts are paid to the MCA company over time as they are earned. However, according to the attorney general’s office (OAG), Yellowstone’s advances were often structured as loans with high interest rates, in violation of state law. A settlement was signed by all parties involved that included automatically canceling merchant debts to Yellowstone totaling $534 million and Yellowstone’s CEO, president, and subsidiaries paying $16.1 million in monetary relief, which will be distributed to impacted small businesses. According to the settlement, the Yellowstone entities, even after the canceled debts and cash payment owe New York an additional $514 million. For more information, click here.
On January 22, the New York City Department of Consumer and Worker Protection’s (NYC DCWP) issued a Notice of Change of Effective Date, further delaying the effective date for the final rules relating to debt collectors. The new effective date is now October 1. This follows the NYC DCWP’s November 2024 announcement delaying the effective date of the amended debt collection rules from December 1, 2024, to April 1, 2025. For more information, click here.
On January 16, the California Privacy Protection Agency (CPPA) announced an extension of the formal public comment period for its latest proposed rulemaking package to February 19, due to the devastating wildfires impacting the state. The package includes updates to existing regulations and new regulations for cybersecurity audits, risk assessments, automated decision-making technology (ADMT), and insurance companies. The public comment period, which began on November 22, 2024, will now include an additional public comment hearing on February 19, available both virtually and in person. The proposed regulations aim to enhance consumer protection by updating the California Consumer Privacy Act (CCPA) regulations, requiring annual cybersecurity audits, implementing consumer rights regarding ADMT, and clarifying compliance requirements for insurance companies. For more information, click here.
On January 16, the New York State Department of Financial Services (NYDFS) issued a notice to all virtual currency business entities licensed under 23 NYCRR Part 200 or chartered as limited purpose trust companies under the New York Banking Law, highlighting concerns about the rapid proliferation of sentiment-based virtual currencies. The notice pointed out that such coins are often controlled by a few individuals, are not broadly traded, and are highly volatile, making them susceptible to market manipulation and illicit activities. NYDFS requires all regulated entities to comply with applicable laws and regulations, including guidance on coin-listing and market manipulation, and warned that it will take supervisory and enforcement actions as necessary to ensure compliance. For more information, click here.
On January 14, California Governor Gavin Newsom issued Executive Order N-7-25 in response to the devastating wildfires in Los Angeles and Ventura Counties, which have burned more than 40,300 acres and destroyed or damaged more than 12,300 structures. The order prohibits making unsolicited offers to purchase real property in affected areas for less than the fair market value as of January 6, for three months. It also directs the Department of Real Estate to investigate and publicize any unlawful practices targeting property owners in the wake of the disaster. This measure aims to protect vulnerable property owners from exploitative practices during the recovery period. For more information, click here.