Photo of Paige Fitzgerald

Paige specializes in complex federal, state and local regulatory and compliance matters.

The U.S. Department of Justice recently filed a lawsuit in California federal court alleging that California Auto Finance, a subprime auto lender, violated the Servicemembers Civil Relief Act by repossessing the motor vehicle of an active military servicewoman on her first day of training.

The SCRA prohibits a lender from repossessing a motor vehicle from a servicemember during military service without a court order if the servicemember made a deposit or installment payment on the loan before entering into military service. The DOJ’s complaint alleges that the auto lender violated the SCRA by repossessing the servicewoman’s vehicle without a court order, even after she had provided the lender with her military orders advising of her relocation for active duty.

The DOJ’s complaint alleges that California Auto Finance was aware that the servicewoman had completed at least one loan payment and was in the military at the time of repossession; accordingly, the lender violated the SCRA, which protects the legal rights of active servicemembers from certain civil proceedings. The Justice Department also claims that this auto lender has a stated practice of granting servicemembers repossession protections under the SCRA only if they provide deployment orders, which is actually not a federal requirement and could mean that other servicemembers may have also had their vehicles improperly repossessed.

The DOJ has made compliance with the SCRA a priority, including its enactment in 2016 of the Servicemembers Civil Relief Act Enforcement Support Pilot Program. The Program’s goal is to support enforcement efforts related to protecting the rights of current and former military personnel as part of the DOJ’s Servicemembers and Veterans Initiative. We expect the DOJ to remain active in this area.

The FTC has just issued its annual report, the Consumer Sentinel Network Data Book, aggregating data on the 2.68 million consumer complaints that it received in 2017. This number is down from a peak in consumer complaints during 2015 – 3.04 million complaints – and last year’s total of 2.98 million.

According to the FTC’s report, the top ten categories are as follows:

Debt Collection

22.74%

Identity Theft

 13.87

Imposter Scams

 13.00

Telephone/Mobile Services

  5.59

Banks and Lenders

  5.58

Prizes, Sweepstakes

  5.34

Shop-at-Home/Catalog Sales

  4.72

Credit Bureaus, Information Furnishers, Report Users

  4.02

Auto-related

  3.23

Television/Electronic Media

   1.77

The Consumer Sentinel Network is an online database of consumer complaints maintained by the FTC. Other federal and state law enforcement agencies contribute to the database, including the Consumer Financial Protection Bureau and the offices of 20 state attorneys general, including Alaska, Colorado, Hawaii, Idaho, Indiana, Iowa, Maine, Massachusetts, Michigan, Mississippi, Montana, Nevada, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina, Tennessee, Washington, and Wisconsin. Private-sector organizations contributing data include all North American local offices of the Better Business Bureau.

Any federal, state, or local law enforcement agency can obtain access to the database by entering into a confidentiality and data security agreement with the FTC. Certain international law enforcement authorities are also allowed access.

A few points regarding the data in the report bear mentioning. First, “unverified reports filed by consumers,” regardless of merit and whether the complaint was remedied by the company, were counted as complaints. Second, even though debt collection topped the report in terms of the percentage of complaints received, the total number of debt collection complaints represents a very small portion (0.005%) of consumers who had contact with the debt collection industry during 2017. Finally, while the FTC uses the term “complaint” in its press release and makes numerous references to “complaints” in the new annual report, the report states that it refers to “consumer reports” rather than “complaints,” given that “[o]ften, people make these reports after they have experienced something problematic in the marketplace, avoided a loss, and decided to alert others.”

Nevertheless, the FTC and state attorneys general have long used consumer complaints to identify victims and potential targets for investigations. Importantly, Mick Mulvaney, President Trump’s appointee as CFPB Acting Director, has indicated that the CFPB will continue to use complaints in setting its priorities.

The deadline for motor vehicle dealer compliance with the Federal Trade Commission’s revised Used Car Rule is rapidly approaching.  The January 28, 2018 compliance date imposed by the FTC requires dealers, as of that date, to use the agency’s revised window sticker, known as the “Buyers Guide,” on all used vehicles offered for public sale. 

In November 2016, the FTC announced its final amendments to the Used Car Rule, and specifically revised the federally-required form of the Buyers Guide that must be displayed on a used motor vehicle offered for sale to the public. 

As we covered here, the FTC issued additional guidance on the Used Car Rule in September 2017, in response to a number of questions raised by dealers regarding compliance.  The guidance was in the form of frequently asked questions (FAQs) and addressed topics such as:  whether and what type of changes can be made to the language; the format and font of the Buyers Guide; disclosure requirements regarding manufacturer and third-party warranties; and guidance for completing the “systems covered” portion of the revised Buyers Guide.   

The amendments to the Rule included a grace period that permitted dealers to use their remaining stock of Buyers Guides for up to one year after the January 28, 2017 effective date.  Time is running short, however, and all used vehicles must display the new Buyers Guide by January 28, 2018.

The Board of Governors of the Federal Reserve System recently issued a Consent Order against Peoples Bank, based in Lawrence, Kansas, to settle claims of deceptive residential mortgage origination practices that arose from the bank’s charging of fees in mortgage originations.  The Federal Reserve alleged that Peoples told mortgage borrowers that certain additional fees that the borrowers paid as discount points would lower the borrowers’ interest rates.  The Federal Reserve’s investigation determined that many borrowers did not, in fact, receive a reduced interest rate.  The Federal Reserve alleged this practice violated Section 5 of the Federal Trade Commission Act (“FTC Act”).

The Consent Order requires Peoples to pay approximately $2.8 million into an account to be used to provide restitution to the borrowers.  Additionally, Peoples must develop a plan that provides for restitution to each borrower who, in the course of obtaining a mortgage loan from Peoples, paid discount points that did not reduce the borrowers’ interest rate.  The Consent Order also requires Peoples to avoid any future violation of Section 5 of the FTC Act.

On November 15, as has been widely reported, the Director of the Consumer Financial Protection Bureau, Richard Cordray, announced by email to his staff that he would be resigning at the end of the month.  While he did not state the reason for his departure, it is believed that Cordray, a former Ohio attorney general, intends to run for governor of that state.

Cordray was a holdover from the Obama administration, appointed in July 2013 for a five-year term slated to end in July 2018.  Since its formation in 2011, the CFPB has been criticized for a structure that centralizes power in the hands of a single director – a radical departure from other independent federal agencies, such as the Federal Trade Commission, which is led by a bi-partisan panel of five Commissioners.  Furthermore, the CFPB is different from many other agencies in that the President can only fire the director “for cause,” engendering a lawsuit still working its way through the courts.  Since President Trump’s election, there have been rumors that Cordray may be fired, although questions about the President’s ability to do so may have prevented this action.

As of November 17, President Trump is expected to announce that Mick Mulvaney, the current Director of the Office of Management and Budget, will serve as CFPB Acting Director.  As for a permanent replacement for Cordray, there is a significant possibility that the President will chose someone from the ranks of Republican attorneys general, many of whom have taken issue with the highly-aggressive role developed at the CFPB under Cordray.

On November 2, Consumer Financial Protection Bureau Director Richard Cordray delivered remarks during the Consumer Advisory Board meeting in Tampa.  Cordray’s public pronouncements reflect and foreshadow the CFPB’s regulatory priorities, and his recent comments indicate the CFPB’s focus on reverse mortgages, consumers with limited English proficiency, and short-term loans.

Cordray mentioned the CFPB’s recently-released report about the costs and risks of using reverse mortgages as a strategy to delay collecting Social Security benefits and the increasing promotion of this strategy by those in the reverse mortgage industry, often without disclosing to consumers the costs and risks involved. The CFPB’s report discussed its analysis of these products using different scenarios and found that the cost of a reverse mortgage usually exceeds the benefits that would be gained by delaying Social Security retirement benefits from age 62 until full retirement age.

Cordray also discussed the CFPB’s efforts to increase home ownership for Spanish-speaking Americans, which has been identified as their top financial goal. The CFPB most recently is helping this population through its publication of Como prepararse para comprar una casa (“How to get ready to buy a home”), which may be found on the CFPB’s Spanish website at www.cfpb.gov/es.

Short-term loans have been of concern to the CAB and the CFPB for some time. Cordray pointed out the final rule issued in October addressing payday, vehicle title, and certain high-cost installment loans. Cordray continued his past references to such loans as “debt traps,” and he explained that the rule “rests on the basic principle of requiring lenders to make a reasonable assessment upfront of whether people can afford to repay these loans.” He also noted that the rule curtails repeated attempts by lenders to debit checking accounts, which results in additional fees, thus making it more difficult for consumers to get out of debt on both short-term and longer-term loans. Cordray explained that the rule was promulgated to assist borrowers who repeatedly roll over or refinance their loans, given that more than four out of five payday loans are re-borrowed within a month, usually soon after the loan is due. Cordray noted that the CFPB received about 1.4 million public comments on this proposed rule.

New York Attorney General Eric Schneiderman announced two settlements with motor vehicle dealer groups that provide for over $900,000 in restitution to approximately 6,400 New York State consumers.  The settlements also require the dealers to pay $135,000 in penalties and costs to the state for the unlawful sale of credit repair and identity theft protection services to consumers who bought or leased vehicles.

Schneiderman alleged that the dealerships had unlawfully sold “after-sale” credit repair and identity theft protection services that often added considerably to the purchase price of the vehicle.  Both state and federal law prohibit charging upfront fees for services that promise to help consumers restore or improve their credit, and contracts that violate these laws are void.  In the past several years, there has been increasing scrutiny by regulators, at the state and federal level, of the sale of add-on products by dealers and disclosures relating to these products.

The AG’s investigation revealed that the after-sale items were often bundled into the vehicle sale price and were not separately itemized.  As a result, many consumers were totally unaware that they had purchased these services, and some consumers thought that the services were free.  The price of the vehicles stated on purchase and lease documents was inflated by the amount of these after-sale items, generally by hundreds or thousands of dollars.

In addition to the payment of consumer restitution, penalties, and costs, the settlements prohibit the dealerships from engaging in the following:

  • Selling, offering for sale, or marketing credit repair and identity theft services with the sale or lease of a vehicle;
  • Selling, offering for sale, or providing to consumers any after-sale product or service unless, prior to such sale, certain material terms, including price, are disclosed verbally and in writing;
  • Misrepresenting the price of the vehicle in final lease or sale contracts; and
  • Failing to provide consumers with sales or lease agreements that clearly and conspicuously itemize each after-sale product or service and its price.

In its press release, Schneiderman’s office explained that these settlements are part of its broader initiative to end the practice engaged in by many dealers of “jamming,” or unlawfully charging consumers for purchases without their consent or knowledge.  The New York Attorney General’s office has been especially active in investigating motor vehicle dealers, and we expect this trend to continue.

The Federal Trade Commission, along with 11 states and the District of Columbia, just announced “Operation Game of Loans.”  This is the first coordinated federal-state initiative targeting deceptive student loan debt relief scams.  The nationwide crackdown encompasses 36 actions by the FTC and state attorneys general against bad actors that are alleged to have used deception and false promises of relief to collect more than $95 million in illegal upfront fees from consumers over a number of years.

The FTC reports that “Operation Game of Loans” includes seven FTC actions: five new cases, one new judgment in favor of the FTC, and a preliminary injunction entered in a case filed earlier this year.  In each of these cases, the FTC alleges that the entities charged consumers illegal upfront fees, falsely promised to help reduce or forgive student loan debt burdens, and pretended to be affiliated with the government or loan servicers, in violation of the FTC’s Telemarketing Sales Rule and the FTC Act. 

“Operation Game of Loans” includes coordinated actions by the attorneys general for Colorado, Florida, Illinois, Kansas, Maryland, North Carolina, North Dakota, Oregon, Pennsylvania, Texas, Washington, and the District of Columbia.

Further developments in this coordinated enforcement effort are expected.

 

 

In November 2016, the Federal Trade Commission announced its final changes to the Used Car Rule, formally referred to as the Used Motor Vehicle Trade Regulation Rule, which requires motor vehicle dealers to display a winder sticker, known as the “Buyers  Guide,” on used vehicles offered for sale.  Due to numerous questions raised by dealers regarding compliance with the revised Used Car Rule, the FTC issued guidance in the form of frequently asked questions (FAQs) to address the principal areas for which the agency has received inquiries.

The FTC’s FAQs cover the following varied subjects:

  • Whether and what type of changes can be made to the language, format, and font of the Buyers Guide;
  • Disclosure requirements regarding manufacturer and third-party warranties;
  • Guidance for describing the “systems covered” portion of the revised Buyers Guide;
  • Issues applicable to selling “certified” vehicles;
  • Procedures for disclaiming additional warranty coverage;
  • Disclosure requirements related to service contracts;
  • Disclaiming of implied warranties and state law requirements and prohibitions related to such disclaimers;
  • Complying with minimum warranty coverage required by state law and how to complete the “systems covered/duration” portion of the Buyers Guide; and
  • Negotiating sales of vehicles with terms different from the Buyers Guide and reflecting such changes appropriately on the Guide.

The FAQs do not, however, address those compliance issues related to disclosure of safety recalls or vehicle history.

The amended Rule included a one-year grace period permitting dealers to use their remaining stock of Buyers Guides before implementing the new version.  The deadline for compliance is fast approaching, and all dealers must use the new version by January 28, 2018.

Massachusetts Attorney General Maura Healey announced updated legislation that will remove fees for security freezes and consumer credit reports.  The new legislation (SB 130/HB 134) includes several pro-consumer changes:

  • Consent – Any company seeking to obtain or use a consumer’s credit report or credit score will need the written consent of the consumer and must disclose the reason for seeking access to the information.
  • Credit freeze – The bill would allow consumers to place and lift a credit freeze on their files at any time at no cost.  The new legislation will require the credit reporting agencies (CRAs) to put in place a simple process for consumers to freeze and unfreeze their credit reports.
  • Credit reports – The bill will require each CRA to provide extra access to free credit reports to consumers impacted by a breach.  Under federal law, consumers only get access to one free credit report per year, but under the new Massachusetts legislation, affected consumers will be able to obtain no less than three free copies from each CRA after a data breach.
  • Credit monitoring – If a data breach occurs at a CRA, the bill requires the CRA to provide five years of free credit monitoring to affected consumers.
  • Encryption – The bill will require CRAs to encrypt personal information contained in consumer credit reports to enhance the security, confidentiality, and integrity of personal information.

It is likely that other states will propose similar legislation.  In addition, the AG’s Office has issued guidance for consumers following the Equifax data breach.