Regulatory Enforcement + Compliance

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On January 2, New York Governor Kathy Hochul unveiled her 2024 consumer protection agenda, which includes plans to regulate the “buy now, pay later” (BNPL) industry. Specifically, Governor Hochul plans to propose legislation to require BNPL providers to be licensed in the state and to authorize the New York State Department of Financial Services to propose and issue regulations for the industry. According to Governor Hochul, “New Yorkers are increasingly turning to [BNPL] loans as a low-cost alternative to traditional credit products to pay for everyday and big-ticket purchases. This legislation and regulations will establish strong industry protections around disclosure requirements, dispute resolution and credit reporting standards, late fee limits, consumer data privacy, and guidelines to curtail dark patterns and debt accumulation and overextension.”

On December 22, Montana Attorney General Austin Knudsen issued an opinion on whether Earned Wage Access (EWA) products constitute either “consumer loans” under Montana Code § 32-5-102(2)(a) or “deferred deposit loans” under § 31-1-703. In short, AG Knudsen’s opinion was no, “so long as the EWA product is fully non-recourse, does not condition an income-based advance on any interest, fees, or other consideration or expenses, and limits income-based advances to income already earned by the consumer.”

On December 20, the Consumer Financial Protection Bureau (CFPB) and U.S. Department of Justice (DOJ) filed a complaint in a Texas federal court against Colony Ridge Development, LLC (Colony Ridge), its affiliates, and Loan Originator Services, a Texas mortgage company, for allegedly operating an illegal land sales scheme and targeting tens of thousands of Hispanic borrowers with false statements and predatory loans. Specifically, the complaint alleges Colony Ridge sells flood-prone land without water, sewer, or electrical infrastructure, and that the company sets borrowers up with loans they cannot afford. The complaint alleges that defendants engaged in unlawful discrimination by targeting Hispanics in violation of the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA). In addition, the complaint alleges violation of the Dodd-Frank Act’s prohibition on unfair, deceptive or abusive acts or practices (UDAAP), and a variety of violations of the Interstate Land Sales Full Disclosure Act.

Washington now joins the list of states that have enacted or proposed legislation adopting so-called anti-evasion provisions, including legislation passed in Minnesota, discussed here, Connecticut, discussed here, Nebraska, discussed here, and proposed in Florida, discussed here. On December 5, HB 1874 was filed, which would amend the Washington Consumer Loan Act (CLA) to adopt both predominant economic interest and totality of the circumstance tests to determine the “true lender” of a loan under the CLA. It also takes aim at the use of voluntary tips, other gratuities or memberships and non-recourse loan programs.

On December 19th, the Consumer Financial Protection Bureau (CFPB or Bureau) issued a report highlighting consumers’ experiences with overdraft and nonsufficient funds (NSF) fees. The report found that roughly a quarter of consumers are still being charged these fees despite the CFPB’s hostility towards so called “junk fees,” which has led many banks and credit unions to eliminate such fees. The report further found that many consumers who were charged overdraft and NSF fees had access to an alternative asserted to be cheaper by the CFPB, such as available credit on a credit card.

The Consumer Financial Protection Bureau (CFPB or Bureau) released its 14th annual report to Congress in fulfillment of its requirements under the Credit Card Accountability Responsibility and Disclosure (CARD) Act. For the report, the CFPB reviewed information available on college websites on the financial products offered directly to students or jointly marketed to students with third-party providers. According to the CFPB, its research showed that college-sponsored financial products have higher fees and less favorable terms and conditions compared to typical market products.

On December 15, the Consumer Financial Protection Bureau (CFPB) announced it had reached a settlement with medical debt collector Commonwealth Financial Systems, Inc. (Commonwealth) in its lawsuit over alleged illegal debt collection practices. Specifically, the CFPB alleged that Commonwealth failed to conduct reasonable investigations of disputes and violated the Fair Debt Collection Practices Act (FDCPA) by attempting to collect disputed debt without obtaining substantiating documentation. Under the settlement agreement, Commonwealth is banned from debt collection activities, must request CRAs to delete all consumer accounts to which it had previously furnished information, and must pay a $95,000 penalty to the CFPB’s victims relief fund.

On December 13, New York Governor Kathy Hochul signed into law S4907A, which prohibits hospitals, medical providers, or ambulance services from providing negative information about medical debt to consumer reporting agencies (CRAs). The law also requires that these entities include a provision in their contracts with collection agencies prohibiting the reporting of any portion of a medical debt to a CRA. Any debt that is reported to a CRA will be deemed void. The law became effective immediately after it was signed.

On December 12, the Federal Trade Commission (FTC) published the long-awaited regulation specific to motor vehicle dealers to address concerns of consumer deception in the sales process (Final Rule). We covered the proposed rule, introduced in June 2022, in a blog post here and podcast here. In a 3-0 vote, the FTC approved the issuance of the Final Rule, which will be published in the Federal Register in the coming weeks.

On December 4, a federal district court for the Central District of California granted summary judgment in favor of the Commissioner of the California Department of Financial Protection and Innovation (DFPI) finding that regulations adopted last year under California’s Commercial Financing Disclosures Law (CFDL) do not violate the plaintiff’s First Amendment rights and are not preempted by the Truth in Lending Act (TILA). Under the CFDL, providers are required to give certain disclosures similar to consumer transactions, such as the amount of funding the small business will receive, the APR, a payment amount (if applicable), the term, details related to prepayment policies, and (for products without a monthly payment) an average monthly cost.