Regulatory Enforcement + Compliance

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In a major victory for small business lenders, yesterday the U.S. District Court for the Southern District of Texas granted motions filed by three groups of trade association intervenors to extend the court’s existing injunction against the Consumer Financial Protection Bureau’s (CFPB or Bureau) enforcement of its final rule under § 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Final Rule) to cover all small business lenders nationwide. A discussion of the preliminary injunction issued by that Texas federal court on July 31 can be found here. The injunction in Texas Bankers Association v. CFPB will dissolve if the U.S. Supreme Court reverses the Fifth Circuit in Community Financial Services Association v CFPB (CFSA case), which found the CFPB’s funding structure unconstitutional.

On October 24, the Federal Trade Commission (FTC) and the Wisconsin Department of Justice announced a settlement with Wisconsin auto dealer group Rhinelander Auto Center, Inc. (Rhinelander), its current and former owners, and general manager. The lawsuit was brought under the FTC Act, the Equal Credit Opportunity Act (ECOA), the Wisconsin Deceptive Trade Practices Act, and the Wisconsin Consumer Act.

On October 24, the Federal Reserve Board (Fed), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) (collectively, the agencies) finally issued their long-awaited final rule modernizing how they assess lenders’ compliance under the Community Reinvestment Act (CRA). The CRA was enacted in 1977 to address systemic inequities in access to credit and encourages banks to meet the credit needs of the entire community, including low- and moderate-income (LMI) communities, consistent with safety and soundness principles. The last meaningful, comprehensive revision to the CRA regulations occurred in 1995.

On October 19, the Consumer Financial Protection Bureau (CFPB) issued its highly anticipated notice of proposed rulemaking under Section 1033 of the Consumer Financial Protection Act of 2010 (CFPA). The proposed Personal Financial Data Rights Rule would require depository and nondepository entities to make available to consumers and authorized third parties certain data relating to consumers’ accounts, establish obligations for third parties accessing a consumer’s data, and provide basic standards for data access. Notably, the proposed rule only provides for narrow exceptions, such as community banks and credit unions that have no digital interface with their customers. The CFPB is currently accepting comments on the proposed rule until December 29, 2023.

On October 19, the Securities and Exchange Commission (SEC) dismissed its claims against Ripple Labs, Inc. (Ripple) executives Bradley Garlinghouse and Christian Larsen for allegedly aiding and abetting Ripple’s violations of the Securities Act with respect to its “institutional sales” of XRP. The Southern District of New York had deemed “institutional sales” to be unregistered securities in its July summary judgment decision, however, at that time the court reserved judgment as to the aiding and abetting claims against the executives. The matter was set for trial in 2024.

In the last three weeks, the U.S. Department of Justice (DOJ) reached two more settlements with lenders under its Combatting Redlining Initiative, which began in October 2021. On September 27, the DOJ announced that Washington Trust Company agreed to pay $9 million to resolve allegations that it engaged in redlining majority-Black and Hispanic neighborhoods in Rhode Island. On October 19, the DOJ announced a separate $9 million agreement with Ameris Bank to resolve allegations that it engaged in redlining predominately Black and Hispanic neighborhoods in Jacksonville, Florida. And, according to Attorney General Merrick Garland, this is just the beginning. “[T]he Justice Department currently has over two dozen active investigations into redlining, spanning neighborhoods across the country.”

Recently, the New Jersey appellate division held that a debt purchaser is not liable under the New Jersey Consumer Fraud Act (NJ Fraud Act) for failing to obtain a license under the New Jersey Consumer Finance Licensing Act (NJ Licensing Act). Although the decision is unpublished, it is still a welcome relief for purchasers of defaulted debt.

On October 12, in its monthly bulletin the California Department of Financial Protection and Innovation (CA DFPI) announced that final regulations to implement the Student Loan Servicing Act and the Student Loans Borrower Rights Law have been approved and will become effective Jan. 1, 2024. Among other things, the rules clarify that all education financing products, including income share agreements (ISAs) and installment contracts, are student loans, and servicers of all such products are covered by the Student Loan Servicing Act and must be licensed.

On October 11, the Consumer Financial Protection Bureau (CFPB or Bureau) issued an advisory opinion regarding § 1034(c) of the Consumer Financial Protection Act (CFPA), which requires large banks and credit unions to comply in a timely manner with consumer requests for information concerning their accounts. This advisory opinion follows a June 2022 request for information where the CFPB asked for public input on customer service obstacles encountered when interacting with large financial institutions. According to the CFPB, this initiative is in response to large financial institutions moving away from “relationship banking.”

Yesterday, the U.S. Department of Justice (DOJ) and the Consumer Financial Protection Bureau (CFPB) (collectively, the agencies) issued a joint statement on the subject of creditors’ use of immigration status for eligibility for credit transactions, an issue that has been kicking around in private litigation for years, but as to which the federal regulators have been silent. The joint statement warns lenders that “unnecessary or overbroad” reliance on immigration status in the credit decisioning process may violate the Equal Credit Opportunity Act (ECOA) and other federal laws. According to the agencies, the joint statement was issued in response to consumers reportedly being rejected for credit cards and loans because of their immigration status, even when they have strong credit histories and are otherwise qualified to receive the loans.