State Attorneys General, CFPB, & FTC

As Congress’ emboldened majority has sought to lessen the federal government’s regulatory footprint, the states have not always been quiet, as one summertime example amply shows.

In 2017, two congressmen introduced two bills which, if enacted, would expand the scope of federal preemption to include non-bank entities. Introduced by Rep. Patrick McHenry (R-N.C.), the first of these two bills – the Protecting Consumers’ Access to Credit Act of 2017 (HR 3299) – states that bank loans with a valid rate when made will remain valid with respect to that rate, regardless of whether a bank has subsequently sold or assigned the loan to a third party. A second bill known as the Modernizing Credit Opportunities Act of 2017 (HR 4439), championed by Rep. Trey Hollingsworth (R-Ind.), strives “to clarify that the role of the insured depository institution as lender and the location of an insured depository institution under applicable law are not affected by any contract between the institution and a third-party service provider.” Perhaps most significantly, it would establish federal preemption of state usury laws as to any loan to which an insured depository institution is the party, regardless of any subsequent assignments. In so doing, both bills amend provisions of the Home Owners’ Loan Act, Federal Credit Union Act, and/or Federal Deposit Insurance Act. Such an amendment would invalidate a long-line of judicial precedent barring a non-bank buyer’s ability to purchase a national bank’s right to preempt state usury law, which culminated in the Second Circuit’s 2015 decision in Madden v. Midland Funding, LLC, and thereby provide non-originating creditors with a potent – and until now nonexistent – shield against liability under certain state consumer laws.

On June 27, 2018, the attorneys general of twenty states[1] and the District of Columbia stated their opposition to both bills in a letter to Congressional leadership. Beginning with an historically accurate observation – “[t]he states have long held primary responsibility for protecting American consumers from abuse in the marketplace” – the A.G.s attacked these legislative efforts as likely to “allow non-bank lenders to sidestep state usury laws and charge excessive interest that would otherwise be illegal under state law.” The cudgel of preemption, they warned, would “undermine” their ability to enforce their own consumer protection laws. The A.G.s went on to argue many non-bank lenders “contract with banks to use the banks’ names on loan documents in an attempt to cloak themselves with the banks’ right to preempt state usury limits”; indeed, “[t]he loans provided pursuant to these agreements are typically funded and immediately purchased by the non-bank lenders, which conduct all marketing, underwriting, and servicing of the loans.” For their small role, the banks “receive only a small fee,” with the “lion’s share of profits belong[ing] to the non-bank entities.” In support of this position, the A.G.s cite to a 2002 press release by the Office of the Comptroller of the Currency (“OCC”) and the more recent OCC Bulletin 2018-14 on small dollar lending, the latter announcing the OCC’s “unfavorabl[e]” view of “an[y] entity that partners with a bank with the sole goal of evading a lower interest rate established under the law of the entity’s licensing state(s).

The A.G.s concluded by arguing that the proposed legislation would erode an “important sphere of state regulation,” state usury laws having “long served an important consumer protection function in America.”

We will continue to monitor this legislation and other developments in the preemption arena, and will report on any further developments.


[1] The signatories come from California, Colorado, Hawaii, Illinois, Iowa, Maryland, Massachusetts, Minnesota, Mississippi, New Mexico, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, Tennessee, Vermont, Virginia, and Washington.

By: Ashley Taylor, David Anthony, Stephen Piepgrass and Ryan Strasser

The Virginia Consumer Protection Act (VCPA), Virginia Code § 59.1-196 et seq., represents the Virginia General Assembly’s effort to enact a sweeping and potent remedial tool to protect consumers from exploitation by a business where the consumer has engaged in a “consumer transaction” with that business. Where a violation of the VCPA has occurred, the statute authorizes both consumers and the Virginia attorney general to enforce its prohibitions and to seek various forms of relief.

In recent years, the Virginia Office of the Attorney General has ramped up its VCPA enforcement efforts. In perhaps a harbinger of things to come, Virginia Attorney General Mark Herring filed a complaint on March 6, 2018, under the VCPA in Commonwealth ex rel. Herring v. Future Income Payments LLC f/k/a Pensions, Annuities and Settlements LLC, in the Circuit Court for the City of Hampton. Attorney General Herring asserts a single claim in the case — that the corporate defendant violated the VCPA.

To read more click here for the VBA Fall 2018 Journal

 

 

The Federal Trade Commission (FTC) announced in mid-July that it conducted the first compliance sweep of car dealerships since the effective date of its revised Used Car Rule requiring the use of a new Buyer’s Guide sticker. The sweep occurred between April and June 2018 in 20 cities nationwide. The FTC partnered with 12 agencies in seven states to ensure dealers are displaying a revised version of the Buyer’s Guide, which contains warranty and other information for consumers. 

In the sweep, the FTC inspected over 2,300 vehicles at 94 car dealerships in seven states. Inspectors found that approximately 70 percent of vehicles displayed Buyer’s Guides and roughly half of those displayed the appropriate revised Buyer’s Guide. Just 33 dealerships posted the revised Buyer’s Guide on more than half of their vehicles, and only 14 dealerships were compliant in having revised Buyer’s Guides on all their used vehicles for sale. 

To read full article go to Auto Finance Excellence.

President Donald Trump announced this morning that he plans to nominate Kathy Kraninger, associate director of the Office of Management and Budget (“OMB”), to become the new director of the Consumer Financial Protection Bureau (“CFPB”), replacing Mick Mulvaney.

The announcement came as a surprise to many because Kraninger’s name was not among those that had been circulated as possible candidates to head the CFPB and her previous experience did not center on consumer protection and financial regulatory issues. Kraninger, 43, is a Pittsburgh native and graduate of Marquette University and Georgetown Law School. Her primary experience includes serving as the Clerk for the Senate Appropriations subcommittee on Homeland Security, including overseeing the Department of Homeland Security (“DHS”) budget (and the budgets for four other agencies) while at OMB. Kraninger also served as deputy assistant for policy at DHS.

Based on the law that permitted Mulvaney to serve as interim Director, Mulvaney would have otherwise been required to leave his post at the CFPB on or before June 22, 2018, if a permanent director had not been nominated. Kraninger’s nomination, however, triggers a provision in the Federal Vacancies Reform Act that allows Mulvaney to serve until the Senate confirms or rejects the pick. That process is expected to be lengthy, taking months.

The CFPB post has been subject to significant drama since former democratic Director Richard Cordray departed, with Cordray appointing Deputy Director Leandra English to fill his seat. Within hours of Cordray’s resignation announcement, however, Trump appointed Mulvaney under the Federal Vacancies Act to succeed Cordray. English then sued, but the federal district court denied her request for a temporary restraining order and preliminary injunction. The matter remains tied up in litigation on appeal.

A White House spokesperson said Kraninger was selected because “[s]he will bring a fresh perspective and much-needed management experience” to the CFPB, “which has been plagued by excessive spending, dysfunctional operations, and politicized agendas.”

The selection of Kraninger is likely to trigger the latest rounds of fights over the leadership of the CFPB, with trade groups for financial services companies lining up in support while opponents are focusing on her lack of experience in consumer financial protection matters. Troutman Sanders LLP will continue to monitor these developments.

Please join us on Tuesday, April 17th from 2:00 – 3:00 PM ET for a complimentary webinar with speakers Chad Fuller, David Gettings, Alan Wingfield and Virginia Bell Flynn.

So often the defense of consumer class actions focuses on the substance of the law. Was my consumer report accurate? Was my collection letter misleading or deceptive? Did I have consent to place a call using an ATDS?

Please join Troutman lawyers for a discussion of some recent developments in procedure that could be game-changers. These are legal developments that do not turn on the substance of the claim, but could raise effective defenses if used appropriately. We will discuss the impact the Bristol-Myers Squibb decision has had on personal jurisdiction in nationwide class actions, the tolling effect of pending class actions on future lawsuits, and the impact of Spokeo arguments in practice. For good measure, we will also discuss the impact that the D.C. Circuit’s landmark ruling in ACA v. FCC has had on Telephone Consumer Protection Act individual lawsuits and class actions in the first month since the decision.

Click here to register.

On January 29, a California state court approved a $2.25 million settlement to be paid by Walgreen Co., commonly known to consumers nationwide as the drug store chain Walgreens. The settlement stems from a consumer protection lawsuit by the district attorneys of four California counties (Santa Clara, Contra Costa, San Mateo, and Santa Cruz) in and around the San Francisco Bay area relating to selling expired over-the-counter drugs, baby food, and infant formula and charging consumers more than the lowest posted or advertised price for items.

The settlement concludes a months-long investigation by state regulatory agencies and county district attorneys’ offices into Walgreens, which operates more than 600 stores in California. The state will receive the entirety of the penalty paid by Walgreens, due to the difficulty in determining which or how many customers were affected. In addition to the financial penalty, a court order requires Walgreens employees “to make quarterly patrols to remove expired items and to post ‘clear and conspicuous’ signs asking consumers to inspect expiration dates.”

The California probe is another recent example of the foray of state attorneys general and local district attorneys into the consumer protection space. Companies should be mindful that despite the lessened reach of the Consumer Financial Protection Bureau and federal regulators over the past year, state enforcement—in California, at least, extending down to local district attorneys—has increased and will likely continue to do so.