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Please join Troutman Pepper Partner Chris Willis and his colleagues Mark Furletti, Joe Reilly, and Christine Emello for the last installment of a special three-part series about the Consumer Financial Protection Bureau’s (CFPB) new small business lending data collection and reporting final rule — the Section 1071 rule. Part 3 focuses on specific areas, including highlighting those we worry will be especially troublesome for small business lenders.

Continue Reading CFPB’s Section 1071 Final Rule (Part 3): Potential Problem Areas

Please join Troutman Pepper Partner Chris Willis and his colleagues Stefanie Jackman, Caleb Rosenberg, and Chris Capurso for the second installment of our special two-part series about the Consumer Financial Protection Bureau’s (CFPB) recent policy statement on abusiveness. In Part 2, the panel discusses specific examples cited in the policy statement, as well as lessons learned about what constitutes abusiveness and what doesn’t from the CFPB’s perspective.

Continue Reading CFPB’s Policy Statement on Abusiveness (Part 2)

If a financial institution unilaterally reopens a closed deposit account to process a transaction, does that constitute an unfair act or practice under the Consumer Financial Protection Act (CFPA)? According to the Consumer Financial Protection Bureau (CFPB) in its Consumer Financial Protection Circular 2023-02 issued on May 10, the answer is yes: “This practice may impose substantial injury on consumers that that they cannot reasonably avoid and that is not outweighed by countervailing benefits to consumers or competition.” The CFPB also notes that, depending on the circumstances, reopening a closed deposit account may implicate the CFPA’s prohibition on deceptive or abusive acts or practices. Under the CFPA, unfair, deceptive or abusive acts or practices (UDAAP) are prohibited.

In its circular, the CFPB warns financial institutions that they risk violating UDAAP by unilaterally reopening deposit accounts that consumers previously closed. This situation may arise after a customer completes all the necessary steps to close an account. Deposit account agreements typically provide that the financial institution may return any debits or deposits to the account received after closure without facing liability. However, sometimes when a financial institution unilaterally reopens the closed account to process a debit transaction or deposit it receives, consumers may incur overdraft, nonsufficient funds, or monthly maintenance fees. Also, when a financial institution processes a credit through a reopened account, the account funds may become available to third-party creditors.

Our Take:

This guidance appears to be an extension of the CFPB’s continuing war on “junk fees.” It is also notable because, as noted in Consumer Financial Protection Circular 2022-01, the CFPB’s circulars are chiefly designed to provide guidance to other regulators about how to interpret and apply consumer financial laws for which the CFPB has primary jurisdiction. As a result, this guidance will impact not only CFPB-supervised financial institutions, but also those institutions supervised by other federal and state regulators.

Troutman Pepper will continue to monitor the CFPB’s activity in this area.

As discussed here, on March 30, the Consumer Financial Protection Bureau (CFPB) issued its final rule under Section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Final Rule). Section 1071 amended the Equal Credit Opportunity Act (ECOA) to impose significant data collection and reporting requirements on small business creditors. On May 12, the CFPB issued a Small Entity Compliance Guide that includes a detailed summary of the Final Rule’s requirements and examples to illustrate some key portions of the Final Rule. For example, illustrations include what constitutes covered originations, what date should be reported for an application, and how a covered entity is to report a response to whether the applicant is a women-owned, minority-owned, and/or LGBTQI+ business if the applicant refuses to respond.

Continue Reading CFPB Issues Small Entity Guide With Illustrations on How to Comply With Section 1071 Final Rule

Please join Troutman Pepper Partner Chris Willis and his colleagues Lori Sommerfield and Caleb Rosenberg for the second installment of a special three-part series about the Consumer Financial Protection Bureau’s (CFPB) new small business lending data collection and reporting final rule — the Section 1071 rule. Part 2 takes a deeper dive into the rule’s data collection requirements, including what needs to be collected, when and how, and significant new provisions, dealing with discouraging people from responding to Section 1071 information requests, particularly concerning demographic information.

Continue Reading CFPB’s Section 1071 Final Rule (Part 2): Deep Dive on Data Collection and Discouragement

On May 1, 2023, the Consumer Financial Protection Bureau (CFPB) proposed a rule to establish consumer protections for residential Property Assessed Clean Energy (PACE) loans.

A PACE loan is a way for consumers to borrow money for home improvements by increasing their property tax payments. Homeowners repay PACE loans through an additional assessment that is collected along with their regular property taxes. The loans are secured by a tax lien on the borrower’s home and are often promoted as a way to finance clean energy improvements such as solar panels. Although PACE loans are authorized by local governments, they are generally administered by private companies who market the loans and make the lending decisions.

The proposed rule takes aim at what CFPB Director Rohit Chopra described as unscrupulous companies who “bait homeowners into unaffordable loans with exaggerated promises of energy bill savings.”

If finalized, the rule would require lenders to assess a borrower’s ability to repay a PACE loan and would provide a framework for how these loans will be treated under the Truth in Lending Act. Specifically, it would adjust disclosure requirements in an attempt to help consumers understand the loans’ impact on their property tax payments.

We will continue to monitor this and other rule changes as the CFPB continues to adapt to changes in the lending marketplace.

Citing research that found about half of U.S. adults find it difficult to afford the cost of their healthcare, the Consumer Financial Protection Bureau (CFPB or Bureau) published a report focusing on medical credit cards and loans used to cover basic medical treatment and emergency health care. According to the CFPB, the use of medical credit cards and installment loans can increase the financial burden on patients who may pay more than they otherwise would pay.

The CFPB acknowledged in its report that both insured and uninsured Americans face significant challenges paying for necessary medical procedures. One reason is that many medical services and devices, such as fertility treatments, auditory devices, and dental services, may not be covered by insurance. Another reason is that average deductibles have grown 336% in the last two decades. For these reasons, many people will use financial alternatives, including medical credit cards and installment loans, to cover healthcare costs.

Specifically, the CFPB found that:

  • Medical credit cards and installment loans were once used primarily for elective care but now cover everything from emergency visits and specialty care to regular checkups.
    • When a patient signs up for a medical credit card, their card can be used again for medical services until they reach their credit limit.
    • Medical installment loans, on the other hand, are generally offered before a treatment and are only authorized to cover that treatment.
  • Medical financing companies rely on healthcare providers to market their products.
    • According to the CFPB, healthcare providers may be disincentivized to explain mandated financial assistance programs or zero-interest repayment options to patients before offering these products.
    • The Bureau also stated that healthcare providers may be unable to adequately explain complex terms, such as deferred interest plans, to patients.
  • Certain medical payment products offer deferred interest promotions. These products offer zero or low interest for a set period of time. Once the promotional period expires, the rates can increase significantly.
    • Notably, the report acknowledged that for the majority of patients who pay off their full balance in the designated time period, deferred interest financing can be advantageous.

The CFPB concludes its report by stating, “[w]e will continue to look at how medical credit cards and loans are marketed to providers, the reach of these products, and how the use of these products, particularly for patients with limited access to credit, impacts patients’ finances and health outcomes.”

This is an area where we have not seen much activity from the CFPB in quite some time. The fact that the issue of medical procedure financing is coming up again may indicate that the Bureau’s interest in this area has returned. Troutman Pepper will continue to monitor the CFPB’s activity in this area and report if the Bureau’s findings prompt more enforcement actions.

Please join Troutman Pepper Partner Chris Willis and his colleagues Alan Wingfield, James Kim, and Taylor Gess for the first installment of a special two-part series about the Consumer Financial Protection Bureau’s (CFPB) recent policy statement on abusiveness. In Part 1 the panel discusses the background of the policy statement, the definition of abusiveness, when it exists and when it doesn’t, and practical considerations for compliance.

Continue Reading CFPB’s Policy Statement on Abusiveness (Part 1)

Please join Troutman Pepper Partner Chris Willis and his colleagues Lori Sommerfield, Addison Morgan, and Josh McBeain for the first installment of a special three-part series about the Consumer Financial Protection Bureau’s (CFPB) new small business lending data collection and reporting final rule — the Section 1071 rule. Part 1 of this special series provides a general overview of the rule, including:

Continue Reading CFPB’s Section 1071 Final Rule (Part 1): A General Overview

Noting a rise in credit card delinquencies, the Consumer Financial Protection Bureau (CFPB or Bureau) released a new blog post analyzing civil judgments, the final recourse for creditors to collect on unsecured debt. According to the CFPB, civil judgments are “”both common and unevenly distributed.””

Specifically, the CFPB reports that civil judgments are:

  1. Almost twice as common as bankruptcies.
    • Bankruptcy filings are sometimes used as a measure of consumers struggling with debts, but the CFPB’s research shows struggling consumers are more likely to be sued by creditors than to seek bankruptcy protection.
    • According to the CFPB, consumers filing for bankruptcy protection also differ from consumers affected by civil judgments. Bankruptcy is primarily used by people with assets. In contrast, people who have a civil judgment filed against them are much less likely to have a mortgage or auto loan.
  2. Twenty times more common in some states than others.
    • Civil judgments are governed by state law. Some states prohibit wage garnishment for consumer debts, while others only protect the federally required minimum from garnishment. There are also differences across states in the cost of filing suit.
    • The CFPB found that states that protect more wages from garnishment have fewer civil judgments. But the CFPB also noted that its data suggests increasing wage garnishment protections also reduces credit card limits.
  3. More concentrated in areas with a higher percentage of Black residents.
    • The Bureau’s research found that even comparing across areas with the same delinquency rates, areas with a higher share of Black residents have more civil judgments.

Troutman Pepper will continue to monitor the CFPB’s activity in this area and report if the Bureau’s findings prompt more enforcement actions.