Please join Troutman Pepper Partner Chris Willis for a solo episode as he shares his thoughts about the recent lawsuit between the CFPB and the New York State Office of the Attorney General against a subprime auto finance company. He covers some of the unusual claims made in the case, flaws he sees in the asserted legal theories, and potential implications for the rest of the auto finance industry.
Continue Reading CFPB-New York AG Lawsuit Analyses Against Subprime Auto Financer
On February 14, TransUnion filed its annual 10-K report pursuant to the Securities and Exchange Act. Under the section entitled “Risks Related to Laws, Regulations and Government Oversight,” the company disclosed that it was in “active settlement discussions” with the Consumer Financial Protection Bureau (CFPB) and Federal Trade Commission (FTC) over the alleged Fair Credit Reporting Act compliance lapses related to tenant screening.
In the filing, the company stated in March 2022, it received a Notice and Opportunity to Respond and Advise (NORA) letter from the CFPB alleging that TransUnion and its tenant and employment screening business TransUnion Rental Screening Solutions, Inc. failed to: “(i) follow reasonable procedures to ensure maximum possible accuracy of information in consumer reports and (ii) disclose to consumers the sources of such information.” On July 27, 2022, the CFPB advised the company that it had obtained authority to pursue a joint enforcement action with the FTC.
While TransUnion is actively trying to settle this matter, it disclosed that if negotiations were not successful the company expected the CFPB and FTC to pursue litigation and seek “redress, civil monetary penalties and injunctive relief.”
To conclude that section of its filing, TransUnion also noted that recently the credit reporting industry had been subjected to heightened scrutiny. “Based in part on public comments from CFPB officials, we believe this trend is likely to continue and could result in more legislative and regulatory scrutiny of the practices of our industry and additional regulatory enforcement actions and litigation … .”
As we reported here, on November 15, 2022, the CFPB issued two reports highlighting what it perceived to be errors that frequently occur in tenant background checks and the impact the CFPB believed those errors could have on potential renters. In the press release accompany those reports, the CFPB stated, “[t]he reports describe how errors in these background checks contribute to higher costs and barriers to quality rental housing. Too often, these background checks — which purport to contain valuable tenant background information — are filled with largely unvalidated information of uncertain accuracy or predictive value. While renters bear the costs of errors and false information in these reports, they have few avenues to make tenant screening companies fix their sloppy procedures.” As a result, the CFPB pledged, among other priorities, to continue to work closely with the FTC to take action on those issues. The NORA letter to TransUnion appears to be a continuation of that pledge and recent trend of cooperation between those two agencies.
As previously reported here, on May 25, 2022, the Consumer Financial Protection Bureau (CFPB or Bureau) published a blog post, examining what it described as the “practice of suppressing payment data” by credit card issuers in connection with their credit reporting. In its blog post, the CFPB alleged its research conducted in 2020 “uncovered that only about half of the largest credit card companies contribute data to credit reporting companies about the exact monthly payment amounts made by borrowers.” As a result, the CFPB reported that it sent letters to the CEOs of “the nation’s biggest credit card companies,” asking them to explain this practice. On February 26, 2023, the Bureau published an updated blog post purporting to summarize what it learned from the credit card companies’ responses.
From the responses it received, the CFPB concluded:
The blog post concluded by stating the Bureau planned to continue monitoring and addressing credit card company practices that allegedly impede effective market competition. The CFPB also warned that it will “brief the appropriate financial regulators and law enforcement agencies on our findings.”
Our Take
The CFPB’s conclusions on this point seem to us like speculation, as neither the Fair Credit Reporting Act nor the Credit Reporting Resource Guide® requires card issuers to report monthly payment information, which varies constantly for credit card accounts in any event. It’s puzzling to us why this has become such an issue for the Bureau.
On February 14, the Consumer Financial Protection Bureau (CFPB or Bureau) published a blog discussing improvements made to its services with the goal of providing the same experience to consumers with limited English proficiency (LEP) that its English-speaking consumers receive. These improvements include redesigned website landing pages in seven languages and the ability to accept complaints in 180 different languages.
To inform these changes, over the last year the CFPB conducted focus groups in Arabic, Chinese, Haitian Creole, Korean, Tagalog, and Vietnamese to learn about people’s experiences with the U.S. financial system and most common financial issues. The Bureau also conducted interviews with organizations that provide assistance on financial matters to LEP consumers. Lastly, the CFPB administered usability tests of its translated resources to ensure they were easy to use.
From these efforts they learned:
In response to this feedback, the CFPB redesigned its website landing pages in Arabic, Chinese, Haitian Creole, Korean, Russian, Tagalog, and Vietnamese to make them easier to navigate, provide resources about the banking and financial systems, and to include commonly used financial terms and acronyms. These pages also include information about the CFPB’s complaint process.
As we discussed here, over the last year the Bureau’s stance about financial institutions’ responsibility to serve LEP consumers has shifted from more permissive to mandatory. We view this most recent blog post as further evidence of this shift. We also believe that the CFPB’s observations from its focus group exercise and the changes the Bureau made to its own website should be considered by financial institutions in connection with their own LEP efforts. We will continue to watch this issue as it develops.
On February 14, the Consumer Financial Protection Bureau (CFPB) released a report entitled Market Snapshot: An Update on Third-Party Debt Collections Tradelines Reporting. The report sought to examine trends in the reporting of debt in collections from 2018 to 2022. Based on the CFPB’s Consumer Credit Panel, a nationally representative sample of approximately five million de-identified records maintained by one of the national consumer reporting agencies, the total number of collections tradelines on consumer reports declined by 33% from 2018 to 2022 (from 261 million tradelines to 175 million tradelines). According to the CFPB, the decline was driven by fewer reports by contingency-fee-based debt collectors, who primarily collect on medical bills. Nonetheless, medical collections tradelines still constitute a majority (57%) of all collections showing on consumer reports.
Key findings from the report include:
This report updates a prior CFPB report released in July 2019. The 2019 report looked at data from 2004 to 2018 and found that: most collections tradelines are furnished by debt collectors; 58% of collections tradelines were medical; debt buyers primarily furnished banking and financial collections tradelines; furnishing by debt buyers had declined steadily from 2009 to 2016; and tradelines furnished by debt buyers were more likely to be disputed.
Can websites or mobile apps that offer ranked lists of mortgage providers purportedly best suited for individual consumers violate section 8 of the Real Estate Settlement Practices Act (RESPA)? According to the Consumer Financial Protection Bureau (CFPB or Bureau) in its recent advisory opinion, these digital platforms may violate the RESPA if the platform: 1) presents one or more service providers in a non-neutral way: and 2) manipulates its inputs or formula to generate comparison options favoring higher-paying or preferred providers. Further, the CFPB opined that if the operator of the digital platform receives a higher fee for including one mortgage provider compared to what it receives for including other providers, that can be evidence of an illegal referral fee arrangement.
In a press release accompanying the advisory opinion, CFPB Director Rohit Chopra stated, “Over the last year, mortgage interest rates have increased rapidly, adding to the stress of homebuying … People often turn to purportedly objective and unbiased comparison-shopping platforms for help finding the best lender or service provider.” However, according to Director Chopra, the results produced by the platform can be “rigged.”
“In some cases, in spite of the platforms claiming to provide neutral information about what provider best suits the consumer’s needs, their interaction with a platform results in little, if any, personalization – under the guise of neutrality, they are just presented with a list of companies from which the platform operators extracted the requisite kickbacks. Other times, the platforms may preference companies they have a financial stake in without acknowledging the conflict of interest. Platforms sometimes will also simply hand off a shopper to the highest bidder — telling the shopper this company is their best option or that they are in good hands.”
As background, section 8 of the RESPA prohibits any fees or kickbacks exchanged in a transaction related to a federally related mortgage loan. The CFPB’s advisory opinion is rooted in a 1996 statement issued by the U.S. Department of Housing and Urban Development clarifying that referral fees paid to digital platforms to unfairly advantage one company over another, which could result in increased closing and settlement costs, are illegal under the RESPA. It also builds upon the CFPB’s effort to end purported bias in ostensibly neutral platforms. On March 22, 2022 the Bureau issued policy guidance on potentially illegal practices related to consumer reviews. The guidance sought to ensure that customers can write reviews, particularly ones posted online, about financial products and services that accurately reflect their opinions and experiences. The guidance highlighted that some practices, such as posting fake reviews or inserting clauses that forbid a customer from publishing an honest review, may violate the Consumer Financial Protection Act.
Our Take:
It is interesting that the CFPB did not also invoke UDAAP as a basis for this advisory opinion; it would seem easy for the Bureau to argue that a “rigged” comparison is deceptive to consumers, and using a UDAAP basis for the opinion would have also sent a signal to comparison sites for non-mortgage loans. Nevertheless, we continue to believe that online comparison sites are subject to criticism for conduct like that described in this advisory opinion, even if they compare non-mortgage loans. Further, creditors who advertise on those sites need to be mindful of how their products are being presented by such sites, lest the creditors themselves face regulatory scrutiny. While the CFPB’s advisory opinion on RESPA and mortgage loans does not expressly state this, we believe this is a lesson that the wider industry should take from it.
In the first of a four-part Crypto Year in Review series, Carlin McCrory, Keith Barnett, and Ethan Ostroff look at how the CFPB and FTC viewed and regulated cryptocurrency in 2022. The panel examines statements by CFPB Director Rohit Chopra and recent CFPB and FTC enforcement actions, identifying likely regulatory trends for 2023 and beyond.
Continue Reading Crypto Year in Review 2022: CFPB and FTC Enforcement Trends
On February 3, an Illinois federal court dismissed a case brought by the Consumer Financial Protection Bureau (CFPB) against Townstone Financial, Inc., a Chicago mortgage lender, for alleged violations of the Equal Credit Opportunity Act (ECOA) for purportedly discouraging prospective African American applicants in the Chicago metropolitan area from applying for mortgages. Townstone moved to dismiss, arguing the suit was an attempt by the CFPB to expand the reach of the ECOA to “prospective applicants,” when the statute itself only prohibits discrimination against “applicants.”
In the complaint, which asserts redlining and discouragement claims under the ECOA, the CFPB alleged that from 2014 through 2017, Townstone drew around 2,700 applicants, only 37 (1.4%) of which came from African Americans in the Chicago metropolitan area. During that same period, it drew only five or six applications (0.8%) each year from high-African American neighborhoods even though such neighborhoods make up 13.8% of the census tracts. While Townstone allegedly drew between 1.3% and 2.3% of its applications for properties in majority-African American neighborhoods, from 2014 through 2017, its peers drew many times more (between 7.6% and 8.2%). The CFPB alleged that Townstone’s acts, including comments made on its podcast, discouraged prospective African American applicants, and that the ECOA’s implementing regulation, Regulation B, extends the ECOA’s prohibition to discouraging “potential applicants.” Townstone argued that the CFPB was attempting to expand the reach of the ECOA, which regulates the company’s behavior towards applicants for credit, but does not regulate behavior towards prospective applicants who have not yet applied for credit. The district court agreed with Townstone, specifically finding “[t]he CFPB’s authority to enact regulations is not limitless.”
When performing its Chevron analysis of the ECOA, the court found “the word ‘applicant’ is used twenty-six times in the statute, and the statute does not prohibit or discuss conduct prior to the filing of an application.” The court found that because the text of the ECOA is unambiguous, it owed no deference to the definition of “applicant” under Regulation B. It therefore held, “[t]he CFPB cannot regulate outside the bounds of the ECOA, and the ECOA clearly marks its boundary with the term ‘applicant.'” The court further dismissed the CFPB’s ECOA count with prejudice because “any amendment would be futile.”
Our take: The scope of the ECOA has been attacked from both directions in recent litigation. Some courts have held that a person who has already received credit is not an “applicant,” and therefore is not covered by the ECOA; the CFPB and Federal Trade Commission filed amicus briefs in some of those cases asserting the opposite view. Now, the Townstone court has limited the definition of “applicant” to exclude persons who have not yet applied for credit, and a plain-language reading of the statute supports this conclusion. This latter holding has very significant implications for ECOA claims based on advertising (including based on online targeted advertising), which would be barred under the reasoning of the Townstone decision. Notably, however, it would not impact mortgage redlining cases brought by the U.S. Department of Justice (DOJ), because the DOJ can also rely on the Fair Housing Act, which is not limited to “applicants.” The CFPB has no authority to bring claims under the Fair Housing Act, and so if this holding is more widely adopted among federal courts, it may force the CFPB to refer all redlining cases to the DOJ in the future.
It is likely that the CFPB will seek to appeal this decision. We will, of course, monitor this issue and continue to post updates here.
In a case involving the application of Regulation E (Reg. E) to certain prepaid cards, the Consumer Financial Protection Bureau (CFPB) submitted an amicus brief arguing that the error resolution procedures in Reg. E apply to pandemic-related unemployment benefits that are issued via prepaid cards.
Reg. E, which implements the Electronic Fund Transfer Act (EFTA), sets out the rights and responsibilities of users and issuers of certain accounts, including “prepaid accounts.” The regulation defines “prepaid accounts” to include “government benefit accounts,” but also excludes accounts that are “loaded only with qualified disaster relief payments.” When Reg. E applies to a prepaid account, an issuer must timely investigate disputed transactions.
The case involves the issuance of Pandemic Unemployment Assistance (PUA) under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The Maryland Department of Labor’s Division of Unemployment Insurance granted PUA benefits to the plaintiff, who elected to receive the benefits on a prepaid card issued by the defendant bank. The plaintiff claimed that the bank violated the EFTA and Reg. E in its handling of his disputes related to the card.
The district court concluded that the bank was not obligated to follow the procedures in Reg. E because PUA benefits are not covered by the rules. According to the district court, the PUA benefits are qualified disaster relief payments because they were granted due to the COVID-19 pandemic, meaning that they are specifically excluded from the definition of “prepaid account” under Reg. E.
On appeal to the Fourth Circuit, the CFPB argues in its amicus brief that PUA benefits are covered by Reg. E as “government benefit accounts.” The CFPB asserts that the district court erred in concluding that the benefits at issue are qualified disaster relief funds because that exclusion applies to certain types of prepaid accounts but not government benefit accounts. Any additional analysis beyond determining that PUA benefits meet the “prepaid account” definition as “government benefit accounts” was in error, according to the CFPB.
Why It Matters
If Reg. E applies to prepaid cards that provide access to pandemic-related benefits, banks issuing such cards must ensure that they are complying with Reg. E in their handling of disputes, along with all of the other requirements in the EFTA and Reg. E.
Today the Consumer Financial Protection Bureau (CFPB) published a proposed rule with request for public comment that would amend Regulation Z to: 1) decrease the safe harbor for credit card late fees to $8 and eliminate altogether a higher safe harbor amount for subsequent late payments; 2) eliminate the annual inflation adjustments for the late fee safe harbor amount; and 3) mandate that late fees must not exceed 25% of the required minimum payment. The CFPB states that it is proposing the amendments to Regulation Z pursuant to its authority under the Dodd-Frank Act to prescribe regulations to carry out the purposes of the Truth in Lending Act. The CFPB’s rationale in proposing the amendments is, “to better ensure that the late fees charged on credit card accounts are ‘reasonable and proportional’ to the late payment.”
For background, the Federal Reserve Board of Governors (Fed) in 2010 voted to implement provisions of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) that required late charges to be “reasonable and proportional to the omission or violation.” However, the Fed also included a provision that allowed credit card issuers to escape enforcement scrutiny if they set fees at a particular level, that is, a “safe harbor.” But the Fed also stated that it would adjust the safe harbor amount annually, based on changes in the consumer price index. In 2010, the safe harbor limit on late fees was $25 for the first late payment and $35 for subsequent late payments within six billing cycles. Since then, the late fee limit has increased to $30 for the first late payment and $41 for subsequent late payments. In late June, the CFPB published an Advance Notice of Proposed Rulemaking seeking data as to whether late fees charged by credit card companies are “reasonable and proportional” to the amount owed. As discussed here, banking groups vigorously opposed any changes on the basis that, amongst other things, late fees act as a deterrent to consumers overextending beyond their means.
In addition to the three proposed amendments above, the CFPB is soliciting comment on whether card issuers should be prohibited from imposing late fees on consumers that make the required payment within 15 days of the due date, and whether, as a condition of using the safe harbor, it may be appropriate to require card issuers to offer automatic payment options (such as for the minimum payment amount), and/or to provide notification of the payment due date within a certain number of days prior to the due date.
The CFPB is also seeking comment on the following issues generally related to late fees:
Interested parties may submit comments on the proposed rule until the later of April 3, 2023 or 30 days after publication of the proposed rule in the Federal Register.
Given that this proposed rule, if finalized, would likely have a directly adverse effect on the bottom line of credit card issuing banks, we expect the discussion and commentary on this proposed rule to be robust. We will continue to monitor and report on these developments.