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Eight national banking trade groups — the American Bankers Association, Consumer Bankers Association, Credit Union National Association, Housing Policy Council, Independent Community Bankers of America, National Association of Federally-Insured Credit Unions, National Bankers Association, and The Clearing House Association — petitioned the Consumer Financial Protection Bureau (CFPB) to extend its supervision to “data aggregators.” This is the first time any of the groups have used the CFPB’s petition process since it was revamped this past February.

The petition notes that while banks and credit unions are regularly supervised and examined by the CFPB, non-depository institutions, such as “data aggregators,” data holders, and data users, are not. “This supervisory imbalance creates both an unsustainable model as the aggregation services market grows and the risk that the laws applicable to the activities of those larger participants in this market will be enforced inconsistently.”

The petition targets “data aggregators,” previously defined by the CFPB as: “[A]n entity that supports data users and/or data holders in enabling authorized data access” and states that data aggregators typically access and transmit consumer financial data to data users pursuant to consumer authorization. The CFPB further has stated that data aggregators can be “fourth parties” that support data users in procuring consumer authorization to access data, and in accessing data, and often support data holders in facilitating authorized third-party access to their customers’ data.

The CFPB is currently engaged in rulemaking under Section 1033 of the Dodd-Frank Act, which authorizes the CFPB to establish standards for sharing consumer financial data. Financial institutions already need to meet significant data privacy requirements under federal law and are monitored by the CFPB for compliance. While data aggregators will be covered by any new Section 1033 rules, they will not be subject to the CFPB’s supervision.

The Dodd-Frank Act allows the CFPB to supervise larger participants of markets for consumer financial products or services, and the petition requests the CFPB to propose a rule that would add a definition for “larger participants of a market” for aggregation services and define aggregation services as a financial product or service.

Providing a rational for the requested change, the petition stated: “Consumer protection laws and regulations must be enforced in a fair and comparable way to ensure legal and regulatory obligations are observed. The Associations believe that establishing accountability across all providers of comparable financial products and services is a fundamental mission of the CFPB.”

Responding to the petition, a CFPB spokesman stated: “Pursuant to our new process, we will consider this petition after posting it on regulations.gov and taking comments from the public.”

Troutman Pepper will continue to monitor important developments involving the CFPB, the Dodd-Frank Act, and data aggregators and will provide further updates as they become available.

On March 1, the Consumer Financial Protection Bureau (CFPB) released a report highlighting the effect of medical collections on consumer credit reports. The CFPB found that medical collections tradelines appeared on 43 million credit reports, and past-due medical debt is more prevalent among Black and Hispanic individuals. That same month, the three nationwide consumer reporting agencies announced plans to dramatically reduce medical debt credit reporting.

On July 27, the CFPB issued its analysis of the potential impact of those announced changes. While the analysis found that the majority of individual medical collections tradelines would be removed from credit reports, it also found nearly half of those consumers with medical collections will continue to have at least one medical tradeline on their credit reports, even after the changes go into full effect next year.

“Today’s report analyzes recent changes announced by the Big Three credit reporting conglomerates, and it is clear that more work must be done to address medical debt credit reporting problems” said CFPB Director Rohit Chopra.

Among other findings from the report, the CFPB found:

  • Two-thirds of medical collections on credit reports will no longer be reported. Specifically, starting in 2023, medical collections tradelines less than $500 will no longer be reported on consumer credit reports.
  • Announced changes will likely have varied geographic impact, meaning patients living in states in the North and the East have higher concentrations of medical debt with lower balances and will more likely benefit from the changes. Consumers residing in West Virginia will have a much greater share of medical collections removed compared to residents of any other state.
  • Residents of lower income, majority Black or Hispanic census tracts are slightly less likely to benefit from the announced changes by having all their medical collections tradelines removed. The nationwide consumer reporting agencies also plan to cease reporting entirely on paid medical collections, whether paid by insurance or otherwise. However, the CFPB noted that removing paid collections is less likely to have a substantial effect, as very few medical collections tradelines are ever marked paid.

The report did not examine the impact of the nationwide credit reporting agencies’ extension of time between referral of the medical bill for collections and the reporting of the medical bill from six months to one year. That change should mean that many more medical billing disputes are resolved before credit reporting occurs.

The CFPB report also contained findings and observations in the following additional areas:

  • Characteristics of consumers with reported medical collections;
  • Persistence of medical collections on credit reports; and
  • Medical collections likely to be removed in the next year.

The CFPB report concludes that these changes will likely reduce the number of medical collections being reported and implicitly reduce the amount of time that medical collections are reported. The CFPB is expected to conduct further research on how credit reporting of medical collections changes over the next year.

Troutman Pepper will continue to monitor important developments involving the CFPB and the consumer reporting industry and will provide further updates as they become available.

The Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) highlighted their efforts to aggressively enforce provisions of the Military Lending Act (MLA) in a recently issued press release and testimony before Congress. The FTC — along with 18 states — announced it had brought its first-ever case, alleging violations of the MLA against Harris Jewelry, while the CFPB touted its actions against businesses that violated the MLA by forcing servicemembers to repay loans by allotment or by charging interest rates that exceeded the 36% MLA maximum.

Harris Jewelry Settlement

In the press release announcing the settlement, the FTC, along with the states that joined in the enforcement action, accused Harris Jewelry of using “shady practices” against servicemembers. Harris Jewelry has nationwide locations located just outside of military bases and sometimes collocated on the bases themselves, allowing it to target servicemembers. According to the FTC, Harris Jewelry failed to comply with the MLA by not disclosing required information, such as a statement of the military annual percentage rate. Harris Jewelry was also alleged to have made unsupported claims to servicemembers, including statements that servicemembers could improve their credit scores by financing their purchases, using credit provided by Harris Jewelry. Additionally, Harris Jewelry was accused of tacking on purchase protection plans, using sales tactics the FTC described as misrepresentation.

As part of the settlement, Harris Jewelry must stop the alleged deceptive practices, provide refunds for the purchase protections plans, stop debt collection from servicemembers, and request consumer reporting agencies to remove negative credit entries. Furthermore, Harris Jewelry must pay $1 million to the states for law enforcement and education efforts and, after complying with all of the settlement terms, shut down and dissolve its operations.

CFPB Enforcement Actions

Testifying before the House Committee on Oversight and Reform Subcommittee on National Security, Assistant Director of the Office of Servicemember Affairs Jim Day highlighted the CFPB’s efforts to take action against businesses that violate the MLA. Over the past year and half, these efforts have included:

  • Issuing a consent order against Omni Financial of Nevada, Inc. for requiring servicemembers to repay loans by allotments, a violation of the MLA.
  • Suing LendUp in late December 2020 for charging interest rates that exceeded the MLA’s 36% cap. This suit later resulted in a stipulated judgment that the CFPB sued LendUp for violating in early 2021. This led to a second stipulated judgement that prohibits LendUp from making new loans or collecting on outstanding loans.

Why These Enforcement Actions Are Noteworthy

As noted by Malini Mithal of the FTC Bureau of Consumer Protection in testimony accompanying the CFPB’s testimony, “Military frauds cause great harm to individual victims and their families, and undermine military readiness and troop morale.” Businesses occasionally target servicemembers because they know military members have guaranteed paychecks, and their failure to repay loans can result in negative administrative action and potentially criminal penalties under the Uniform Code of Military Justice. Additionally, as many servicemembers are young men and women frequently stationed far from home, they may not be savvy consumers and can be ripe for deceptive sales tactics. As a result, both the FTC and CFPB pledged to Congress that they would ensure these servicemembers received the protections guaranteed to them under the MLA.

We’re Here to Help

Our clients are reminded of the broad protections our servicemembers have earned through their volunteer service, and they are encouraged to seek assistance if there are questions about how to best implement these rights. Troutman Pepper’s military lending practice includes one of the oldest and most well-respected consumer financial services and regulatory practices in the U.S. Let us help you ensure our military members are being rewarded for their valuable service to our nation.

The Bureau of Consumer Financial Protection (CFPB) ordered Hyundai Capital America (Hyundai) to pay $19.2 million for allegedly providing inaccurate information to consumer reporting agencies, including, the CFPB alleged, wrongly reporting that consumers were delinquent on loans and leases, in violation of the Fair Credit Reporting Act (FCRA).

In its press release, the CFPB stated that it received many consumer complaints that Hyundai furnished inaccurate credit information about consumer payments on loans and leases to consumer reporting agencies. The CFPB asserted that Hyundai furnished inaccurate information on more than 2.2 million customer accounts and identified many issues in its internal audits, but it “took years” to address the problems.

More specifically, the CFPB states that Hyundai violated the FCRA by:

  • Failing to report complete and accurate loan and lease information, including failing to promptly update and correct information it had furnished to consumer reporting agencies that it determined was not complete or accurate;
  • Failing to provide date of first delinquency information to consumer reporting agencies when required;
  • Failing to modify or delete information when required, specifically that monthly updates by Hyundai’s furnishing system to consumer reporting agencies allegedly overrode manual corrections made by employees in responding to consumer disputes, which allegedly reintroduced the data error after it had been disputed and corrected;
  • Failing to have reasonable identity theft and related blocking procedures and continuing to report such information that should have been blocked on a consumer’s report; and
  • Failing to have written accuracy and integrity policies and procedures as required by Regulation V, specifically an alleged failure to review and update its credit reporting furnishing policies and procedures from 2010 to 2017.

As a result of its investigation, Hyundai was ordered to pay a $6 million civil penalty and $13.2 million in restitution to current and former customers, as well as to take steps to correct all inaccurate account information.

An enforcement action of this size and severity indicates the CFPB’s continued priority on investigating creditors’ furnishing practices under the FCRA.

As peer-to-peer money transfer services (or cash apps) become more popular, there has been an increase in the number of scams enticing consumers to transfer funds to fraudsters. The law currently provides that the banks that own the cash apps are only required to reimburse transactions not authorized by the customer — meaning if a customer is tricked into transferring money to a scammer, but authorizes the transaction, the banks are not responsible for those transactions. However, this could soon change, and if it does, banks warn that the changes could harm the very people they are designed to protect.

The Bureau of Consumer Financial Protection (CFPB) plans to release new guidance in the coming weeks under which banks could face heightened requirements around certain scams that have become more prevalent on cash apps, such as when a customer is tricked into sending money to a scammer pretending to be a representative of his/her bank. The legal basis for this requirement for depositary banks is unclear.

“Reports and consumer complaints of payments scams have risen sharply, and financial fraud can be devastating for victims,” said Sam Gilford, a CFPB spokesman. “The CFPB is working to prevent further harm, including by ensuring that financial institutions are living up to their investigation and error-resolution obligations.”

However, banks argue that these proposed changes would harm consumers and the payment system. For example:

  • These changes could result in increased fraudulent activity, as fraudsters could falsely claim they were fraudulently induced into initiating a transaction.
  • In addition to potentially increased fees and cutting money transfer services, banks may place limits on transactions, which would impact consumers who use cash apps to send funds greater than the limit.
  • In response to these changes, banks may also introduce greater friction into the process as part of trying to minimize fraud, but which will discourage consumers from using the service and undermine the faster nature of these payments.

“Any actions taken by policy makers to dramatically alter the peer-to-peer payment system will have a ripple effect throughout the American economy, harming the millions of consumers, small-business owners and independent contractors who rely on faster electronic payments to pay their bills and earn their livelihood,” said Lindsey Johnson, president and chief executive of the Consumer Bankers Association.

Troutman Pepper will continue to monitor these developments and will provide further updates as they become available.

Please join Troutman Pepper Partner Chris Willis and his guests and colleagues Alan Wingfield and Noah DiPasquale as they discuss the recent advisory opinion from the Consumer Financial Protection Bureau on name-only matching under the Fair Credit Reporting Act (FCRA). Highlights include how the opinion was adopted, challenges furnishers and users will face in light of this opinion, and the potential impact for the credit reporting industry moving forward.

Continue Reading CFPB Advisory Opinion on Name-Only Matching Under FCRA

The Consumer Financial Protection Bureau (CFPB or Bureau) agreed to a March 31, 2023 deadline to issue a final rule under Section 1071 of Dodd-Frank. Section 1071 amended the Equal Credit Opportunity Act (ECOA) to impose significant data collection requirements on small business creditors. The CFPB accepted the deadline as part of a previously agreed litigation settlement regarding alleged delays in the rulemaking process. The court accepted the deadline and maintained jurisdiction over the matter to oversee compliance with the settlement and to address any potential requests for modification.

Continue Reading CFPB Agrees to March 31, 2023 Deadline for Final Rule Under Section 1071

“Convenience” fees charged to consumers for the use of certain debt payment options have come under increased scrutiny, as regulators have sought to limit charges and other back-end fees that may come as a surprise to consumers. Also known as “pay-to-pay” fees, such convenience charges are typically imposed by debt collectors and/or loan servicers where a debtor chooses to make payment online, by telephone, or through another electronic medium. On June 29, the Consumer Financial Protection Bureau (CFPB or Bureau) issued an advisory opinion concerning the permissibility of these fees under the federal Fair Debt Collection Practices Act (FDCPA). The opinion, which became effective on July 5, sets forth the Bureau’s view that such fees are prohibited under the FDCPA, except where expressly authorized by the agreement creating the debt or expressly authorized by law.

The Bureau’s opinion rests upon a two-part analysis, focusing on the “any amount” and “permitted by law” language found in FDCPA Section 1692f(1), which prohibits the “collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.” The analogous regulation, promulgated by the Bureau in 2020, tracks this statutory language, while clarifying that the “term ‘any amount’ includes any interest, fee, charge, or expense incidental to the principal obligation.” 12 C.F.R. § 1006.22(b).

“Any amount”

In a 2017 compliance bulletin, the Bureau issued guidance to debt collectors, summarizing its conclusion that “any amount” includes phone pay fees — a species of pay-to-pay fee — and that such fees were permissible only where the underlying contract or state law expressly authorized them. The June 29 advisory opinion extends that reasoning to include “fees incurred by customers to make debt collection payments through a particular channel,” whether or not such fees are “incidental to” the principal debt obligation.

“Permitted by law”

The second prong of the Bureau’s analysis focuses on Section 1692f(1)’s “permitted by law” language. In the Bureau’s view, Congress’s use of the term “permit” within the context of law suggests affirmative authorization — not a mere lack of prohibition. Accordingly, going forward the Bureau will interpret Section 1692f(1) “to permit collection of an amount only if: (1) the agreement creating the debt expressly permits the charge and some law does not prohibit it; or (2) some law expressly permits the charge, even if the agreement creating the debt is silent.” If both the agreement creating the debt and other state law are silent with respect to pay-to-pay fees, such fees are impermissible. Importantly, the opinion further clarifies that a separate contract between a consumer and debt collector providing for payment fees — and binding under state law — would not suffice to bring the fees within the ambit of the “permitted by law” exception. The Bureau reasoned that while such agreements may be permissible under a given jurisdiction’s contract law, such laws do not expressly “permit the ‘amount’ at issue, i.e., the pay-to-pay fees.”

Payment processers

The Bureau’s advisory opinion also reaches debt collectors and/or loan servicers who use third-party payment processors that charge consumers pay-to-pay fees. Under this scenario, a debt collector could incur liability under Section 1692f(1) where a “third-party payment processor collects a pay-to-pay fee from a consumer and remits to the debt collector any amount in connection with that fee, whether in installments or in a lump sum.”

Looking forward

Overall, the June 29 advisory opinion keeps with CFPB Director Rohit Chopra’s efforts to rein in fee practices across the financial services industry. As conceded by the Bureau, however, its interpretation of Section 1692f(1) runs contrary to prior judicial opinions construing the statutory text — particularly those decisions validating pay-to-pay fees governed by subsequent loan-servicing contracts otherwise valid under state law. Because debt collectors and loan servicers do not originate the terms and conditions agreements underlying consumer debts, their ability to impose pay-to-pay fees would be significantly curtailed under the Bureau’s no-separate-agreement rule. As noted in the advisory opinion, this very issue is the subject of an appeal currently pending in the Ninth Circuit. See Thomas-Lawson v. Carrington Mortg. Servs., LLC, No. 2:20-cv-07301-ODW, 2021 WL 1253578 (C.D. Cal. Apr. 5, 2021), appeal pending, No. 21-55459 (9th Cir.). The Bureau has filed an amicus brief in the case in support of the debtor-appellants. Troutman Pepper’s Consumer Financial Services Practice Group will continue to monitor the appeal. Stay tuned.

On June 28, the Consumer Financial Protection Bureau (CFPB) issued an interpretive rule, encouraging states to enact more laws regulating consumer reporting, arguing that states’ powers are only constrained in limited ways by the Fair Credit Reporting Act (FCRA).

The CFPB believes that states have the ability to enact state-level laws that are stricter than the FCRA, including outright prohibitions on reporting many kinds of truthful information about consumers, with only “limited preemption exceptions.”

The CFPB goes beyond, saying that states have the power to pass these laws, but encourages states to pass laws addressing state-level concerns. For example, the CFPB argues that states may wish to pass laws to prohibit reporting medical debt in a consumer report for a certain period of time after the debt was incurred, articulating its belief that “such a law would generally not be preempted.” Other examples of state laws the CFPB believes would not be preempted include a state law governing when a furnisher may begin reporting a consumer’s account (including medical debt); and a state law prohibiting a consumer reporting agency from including information (or certain types of information) about a consumer’s eviction, rental arrears, or arrests on a consumer report.

The CFPB’s rule argues that state laws that are more protective of consumers than the FCRA are not preempted unless they conflict with specific provisions of the FCRA. The CFPB argues that these conflicts will be on narrow, specific topics, and hence preemption will be narrow. As a result, the scope of permissible state regulation is broad.

The CFPB’s position can be viewed as a follow-up to the CFPB’s recent statements encouraging states to exercise their authority to enforce federal consumer protection laws.

If followed by the states, and by courts hearing preemption challenges to new state laws, the CFPB rule opens the door to more state-by-state regulation of the consumer reporting ecosystem. This regulation could include state laws that restrict the reporting of truthful information, even when permitted by the FCRA and other laws. For example, the CFPB has already questioned the reporting of medical debt, and uses state regulation of medical debt as a main example of permissible state action. It is significant for the CFPB to now also mention eviction records, rental arrears, and arrest records — all data that can be lawfully reported under the FCRA — as topics that the CFPB also believes the states can ban.

It should be noted that the CFPB’s position comes in the context of a long-standing debate in the courts of the scope of FCRA preemption, and the CFPB simply ignores the teachings from the developing case law. For example, multiple courts have broadly questioned the states’ ability to ban reporting of information permitted by the FCRA, while others have roughly aligned themselves with the view of the CFPB that preemption only arises when state law intrudes into consumer reporting questions that have been specifically addressed by the FCRA. In other words, the CFPB has joined the preemption fray, with no certainties in the results other than the promise of a more complex, and litigious, legal environment for consumer reporting, which is already bedeviled by plenty of legal complexity and litigation.

On June 28, the U.S. Chamber of Commerce (Chamber) launched a focused campaign to highlight what it describes as unlawful regulatory overreach by the Consumer Financial Protection Bureau (CFPB or Bureau) and, specifically, new CFPB Director Rohit Chopra. “At every turn,” writes Chamber Executive Vice President and Chief Counsel Daryl Joseffer, the CFPB is pushing an activist agenda “without advance public participation or approval. That is not the system Congress designed, nor one which our laws will tolerate.”

The Chamber’s campaign specifically objects to several alleged unlawful actions, including:

CFPB Policy Fellowship. The Chamber believes that this program circumvents civil-service laws and executive-branch guidance that prohibit preferential hiring and conflicts of interest.

Revisions to CFPB Rules of Practice for Adjudication Proceedings. The Chamber describes this as an impermissible expansion of the director’s powers in ways that undermine due process for defendant companies and violate the separation of powers.

Repeal of Its 2013 Decision Not to Publish a Final Decision or Order Establishing Supervisory Authority Over a Covered Person. This, the Chamber believes, violates the Administrative Procedure Act (APA) because the revised rule did not go through the required notice-and-comment process.

The CFPB Interpretative Rule Regarding State Attorneys General and the Consumer Financial Protection Act. This rule, the Chamber points out, is inconsistent with federal law and exceeds the Bureau’s authority.

Chopra also proposes outright bans on certain products and states his intention to restructure the industry, ultimately hurting consumers by limiting choice and diminishing competition.

As part of its campaign against the federal agency, the Chamber has submitted several Freedom of Information Act (FOIA) requests to the CFPB, including:

  • Communications relating to the May 26 interpretive rule, titled “Authority of States to Enforce the Consumer Financial Protection Act of 2010.”
  • All records regarding the legal basis, authority, and validity of the CFPB Policy Fellowship Program announced in 2021.
  • Current CFPB procedures manual, operating manual, and similar or other document(s) setting out the CFPB’s rules or guidelines concerning procedures, practices, and internal operations.
  • All records regarding Director Chopra’s determination that the board of the Federal Deposit Insurance Corporation could hold a vote without the consent of its chair.
  • All records as to changes to the CFPB’s examination procedures published on March 16.
  • All records regarding President Biden’s July 9, 2021 executive order on promoting competition in the American economy.

The Chamber believes this collection of documents lays out the questionable and unlawful plans of a governmental agency with little oversight and too much regulatory power.

“Director Chopra is attempting to use the CFPB to radically reshape the American financial services sector,” said Neil Bradley, executive vice president and chief policy officer at the U.S. Chamber of Commerce. “Rohit Chopra has an outsized view of the CFPB’s role and the Director’s power.”