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On June 14, the Consumer Financial Protection Bureau announced a settlement that effectively forgives $168 million in private student loans owed by former students of ITT Technical Institute, the for-profit college that filed for bankruptcy in 2016 in the face of regulatory scrutiny concerning its recruitment and student loan practices. The settlement is with Student CU Connect CUSO, LLC (“CU Connect”), which was created to fund and manage loans for ITT students.   

The CFPB filed a complaint in the Southern District of Indiana alleging that CU Connect provided substantial assistance to ITT in strong-arming students into CU Connect Loans, characterized by high interest rates and high default rates, while the students were “unaware of the terms, conditions, risks, or even existence of their CU Connect Loans.”  

Under the settlement, CU Connect must stop collecting on all outstanding CU Connect Loans, discharge all outstanding CU Connect Loans, and ask all consumer reporting agencies to which CU Connect furnished information to delete tradelines relating to CU Connect Loans. The order also requires CU Connect to provide notice to all consumers with outstanding CU Connect Loans that their debt has been discharged and is no longer owed and that CU Connect is seeking to have the relevant tradelines deleted.  

The district court quickly approved the settlement with its entry of the final order on June 20. Forty-four states plus the District of Columbia have also settled with CU Connect on the same terms.

On June 25, the Consumer Financial Protection Bureau will host the first of a series of symposia exploring consumer protections in the financial services industry. This initial symposium will focus on the meaning and scope of “abusiveness” under Section 1031 of the Dodd-Frank Act.

Under the Dodd-Frank Act, the CFPB may take enforcement, supervision, and rulemaking actions regarding unfair, deceptive, or abusive acts and practices (commonly referred to as “UDAAP”). While the terms “unfair” and “deceptive” are fairly well-defined by the Federal Trade Commission, the phrase “abusive acts and practices” is less developed and its meaning unclear. 

The goal of the symposium is to address and provide clarity as to the meaning and scope of “abusiveness” under the Dodd-Frank Act through dialogue with academic and industry experts. The program will feature two panels of UDAAP experts – the first panel will include leading academic experts on consumer protection, and the second panel will include leading legal experts on abusiveness in practice in the financial services industry.  

As announced in April, the symposia are designed to support the CFPB’s policy development and possible rulemaking on challenging issues such as the meaning of “abusiveness.”  

The symposium begins at 9:00 a.m. at the CFPB’s headquarters in Washington. Registration for in-person and livestream attendance may be completed on the CFPB’s website.

The Federal Trade Commission has issued a Final Rule rescinding several Model Forms and Disclosures it had promulgated under the Fair Credit Reporting Act. The FTC determined these Model Forms and Disclosures were no longer necessary following the transfer of rulemaking authority associated with these forms to the Bureau of Consumer Financial Protection (“CFPB”) under the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Rule became effective on May 22, 2019. 

The CFPB recently issued revisions to its own model forms and disclosures in September of 2018 through an interim final rulemaking. The CFPB’s revisions added language regarding a consumer’s right to a security freeze into the Summary of Consumer Identity Theft Rights and the Summary of Consumer Rights, as well as the extension of an initial fraud alert from 90 days to one year. The CFPB otherwise made no substantive changes to the forms. As a result of the CFPB’s revisions, the FTC rescinded the overlapping but now outdated forms to avoid confusion. The chart below shows the rescinded FTC Form and its corresponding CFPB Form:

          Rescinded FTC Form            (16 C.F.R. part 698) Corresponding CFPB Form in Regulation V (12 C.F.R. part 1022)
Appendix A:  Model Prescreen Opt-Out Notices Appendix D:  Model Forms for Firm Offers of Credit or Insurance
Appendix D:  Standardized Form for Requesting Annual File Disclosures Appendix L:  Standardized Form for Requesting Annual File Disclosures
Appendix E:  Summary of Identity Theft Rights Appendix I:  Summary of Consumer Identity Theft Rights
Appendix F:  General Summary of Consumer Rights Appendix K:  Summary of Consumer Rights
Appendix G:  Notice of Furnisher Responsibilities Appendix M:  Notice of Furnisher Responsibilities
Appendix H:  Notice of User Responsibilities Appendix N:  Notice of User Responsibilities

Following these rescissions, covered entities should look to the corresponding forms issued by the CFPB. Plaintiffs’ attorneys often allege technical defects in the forms and disclosures used by companies as a way to bring an FCRA claim. Given the uncapped liability under the FCRA, companies should regularly review the forms and disclosures they use. 

The FTC’s Final Rule rescinding its Model Rules and Disclosures can be found here. 

Troutman Sanders routinely assists clients in formulating and reviewing their forms and disclosures for compliance with the FCRA, and will continue to monitor and provide updates regarding relevant compliance issues.

 

On June 10, the Consumer Financial Protection Bureau (CFPB) issued a final rule extending the compliance deadline for key provisions of its controversial Payday Lending Rule. The new compliance deadline is November 19, 2020, but the CFPB – despite sharp criticism from consumer advocates and leading Democrats – is expected to rescind the most controversial provisions of its Payday Lending Rule before that deadline.  

The deadline extension applies to the Payday Lending Rule’s mandatory underwriting provisions, which deem it an unfair and abusive practice for a lender to make a “covered loan” without first determining the borrower’s ability to repay the loan according to its terms. 

While praised by many consumer advocates, the mandatory underwriting provisions have been widely criticized by small-dollar lenders, who argue that they would, if implemented, effectively eliminate critical, stop-gap credit for low-income borrowers.  

Embracing the concerns voiced by small-dollar lenders, the CFPB has initiated a separate rulemaking process to consider whether it should rescind the Payday Lending Rule’s mandatory underwriting provisions. The proposal supporting that rulemaking effort suggests there was insufficient evidence and legal support for the mandatory underwriting provisions as issued in 2017, and also notes the CFPB’s “preliminary finding” that rescinding the provisions “would increase consumer access to credit.” 

In announcing the extension of the compliance deadline, the CFPB said that requiring compliance “would risk undermining effective reconsideration” of the mandatory underwriting provisions “by imposing potentially market-altering effects, some of which may be irreversible if the Bureau required compliance with the mandatory underwriting provisions and then later rescinded them.”  

The Payday Lending Rule was an Obama-Era initiative, shepherded through the CFPB in 2016 and 2017 by then-Director Richard Cordray. 

The CFPB’s ongoing effort to rescind the Payday Lending Rule’s mandatory underwriting provisions has been sharply criticized by consumer advocates and leading Democrats, including Senator Elizabeth Warren, who has said that the effort threatens “crucial protections for borrowers and makes it clear that the CFPB is not doing its job to protect consumers.” 

The CFPB’s final rule extending the deadline for compliance with the Payday Lending Rule’s mandatory underwriting provisions is available here.

 

On May 29, the Consumer Financial Protection Bureau announced a settlement with BSI Financial Services, a Texas-based mortgage servicer. Acting as a reminder to mortgage servicers of the importance of maintaining rigorous information management systems, the CFPB alleged BSI violated the Consumer Financial Protection Act of 2010, the Real Estate Settlement Procedures Act, and the Truth in Lending Act in part because of allegedly inadequate information management procedures. Specifically, the CFPB alleged BSI failed to:

  • Recognize that certain loans transferred to it had pending loss mitigation applications, in-process loan modifications, and permanent loan modifications due to onboarding the loans with incomplete or inaccurate loan information;
  • Ensure timely escrow disbursement due to onboarding loans with incomplete or inaccurate loan information;
  • Send consumers monthly statements containing accurate principal and interest payments due to the untimely entering of adjustable interest rate loan data into its servicing system;
  • Permit personnel or consumers to readily obtain accurate loan information due to an inadequate document management system; and
  • Ensure timely escrow disbursement of property taxes and homeowners’ insurance premiums due to inadequately overseeing the entry of loan escrow information by its service providers.

Because of the allegedly inadequate information management processes, the consent order requires BSI to “establish and maintain a comprehensive data integrity program reasonably designed to ensure the accuracy, integrity, and completeness of the data” for loans that it services. Furthermore, BSI “must implement an information technology plan appropriate to the nature, size, complexity, and scope” of its operations. The consent order requires BSI to pay a $200,000 civil penalty and no less than $36,500 in restitution.

Considering this recent consent order, mortgage servicers should review their policies and procedures to determine if they have adequate processes to verify the accuracy of loan information being onboarded. They should also verify that they have adequate procedures to maintain the information’s accuracy throughout the loan servicing lifecycle.

Consumer Financial Protection Bureau Director Kathy Kraninger is proving to be more aggressive than her predecessor, Mick Mulvaney. In recent weeks, Kraninger has issued seven orders strictly enforcing the Bureau’s civil investigative demands, or “CIDs,” demonstrating that she intends to be a vigorous consumer advocate:

  • In re Synchrony Financial (May 31, 2019): Kraninger rejected a challenge asserting that a CID sought information that lacks “reasonable relevance to a legitimate investigative purpose,” noting that the petitioner’s arguments were “general” and went to whether the petitioner “complied with the law, not to whether the information” sought was relevant. Kraninger also rejected a challenge asserting a CID sought information regarding transactions that were outside the applicable limitations period, noting that the Bureau can seek information that is not “actionable.”
  • In re Wall & Associates, Inc. (May 21, 2019): Kraninger rejected a challenge asserting that an entity did not provide financial advisory services and thus was not covered by the CFPB’s enforcement authority, noting that the CFPB is not required to accept as true an entity’s factual assertions regarding its business practices, and that “simultaneous agency investigation of jurisdictional facts and possible violations” has been approved in a long line of decisions.
  • In re Fastbucks (April 25, 2019): Kraninger rejected a challenge asserting that a set of CIDs was issued for an improper purpose, noting that the CIDs had “been subject to multiple levels of review within the Bureau” which “ensured they were issued for a proper purpose and in accordance with all applicable regulations.”
  • In re Kern-Fuller and Sutter (April 25, 2019): Kraninger rejected a challenge asserting that a set of CIDs issued to attorneys had to be modified to protect the attorney-client privilege and the work product privilege, noting that the attorneys’ “premature assertions” of privilege gave no grounds to set aside the CIDs. Kraninger also rejected a challenge to the constitutionality of the CFPB’s structure, stating that the “Bureau has consistently maintained that its statutory structure is constitutional under controlling Supreme Court precedents.”
  • In re Amy Plummer (April 25, 2019): Kraninger rejected a challenge asserting that a CID exceeded the CFPB’s authority by attempting to regulate the practice of law, noting that an entity otherwise excluded from CFPB enforcement authority may still be required to respond to CIDs issued in the course of the CFPB’s execution of its enforcement responsibilities.
  • In re Jawat Nesheiwat (April 25, 2019): Kraninger rejected a challenge asserting that a CID required redaction of the petitioner’s name, noting that the petitioner failed to articulate an argument as to why his name would be protected from disclosure under FOIA and had not sufficiently identified any harm he would suffer as a result of disclosure.
  • In re Fair Collections and Outsourcing, Inc. (April 25, 2019): Kraninger rejected a challenge asserting that a set of CIDs was issued for an improper purpose because they were issued after an enforcement action had been authorized, noting that the petitioner had cited no “statutory or other restriction on the Bureau’s ability to issue a CID after an enforcement action is authorized but not filed.”

Troutman Sanders routinely assists clients in responding to CIDs issued by federal and state agencies, and will continue to monitor and provide updates regarding relevant enforcement trends.

On May 7, the Consumer Financial Protection Bureau (CFPB) released a 538-page Notice of Proposed Rulemaking (the Rule) that would update the Fair Debt Collection Practices Act (FDCPA). The Rule would be the first major update to the FDCPA since its enactment in 1977 and gives much-needed clarification on the bounds of federally-regulated activities of “debt collectors,” as that term is defined in the FDCPA, particularly for communication by voicemail, email, and texts. It is important to remember that the Rule is only a proposal, and it is already drawing fire from consumer advocates. The Rule was published in the Federal Register on May 21 and will be open for public comment through August 19 (90 days). After the public comment period is closed, the CFPB will either issue a final rule or issue another proposed rule. 

Troutman has prepared a whitepaper reflecting the current best understanding of key provisions the proposed rule.

Download the whitepaper here.

Today the Federal Register published the Notice of Proposed Rulemaking regarding updates to the Fair Debt Collection Practices Act from the Consumer Financial Protection Bureau.

The notice in the Federal Register triggers the end date of the comment period. Businesses, consumers, and other interested parties now have until August 19, 2019 to submit comments on the proposed debt collection rule for the CFPB’s consideration.

Troutman Sanders previously released a detailed analysis of 15 key provisions in the proposed rule.

Comments may be submitted through any of the following methods:

  • Federal eRulemaking Portal: Go to http://www.regulations.gov and follow the instructions for submitting comments.
  • Email: Send to 2019-NPRM-DebtCollection@cfpb.gov. Include Docket No. CFPB-2019-0022 or RIN 3170-AA41 in the subject line of the email.
  • Mail/Hand Delivery/Courier: Send to Comment Intake – Debt Collection, Bureau of Consumer Financial Protection, 1700 G Street, N.W., Washington, DC 20552.

All comments must include the agency name (CFPB) and the docket number for the rulemaking (Docket No. CFPB-2019-0022) or the Regulatory Information Number (“RIN”) for the rulemaking (3170-AA41). Note that all comments become part of the public record and are subject to public disclosure, so confidential or sensitive information should not be included.

The CFPB will then review all comments received and either issue another proposed rule, if there are substantial changes they wish to make, or issue a final rule.

The proposed effective date of the rule would be one year from the publication of the final rule, as opposed to the publication of the proposed rule. This means that a new rule might take effect, at the earliest, at the end of 2020.

We will continue to monitor the progress of the proposed rule through the rulemaking process.

On May 13, the Consumer Financial Protection Bureau announced its plans for periodically reviewing the regulations it oversees, in accordance with the Regulatory Flexibility Act (“RFA”). In a second statement issued the same date, the CFPB announced it would begin the process with a review of the Overdraft Rule, which amended Regulation E implementing the Electronic Funds Transfer Act. The CFPB invites public comment on both its RFA review plan as well as its review of the Overdraft Rule. During the summer of 2019, the CFPB plans to publish a list of the rules to be reviewed in 2020.

A copy of the CFPB’s first statement, titled Plan for the Review of Bureau Rules for Purposes of the Regulatory Flexibility Act, can be found here, and a copy of its second statement, titled Overdraft Rule Review Pursuant to the Regulatory Flexibility Act, can be found here.

The CFPB’s Plan Under the RFA

Section 610 of the RFA requires federal agencies to review, within ten years of publication of a final rule, those rules issued or overseen by the agency which have a significant economic impact on a substantial number of small entities. The statute tasks agencies with reviewing the rules to minimize any significant impact on small entities and requires agencies to consider the following factors:

(1) the continued need for the rule;

(2) the nature of complaints or comments received from the public concerning the rule;

(3) the complexity of the rule;

(4) the extent to which the rule overlaps, duplicates, or conflicts with other Federal rules, and, to the extent feasible, with state and local governmental rules; and

(5) the length of time since the rule has been evaluated or the degree to which technology, economic conditions, or other factors have changed in the area affected by the rule.

The CFPB plans to begin its RFA reviews nine years after publication of a final rule and will first assess whether a rule has a “significant economic impact on a substantial number of small entities,” thereby subjecting the rule to an RFA review. Next, the CFPB will publish a notice regarding the rule to be reviewed and invite public comment on the rule. The CFPB plans to review “information on hand, relevant literature, and information submitted by the public in response to the Bureau’s request for comment.” The CFPB will complete each review within ten years of the publication of the final rule and will subsequently announce its determinations as to further “rulemaking activities in the Unified Agenda of Federal Regulatory and Deregulatory Actions or through other appropriate methods.”

The CFPB explained that its RFA review plan is separate from, and in addition to, its other regulatory reviews, including: (1) its March 2018 Request for Information seeking public comment on its inherited and adopted regulations, as well as whether it should conduct further rulemaking; (2) its assessments pursuant to Section 1022(d) of the Dodd-Frank Act, assessing consumer financial rules adopted by the CFPB within five years of the rule’s effective date; and (3) its review of inherited regulations as part of the semi-annual Unified Agenda of Federal Regulatory and Deregulatory Actions.

Pursuant to its review of consumer financial rules, the CFPB published three assessment reports on remittance transfers, mortgage servicing, and ability to pay and qualified mortgage standards. The CFPB expects to begin its review under the Unified Agenda of Federal Regulatory and Deregulatory Actions with a review of Subparts B and G of Regulation Z, implementing the Truth in Lending Act, to “ensur[e] that outdated, unnecessary, or unduly burdensome regulations are . . . identified and addressed.”

Review of the Overdraft Rule

The CFPB is beginning its RFA review process with an evaluation of the Overdraft rule, which was initially published by the Board of Governors of the Federal Reserve System in November of 2009 and restated in 2011 when the CFPB assumed responsibility for rule making under the Electronic Funds Transfer Act.

The current Overdraft rule is set forth in Subpart A of the CFPB’s Regulation E, 12 C.F.R. 1005, and requires consumers to consent affirmatively in order for a financial institution to pay ATM or debt card overdraft transactions and prior to a consumer being charged a fee in connection with the payment of such overdrafts. The Rule requires institutions to use a model disclosure and consent form “substantially similar” to its Model Form A-9.

Since the Overdraft Rule was implemented, the CFPB has noted changes to overdraft practices by financial institutions, including: “(i) changes in the order in which different categories of transactions are posted; (ii) limits on the number of overdraft fees that some financial institutions may charge in a single business day; and (iii) ‘cushions’ which preclude assessing overdraft fees on de minimis amounts.” However, the CFPB notes that it “does not have reason to believe that these changes are attributable to the [Overdraft] Rule.”

The CFPB invites public comment on the Overdraft Rule, specifically on the following topics:

(1) The nature and extent of the economic impacts of the Rule as a whole and its major components on small entities, including impacts of the reporting, recordkeeping, and other compliance requirements of the Overdraft Rule, as well as benefits of the Rule;

(2) Whether and how the Bureau by rule could reduce the costs of the Overdraft Rule on small entities, consistent with the stated objectives of the EFTA and the Overdraft Rule; and

(3) Any other information relevant to the factors that the Bureau considers in completing a Section 610 review under the Regulatory Flexibility Act, as described above.

Comments must be received within 45 days of publication in the Federal Register.

Troutman Sanders is monitoring these developments and continuously reports on emerging regulatory issues as part of its Consumer Financial Services Law Monitor blog.

 

An online lead aggregator for payday and installment loans agreed to pay $4 million to settle a lawsuit filed by the Consumer Financial Protection Bureau. The lead aggregator also agreed to a permanent ban on lead generation, lead aggregation, and data brokering for certain high interest consumer loans. 

In 2015, the CFPB filed a lawsuit against D and D Marketing, Inc. d/b/a T3 Leads (“T3”) in the United States District Court for the Central District of California, Western Division, asserting that T3 violated the Consumer Financial Protection Act of 2010 (“CFPA”), 12 U.S.C. §§ 5531, 5536(a), 5564, and 5565, by engaging in unfair and abusive conduct. The lawsuit alleged that T3 – which served as the middle man between lead generators and lead purchasers – failed to vet and monitor how the lead generators obtain and use consumer data in connection with high interest payday and installment loans.  

The CFPB asserted that T3’s lead generators incorrectly represented themselves as lenders or falsely suggested that the lenders connected to the consumer via T3 met certain standards or would offer consumers the best rates or lowest fees. However, according to the CFPB, many of T3’s lenders (the lead purchasers) were organized by Indian tribes and/or under the laws of foreign jurisdictions (offshore lenders) and thus were not subject to state laws or regulations. The CFPB alleged that T3 knew or should have known of the risk that these alleged bad actors posed to consumers in purchasing and selling leads. 

To settle the lawsuit, T3 entered a Stipulated Final Judgment and Order, agreeing to pay $1 million to a fund for injured consumers and $3 million to the CFPB. T3 also agreed to never act as a lead generator, lead aggregator, or data broker for certain high interest (over 36% annual percentage rate) loans. Finally, T3 agreed not to disclose, use, or benefit from customer information obtained on or before March 28, 2019 in connection with the receipt of leads or sale of leads. T3 denied any liability in entering the Order.