Proposed change would expand BSA definition of “money” to include virtual currency.  The Financial Crimes Enforcement Network (“FinCEN”) and the Federal Reserve Board (“Board”) have requested comment on an important proposed new rule that would amend the “Recordkeeping Rule” and “Travel Rule” under the Bank Secrecy Act (“BSA”) and expand them significantly.  The proposed regulation would reduce the current $3,000 threshold to only $250 for international transfers, thereby substantially expanding the scope of these rules.

Even by FinCEN’s own estimates, the effect would be broad. According to FinCEN, the new regulation would affect an estimated 5,306 banks, 5,236 credit unions, and 12,692 money transmitters – including exchangers of digital assets, who arguably would be most impacted by the new regulation.  Further, FinCEN estimates – likely conservatively – that compliance would require no less than 3.3 million additional hours, annually. FinCEN and the Board strongly suggest that such compliance burdens are worth the effort, given the perceived value to law enforcement in combatting terrorism, which tends to be funded by small international transfers.

The current travel and recordkeeping rules.  The “Travel Rule” and the “Recordkeeping Rule” are linked.  Under the Recordkeeping Rule, the originator’s bank or transmittor’s financial institution must collect and retain the following: (a) name and address of the originator or transmittor; (b) the amount of the payment or transmittal order; the (c) the execution date of the order; (d) any payment instructions received from the originator or transmittor with the order; and (e) the identity of the beneficiary’s bank or recipient’s financial institution.  The originator’s bank or transmittor’s financial institution also must retain the following information if it receives that information from the originator or transmittor: (a) name and address of the beneficiary or recipient; (b) account number of the beneficiary or recipient; and (c) any other specific indentifier of the beneficiary or recipient.  The originator’s bank or transmittor’s financial institution must verify the identity of the person placing a payment or transmittal order if the order is made in person and the person placing the order is not an established customer.  If the beneficiary’s bank or recipient’s financial institution delivers the proceeds to the beneficiary or recipient in person, the bank or nonbank financial institution must verify the identity of the beneficiary or recipient – and collect and retain various items of information identifying the beneficiary or recipient – if the beneficiary or recipient is not an established customer.  Finally, an intermediary bank or financial institution – and the beneficiary’s bank or recipient’s financial institution – must retain originals or copies of orders.

Under the Travel Rule, the orginator’s bank or transmittor’s financial institution must include information, including all information required under the Recordkeeping Rule, in a payment or transmittal order sent by the bank or nonbank financial institution to another bank or nonbank financial institution in the payment chain.  An intermediary bank or financial institution is also required to transmit this information to other banks or nonbank financial institutions in the payment chain, to the extent the information is received by the intermediary bank or financial institution.  Currently, the threshold for both the Recordkeeping and Travel Rules is $3,000.

The proposed change.  The press release summarizes the request for comment on the proposed regulation as follows:

. . . . FinCEN and the Board, pursuant to their shared authority, are proposing amendments to the recordkeeping rule jointly, while FinCEN, pursuant to its sole authority, is proposing amendments to the travel rule.

Under the current recordkeeping and travel rule regulations, financial institutions must collect, retain, and transmit certain information related to funds transfers and transmittals of funds over $3,000.  The proposed rule lowers the applicable threshold from $3,000 to $250 for international transactions.  The threshold for domestic transactions remains unchanged at $3,000.

The proposed rule also further clarifies that those regulations apply to transactions above the applicable threshold involving convertible virtual currencies, as well as transactions involving digital assets with legal tender status, by clarifying the meaning of “money” as used in certain defined terms.

Comments will be accepted for 30 days after publication in the Federal Register.

Further, compliance with the new regulation would involve a component of subjective knowledge by the financial institution.  Specifically, a transmittal of funds would be considered to begin or end outside the United States if the financial institution has reason to know that the transmittor or recipient, or their financial institution, is “located in, is ordinarily resident in, or is organized under the laws of a jurisdiction other than the United States or a jurisdiction within the United States.”  Moreover, “a financial institution would have ‘reason to know’ that a transaction begins or ends outside the United States only to the extent such information could be determined based on the information the financial institution receives in the transmittal order, collects from the transmittor to effectuate the transmittal of funds, or otherwise collects from the transmittor or recipient to comply with regulations implementing the BSA.”

FinCEN makes clear that the motivation behind this expansion is the perception that “malign actors” frequently fund their illicit conduct through small-value, cross-border transfers.  In particular, FinCEN states that an analysis of Suspicious Activity Reports (“SARs”) filed by money transmitters regarding potential terrorist financing-related transmission of funds indicates that 99 percent of such transfers were either to or from the United States, and that approximately 71 percent of these transfers were at or below $500.  Approximately 57 percent of these transfers were at or below $300.  Although the request for comment provides many other details, statistics and anecdotes, the clear thrust is: the monetary thresholds for the Recordkeeping and Travel Rules need to be lowered to capture the low-value transfers promoting terrorism.

Focus on virtual currency.  Significantly, the request for comment proposes that the term “money,” as it is incorporated within the terms “funds transfer,” “payment order” and “transmittal of funds” for the purposes of applying the Recordkeeping and Travel Rules, should include convertible virtual currencies (“CVC”).  Specifically, “[t]his proposed rule also would revise the definitions of payment order and transmittal order set forth in the BSA regulations so that the Recordkeeping Rule and Travel Rule would explicitly apply to domestic and cross-border transactions in CVC and digital assets having legal tender status.”

Similarly, the request for comment observes that the Financial Action Task Force (“FATF”) issued guidance in June 2019, about which we have blogged here, instructing its 180 international member governments to similarly demand that virtual asset service providers, or VASPs, collect “accurate originator information and required beneficiary information” on transactions of $1,000 or more.  Although FATF’s pronouncement sent some shockwaves through the digital currency industry, FinCEN now is proposing a requirement with an even lower monetary threshold.  As we have blogged, application of the Travel Rule to virtual currencies has been a stated priority of FinCEN, but it also raises significant practical problems.

Particular requests for comment.  The filing requests particular comments from both industry and law enforcement.  Despite the effort at neutrality in particular requests for comment, the preceding sections of the notice strongly suggest that FinCEN and the Board are bent on significantly lowering the monetary threshold for the Recordkeeping and Travel Rules for international transfers.  Indeed, some requests for particular comments appear designed to soften resistance by lowering the bar, such as by asking whether compliance burdens would be different if the rule instead applied to all transactions, regardless of any monetary amount and whether the transaction was international or domestic.  The particular request for comments from industry ask in part the following:

  • To what extent would the proposed rule impose a burden on financial institutions?
  • Would the burden be different for thresholds such as $0, $500 or $1,000?
  • Would the burden be different if the threshold included all transfers, including domestic transfers?
  • To what extent would the compliance burden be mitigated if the threshold still was $250 but nonbank financial institutions did not have to collect a social security number or employer identification number for non-established customers?
  • To what extent would the compliance burden be reduced if FinCEN and the Board issued “specific guidance about appropriate forms of identification to be used in conjunction with identify verification, including in regards to whether there are circumstances in which verification may be done remotely and what documents are acceptable as proof?”

The defendants in the lawsuit filed by the FTC in August 2020 in a New York federal district court against two merchant cash advance providers and their chief executive officer and president for alleged unfair and deceptive conduct in violation of Section 5 of the FTC Act have filed a motion to dismiss.  The FTC has filed its opposition to the motion and the defendants have responded to the FTC’s opposition.  The lawsuit is a reminder that the FTC Act applies to business-to-business (“B to B”) activity, including small business financing, and not just business-to-consumer transactions.  Such B to B financing is often treated the same way as consumer financing for purposes of other federal laws as well as state laws.

The defendants make the following principal arguments in support of dismissal:

  • The FTC does not have statutory authority to bring the lawsuit because Section 13(b) of the FTC Act only allows the FTC to file suit in federal court to enjoin acts or practices if the FTC has reason to believe a defendant “is violating, or is about to violate” a provision of law.  Thus, Section 13(b) only applies to imminent or ongoing conduct, not past conduct.  The FTC cannot (and does not) plausibly allege imminent or ongoing unlawful conduct by the defendants.
  • The FTC alleged in its complaint that the defendants engaged in deceptive acts or practices by representing in advertisements that they did not require collateral or personal guarantees from business owners when, in reality, they did require business owners to grant a purported security interest or lien on all business property they owned including accounts, equipment, inventory and other assets and to sign personal guarantees of the entire amount funded should the business default. In making this allegation, the FTC has isolated “three to twelve words from each advertisement it challenges and fails to plead sufficient context to evaluate any of the advertisements from the perspective of a reasonable merchant.”
  • The FTC alleged that the defendants also engaged in deceptive acts or practices by representing in contracts that the defendants would provide a certain amount of funding (labeled the “Purchase Price”) when, in reality, the amount provided was substantially less than the Purchase Price as result of the withholding of fees that are mentioned “several pages in to the contract without any indication that they are deducted from the ‘Purchase Price’—the funds promised to [small business] consumers.”   In making this allegation, the FTC “cherry-pick[s] language from a discontinued version of [the defendants’] MCA Agreement, while omitting any mention of the clear and conspicuous language in the very same document that expressly discloses these fees.”
  • The FTC alleged that the defendants engaged in unfair acts or practices by withdrawing money from customers’ accounts in excess of the amounts authorized by continuing to withdraw money after a customer had fully repaid the “Purchased Amount.”  These continued withdrawals were the result of a lag period in ACH processing and were expressly authorized by the MCA Agreement.
  • The FTC has failed to state a claim for individual liability against the individual defendants because it has failed to sufficiently allege that the individual defendants participated in or had authority over the alleged illegal acts.

In its opposition to the motion to dismiss, the FTC asserts that it has plausibly alleged that the defendants were violating or about to violate the FTC Act at the time it filed the lawsuit, has alleged facts sufficient to state a claim for deception and unfairness under the FTC Act, and has alleged facts sufficient for individual liability.


On October 25, a Massachusetts federal district court entered a preliminary injunction staying and postponing the effective date of the final rule issued by HUD last month (“2020 Rule”) revising its 2013 Fair Housing Act disparate impact standards (“2013 Rule”).  The order also enjoins HUD from enforcing the 2020 Rule and keeps the 2013 Rule in place until further order of the court.  The 2020 Rule would have become effective on October 24, the date that was 30 days after its publication in the Federal Register on September 24, 2020.

The court’s order stays and postpones the 2020 Rule’s effective date pending entry of final judgment on the Administrative Procedure Act (APA) claims of the Massachusetts Fair Housing Center and Housing Works, Inc. in their lawsuit filed against HUD on September 28.  The Massachusetts lawsuit is one of three lawsuits challenging the 2020 Rule under the APA.

In Inclusive Communities, the U. S. Supreme Court ruled that disparate impact claims are cognizable under the FHA.  Such claims allege that a policy or practice that is neutral on its face nevertheless violates the FHA because it has a discriminatory effect on a prohibited basis.  The FHA prohibits discrimination based on characteristics such as race, sex, disability, and familial status.  Discrimination claims can be brought under the FHA against lenders, landlords, and others involved in real estate transactions

In their complaint, the Massachusetts plaintiffs contend that contrary to HUD’s assertion that the 2020 Rule “merely brings the 2013 Rule into alignment with the Supreme Court’s decision in Inclusive Communities,” the 2020 Rule “is directly contrary to Inclusive Communities; introduces novel pleading and proof requirements, and new defenses, which upset accepted practice and undermine enforcement of the FHA.”  More specifically, the plaintiffs allege:

  • Under the 2020 Rule, to state a claim that “a specific, identifiable policy or practice” has a discriminatory effect on a protected class, a plaintiff must sufficiently plead facts to support five elements.  It then permits a defendant, at the pleadings stage, to establish that the plaintiff has failed to sufficiently plead facts to support any of the required elements.  This, in effect, “requires a plaintiff, without the benefit of discovery, not only to meet the overwhelming demands of the 2020 Rule’s new five-part pleadings requirements, but also to anticipate in their complaint every practical, profit-oriented, policy consideration or requirement of law a defendant might invoke in defense of its discriminatory policy or practice….None of the new elements that a plaintiff must allege under the 2020 Rule’s pleading provisions is required by or consistent with the FHA or Inclusive Communities.”
  • The 2020 Rule “invents broad and unjustifiable new defenses” by allowing a defendant to rebut a plaintiff’s allegation that the challenged policy or practice is “arbitrary, artificial and unnecessary” by producing evidence showing that the challenged policy or practice “advances a valid interest.”  In contrast, the 2013 Rule requires a defendant to show that the interest is “substantial, legitimate, [and] non-discriminatory.”  In addition, even if a plaintiff survives a motion to dismiss at the pleadings stage, the 2020 Rule allows a defendant to “still escape liability by demonstrating that the discriminatory policy or practice is intended to predict an outcome, the prediction represents a valid interest, and the outcome predicted by the policy or practice does not or would not have a disparate impact on protected classes compared to similarly situated individuals not part of the protected class.”
  • The 2020 Rule requires a plaintiff to prove “not only that a practice with less discriminatory effects exists, but also that the alternative practice serves the defendant’s identified interest ‘in an equally effective manner without imposing materially greater costs on, or creating other material burdens for, the defendant.’”  By “[r]equiring a victim to identify an alternative that is least costly or burdensome to defendants introduces a profit defense to justify discriminatory practices—a result completely at odds with the language and history of the FHA and civil rights law in general.”  HUD has not offered adequate justification “to drastically rewrite the 2013 Rule and create these heightened burdens of proof, which are inconsistent with decades of HUD’s own policies, guidance and decisions,” and has failed to “meaningfully consider the adverse impact of the 2020 Rule on access to fair housing.”

Based on the these allegations, the plaintiffs claim that the 2020 Rule violates the APA and should be vacated for the following reasons:

  • The 2020 Rule “is contrary to law” because it is inconsistent with the FHA’s text and undermines its core purposes.
  • The 2020 Rule is “arbitrary and capricious” for reasons that include HUD’s failure to provide a “reasoned justification for its decisions to abandon the 2013 Rule” or “take adequate account of the adverse impact of its 2020 Rule would have on the ability of aggrieved parties to prosecute valid housing and lending discrimination claims” and because HUD’s “purported reliance on Inclusive Communities as the basis for its radical departure from the 2013 Rule is a pretext.”
  • The 2020 Rule was adopted without adequate notice and comment because HUD replaced the “algorithmic model” defense in its proposal of the 2020 Rule with a “new and entirely different,” “outcome prediction” defense in the 2020 Rule “without giving the public notice of, or any opportunity to comment on, the ‘outcome prediction’ defense that was first announced when the 2020 Rule was published.”

In granting the plaintiffs’ motion for a preliminary injunction and stay of the 2020 Rule’s effective date, the district court found that the plaintiffs had shown a substantial likelihood of success on the merits of their claim that that the 2020 Rule is arbitrary and capricious in violation of the APA.  It pointed to language in the first of the five elements that a plaintiff must plead facts to support for the plaintiff to state a claim that “a specific, identifiable policy or practice” has a discriminatory effect on a protected class.  That element requires a plaintiff to sufficiently plead facts to support “that the challenged policy is arbitrary, artificial, and unnecessary to achieve a valid interest or legitimate objective such as a practical business, profit, policy consideration, or requirement of law.”

According to the court, the language “ ‘such as a practical business, profit, policy consideration’—is not, as far as the court is aware, found in any judicial decision.”  The court stated further:

The same is true as to other important provisions in the 2020 Rule, including the new “outcome prediction” defense, the requirement at the third step of the burden-shifting framework that the plaintiff prove “a less discriminatory practice exists that would serve the defendant’s identified interest (or interests) in an equally effective manner without imposing materially greater costs on, or creating other material burdens for, the defendant”; and the conflating of a plaintiff’s prima facie burden and pleading burden….These significant alternations, which run the risk of effectively neutering disparate impact liability under the Fair Housing Act, appear inadequately justified. (emphasis included).

In addition to citing the need to bring disparate impact standards into alignment with Inclusive Communities, HUD also indicated that the changes were needed to provide greater clarity to the public.  The court stated that HUD’s second explanation “appear[s] arbitrary and capricious” and agreed with the plaintiffs that “the 2020 Rule, with its new and undefined terminology, altered burden-shifting framework, and perplexing defenses accomplish the opposite of clarity.”

It is noteworthy, however, that although the court agreed that the plaintiffs had shown a substantial likelihood of success on the merits based on the provisions in the 2020 Rule referenced above, it rejected the plaintiffs’ argument that there was no judicial support for the 2020 Rule’s requirement that a plaintiff must plead facts showing “[t]hat the challenged policy or practice is arbitrary, artificial, and unnecessary to achieve a valid interest or legitimate objective such as a practical business, profit, policy consideration, or requirement of law.”  The court observed that, as pointed out by HUD, the “arbitrary, artificial, and unnecessary” language comes directly from Inclusive Communities.

Finally, the court found that the plaintiffs had demonstrated a significant risk of irreparable harm if the injunction was not issued.  According to the court, “the 2020 Rule’s massive changes pose a real and substantial threat of imminent harm to [the plaintiffs’] mission by raising the burdens, costs, and effectiveness of disparate impact liability.  Moreover, because the APA does not provide for monetary damages, these harms are not recoverable if the 2020 Rule is allowed to go into effect but later vacated.”

The court also found that the balance of harms and public interest supported a preliminary injunction.  It stated that HUD had not “identified any particularized risks of harm the government or the public would face should an injunction issue, especially given the existence of the 2013 Rule, which has been and continues to be workable, for both sides, in the realm of disparate impact litigation.”  In addition, the court concluded that it was in the public interest “to require agencies to adequately justify significant changes to its regulations, particularly changes that weaken anti-discrimination provisions.”

The two other lawsuits challenging the 2020 Rule under the APA were filed on October 22 by housing groups in federal district courts in California and a Connecticut federal district court.  Like the Massachusetts lawsuit, these lawsuits call into question the premise that Inclusive Communities required the changes made by the 2020 Rule and allege that the 2020 Rule’s pleading and burden-shifting standard is arbitrary, capricious, and contrary to law.  Unlike the other complaints, the Connecticut complaint also alleges that the provision in the 2020 Rule that curtailed HUD’s discretion to seek monetary penalties is arbitrary, capricious, and contrary to law.


On October 23, 2020, Massachusetts Attorney General Maura Healey filed a motion to dismiss in ACA International v. Maura Healey based on mootness. The lawsuit challenges the state’s emergency regulations that placed a ban on outbound collection calls. The emergency regulations were promulgated in March 2020, ACA International filed its lawsuit in April 2020, and a temporary restraining order restricting the Attorney General’s office from enforcing the ban on outbound collection calls was issued on May 6, 2020.

The emergency regulations specifically provide that they would remain in effect for 90 days from March 26, 2020 or until the State of Emergency Period expires, whichever occurs first. Massachusetts is still in the State of Emergency Period, but the 90-day period lapsed on June 24, 2020. Because the emergency regulations have expired, the Attorney General argues that the lawsuit is moot and should be dismissed.

Although the regulations are no longer in effect even if the court grants the motion to dismiss, a decision on the merits of the case could provide helpful precedent for the industry. In granting the temporary restraining order, the district court found that ACA had shown a likelihood of success on its constitutional claims that the telephone call ban was a limitation on commercial speech protected by the First Amendment and that the regulation restricted access to the courts in violation of the First Amendment, but did not make a final judgment on the merits. If the court denies the Attorney General’s motion to dismiss and reaches the merits, a decision holding that the Attorney General overreached and acted unconstitutionally in promulgating the emergency regulations would be helpful precedent for the industry in combatting similar regulations in other states.

Among the suite of consumer protection bills signed into law last month by California Governor Gavin Newsom is AB 2524. The bill, as enacted, is a less-expansive version of an assembly bill that would have created an entirely new and broad system of regulation over debt settlement companies through amendments to the Check Sellers, Bill Payers and Proraters Law. Despite the apparent specificity in the title, the Proraters Law applies broadly to any individual or corporation engaged or planning to engage in the business of selling checks, drafts or money orders, or of receiving money as agent of an obligor for the purpose of paying bills, invoices or accounts of such obligor. While the bulk of the proposed amendments were abandoned, AB 2524, in its final form, has the effect of expanding the reach of California’s Proraters Law, including its licensure requirement, to non-California domiciled debt settlement providers. As we’ve previously noted, entities licensed under the Proraters Law are exempt from the new California Consumer Financial Protection Law, including the bulk of its UDAAP provisions.

As originally introduced, AB 2524 would have (1) limited charges for debt settlement services; (2) limited monthly payment amounts; (3) introduced enforcement mechanisms – most notably by creating a private right of action; (4) added mandatory disclosure and reporting requirements; and (5) made changes to California’s licensing law to include debt settlement companies not domiciled in California. Only the bill’s provision regarding licensing requirements survived passage into law.

The Proraters Law (enacted in 1951) required licensees to be organized under California law, and thereby limited Department of Business Oversight’s (now DFPI) regulatory authority to the handful of companies incorporated in California. As a result, the Department had no authority over the dozens of other debt settlement companies that conducted business within the state but who were domiciled elsewhere. By removing the California domicile requirement, AB 2524 effectively requires all debt settlement companies doing business in California be licensed by the DFPI, and makes non-California domiciled debt settlement services subject to the requirements of the Proraters Law.

The impact of AB 2524 has yet to be seen, but it undoubtedly increases the regulatory requirements associated with providing debt settlement services to California consumers. The regulatory requirements under the Proraters Law generally include paying a licensing fee, providing background checks on certain personnel, obtaining a bond, providing audited financial statements, restrictions on advertising methods, and restrictions on prorater origination fees. We will continue to track these developments as they occur.

On September 25, 2020, California Governor Gavin Newsom signed several consumer protection bills, including AB 3254, which extends the right to receive a translated version of certain consumer contracts to nonparty signatories, such as guarantors or cosigners.

Under existing law, a business negotiating a covered contract in Spanish, Chinese, Tagalog, Vietnamese, or Korean (the five most common non-English languages spoken in California) must provide the consumer with a translated version of the contract.  Covered contracts include auto sales and leases, apartment leases and rental agreements, mortgages, agreements for legal services, and any loans and other extensions of credit meant primarily for personal, family, or household purposes.

The California Senate’s analysis states that AB 3254 merely “[e]xpands the translation requirement . . . to any person signing the contract, not just the parties to the contract,” which would not impose any additional costs because it “simply requires providing additional copies of the already-translated contracts.”  However, it is unclear (and the legislature did not address) whether or how the existing law’s provisions related to missing or deficient translations would apply to the bill’s translation requirement.  In particular, and without limitation, existing law provides that failure to provide the required translation grants the right to rescind the contract to “the person aggrieved.”  Because that term is not defined, it might be read to include nonparty signatories. See Civ. Code § 1632(k).

While existing law provides that the parties’ “rights and obligations” are determined by the English terms of the contract, it makes the translation admissible “[t]o show that no contract was entered into because of a substantial difference in the material terms and conditions of the contract and the translation.”   Such differences might also be considered an unfair, deceptive, or abusive act or practice under the recently enacted California Consumer Financial Protection Law, and could, therefore, create a significant risk of an enforcement action by the California Department of Financial Protection and Innovation.

The CFPB filed an amicus brief in Hopkins v. Collecto, Inc., an appeal before the U.S. Court of Appeals for the Third Circuit, in support of the debt collector’s position that it did not violate the FDCPA by sending the plaintiff a letter that included an itemization of the plaintiff’s debt that indicated “$0.00” was owed in interest and collection fees.

The FDCPA prohibits debt collectors from using “any false, deceptive, or misleading representation or means in connection with the collection of any debt” or “unfair or unconscionable means to collect or attempt to collect any debt.”  The plaintiff filed a putative class action complaint in which he claimed that the collection letter violated these FDCPA prohibitions.  According to the plaintiff, by itemizing interest and collection fees, the letter falsely implied to the least sophisticated consumer that such interest and fees could begin to accrue and thereby increase the amount of the debt.  (While not expressly stated, it appears the plaintiff’s account was a “static debt” on which interest and fees could not be added.)  The district court dismissed the complaint because it did not state a “plausible claim for relief.”

In its amicus brief, the Bureau asserts that an itemization of a debt “discloses what has already happened, not what will happen or may happen in the future.”  According to the Bureau, “[t]he bare statement that $0.00 in interest and collection fees [is owed] says nothing one way or the other about whether such charges may be assessed in the future.”  It argues that “it would be unreasonable for an unsophisticated consumer to interpret an itemization showing that no interest and fees had been assessed on her account as raising the prospect that she would be charged fees or interest in the future.”

The Bureau references the proposed model validation notice in its proposed debt collection rule.  It states that the model notice would require debt collectors “to include a table showing the interest, fees, payments, and credits that have been applied since the itemization date, even if none of those items had been assessed or applied to the debt.  To show that no interest, fees, payments, or credits were assessed, the proposal would allow collectors to use “0” or “N/A” for that component or to state that “no interest, fees, payments, or credits have been assessed or applied to the debt.”  According to the Bureau, its proposal is based on the premise that “consumers understand such itemizations to reflect past charges (even $0.00 in past charges) rather than to suggest future charges may accrue.” 

In support of its position, the Bureau cites to the Seventh Circuit’s recent decision in Degroot v. Client Services Inc., another FDCPA case in which the Bureau also filed an amicus brief in support of the debt collector.  In Degroot, the plaintiff filed a putative class action lawsuit alleging that a debt collector seeking to collect the amount owed on the plaintiff’s charged-off credit card account violated the FDCPA by including an itemization in a collection letter that indicated “$0.00” was owed for interest or other charges.  Similar to the argument made by the plaintiff in Hopkins, he argued that the inclusion of interest and other charges in the debt itemization was misleading because it implied that the card issuer would begin adding interest and possibly other charges to previously charged-off debts if consumers failed to resolve their debts with the debt collector.

In affirming the district court’s dismissal of the complaint, the Seventh Circuit indicated that it agreed with the Bureau’s argument in its amicus brief that because “the itemization of a debt is a record of what has already happened…such a breakdown cannot be construed as forward looking and therefore misleading.”  It found “unpersuasive” the plaintiff’s “insistence…that the inclusion of a zero balance for interest and fees naturally implies he could incur future interest or other charges if he did not settle the debt.”  The Seventh Circuit stated that the plaintiff’s “mere raising of an open question about future assessment of other charges with a speculative answer does not make the breakdown misleading.”  According to the Seventh Circuit, the district court had correctly concluded that the debt collector’s “use of an itemized breakdown accompanied by zero balances would not confuse or mislead the reasonable unsophisticated consumer.”


The CFPB has issued an Advance Notice of Proposed Rulemaking in connection with its rulemaking to implement Section 1033 of the Dodd-Frank Act.  Section 1033 requires consumer financial services providers to give consumers access to certain financial information.  Comments on the ANPR will be due no later than 90 days after the date the ANPR is published in the Federal Register.

Section 1033 requires that “[s]ubject to rules prescribed by the Bureau, a covered person shall make available to a consumer, upon request, information in the control or possession of such person concerning the consumer financial product or service that the consumer obtained from such covered person, including information related to any transaction, or series of transactions, to the account including costs, charges, and usage data.  The information shall be made available in an electronic form usable by consumers.”  It also requires the Bureau to consult with the Fed, OCC, FDIC, and FTC to ensure, to the extent appropriate, that any rule implementing Section 1033 imposes substantively similar requirements on covered persons, takes into account conditions under which covered persons do business both in the U.S. and in other countries, and does not require or promote the use of any particular technology in order to develop compliance systems.

The Bureau indicates in the ANPR that its discussion of the issues raised by Section 1033 implementation and the questions on which it seeks comment are informed by the various steps it has previously taken with respect to Section 1033.  Those steps include a 2016 request for information, a 2017 statement of principles, and a 2020 symposium.

Highlights of the Bureau’s discussion include the following:

  • In recent years, there has been a rapid and substantial growth in the number and usage of products and services that use or rely upon consumers’ ability to authorize third-party access to consumer data.  The growth in authorized data access has been accompanied by an expansion of the number of distinct applications for authorized data, such as personal financial management, financial advisory services, assistance in shopping for and selecting new consumer financial products and services, making payments, credit profile improvement and underwriting.
  • While data users may access consumer data from data holders without the use of intermediaries, the Bureau understands that currently most authorized data access is effected through data aggregators who access and transmit consumer financial data pursuant to consumer authorization.  While the market for data aggregation services has thus far focused primarily on aggregators offering services to data user clients, there has been a shift in recent years towards aggregators performing services for providers in the providers’ capacity as data holders.
  • To date, most consumer-authorized third parties have accessed consumer data through data holders’ digital banking portal using digital banking credentials the consumer shared with third parties.  Such access generally does not require a formal agreement between data holder and data user or aggregator.  Recently, formal, bilateral access agreements between large aggregators and large data holders have emerged.  These agreements seek generally to move authorized access away from credential-based access and screen scraping toward tokenized access, commonly through application programming interfaces or “APIs.”  Recent developments may signal a broader move towards multilateral standards for data access, similar to how network standard function in two-sided payment card markets.
  • It is unclear how evolving access practices and standards will effect competition or innovation in markets in which participants use authorized data or how effectively they will address other consumer protection risks that may arise with authorized access, including risks related to the methods by which consumer data is accessed and the purposes for which data users may use authorized data.
  • Other federal laws with potential implications for consumer access to financial records pursuant to Section 1033 include the Gramm-Leach-Bliley Act, the FCRA, and the EFTA.

The ANPR contains a series of questions on which the Bureau seeks comment.  The questions are grouped into the following nine topics:

  • Benefits and costs of consumer data access
  • Competitive incentives and authorized data access
  • Standard-setting
  • Access scope
  • Consumer control and privacy
  • Legal requirements other than section 1033
  • Data security
  • Data accuracy
  • Other information

A Georgia federal district court has entered a temporary restraining order against a Georgia-based debt collection operation in response to a complaint filed by the Federal Trade Commission.

According to the complaint, the debt collection operation engaged in a variety of illegal debt collection practices, including:

  • “Masquerading” as law-enforcement officials, government officials or attorneys.
  • Falsely threatening debtors with arrest, criminal prosecution, service of legal process at their residences or workplaces, civil lawsuits, civil liabilities or penalties, wage or tax-refund garnishments, liens on vehicles and homes and the freezing of assets.
  • Using profane or abusive language when communicating with debtors.
  • Impermissibly communicating about alleged debts with third-party contacts such as extended family members or otherwise contacting, or threatening to contact, debtors at their place of employment.
  • Withholding, or failing to provide, debt validation and other notices or otherwise refusing to respond to such notices.
  • Attempting to collect debts that were not owed by the debtor, including debts previously paid or discharged in bankruptcy.
  • Assessing impermissible or unauthorized charges.
  • While the complaint’s breadth is perhaps surprising, the alleged violations themselves are relatively “well settled” areas of concern for the FTC, CFPB and other enforcement authorities.

The FTC’s action was taken as part of its ongoing “Operation Corrupt Collector” initiative, a nationwide law enforcement and outreach program launched in conjunction with over 50 federal and state law enforcement partners and aimed at illegal debt collection practices. To date, Operation Corrupt Collector encompasses more than 50 enforcement actions against debt collectors with two common themes: illegal threats or abusive collection communications and collection of debt that cannot legally be collected or that a consumer does not owe (i.e., “phantom debt collection”). In addition to the FTC’s actions, Operation Corrupt Collector includes two cases filed by the CFPB, three criminal cases brought by the U.S. Department of Justice and U.S. Postal Inspection Service as well as state-level activity in Arizona, California, Colorado, Connecticut, Florida, Idaho, Illinois, Indiana, Massachusetts, New Mexico, North Carolina, North Dakota, New York, Ohio, South Carolina and Washington.

After reviewing the legal foundation for federal preemption of state law limits on interest, we discuss the OCC’s proposed approach for determining when a bank is the “true lender” in programs with non-bank agents, our arguments in support of the proposal made in our comment letter to the OCC, key arguments made in support of or against the proposal by other commenters, the OCC’s likely next steps, and the 2020 election’s potential impact.

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