Last week, the CFPB simultaneously filed a lawsuit against American Advisors Group (AAG) in a California federal district court and a proposed stipulated final judgment and order to settle the lawsuit.  The lawsuit alleged that AAG inflated estimated home values in marketing its reverse mortgage product and made false representations about AAG’s effort to ensure home value information was reliable.

In 2016, the Bureau entered into a consent order with AAG to settle claims that AAG engaged in deceptive advertising in violation of the Mortgage Acts and Practices-Advertising Rule (Regulation N) and the Consumer Financial Protection Act.  In addition to requiring AAG to pay a civil money penalty of $400,000, the consent order contained a provision prohibiting AAG from violating the CFPA for five years, or until December 2021.

In its new complaint, the CFPB claimed that AAG’s alleged use of inflated home values and false representations about its efforts to ensure home value information is reliable constituted deceptive acts or practices in violation of the CFPA.  It also alleged that by engaging in such deceptive acts or practices, AAG violated the consent order.  The CFPB claimed that by violating the consent order, AAG violated federal consumer financial law because the consent order, as an order prescribed by the Bureau, constitutes a federal consumer financial law.

The proposed stipulated final judgment and order requires AAG to pay a $1.1 million civil money penalty and $173,400 in consumer redress to consumers who received mailers from AAG with estimated home values, paid for and received appraisals with property values lower that AAG’s estimates, and decided not to proceed in obtaining a reverse mortgage from AAG.  It also prohibits AAG from engaging in deceptive practices generally and, in connection with marketing its consumer financial products, it prohibits AAG from misrepresenting any fact material to consumers, including, but not limited to, home values.  Additionally, AAG must submit a compliance plan to the CFPB and include links to specific CFPB materials about reverse mortgages in its direct mail solicitations and in welcome communications to borrowers with newly-originated reverse mortgages.

As expected, with Rohit Chopra having been sworn in on October 12 as CFPB Director, the Bureau announced senior leadership changes today.  The changes consist of the following:

  • Zixta Q. Martinez will serve as Deputy Director, and in that role will oversee the Bureau’s Operations Division.  Ms. Martinez joined the Bureau in 2011 to help lead the implementation team and has since served as Senior Advisor for Supervision, Enforcement and Fair Lending, Associate Director for External Affairs, and Assistant Director for the Office of Community Affairs.
  • Karen Andre will serve as Associate Director for Consumer Education & External Affairs.  Prior to joining the CFPB, Ms. Andre served in a number of government, campaign, and private sector roles.  Most recently, Ms. Andre served as Special Assistant to the President for Economic Agency Personnel within the Executive Office of the President.
  • Jan Singelmann will serve as Chief of Staff. Mr. Singelmann previously served as Senior Litigation Counsel in the CFPB’s Office of Enforcement.  Most recently, Mr. Singelmann served as Counsel for Senate Banking, Housing, and Urban Affairs Committee Chairman Senator Sherrod Brown.
  • Erie Meyer will serve as Chief Technologist.  Ms. Meyer served on the implementation team that launched the CFPB, and became a founding team member of the Bureau’s Office of Technology and Innovation.  Most recently, Ms. Meyer served as Senior Advisor to FTC Chair Khan for Policy Planning and Chief Technologist for the Federal Trade Commission, and as then-FTC Commissioner Chopra’s Technology Advisor.

We discuss recent developments concerning fair lending and ancillary products, including the potential industry-wide implications of recent New York and Massachusetts consent orders and our expectations for future CFPB scrutiny in these areas.   We also discuss the CFPB’s recent report that looks at whether the variation in interest rates among subprime auto loans can be explained by differences in borrower creditworthiness and share our thoughts on how the report’s finding are likely to impact future CFPB activity.

Chris Willis, Co-Chair of Ballard Spahr’s Consumer Financial Services Group hosts the conversation, joined by Stefanie Jackman, a partner in the Group.

Click here to listen to the podcast.

In two cases in which the plaintiffs alleged that the debt collector defendants violated the FDCPA by sharing information about their debts with third party vendors used to prepare collection letters, an Illinois federal district court rejected the plaintiffs’ attempts to have their cases remanded to state court based on a lack of Article III standing.   The decisions are at variance with recent New York federal court decisions.

In making their FDCPA claims, the plaintiffs relied on the Eleventh Circuit’s ruling in Hunstein v. Preferred Collection and Management Services that a debt collector’s transmittal of debt information to its letter vendor could violate the FDCPA’s limits in Section 1692c(b) on third party communications.  Originally filed in Illinois state court, the plaintiffs’ lawsuits were removed by the defendants to federal court.  Both plaintiffs filed motions to remand their cases to state court based on their lack of Article III standing.  In response, the debt collectors argued that the consumers had met the requirements for standing in federal court.

In Keller v. Northstar Location Services and Thomas v. Unifin, Inc., the debt collectors argued that the plaintiffs had alleged an intangible but concrete harm because their claims alleged that they suffered an invasion of privacy.  In making this argument, the debt collectors also relied on Hunstein, in which the Eleventh Circuit concluded that the alleged violation of FDCPA Section 1692c(b) had a close relationship to the harm resulting from the common law tort of invasion of privacy, specifically the private disclosure of private facts.  The Eleventh Circuit held that a violation of FDCPA Section 1692c(b) gives rise to a concrete injury-in-fact for Article III standing.

Based on Hunstein and Seventh Circuit precedent, the district court agreed with the debt collectors and concluded that the plaintiffs had Article III standing to bring their FDCPA claims.  Accordingly, the district court denied both motions to remand.

In July 2021, a New York federal district court dismissed six class action Hunstein “copycat” cases for lack of Article III standing.  In dismissing the cases, the district court concluded that the plaintiffs’ speculative claims of potential future harm through the release of information by the mailing vendors used by the debt collector defendants could not support Article III standing.

 

Yesterday, October 12, Rohit Chopra was sworn in as CFPB Director.   Tomorrow, October 14, from 12:00 p.m. to 1:00 p.m. ET, Ballard Spahr will hold a webinar, “Rohit Chopra Confirmed as New CFPB Director: What to Expect Next?”  Click here for more information and to register.

According to media reports, now former Acting Director Dave Uejio will remain at the CFPB pending his confirmation as Assistant Secretary for Fair Housing and Equal Opportunity at HUD.  Mr. Uejio’s nomination was received by the Senate without a recommendation from the Senate Banking Committee, which voted 12-12 last week along party lines.  (Mr. Chopra’s nomination similarly went to the Senate without a Banking Committee recommendation.)

It has also been reported that Mr. Chopra has named Jan Singelmann as his Chief of Staff.  Mr. Singelmann will return to the CFPB after serving as counsel to the Senate Banking Committee.  He previously spent more than six years at the CFPB serving as an enforcement attorney.

Mr. Chopra’s swearing-in creates a vacancy at the FTC and means that pending confirmation of Alvaro Bedoya, President Biden’s nominee to fill Mr. Chopra’s seat as FTC Commissioner, Democrats will not hold a majority and the Commission will be divided 2-2 along party lines.

 

 

 

A Pennsylvania federal district court recently held that Regulation J did not completely preempt state law claims related to a wire transfer, and thus did not fall under the “complete preemption” exception to the “well-pleaded complaint rule.”  Reg J deals with the collection of checks and other items by Federal Reserve Banks and fund transfers through Fedwire.

In the case, the plaintiff was the victim of a fraud scheme.  Over the course of several months, a fraudster convinced the plaintiff to wire $4,300,000 from her account at Dollar Bank to an account controlled by the fraudster.  The plaintiff filed a lawsuit against Dollar Bank in Pennsylvania state court alleging state law claims for negligence in failing to protect her from the fraudulent scheme and for violating the Pennsylvania Unfair Trade Practices and Consumer Protection Law by advertising that it keeps customer information safe from scams.

Dollar Bank removed the lawsuit to federal court, alleging that, because the case involved a wire transfer, Reg J preempted the plaintiff’s state law claims.  Specifically, Dollar Bank argued that the case fell under the complete preemption exception to the well-pleaded complaint rule such that the federal court had subject matter jurisdiction over the case.

The federal court rejected Dollar Bank’s argument.  In so holding, the federal court reiterated the well-known rule: although federal question jurisdiction is typically decided on the face of a complaint, a narrow exception exists when a federal cause of action wholly displaces the state law claims.  The Pennsylvania federal court held that Reg J cannot completely preempt state law because complete preemption requires an act of Congress, and the Federal Reserve Act—the enabling statute for Reg J—does not reflect a congressional intent for Reg J to completely preempt state law claims.  Rather, Reg J offers “ordinary preemption,” namely, a preemption defense to conflicting state law claims.

The Pennsylvania federal court’s decision is in-line with decisions from the U.S. Court of Appeals for the Sixth Circuit and a federal district court in Mississippi holding that Reg J does not completely preempt state law claims.

Hawaii recently enacted significant changes to its small-dollar lending law that repeals existing Hawaii law on deferred deposits and creates a new regime for installment loans.  Although H.B. 1192 took effect on July 1, the repeal of the existing law on deferred deposits is effective January 1, 2022 as is the new licensing requirement for “installment lenders.”

H.B. 1192 provides that, unless exempt, no person can act as an “installment lender” in Hawaii unless licensed.  It also makes any loan made without a required license void and provides that no principal, interest, fees, or other charges can be collected in connection with the loan.   The law exempts insured financial institutions (banks, savings banks, savings and loan associations, financial services loan companies, and credit unions), nondepository financial services loan companies, open-end credit as defined in TILA, and tax refund anticipation loans.

The definition of “installment lender” in H.B. 1192 is broad and, under its plain language, would purport to apply to loans made using a bank partnership model notwithstanding federal preemption issues.  An “installment lender” means:

Any person who is the business of offering or making a consumer loan, who arranges a consumer loan for a third party, or who acts as an agent for a third party, regardless of whether the third party is exempt from licensure under this chapter or whether approval, acceptance, or ratification by a third party is necessary to create a legal obligation for the third party, through any method including mail, telephone, the Internet, or any electronic means.

H.B. 1192 allows an “installment lender” to make installment loans in total amounts up to $1,500 and caps annual interest rates at 36% plus a monthly maintenance fee of no more than $35 which depends on the loan’s original principal amount.  The total amount of loan charges on an installment loan cannot exceed 50% of the principal loan amount.

The minimum loan term of an installment loan is two months if the loan amount is $500 or less or four months for loans of $500.01 or more.  The maximum loan term is 12 months.  Installments loans must be repayable in substantially equal and consecutive installments of principal and interest.  A lender can contract for payments to be made every two weeks, twice a month, or monthly.

Illinois and Maine recently overhauled their small-dollar lending laws to target loans made using a bank partnership model.

The Consumer Bankers Association has sent a letter to Rohit Chopra, the incoming CFPB Director, in which it urges the CFPB to adopt a larger participant rule for fintech consumer lenders.

Under the Dodd-Frank Act, in addition to authority to supervise nonbank entities in the residential mortgage, private student lending, and payday lending markets, the CFPB has authority to supervise nonbank entities considered to be “a larger participant of a market for other consumer financial products or services.”   The CFPB has used its larger participant authority to issue rules for consumer reporting, consumer debt collection, student loan servicing, and international money transfers.

In its letter, CBA asserts that a rule for the unsecured consumer lending market is appropriate because “non-supervised fintechs offer financial products and services to consumers in numbers that rival some of the country’s largest supervised banks, but operate outside of the supervisory framework that allows the Bureau to monitor their activities and consumer harm.”  CBA contends that non-supervised fintech lenders pose a “threat to consumers.”

However, if the CFPB were to adopt a larger participant rule for nonbank unsecured consumer lenders, such a rule is unlikely to single out fintechs or online lenders.  Such a rule would likely cover all unsecured consumer lenders regardless of whether they operate online, through brick and mortar stores, or both.

Indeed, the CFPB has previously indicated in its semi-annual rulemaking agendas that it was considering larger participant rules “in markets for consumer installment loans and vehicle title loans for purposes of supervision.”  In the CFPB’s Spring 2018 rulemaking agenda issued under the leadership of former Acting Director Mulvaney, the CFPB’s larger participant rulemaking was designated “inactive.”  The agenda stated that the change in designation was “not intended to signal a substantive decision on the merits of the projects.”  The CFPB’s Fall 2021 rulemaking agenda could shed light on the whether the “new CFPB” under the Biden Administration plans to return this initiative to active status and if so, what its timetable is for moving forward.

 

More than a month after it was issued, the CFPB’s notice of proposed rulemaking (NPRM) to implement Section 1071 of the Dodd-Frank Act was published in the Federal Register on Friday, October 8.  Section 1071 amended the ECOA to require financial institutions to collect and report certain data in connection with credit applications made by women- or minority-owned businesses and small businesses.

The publication of the NPRM starts the clock running on the 90-day comment period.  Comments must be filed by January 6, 2022.