On Thursday, May 11, 2016 in Chicago, I moderated the “CFPB Speaks” panel which was the lead-off panel at the sold-out Practicing Law Institute 21st Annual Consumer Financial Services Institute. The CFPB speakers were: Jeff Ehrlich, Deputy Assistant Director, Office of Enforcement, Paul Mondor, Managing Counsel, Office of Regulations and Chris Young, Senior Counsel and Chief of Staff, Office of Supervision Policy. My partner, Chris Willis (who is the Practice Group Leader of our firm’s Consumer Financial Services Litigation Group and who has handled a huge volume of CFPB investigations) was one of two industry representatives on the panel.
Jeff Ehrlich attempted to clarify the confusion surrounding the CFPB’s position in the CashCall lawsuit in which the CFPB asserted that longer term installment loans with interest rates that exceed the rate allowed under the law of the state where the borrower resides are also UDAAP violations. Many in the industry read the CashCall complaint as evidence that the CFPB views state usury violations as per se UDAAP violations.
Jeff indicated that the CFPB’s position is that there is a UDAAP violation if a state usury law violation makes a loan void or if state law provides that loans made without a required license are void. If, for example, the state law penalty for violating the state usury law is less draconian (e.g., double the finance charge or overcharge), then the CFPB would not assert that there is also a UDAAP violation.
Jeff’s comments, however, are not fully consistent with the complaint filed by the CFPB against CashCall. Specifically, the complaint asserts that the loans alleged to be UDAAP violations were subject to state laws that “rendered void or limited the consumer’s obligation to repay.” The complaint includes Colorado as a subject state and acknowledges that loans that exceed the usury limit in Colorado and loans originated without a license in Colorado are not void. Rather, it states that in Colorado, consumers are relieved of the obligation to pay any charge that exceeds the usury limit and are entitled to a refund from the lender or assignee for any excess amount that they paid. It also states that a lender’s or assignee’s failure to obtain a required license removes the consumer’s obligation to pay finance charges to the lender or assignee.
As a result of the inconsistency between Jeff’s statement that there exists a UDAAP violation for a state law violation only when a company seeks to collect a loan that is void under state law and the much broader theory of UDAAP liability in the CashCall complaint itself, confusion continues to exist as to the CFPB’s position on when a state law violation constitutes a UDAAP violation.