The CFPB announced that it has entered into a settlement with the owners of payday loan retail outlets that operated under the name “Cash Tyme” in seven states to resolve alleged violations of the Consumer Financial Protection Act, the Gramm-Leach-Bliley Act/ Regulation P, and the Truth in Lending Act/ Regulation Z.  The consent order requires Cash Tyme to pay a civil money penalty of $100,000.

The CFPB found that Cash Tyme had engaged in unfair acts or practices in violation of the CFPA by conduct that included:

  • Having inadequate processes to prevent ACH debits of accounts of customers who no longer owed the amounts debited or to accurately and promptly identify and refund overpayments, with such conduct having likely resulted in NSF or overdraft fees to customers whose accounts were wrongfully debited
  • Routinely making calls to third parties to collect debts, including to a customer’s employer, supervisor, and personal references (with some of such calls placed despite Cash Tyme having received do-not-call requests)

The CFPB found that Cash Tyme had engaged in deceptive acts or practices in violation of the CFPA by conduct that included:

  • Using information about third-party references provided on loan applications for marketing purposes where the “net impression of the loan applications” was that such information would only be used for verification purposes in connection with the loan being applied for
  • Advertising unavailable services, including check cashing, phone reconnections, and home telephone connections, on the storefronts’ outdoor signage

The CFPB’s conclusion that Cash Tyme violated GLBA/Reg P was based on its finding that Cash Tyme had failed to provide initial privacy notices to consumers who had paid off a loan in full and subsequently took out a new loan.  According to the CFPB, such consumers, when taking out the new loan, were establishing a new customer relationship with Cash Tyme that required a new initial privacy notice.

The Bureau’s conclusion that Cash Tyme violated TILA/Reg Z was based on its findings that Cash Tyme had failed to include a payday loan database fee charged to Kentucky customers in the APR it disclosed in loan contracts and advertisements, rounded APRs to whole numbers in advertisements, and disclosed an example APR and payment amount that was based on an example term of repayment without disclosing the corresponding repayment terms used to calculate that APR.

In addition to payment of the $100,000 civil money penalty, the consent order requires Cash Tyme to conduct an audit to identify any consumers who were overcharged or overpaid as a result of improper ACH debits and, as of the date the consent order is issued, had not received a refund from Cash Tyme in amount equal to or greater than the amount of the overcharge or overpayment.

 

 

After several years of rulemaking, amendments, and delays, the CFPB’s Prepaid Rule (the “Rule”) is finally set to take effect on April 1, 2019.  This rapidly approaching effective date means that prepaid issuers have only two months left to confirm that their prepaid programs and materials are fully compliant with the Rules’ complex and specific new requirements.

Ballard Spahr attorneys will hold a webinar, “The Prepaid Rule Takes Effect: Considerations for Properly Implementing the CFPB’s Prepaid Accounts Rule” to discuss key compliance considerations ahead of the Prepaid Rule’s effective date. The webinar will take place on February 27, 2019, from 12:00 p.m. to 1:00 p.m. ET and a registration form is available here.

The Rule brings most prepaid accounts within the consumer protection regime of Reg. E. The Rule also applies certain Reg. Z requirements to prepaid products involving credit features.  On top of the existing complexity of those regulations, the Rule adds provisions unique to prepaid accounts, including rigorous and specific requirements for pre-acquisition short and long form disclosures and disclosures on the prepaid access device itself. Because much of the Rule applies uniformly across the spectrum of prepaid products, many of the Rule’s real-world applications to actual products will require significant analysis beyond the language of the Rule itself, the CFPB’s samples and illustrations, and currently available guidance. This compliance challenge will require deep familiarity with the existing Reg. E and Reg. Z frameworks, the Rule itself and its rulemaking background, the Rule’s commentary in its current form, and the practical and legal implications of prepaid products.

Some of the complicated applications of the Rule include:

  • Proper formatting and wording of the pre-acquisition short and long form disclosure documents. Both formatting and wording require deep analysis where a prepaid product differs from the CFPB’s samples and illustrations.
  • Determining how many and which additional fees and fee types to disclose on the pre-acquisition short form disclosure.
  • Adequately describing each and every fee on the long form disclosure, including appropriate categorization and grouping of fee types.
  • Navigating the provisions and exceptions applicable to retail and telephone acquisition contexts.
  • Understanding other specific requirements and exceptions, including the tests and thresholds applicable to the posting and submission of cardholder agreements and the re-printing of existing consumer disclosure materials.
  • Applying Reg. Z requirements to hybrid prepaid accounts with credit features, including both disclosures and substantive provisions.
  • Determining where changes to the specific provisions for payroll or government benefit cards are required.
  • Harmonizing new terms and references across all existing product materials without jeopardizing compliance with Reg. E and Reg. Z, as amended by the Rule.

Prepaid issuers and other entities involved with the provision of prepaid products should take advantage of the remaining two months to confirm that their prepaid programs and documentation are fully compliant with the Rule. Compliance risks are particularly significant for prepaid programs in which a third-party program manager or similar entity with more limited compliance resources is responsible for preparing disclosures and consumer-facing materials.  It is even more important in such programs to bring adequate expertise into the review process early enough to work through necessary changes.

Confirming complete compliance with the Rule will require more analysis and diligence than many entities are accustomed to performing in the existing and relatively well-defined worlds of Reg. E and Reg. Z. The universe of prepaid products involves countless unusual or unique features that will not fit neatly within the CFPB’s new framework or model forms. In addition, because the Rule is new and interpretive guidance is limited, the compliance challenge it presents will be particularly difficult.  Ballard Spahr’s Consumer Financial Services group possesses the deep experience with prepaid and other consumer financial products necessary to help navigate the Rule’s complexity, its highly nuanced relationship with existing regulatory regimes, and its implications for specific prepaid account characteristics.

Webinar. On February 27, 2019, from 12:00 p.m. to 1:00 p.m. ET, Ballard Spahr attorneys will hold a webinar, “The Prepaid Rule Takes Effect: Considerations for Properly Implementing the CFPB’s Prepaid Accounts Rule,” to discuss key compliance considerations ahead of the Prepaid Rule’s effective date. The webinar registration form is available here.

Last week, the CFPB issued a Complaint Snapshot analyzing mortgage complaint data from November 1, 2016 to October 31, 2018. The report indicates an overall reduction in complaint volume for mortgage products over the time period analyzed.

Mortgage complaints declined by 15%, comparing the 3-month average of complaints from August to October 2017 with the 3-month average from August to October 2018. Similarly, mortgage complaints were down 18% in October 2018, as compared to the rolling 24-month average of complaints from November 1, 2016 to October 31, 2018.

Mortgage complaints declined from 2017 to 2018 in the majority of states (again, when comparing the 3-month average of August-October 2017 with that of August-October 2018). The states which saw an increase in mortgage complaints by this metric were Iowa (+48%), New Hampshire (+38%), New Mexico (+21%), Oregon (+17%), Florida (+7%), Oklahoma (+3%), and Connecticut (+1%). We note that the report excluded data for 12 states in which less than 25 mortgage complaints were received during the time frame covered in the report.

During the time period covered by the report, the CFPB received approximately 71,000 mortgage complaints through its Consumer Response system. As with prior data regarding mortgage complaints, the report shows that the majority of mortgage complaints involve servicing.

The two most common complaint categories were: (1) “trouble during payment process” – 42% of mortgage complaints; and (2) “struggling to pay mortgage” – 36% of mortgage complaints. Complaints classified as “trouble during payment process” alleged a wide range of problems, including issues with periodic statements, incorrect application of payments, incorrect shortages in escrow account analyses, and mishandled payoff statement requests. In the category of “struggling to pay mortgage”, complaints alleged issues such as difficulty receiving assistance following financial hardship, confusing denials of loan modifications, and unresponsiveness from the single point of contact.

The full report can be viewed here.

For years, the mortgage industry has urged the CFPB to issue informal written guidance on the TILA/RESPA Integrated Disclosure (TRID) Rule, as well as other rules.  The CFPB resisted, providing most guidance in the form of actual rules, webinars or oral statements.  The industry believed that it would be a cold day in Hades if the CFPB ever issued guidance similar to the FAQs that the Department of Housing and Urban Development issued to provide guidance on the 2010 Good Faith Estimate rule.  It may be more than a coincidence that the CFPB has issued the first four FAQs ever addressing TRID Rule issues on the heels of a severe cold wave.

Three of the four FAQs relate to corrected Closing Disclosures and the three business-day waiting period before consummation, topics that have proven a source of much confusion for creditors. The first FAQ provides that, in the event that there is a change to the disclosed terms after a creditor provides the initial Closing Disclosure, the creditor is required to ensure that the consumer receives a corrected Closing Disclosure at least 3 business days before consummation if:

  1. the change results in the APR becoming inaccurate;
  2. if the loan product information required to be disclosed under the TRID Rule has become inaccurate; or
  3. if a prepayment penalty has been added to the loan.

For other types of changes, the creditor can consummate the loan without waiting three business days after the consumer receives the corrected Closing Disclosure.

The FAQs also address how to handle a situation where an APR decreases (i.e., the previously disclosed APR is overstated). The FAQs state that if the overstated APR is accurate under Regulation Z (i.e., the difference between the disclosed APR and the actual APR for the loan is within an applicable tolerance in Regulation Z), the creditor must provide a corrected Closing Disclosure at or before consummation but a new three-business day waiting period is not required. An inaccurate APR, on the other hand, will trigger a new three-business day waiting period. The FAQ provides additional information related to APR accuracy, including a reference to the Federal Reserve’s Consumer Compliance Outlook. Please note that while the FAQs indicate that there is an APR overstatement tolerance that is tied to an overstated finance charge, various loan investors may not permit correspondent lenders to rely on the tolerance. It is advisable to check with your investor regarding their policy on this issue.

The CFPB’s FAQ clarifies that Section 109(a) of the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Act”) does not affect the requirement for providing a revised Closing Disclosure with another three-business day waiting period in cases in which the APR in the prior Closing Disclosure becomes inaccurate based on a decrease in the APR. This section provides that if a creditor extends a second offer of credit to a consumer with an APR that is lower than the APR disclosed in the prior Closing Disclosure, the transaction may be consummated without regard to the 3-day waiting period with respect to the second offer. However, as previously reported, and as noted by the CFPB, Section 109(a) did not create an exception to the TRID rule waiting period because Section 109(a) amends TILA Section 129(b), which only applies to high cost mortgage disclosures. The CFPB adds that TILA Section 128 sets forth a waiting period requirement for other credit transactions, and that such section was not amended by the Act. Clearly, Congress intended to modify the waiting period under the TRID rule, and simply made a technical error. The CFPB should act immediately to reflect the intent of Congress by proposing a rule to eliminate the need for a second three-business day waiting period when the APR in the prior Closing Disclosure becomes inaccurate because of a new offer of credit with a lower APR.

The last of the CFPB’s FAQs states that a creditor’s use of a model form will provide a safe harbor even if the model form does not reflect the changes to the regulatory text and commentary that were finalized in 2017. An appropriate model form must be properly completed with accurate content in order to meet the safe harbor for TRID Rule compliance. In July 2016 the CFPB had proposed to amend the TRID rule to indicate that the industry could not rely on various sample forms included in Appendix H to Regulation Z, but did not adopt the proposal based on significant opposition from the industry, as well as Fannie Mae and Freddie Mac.

For more information on these FAQs, stay tuned for an upcoming episode of the Consumer Finance Monitor Podcast.

The CFPB published two notices in today’s Federal Register seeking OMB approval for two surveys, one dealing with debt collection and the other with household balance sheets.

Debt collection.  The request described in the notice is a resubmission of a previously published request to OMB seeking approval to conduct an online survey of 8,000 individuals as part of its research on debt collection disclosures.  The Bureau withdrew the request in December 2017.  (We surmised that the withdrawal reflected the 30-day regulatory freeze imposed by former Acting Director Mick Mulvaney.)  Comments on the resubmitted request are due on or before March 6, 2019.

In its Fall 2018 rulemaking agenda, the CFPB estimated that a notice of proposed rulemaking regarding debt collection would be issued in March 2019.  The agenda indicated that the NPRM would address “such issues as communication practices and consumer disclosures.”  Since the notice references the CFPB’s “consumer protection rule writing” authority and its reliance on “empirical evidence and rigorous research to improve its understanding of consumer financing markets for regulatory purpose,” the CFPB presumably intends to use the survey results in connection with its debt collection rulemaking.  Accordingly, the survey’s timing would seem to make it unlikely that the Bureau will issue an NPRM in March.

Household balance sheets. The Bureau is seeking OMB approval for a survey entitled “Making Ends Meet” to solicit information on consumers’ experiences “related to household financial shocks and how households respond to those shocks, including the use of credit products that do and do not appear in the [Consumer Credit Panel].”  (The CCP is a proprietary sample dataset from one of the national credit reporting agencies.)  The survey is intended to support the Bureau’s “household balance sheets” research agenda, which the CFPB describes as research that seeks “to monitor developments in consumers’ financial situations, related changes in their use of financial products, and the effects that these decisions have on their balance sheets.”  The CFPB states that the research “will be for general, formative, and informational research on consumer financial markets and consumers’ use of financial products and will not directly provide the basis for specific policymaking at the Bureau.”  Comments are due on or before March 6, 2019.

 

 

The CFPB has entered into a proposed settlement with a group of corporate and individual defendants who were alleged to have engaged in unlawful conduct in connection with offering “short-term loans to consumers located in the United States through a network of affiliated companies located in Canada and Malta.”

The settlement is intended to resolve a lawsuit filed by the CFPB against the defendants in 2015 in a New York federal district court that alleged the defendants made payday loans to residents of states in which the loans were void under state law because the defendants charged interest rates that exceeded state usury limits or the defendants failed to acquire required licenses.  The CFPB claimed that the defendants engaged in unfair, deceptive, or abusive conduct in violation of the CFPA through actions that included: (1) misrepresenting that consumers were obligated to pay debts that were void under state law and that the loans were not subject to U.S. federal or state law, and (2) misrepresenting that the defendants would sue consumers who did not pay or take other actions they did not intend to take.  The complaint also alleged that the defendants violated the Credit Practices Rule by conditioning the loans on irrevocable wage assignments.

The proposed Stipulated Final Judgment and Order sets forth the CFPB’s findings that the defendants had engaged in the alleged unlawful conduct and permanently bars the defendants from engaging in the following conduct:

  •  “advertising, marketing, promoting, offering, originating, servicing, or collecting” a consumer loan made to a U.S. resident, assisting others in such activities, or receiving any remuneration or other consideration from providing service to, or working in any capacity for, anyone engaged in or assisting with such activities
  • collecting on or selling any loans made to a U.S. consumer before the date the Order is entered
  • disclosing, using, or benefitting from information regarding U.S. consumers obtained before the date the Order is entered

The proposed settlement provides for no monetary penalty, something that has not gone unnoticed by consumer advocates.

The CFPB published a request for information in yesterday’s Federal Register seeking information to inform its next review of the credit card market.  The CARD Act requires the Bureau to conduct such a review every two years.  The Bureau’s first three reviews were published in October 2013, December 2015, and December 2017.

The RFI contains a series of questions about various issues that are divided into the following topics:

  • Terms of credit card agreements and practices of card issuers
  • Effectiveness of disclosures of terms, fees, and other expenses of credit card plans
  • Adequacy of protections against unfair or deceptive acts or practices relating to credit card plans
  • Cost and availability of consumer credit cards
  • Safety and soundness of credit card issuers
  • Use of risk-based pricing for consumer credit cards
  • Consumer credit card product innovation

Comments must be received on or before May 1, 2019.

 

The CFPB has published two final rules in today’s Federal Register, one dealing with civil penalty adjustments and the other with allowable charges for FCRA disclosures.  Both rules are effective immediately.

Civil penalty adjustments.  The CFPB’s final rule finalizes an interim final rule (IFR) it published in November 2016 to create 12 C.F.R. Part 1083 which sets forth the maximum amounts as adjusted annually for civil penalties within the Bureau’s jurisdiction.  It also finalizes the CFPB’s October 2018 proposal to add language to Section 1083.1 specifying that the adjusted penalties will apply only to violations that occurred on or after November 2, 2015.  The November 2 date is when the 2015 amendment to the Federal Civil Penalties Inflation Adjustment Act of 1990 requiring federal agencies to make annual adjustments to the civil penalties within their jurisdiction was signed into law.

The civil penalties adjusted annually by the CFPB are the Tier 1-3 penalties set forth in Section 1055 of Dodd-Frank, as well as the civil penalties in the Interstate Land Sales Full Disclosure Act, Real Estate Settlement Procedures Act, SAFE Act, and Truth in Lending Act.  The final rule sets forth the adjusted maximum amounts that apply to civil penalties assessed after January 31, 2019.

FCRA disclosures.  The FCRA provides that where a consumer is not entitled to a free disclosure of information in his or her credit file, a consumer reporting agency (CRA) can impose a reasonable charge for disclosing such information up to the maximum amount allowed by the FCRA.  Before Dodd-Frank transferred to the CFPB the FTC’s authority to make annual adjustments to the maximum amount, the FTC made the adjustments by issuing a notice rather than by issuing a rule.  That practice was continued by the CFPB.  The final rule adds a new section (12 CFR Section 1022.41) to Regulation V to codify that the charge imposed by a CRA for a credit file disclosure to a consumer “shall not exceed the maximum allowable charge set by the Bureau” and to add a new appendix (Appendix O) that the CFPB will amend (by notice) each year to indicate the maximum allowable charge for a new calendar year.  The appendix will also provide historical information regarding the maximum allowable charge for prior calendar years.

 

The Fifth Circuit has calendared oral argument in the All American Check Cashing case for March 12, 2019.  The case is one of the three cases currently pending in the circuit courts that involve a challenge to the CFPB’s constitutionality.

The other two cases are RD Legal Funding which is pending in the Second Circuit and Seila Law which is pending in the Ninth Circuit.  While briefing in the Second Circuit in RD Legal Funding will not begin until next month, the Ninth Circuit has already held oral argument in Seila Law (on January 9).  (At the oral argument, the Bureau defended its constitutionality.)  As a result, the March 12 oral argument date in All American Check Cashing creates the strong possibility that two more circuit court decisions ruling on the CFPB’s constitutionality could be issued this year.

One factor that will determine how quickly the issue could get to the U.S. Supreme Court is whether en banc review is sought from the panel decisions in either or both of these cases.  It seems virtually certain that the Supreme Court would grant a petition for certiorari in one of these cases if the circuit court’s decision creates a conflict with the D.C. Circuit’s en banc PHH decision that held the CFPB’s structure is constitutional.  However, even in the absence of a circuit conflict, there is a strong likelihood that the Supreme Court would agree to hear one of the cases given the significance of the constitutionality issue.

With regard to en banc review in All American Check Cashing, in August 2018, All American Check Cashing filed a petition asking the Fifth Circuit for an initial en banc hearing in its interlocutory appeal.  Although the Fifth Circuit’s Clerk’s Office confirmed to us last Friday that the petition has not yet been ruled on, the case docket indicates that oral argument is to be held in the Fifth Circuit’s en banc courtroom.  It is unclear whether the designation of what is presumably a larger courtroom as the venue for the oral argument reflects an anticipated high level of interest in the argument or the possibility that an initial en banc hearing might still be granted.

 

 

The CFPB’s Office of Servicemember Affairs has released its annual report on complaints submitted to the Bureau by servicemembers.

The report covers the period April 1, 2017 through August 31, 2018.  During that period, the Bureau received approximately 48,800 complaints from servicemembers, with credit reporting, debt collection, and mortgages, respectively, the first, second, and third most-complained-about financial products or services.  The majority of credit reporting complaints involved perceived inaccuracies on servicemembers’ credit reports.  The most common type of debt collection and mortgage complaints were, respectively, continued attempts to collect a debt that the servicemember believes is not owed and problems servicemembers faced when unable to make payments, such as issues relating to loan modifications or collections.

The report includes a section entitled “How servicemembers interact with financial products” that provides examples of the rates at which servicemembers and veterans use common consumer financial products and services, such as checking accounts, credit cards, and auto loans or leases.

Another section of the report entitled “Emerging issues and continuing trends in the financial marketplace for servicemembers” discusses various issues experienced by servicemembers and the CFPB’s work in response.  These issues include:

  • Heightened concern about inaccuracies on credit reports due to new Department of Defense security clearance rules that include a “continuing monitoring” policy under which servicemembers’ credit histories are checked automatically rather than periodically (e.g. every 5 years).  The Bureau states that it often hears from servicemembers “who are worried that incorrect information on their credit reports will put their security clearance, duty status, potential promotion, or even military career in jeopardy.”
  • Medical debt on credit reports, in part due to greater use by servicemembers of civilian emergency care and outpatient services that require out of pocket payments.
  • Difficulty repaying debts owed to the Department of Veterans Affairs.
  • Vulnerability of servicemembers to telecommunications debt due to frequent moves and the accompanying need to suspend or cancel and re-establish telecommunications services.
  • Confusion resulting from waivers or reductions of annual fees charged to servicemembers in connection with premium credit cards.  (The Bureau indicated that once it identified this trend in credit card complaints, it worked with a particular credit card company whose waiver notice to consumers was found to have created the confusion to craft a clarifying letter to affected consumers.  The Bureau stated that “since collaboratively addressing the problem through education with an industry partner, we have seen a significant decrease in this specific complaint type about this company.”)
  • Student loan servicing problems such as delayed processing of applications for income-driven repayment or misapplied payments and difficulty accessing disability discharge protections.
  • Insufficient understanding of auto add-on products, including not understanding that such products are optional, would be added to the amount financed, and with regard to GAP, that the insurance can be voided if the servicemember’s car is taken overseas.