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The Federal Reserve Board announced that it had issued a Consent Order against Mid America Bank and Trust Company (Bank) for alleged deceptive marketing practices in violation of section 5 of the FTC Act related to balance transfer credit cards issued by the Bank to consumers through independent service organizations (ISO).  The Consent Order requires the Bank to pay approximately $5 million in restitution to nearly 21,000 consumers.

The Bank had acquired portfolios of balance transfer credit cards from other financial institutions.  It had also entered into agreements with ISOs to issue new credit cards in the Bank’s name that consumers could use to pay charged-off or past-due debts purchased by the ISOs.  The new cards were marketed and issued under the same programs used for the cards in two of the portfolios acquired by the Bank.  According to the Consent Order, the Bank engaged in the following deceptive practices in connection with the new cards by failing to do the following in solicitation or welcome letters:

  • Explain that the assessment of finance charges and fees would limit the amount of available new credit even if the consumer made payments on the account.  As a result, consumers could have reasonably believed that by continuing to make timely payments, they would receive credit equal to the amount paid when, in fact, they did not due to the assessment of finance charges and fees.
  • Accurately disclose that participating in the card program would restart the statute of limitations for out-of-statute debt.

The Fed also claimed that in connection with one of the portfolios, the Bank had engaged in deceptive practices because it had stopped reporting cardholder payments to consumer reporting agencies but did not disclose to consumers that it would not report.  It appears the Fed found this to be deceptive because when the cards were issued, the issuing bank had told consumers that reporting to CRAs would be a way for the consumer to build positive payment records.

The restitution payments required by the Consent Order are different for each card program.  For example, for the program involving the statute of limitations disclosure issue, the Bank must refund all payments made by consumers with closed accounts and cancel or waive certain charged off amounts and forgive certain amounts owed by consumers with active accounts.  For the other programs, the Bank must refund or credit certain fees and interest.

It is noteworthy that the Fed did not allege that the Bank failed to provide any required disclosures in connection with the new cards it issued, such as those required by the Truth in Lending Act.  The Consent Order thus illustrates the need for banks to not only review marketing disclosures for compliance with applicable requirements but to also consider whether additional disclosure is needed to address UDAP risk.

For example, in addition to making the restitution payments, the Consent Order requires the Bank to take certain remedial actions, such as disclosing clearly and prominently in any balance transfer credit card solicitation, and on the same page, any representation about credit limits or available credit and the effect of any fees and finance charges on the amount of available credit.  Other federal and state regulators have raised similar UDAP concerns in connection with the marketing of other high fee credit card programs.

 

 

 

The Military Lending Act (MLA) will apply to credit card accounts starting Tuesday, October 3. The final rule took effect last October but provided a one-year exemption for “credit extended in a credit card account under an open-end (not home-secured) consumer credit plan.” Although the final rule permits the Secretary of Defense to extend the exemption for up to one year (October 3, 2018), the DoD declined to do so and is allowing the exemption to expire next week.

The MLA final rule imposes a host of requirements in connection with extensions of “consumer credit” to active-duty servicemembers and their dependents (“covered borrowers”), including a 36-percent cap on the Military Annual Percentage Rate (MAPR), substantive oral and written disclosures, and prohibitions against subjecting covered borrowers to certain contractual terms. In particular, creditors are prohibited by the final rule from including pre-dispute arbitration provisions in consumer credit contracts extended to covered borrowers, a fact that has been overlooked (or ignored) by some proponents of the CFPB’s arbitration rule. As such, even if Congress were to repeal the CFPB arbitration rule using the Congressional Review Act, servicemembers and their dependents who are protected by the MLA would still have the right to take their cases to court.

Credit card issuers should take steps to ensure that they (and their servicers) are prepared to comply with the MLA final rule with respect to credit card accounts opened on or after Tuesday, October 3.

The CFPB has published a final rule regarding various annual adjustments it is required to make under provisions of Regulation Z (TILA) that implement the CARD Act, HOEPA, and the ability to repay/qualified mortgage provisions of Dodd-Frank.  The adjustments reflect changes in the Consumer Price Index in effect on June 1, 2017 and will take effect January 1, 2018.

CARD Act.  The CARD Act requires the CFPB to calculate annual adjustments of (1) the minimum interest charge threshold that triggers disclosure of the minimum interest charge in credit card applications, solicitations and account opening disclosures, and (2) the fee thresholds for the penalty fees safe harbor.  The calculation did not result in a change for 2018 to the current minimum interest charge threshold (which requires disclosure of any minimum interest charge above $1.00).  The calculation also did not result in a change for 2018 to the first and subsequent violation safe harbor penalty fees.  Such fees remain at $27 and $38, respectively.

HOEPA.  HOEPA requires the CFPB to annually adjust the total loan amount and fee thresholds that determine whether a transaction is a high cost mortgage.  In the final rule, for 2018, the CFPB increased the current total loan amount threshold from $20,579 to $21,032, and the current points and fees threshold from $1,029 to $1,052.  As a result, in 2018, a transaction will be a high-cost mortgage (1) if the total loan amount is $21,032 or more and the points and fees exceed 5 percent of the total loan amount, or (2) if the total loan amount is less than $21,032 and the points and fees exceed the lesser of $1,052 or 8 percent of the total loan amount.

Ability to repay/QM rule.  Pursuant to its ability to repay/QM rule, the CFPB must annually adjust the points and fees limits that a loan cannot exceed to satisfy the requirements for a QM.  The CFPB must also annually adjust the related loan amount limits.  In the final rule, the CFPB increased these limits for 2018 to the following:

  • For a loan amount greater than or equal to $105,158 (currently $102,894), points and fees may not exceed 3 percent of the total loan amount
  • For a loan amount greater than or equal to $63,095 (currently $61,737) but less than $105,158, points and fees may not exceed $3,155
  • For a loan amount greater than or equal to $21,032 (currently $20,579) but less than $63,095, points and fees may not exceed 5 percent of the total loan amount
  • For a loan amount greater than or equal to $13,145 (currently $12,862) but less than $21,032, points and fees may not exceed $1,052
  • For a loan amount less than $13,145 (currently $12,862), points and fees may not exceed 8 percent of the total loan amount

 

The CFPB announced that it sent letters to “top retail credit card companies” encouraging them to use zero-interest promotions instead of deferred-interest promotions.  The CFPB also provided a sample letter and published a new blog on its website for consumers to explain how deferred-interest and zero interest promotions operate and the key differences between them.

In the letter, the CFPB praised the decision of a “major U.S. retailer, in partnership with one of the largest U.S. credit card issuers, to end deferred-interest promotions on its credit card program” and to instead “offer its customers a 0% interest promotion, which is more transparent and carries less risks for consumers.”  In its second biennial report on the credit card market issued in December 2015, the CFPB discussed deferred-interest promotion as one of several “areas of concern for consumers.”  The CFPB references the 2015 report in its letter, particularly the CFPB’s conclusion in the report that its analysis of deferred-interest promotions called into question whether consumers fully understand how such promotions operate.

The CFPB concludes the letter with the observation that “it is important that every consumer fully understands the terms and true costs of promotional financing and is able to confidently make the best choice for his or her unique financial situation.  In recent years, attention to such responsible lending practices has greatly improved consumer trust and satisfaction with the credit card market.”

The views expressed by the CFPB in the letter regarding the risks created by deferred-interest promotions signal increased CFPB scrutiny of such promotions.  Moreover, retailers and card issuers should be mindful of the fact that the CFPB’s first biennial report issued in 2013 seemed to indicate that the CFPB equates the failure to benefit from a deferred-interest promotion with a lack of understanding as to how the program operates.  As a result, retailers and card issuers who continue to offer deferred-interest promotions should carefully review their policies and procedures, promotional materials, and program disclosures and agreements with counsel.

The CFPB has issued its March 2017 complaint report that highlights credit card complaints.  The report also highlights complaints from consumers in Massachusetts and the Boston metro area.  On April 13, 2017, from 12:00 p.m. to 1:00 p.m.ET, Ballard Spahr will hold a webinar, “The CFPB’s Consumer Credit Card Market RFI and Other Important Recent Credit Card Developments.”  Click here for more information and a link to register.

General findings include the following:

  • As of March 1, 2017, the CFPB handled approximately 1,136,000 complaints nationally, including approximately 26,300 complaints in February 2017.
  • Debt collection continued to be the most-complained-about financial product or service in February 2017, representing about 30 percent of complaints submitted.
  • Debt collection complaints, together with complaints about credit reporting and student loans, collectively represented about 62 percent of the complaints submitted in February 2017.
  • Complaints about student loans showed the greatest month-over-month decrease, decreasing 51 percent from January 2017.  According to the CFPB, there was a spike in student loan complaints in January 2017 “around the time the CFPB took a major enforcement action against a loan servicer.”  At the same time, student loans had the greatest percentage increase based on a three-month average, increasing about 429 percent from the same time last year (December 2015 to February 2016 compared with December 2016 to February 2017).  In February 2016, the CFPB began accepting complaints about federal student loans.  Previously, such complaints were directed to the Department of Education.  As we have noted in blog posts about prior CFPB monthly complaint reports issued beginning in April 2016, rather than reflecting an increase in the number of borrowers making student loan complaints, the increasing percentages represented by student loan complaints received by the CFPB most likely reflects the change in where such complaints are sent.
  • Payday loans showed the greatest percentage decrease based on a three-month average, decreasing about 286 percent from the same time last year (December 2015 to February 2016 compared with December 2016 to February 2017).  Complaints during those periods decreased from 399 complaints in 2015/2016 to 286 complaints in 2016/2017.  In the February 2017 complaint report, payday loans also showed the greatest percentage decrease based on a three-month average.
  • Montana, Georgia, Missouri, and South Carolina experienced the greatest complaint volume increases from the same time last year  (December 2015 to February 2016 compared with December 2016 to February 2017) with increases of, respectively, 53, 53, 39, and 39 percent.
  • West Virginia, Kansas, and New Hampshire experienced the greatest complaint volume decreases from the same time last year (December 2015 to February 2016 compared with December 2016 to February 2017) with decreases of, respectively, 6,  3, and 3 percent.

Findings regarding credit card complaints include the following:

  • The CFPB has handled approximately 116,200 credit card complaints since July 21, 2011, making credit cards the fourth-most-complained-about product, representing 10 percent of all complaints.
  • The most common issues identified in complaints involved billing disputes, particularly disputes involving fraudulent charges.  Consumers complained about the receipt of confusing guidance when notifying their credit card company of such charges and difficulty in having the charges removed even after receiving notice from the credit card company that the dispute was resolved favorably.
  • Consumers complained about problems with rewards programs, such as being unable to take advantage of benefits after meeting program requirements for such benefits and online information that contradicted information received from customer representatives.
  • Consumers complained about the terms of deferred-interest programs, including confusion as to how payments were applied to multiple balances.  Deferred-interest and rewards programs are among the topics on which the CFPB is seeking information in the RFI about the credit card market that it issued last month.
  • Consumers reported issues related to card issuance, such as unsolicited credit cards and problems arising in portfolio conversions from one lender to another.

Findings regarding complaints from Massachusetts consumers include the following:

  • As of March 1, 2017, approximately 20,600 complaints were submitted by Massachusetts consumers of which approximately 15,400 were from Boston consumers.
  • Mortgages was the most-complained-about product, representing 26 percent of all complaints submitted by Massachusetts consumers, which was higher than the national average rate of 24 percent of all complaints submitted by consumers.
  • Average monthly complaints received from Massachusetts consumers increased 19 percent from the same time last year (December 2015 to February 2016 compared with December 2016 to February 2017), lower than the increase of 22 percent nationally.

 

The CFPB announced that it has entered into a consent order with Experian, a consumer reporting agency, for allegedly engaging in the deceptive marketing of credit scores in violation of the Consumer Financial Protection Act’s prohibition against unfair, deceptive, or abusive acts or practices.  The consent order also settles allegations that the company displayed advertisements to consumers before providing free annual credit reports in violation of the Fair Credit Reporting Act.  The consent order requires the company to pay a $3 million civil money penalty to the CFPB.

According to the consent order, Experian developed its own proprietary credit scoring model, which was offered directly to consumers as an “educational” credit score.  The CFPB alleges that the score was not used by lenders despite Experian’s claims that the score provides consumers with the same type of information lenders see.  Despite disclosures accompanying Experian’s marketing materials about the nature of its educational credit score, the CFPB concluded that the disclosures were neither conspicuous nor in close proximity to the deceptive claims.  The consent order dictates the form of future Experian disclosures relating to credit scores by requiring:

For all written communications, and for Internet offers, on each landing page or email where an educational credit score is advertised, ensure that, in the first instance in which the disclosure appears, the disclosure contains a label in a font size double that of the disclosure that says: “What You Need to Know.”

The CFPB is also requiring Experian to collect and review the following data metrics in order to improve its communications with consumers regarding all of its credit score products, not just the educational scores at issue:

  • Key performance metrics, such as Consumer Complaints (both those it receives directly as well as those it receives through other channels, such as the CFPB and State Attorneys General Offices), for evidence of consumer confusion regarding credit scores it offers to consumers; and
  • Empirical data regarding consumer perceptions of Experian’s advertising with regard to the nature of credit scores and the pricing structure of credit scores for evidence of consumer confusion regarding the credit scores it offers to consumers.

The consent order also alleged that Experian required consumers to view advertisements before consumers could receive a free credit report despite a prohibition against such advertising in the FCRA.  The CFPB alleged that the Experian website to which consumers are directed after requesting a file disclosure through AnnualCreditReport.com contained banner ads and product links, but not the full file disclosure.

 

The CFPB has issued another request for information about the credit card market that identifies significant new issues of CFPB interest.  The request is intended to inform the CFPB’s biennial review of the credit card market mandated by the CARD Act.  Based on its previous biennial reviews, the CFPB issued its first and second reports to Congress in, respectively, October 2013 and December 2015.

On April 13, 2017, from 12 p.m. to 1 p.m. ET, Ballard Spahr attorneys will hold a webinar, “The CFPB’s RFI and Other Important Recent Credit Card Developments.”  The webinar registration form is available here.

In the current request, the CFPB lists thirteen topics on which it seeks information.  The first four topics concern issues that the CFPB is required by the CARD Act to consider in its review.  The next nine topics involve “areas of further interest” as to which the CFPB has raised numerous new issues.  Since topics and issues identified by the CFPB in previous RFIs and reports were frequently the subject of heightened CFPB supervisory scrutiny and enforcement activity, the topics and issues identified in the new RFI can be expected to receive similar treatment.  Comments in response to the RFI are due on or before June 8, 2017.

The nine topics and some of the CFPB’s related questions are:

  • Deferred interest products.  As a follow up to the CFPB’s previous finding that such products “can pose risks to consumers,” questions include how market trends and practices have evolved since the 2015 report and what areas of risk still remain for consumers.
  • Subprime specialist products.  In its 2015 report, the CFPB highlighted the risk for consumers created by the reliance of certain subprime credit card issuers on fees.  As a follow up, the CFPB asks how the consumer experience of using such cards compares to the experience of consumers with similar credit profiles when using mass market credit cards.
  • Third-party comparison sites.  The CFPB states that it has received indications that some comparison sites generate significant revenue from issuer payments made in exchange for approved applications and that contracts between sites and issuers can influence or determine which (and how) products and choices are presented to consumers.  Questions include the degree to which consumers understand the benefits and risks of using comparison sites and the degree to which existing standards, practices, and disclosures protect consumers from unfair, deceptive, or abusive acts and practices.
  • Innovation.  The CFPB states that its prior review noted the following innovation trends that could substantially impact the credit card market: (1) advancements in payment security and form factor, including the widespread adoption of EMV standards (i.e., standards for cards with computer chips and the technology used to authenticate chip-card transactions) and the possibility of wider adoption of mobile payments, and (2) the trend toward new consumer lending models potentially competing with credit cards, either indirectly through marketing for debt consolidation or directly at point-of-sale.  Questions include the degree to which either of these trends have advanced in expected or unexpected ways in the past two years and which of these trends appears likely to have the greatest impact on the consumer credit card market in the foreseeable future.
  • Secured credit cards.  With the CFPB observing that it has noted indications of increased secured card originations and increasing interest in the product by new market entrants, questions include what is the current state of the secured credit card market and what evidence supports indications of positive consumer outcomes.
  • Online and mobile accounting servicing.  The CFPB states that its prior review found that increasing numbers of consumers are enrolling in issuers’ online and mobile account servicing platforms, have opted out of receiving paper statements, and appear to rarely access their statements online.  This results in such consumers rarely encountering required disclosures.  Questions include the extent to which consumers who are making only minimum payments or have a propensity towards making late payments are not encountering disclosures and what other potential benefits or risks a broader shift to digital account servicing presents to consumers.
  • Rewards products.  Noting that its prior review identified areas of concern regarding the impact of rewards on consumer choice and credit card usage, as well as disclosure practices and program structure, questions include how market trends and practices have changed since the CFPB’s prior review and what areas of risk remain for consumers.
  • Variable interest rates.  Noting that its prior review found that most credit cards now have variable interest rates that will rise when market rates rise (something widely expected to happen soon), questions include the extent to which consumers are aware that their interest rates will increase on outstanding card balances when market rates increase and what practices are issuers using to inform consumers of such rate increases.
  • Debt collection.  Noting that its prior review examined the policies and practice of issuers’ collection practices and debt sales, questions include what changes have been made in such policies and practices since the CFPB’s last review, what drove such changes, and what associated metrics changed as a result.

 

 

The CFPB announced that it has entered into a consent order with First National Bank of Omaha to settle charges that the bank engaged in unfair or deceptive acts or practices in connection with the marketing and sale of credit card add-on products and the billing of consumers for such products.  The consent order requires the bank to pay at least $27.75 million to provide restitution to approximately 257,000 consumers. The restitution will include the full amount paid for the products, plus any associated late fees, over-limit fees, and finance charges.  In addition, the bank must pay a $4.5 million civil money penalty to the CFPB.

The CFPB’s announcement stated that its enforcement action was conducted in coordination with the Office of the Comptroller of the Currency (OCC), which entered into a separate consent order with the bank.  According to the CFPB, its enforcement action represents “the eighth action the Bureau has taken in coordination with another regulator to address illegal practices with respect to credit card add-on products and the 12th action the Bureau has taken in total to address these practices.”

The CFPB’s consent order states that from approximately 2002 until August 2013, the bank marketed debt cancellation products to its credit card holders and, from approximately December 1997 to September 2012, it marketed credit monitoring/identity theft protection products to its cardholders.  According to the consent order, the bank engaged in deceptive or unfair acts or practices in violation of the Consumer Financial Protection Act (which violations the bank does not admit or deny) that included the following:

  • Misrepresenting the length of the card activation process to cause consumers to listen to solicitations for debt cancellation products and misrepresenting the existence of a purchase transaction when obtaining consumer consent
  • Misrepresenting the terms, exclusions and benefits of the debt cancellation products through conduct that included failing to inform cardholders or correct confusion on the part of cardholders who had disclosed information suggesting they would be ineligible for some product benefits (such as that they were retired, self-employed or employed for less than 30 hours a week)
  • Misrepresenting the ease of cancelling debt cancellation products by conduct that included instructing representatives to attempt to rebut cardholder cancellation requests, thereby causing consumers to be unable to cancel without making multiple demands for cancellation
  • Administering the debt cancellation products in a way that obstructed cardholders from obtaining benefits, such as by imposing various restrictions, eligibility requirements, and administrative hurdles (for example, denying benefits to a cardholder who was employed for less than 30 hours a week or self-employed and defining a “pre-existing condition” to include any condition diagnosed or appearing for up to six months after enrollment)
  • Billing cardholders for credit monitoring products when the product benefits were not provided, such as where the bank did not obtain the cardholder’s authorization for his or her credit reports to be released by the credit reporting company or where the credit reporting company did not process an authorization because it could not match the cardholder’s identification information to its records.

In addition to the payment of restitution and a civil money penalty, the consent order prohibits the bank from marketing any debt cancellation or credit monitoring/identity theft products until it submits an “Add-on Compliance Plan” to the CFPB and receives “a determination of non-objection.”  The consent order details the items that must be included in the compliance plan.  It also requires the bank to submit a written policy governing the management of service providers “with respect to the offering of consumer financial products and services” to the CFPB for a determination of non-objection and develop a written, enterprise-wide “Unfair, Deceptive, and Abusive Acts or Practices risk management program for any consumer financial products or services” offered by the bank or through service providers.  While the CFPB has required banks to have UDAAP policies in other consent orders in enforcement actions involving credit card add-on products, those policies appear to have been limited to the sale of such products and did not appear to cover any consumer financial products and services offered by the bank.

The OCC’s consent order with the bank settles charges that bank’s billing practices for the credit monitoring/identity theft protection products violated Section 5 of the FTC Act.  The OCC’s consent order requires the bank to pay a $3 million civil money penalty and make restitution to customers who paid for identity theft protection they did not receive.  In its announcement of the consent order, the OCC stated that restitution payments made by the bank pursuant to the OCC’s order “will also satisfy identical obligations required by the CFPB action.”

The CFPB has issued its July 2016 complaint report which highlights complaints about credit cards and complaints from consumers in Washington and the Seattle metro area.  The CFPB began taking credit card complaints on July 21, 2011, the day on which the CFPB officially opened its doors for business.  In its first and second biennial reports on the credit card market, the CFPB identified deferred interest products and rewards programs as “areas of concern” for consumers.  We previously commented that these “areas of concern” would likely be the subject of heightened CFPB supervisory scrutiny and enforcement activity.  As noted below, in the new complaint report, the CFPB describes deferred interest and rewards programs as issues about which consumers “continue” to complain.  We expect the CFPB’s continued receipt of complaints about such programs to further fuel its supervisory and enforcement activity directed at such programs.

General findings include the following:

  • As of July 1, 2016, the CFPB handled approximately 930,700 complaints nationally, including approximately 24,500 complaints in June 2016.  Debt collection continued to be the most-complained-about financial product or service in June 2016, representing about 29 percent of complaints submitted.  Debt collection complaints, together with complaints about credit reporting and mortgages, collectively represented about 67 percent of the complaints submitted in June 2016.
  • Complaints about student loans showed the greatest percentage increase based on a three-month average, increasing about 62 percent from the same time last year (April to June 2015 compared with April to June 2016).  In February 2016, the CFPB began accepting complaints about federal student loans.  Previously, such complaints were directed to the Department of Education. As we noted in blog posts about prior complaint reports issued since April 2016, rather than reflecting an increase in the number of borrowers making student loan complaints, the increase most likely reflects the change in where such complaints are sent.
  • Payday loan complaints showed the greatest percentage decrease based on a three-month average, decreasing about 15 percent from the same time last year (April to June 2015 compared with April to June 2016).  Complaints during those periods decreased from 453 complaints in 2015 to 383 complaints in 2016.  In the March, April, May, and June 2016 complaint reports, payday loan complaints also showed the greatest percentage decrease based on a three-month average.
  • North Dakota, Alaska, and Wyoming experienced the greatest complaint volume increases from the same time last year (April to June 2015 compared with April to June 2016) with increases of, respectively, 40. 31, and 30 percent.
  • Hawaii, Delaware, and Maine experienced the greatest complaint volume decreases from the same time last year (April to June 2015 compared with April to June 2016) with decreases of, respectively, 18, 18, and 14 percent.

Findings regarding credit card complaints include the following:

  • The CFPB has handled approximately 97,100 credit card complaints, representing about 10 percent of total complaints.  Credit cards are the fourth most-complained-about product or service.
  • The most-complained-about issue involved billing disputes.
  • “A number of consumers” complained about how their payments were applied to accounts with multiple balances and different expiration periods that resulted from balance transfers, cash advances, or deferred interest purchases, with consumers frequently indicating they were not adequately informed about how their payments would be applied and were surprised that payments were not applied to promotional or deferred interest balances.
  • Credit card complaints were the subject of the CFPB’s October 2015 complaint report.  In that report, the CFPB included deferred interest programs as the subject of complaints.  In the June 2016 report, the CFPB states that such programs “continued to be the subject of complaints.”  According to the CFPB, “many” consumers complained that the terms of such programs were not adequately explained to them.
  • Although rewards programs were not mentioned in the October 2015 report, the CFPB states in the June 2016 report that consumers “continue to complain about misleading offers” for such programs.  According to the CFPB, consumers “often state that they have difficulty receiving promised benefits, or that the terms and conditions of the programs were not clearly explained when they opened the card.”

Findings regarding complaints from Washington consumers include the following:

  • As of July 1, 2016, approximately 18,900 complaints were submitted by Washington  consumers of which approximately 58 percent(about 11,000) were from Seattle consumers.
  • Mortgages were the most-complained-about product, representing 29 percent of the complaints submitted by Washington and Seattle consumers and 25 percent of complaints submitted by consumers nationally.
  • The percentage of debt collection complaints submitted by Washington and Seattle consumers, 27 and 28 percent, respectively, was similar to the 27 percent national average.

 

 

The CFPB has published a final rule regarding various annual adjustments it is required to make under provisions of Regulation Z (TILA) that implement the CARD Act, HOEPA, and the ability to repay/qualified mortgage provisions of Dodd-Frank.  The adjustments reflect changes in the Consumer Price Index in effect on June 1, 2016 and will take effect January 1, 2017.

The CARD Act requires the CFPB to calculate annual adjustments of (1) the minimum interest charge threshold that triggers disclosure of the minimum interest charge in credit card applications, solicitations and account opening disclosures, and (2) the fee thresholds for the penalty fees safe harbor.  The calculation did not result in a change to the current $1.00 minimum interest charge threshold. The first violation penalty and subsequent violation penalty fees will also remain unchanged at $27 and $38, respectively. However, the latter figure remains “unchanged” because the CFPB corrected its 2016 fee notice, which had erroneously calculated the subsequent violation penalty safe harbor fee as $37. The CFPB is amending the provision to preserve a list of historical thresholds and the corrected figure is effective immediately upon publication in the federal register.

Pursuant to its ability to repay/QM rule, the CFPB must annually adjust the points and fees limits that a loan must not exceed to satisfy the requirements for a QM.  The CFPB must also annually adjust the related loan amount limits.  In the final rule, the CFPB increased these limits to the following:

  • For a loan amount greater than or equal to $102,894 (currently $101,749), points and fees may not exceed 3 percent of the total loan amount
  • For a loan amount greater than or equal to $61,737 (currently $61,050) but less than $102,894, points and fees may not exceed $3,087
  • For a loan amount greater than or equal to $20,579 (currently $20,350) but less than $61,737, points and fees may not exceed 5 percent of the total loan amount
  • For a loan amount greater than or equal to $12,862 (currently $12,719) but less than $20,579, points and fees may not exceed $1,029
  • For a loan amount less than $12,862 (currently $12,719), points and fees may not exceed 8 percent of the total loan amount