In a blog post last week, we noted that there had been no official statement from the CFPB about Congress’ override of the CFPB’s arbitration rule, which President Trump signed on November 1.

Since publishing our blog post, we learned that Director Cordray had issued a statement on November 1 in which he criticized the override.  Director Cordray’s statement was not published on the CFPB’s website and it appears the statement was only sent to media members.  There continues to be no indication of the CRA override on the CFPB’s website.

As we previously commented, we assume the CFPB will be publishing a notice in the Federal Register that references the CRA override and removes the arbitration rule from the Code of Federal Regulations.  However, if the CFPB is planning to wait until it publishes such a notice before removing the rule from its website, we hope it will update its website in the meanwhile to note the CRA override.

On November 29, 2017, from 12 p.m. to 1 p.m. ET, Ballard Spahr attorneys will hold a webinar, “Now that the CFPB’s Arbitration Rule is Dead, How Should the Industry React?”  For more information and to register, click here.

The State of Oklahoma has filed an amicus brief in support of the motion to dismiss filed by four online tribal lenders sued by the CFPB for alleged Consumer Financial Protection Act and Truth in Lending Act violations.  The CFPB’s lawsuit was originally filed in an Illinois federal district court and subsequently transferred to federal district court in Kansas.

The CFPB’s complaint alleges that the lenders engaged in unfair, deceptive, and abusive acts or practices in violation of the CFPA by attempting to collect loans that were purportedly void or uncollectible in whole or in part under state law.  The CFPB asserts that the loans are void or uncollectible in whole or in part as a matter of state law because the lenders charged  interest at rates that exceeded state usury limits and/or failed to obtain required state licenses.  The CFPB alleges that the defendants’ efforts to collect amounts that consumers did not owe under state law are “unfair,” “deceptive” and “abusive” under the CFPA as a matter of federal law.  The CFPB also alleges CFPA violations by the defendants based on their alleged failure to disclose the APR as required by TILA in advertisements and when providing information orally in response to telephone inquiries.

This is not the CFPB’s first attempt to transform alleged violations of state law into CFPA UDAAP violations.  However, as we observed when the complaint was filed, the CFPB’s legal position is far more aggressive than it was in its past cases and represents a frontal attack on all forms of tribal lending.  In this case, the CFPB acknowledged that the four lenders are owned by a federally-recognized Indian tribe and thus are tribal entities (and not merely tribal members).  Further, the complaint does not allege that non-tribal parties were the “true lenders” or attempting to collect interest on their own account.

In their motion to dismiss, the lenders argue that as “arms of the tribe,” they are immune from suit under the CFPA and TILA, the CFPB has no authority to enforce state law, and the loans are governed by tribal law. (The CFPB’s complaint alleges that the lenders’ loan agreements contained a tribal choice-of-law provision.)

In its amicus brief, Oklahoma agrees with the lenders’ position that they are immune from suit under the CFPA and TILA.  In addition to questioning the CFPB’s constitutionality, Oklahoma asserts that it “is especially alarmed that the CFPB claims jurisdiction over States and State entities in the same breath as it claims authority over Indian tribes.”  It argues that the CFPB’s position “is without textual support, bad policy, and contrary to our system of federalism and separation of powers.”  According to Oklahoma, if the CFPB’s position is correct, it would mean that “Oklahoma operates a number of agencies that the CFPB may now regulate, investigate, and coerce in the same way the CFPB is investigating Defendants as arms of Indian tribes.”

The CFPB, Fed, and OCC have published notices in the Federal Register announcing that they are increasing three exemption thresholds that are subject to annual inflation adjustments.  Effective January 1, 2018 through December 31, 2018, these exemption thresholds are increased as follows:

The Illinois House of Representatives and Senate have voted to override the veto by the state’s Republican governor of Senate Bill 1351, known as the Illinois Student Loan Servicing Rights Act.  The override means that the new law will become effective on December 31, 2018.  The bill was drafted by the office of Lisa Madigan, the Democratic Illinois Attorney General, and had strong Democratic support in the state’s House and Senate.

The Act includes the following key provisions:

  • Licensing. The Act makes it unlawful “for any person to operate as a student loan servicer in Illinois except as authorized by this Act and without first having obtained a license in accordance with this Act.”   For purposes of the Act,  a “student loan” includes federal and private student loans, including loans to refinance a student loan.  The Act contains exclusions for various types of entities, such as federal- or state-chartered banks, and for open-end credit and loans secured by real property or a dwelling.  Credit extended by a postsecondary school is also excluded if the credit term is no longer than the borrower’s school program, the remaining principal balance at the time of the borrower’s graduation or completion of the program is less than $1,500 ,or the borrower failed to graduate or successfully complete the program and had a balance due at the time of disenrollment.  The Act authorizes the Secretary of Financial and Professional Regulation, or his or her designee, to license and supervise servicers and issue implementing regulations.
  • Servicing Practices. Article 5 of the Act, titled “Student Loan Bill of Rights,” prohibits certain servicing practices and imposes various requirements.  The Act authorizes the Attorney General to enforce a violation of Article 5 as an unlawful practice under the Consumer Fraud and Deceptive Business Practices Act.  Article 5 prohibits a servicer from engaging in any unfair or deceptive practice toward any borrower or cosigner or misrepresenting or omitting any material information in connection with servicing a loan.   A servicer is also prohibited from misapplying payments to the loan balance and is required to oversee third parties to ensure their compliance with Article 5 when working on the servicer’s behalf.  In addition, Article 5 contains provisions addressing the following specific areas:
    • Payment processing. Provisions include a requirement for prompt and accurate crediting of payments, a prohibition on charging a penalty if within 90 days of a change in address, a payment is received at a previous address, and a requirement to allow borrowers or cosigners to provide instructions for applying payments.
    • Fees. Unless otherwise provided by federal law, a servicer can only charge late fees that are reasonable and proportional to the cost it incurred related to the late payment and cannot charge a borrower or cosigner for modifying, deferring, forbearing, renewing, extending, or amending a loan.
    • Billing statements. A servicer is prohibited from misrepresenting various items of information in billing statements or information “regarding the $0 bill and advancement of the due date on any billing statement that reflects $0 owed.”
    • Payment histories. A servicer must provide a written payment history to a borrower or cosigner at no cost within 21 days of receiving a request.
    • Specialized assistance. A servicer must “specially designate servicing and collections personnel deemed repayment specialists who have received enhanced training related to repayment options.”  The  Act contains a definition of “federal loan borrower eligible for referral to a repayment specialist” that covers a borrower who has certain specified characteristics such as a borrower who requests information about options to reduce or suspend payments, has missed 2 consecutive payments, or is at least 75 days delinquent.  Servicers must provide specified information to such borrowers and make certain assessments regarding available payment options and are prohibited from implementing any compensation plan that incentivizes a repayment specialist to violate the Act.
    • Disclosures related to discharge and  cancellation.  Servicers must make disclosures information related to the Department of Education’s procedures for asserting a defense to repayment or claiming a discharge to borrowers eligible to assert such a defense or claim a discharge.
    • Income-driven repayment plan certifications.  A servicer must disclose the date a borrower’s income-driven payment plan certification expires and the consequences, including the new repayment amount, of failing to recertify.
    • Information provided to private student loan borrowers. A servicer’s website must provide a description of any alternative repayment plan offered by the servicer for private student loans.  The servicer must establish policies and procedures for evaluating private student loan alternative repayment arrangement requests and such arrangements must consider certain specified information.
    • Cosigner release. A servicer’s website must provide information on the availability and criteria for the release of cosigners on private student loans.
    • Payoff statements.  A servicer’s website must indicate that a borrower can request a payoff statement.  The servicer must provide a statement within 10 days, including information needed for the requester to pay off the loan, and must send a paid-in-full notice within 30 days of a payoff.
    • Transfer of servicing. The Act requires specified information to be provided by a transferor and transferee servicer within a specified time period, prohibits the charging of late fees and interest and furnishing of negative credit information in connection with certain payments made after a transfer of servicing, requires prompt transfer of payments received by a transferor servicer, and requires a transferee servicer to establish a process for a borrower to authorize recurring electronic fund transfers (unless the borrower’s authorization was automatically transferred to the transferee servicer.)
    • Requests for assistance and account dispute resolution. A servicer must implement policies and procedures for dealing effectively and timely with requests for assistance that meet certain specified requirements, including providing information about submitting such requests on its website, responding to such requests within specified time frames, and implementing a process for a requester to escalate such a request.  When a request for assistance contains an account dispute, a servicer must comply with specified dispute resolution procedures that must include a process for a requester to appeal a servicer’s determination.  The Act contains requirements that the appeal process must satisfy.
  •  Ombudsman. The Act creates the position of Student Loan Ombudsman within the Attorney General’s office “to provide timely assistance to student loan borrowers.”  The Ombudsman’s responsibilities include attempting to resolve complaints from student loan borrowers and compiling and analyzing complaint data.

 

 

 

 

Today will mark one week since President Trump signed H.J. Res. 111, the joint resolution passed by the House and Senate disapproving the CFPB arbitration rule.

Since that time, there has been no official statement from the CFPB about the override of the arbitration rule.  The arbitration rule was not mentioned in Director Cordray’s remarks to the CFPB’s Consumer Advisory Board at its November 2 meeting.

The arbitration rule became effective on September 18, 2017, with a March 19, 2018, mandatory compliance date.  Under the, Congressional Review Act, enactment of a resolution of disapproval blocks a rule from taking effect or continuing.  Accordingly, the signing of the joint resolution by President Trump means the CFPB arbitration rule became ineffective as of November 1.

Other agencies whose rules were disapproved under the CRA earlier this year have published notices in the Federal Register that reference the CRA overrides and remove the disapproved rules from the Code of Federal Regulations.  We assume the CFPB will publish a similar notice removing the arbitration rule from the Code of Federal Regulations.

As of today, however, the final arbitration rule, with its effective and mandatory compliance dates, continues to be posted on the CFPB’s website with no indication of the CRA override.  If the CFPB is planning to wait until its notice is published before removing the rule from its website, it should at least update the website in the meanwhile to note the CRA override.

On November 29, 2017, from 12 p.m. to 1 p.m. ET, Ballard Spahr attorneys will hold a webinar, “Now that the CFPB’s Arbitration Rule is Dead, How Should the Industry React?”   For more information and a link to register, click here.

 

While an official announcement has not yet appeared on the CFPB’s website, it has been widely reported that Kristen Donoghue will be appointed the CFPB’s new Assistant Director of Enforcement, effective November 17, 2017.  She will replace Anthony Alexis.

Ms. Donoghue has served as a CFPB enforcement attorney since the CFPB’s establishment in 2011, and most recently served as the CFPB’s Principal Deputy Enforcement Director.  Her appointment is not expected to result in any significant changes to the CFPB’s enforcement approach since she is reported to have been a significant contributor to the CFPB’s current enforcement policies and priorities.

In addition, she will report to the Associate Director for Supervision, Enforcement & Lending, a position that is currently held by Christopher D’Angelo.  Mr. D’Angelo has also been at the CFPB since 2011 and served as Director Cordray’s Chief of Staff before becoming Associate Director.

Ms. Donoghue spoke last year in Chicago at the Practicing Law Institute (PLI) Annual Consumer Financial Services Institute (which I co-chaired).  She was a member of  “The CFPB Speaks” panel (which I moderated).  We expect her to speak on the same panel at the 2018 Annual Institute at one or more locations.

 

The U.S. Office of Special Counsel (OSC) has issued a letter stating that it “found no evidence that [Director Cordray had] engaged in any of the preliminary activities directed toward candidacy that would violate the Hatch Act.”

According to the OSC letter, which was written by the Deputy Chief of the OSC’s Hatch Act Unit, the OSC conducted an investigation after receiving complaints alleging that Director Cordray had violated the Hatch Act by engaging in preliminary activities in connection with a candidacy for Ohio governor.  The letter indicates that the Hatch Act, which prohibits certain federal employees from running for the nomination or as a candidate for election to a partisan political office, has been interpreted to prohibit “preliminary activities regarding candidacy.”  Such activities would include “any action that can reasonably be construed as evidence that the individual is seeking support for or undertaking an initial ‘campaign’ to secure nomination or election to office.”

The letter gives examples of preliminary activities that would violate the Hatch Act, such as “taking the action necessary under the law of a state to qualify for nomination for election or soliciting or receiving contributions or making expenditures.”

However, according to the letter, “merely discussing with family or close friends the possibility of running; fact-finding to learn what would be required to run; or making inquiries to understand the current political landscape” would not violate the Hatch Act.

 

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.

 

 

 

On Friday November 3, 2017 the Consumer Financial Protection Bureau (CFPB) announced the launch of the Internet-based platform that financial institutions will use to submit data under the Home Mortgage Disclosure Act (HMDA).

Each user will need to register online for login credentials and establish an account in order to access the platform. Financial institutions can use the beta period to test login credentials, upload sample HMDA files, perform validation on their HMDA data, receive edit reports, confirm their test data submission, and conclude the test HMDA filing process.  There is no limit on the extent to which a financial institution may use the platform for testing purposes during the beta period.

All test accounts that are created during the beta period, and test data that is uploaded during the period, will be removed from the platform when the filing period for 2017 HMDA data opens in January 2018.

The CFPB encourages institutions to provide feedback on their experiences using the platform by sending comments to HMDAfeedback@cfpb.gov.

The plaintiffs in the lawsuit filed by industry groups in a Texas federal district court against the CFPB to overturn the final arbitration rule have filed a Notice of Voluntary Dismissal.

Yesterday, President Trump signed H.J. Res. 111, the joint resolution passed by the House and Senate disapproving the CFPB arbitration rule.  In their notice, the plaintiffs cited to the language in the Congressional Review Act that provides that the enactment of a joint resolution of disapproval blocks a rule from taking effect or continuing in effect.  The arbitration rule became effective on September 18, 2017, with a March 19, 2018, mandatory compliance date.  The plaintiffs stated that “[b]ecause the [CFPB] rule has been invalidated pursuant to the Act, and therefore has no continuing effect, Plaintiffs hereby voluntarily dismiss this action without prejudice.”

The case docket indicates that the case has been terminated pursuant to the plaintiffs’ notice.