In conjunction with efforts to forgive federal student debt for certain borrowers, President Biden’s Justice Department recently announced new guidance for its attorneys to use when deciding whether to recommend that a bankruptcy judge discharge an individual’s federal student loans. 

The guidance seeks to streamline the process of discharging federal student debt which, unlike other consumer debt, is not automatically discharged through bankruptcy.  Rather, under the Bankruptcy Code, a debtor seeking to discharge such loans has to prove “undue hardship,” absent discharge, in an adversary proceeding in the bankruptcy court.  The process and the three-factor Brunner test adopted by most circuit courts for determining undue hardship have long been criticized by consumer advocates.  (Under the Brunner test, the bankruptcy judge considers whether the debtor can maintain a minimal standard of living, whether the debtor’s current financial situation is unlikely to change, and whether the debtor has made a good faith effort to repay the loans.)  However, such criticism has not moved the U.S. Supreme Court, which last year declined to review the standards for determining undue hardship.

Under the Justice Department’s new guidance, debtors will complete an “attestation form” from which Justice Department attorneys will determine whether certain criteria are met – such as having expenses that exceed income and having made a “good-faith effort” towards repayment – and recommend either a full or partial discharge or, (although not specifically addressed by the guidance) perhaps even no discharge.  Having a set of defined criteria is intended to provide more clarity and consistency in the application of the Bankruptcy Code’s undefined undue hardship standard which has resulted in different district courts applying different interpretations, including the Brunner test.  

Some have raised concerns, however, that the “good-faith effort” prong in the new guidance is itself too vague, and could cause confusion in the discharge process.  It also remains to be seen whether bankruptcy judges will simply adopt the guidance or whether they will consider themselves compelled to make independent assessments based on the standards for determining undue hardship adopted by their respective circuit courts, particularly in cases where the debtor is also seeking to discharge private student debt.  The guidance represents a coordinated effort between the Justice Department and Department of Education that was announced nearly a year ago.  At that time, the Justice Department had also stated that it would stay any pending bankruptcy proceeding, at the borrower’s request, pending the announcement of the new guidance. 

The Office of the Comptroller of the Currency (OCC) has revised its civil money penalty (CMP) manual and will begin using the revised manual on January 1, 2023.  The manual establishes general policies and procedures for the OCC’s assessment of CMPs. 

The OCC’s general CMP authority is provided by 12 U.S.C. Sec. 1818(i), which classifies CMPs into three tiers based on the severity of the actionable conduct and level of culpability.  The statute also sets maximum CMP amounts that the OCC can assess for each day the actionable conduct continues.  The OCC uses the manual’s institution CMP matrix and institution-affiliated party (IAP) CMP matrix to quantify the degree of severity of violations, unsafe or unsound practices, or other actionable conduct.  The matrices provide for consideration of various statutory factors set forth in 12 U.S.C. Sec. 1818(i)(2)(G) and assessment factors set forth in the 1998 FFIEC Interagency Policy on CMPs. 

The matrices only apply to the assessment of tier 1 and tier 2 CMPs.  They do not apply to the assessment of tier 3 CMPs which, as described in the manual, are assessed “only in the most severe cases that have a substantial impact on the federal banking system.”  The OCC describes the matrices as “only guidance” and indicates that “they do not reduce the CMP process to a mathematical equation and are not a substitute for sound supervisory judgment.”  The OCC also notes that “[i]n some cases, consistent with the final statutory factor in 12 U.S.C. 1818(i)(2)(G), [‘such other matters as justice may require,’] it may be appropriate to depart from the matrices to reach a fair and equitable result that achieves the agency’s supervisory objectives.”

The OCC’s key revisions to the manual consist of the following:

  • The mitigating factors in the institution CMP matrix (Appendix A) are revised to consist of self-identification, remediation/corrective action, and restitution.  Previously, the listed factors were good faith before notification, full cooperation after notification, and restitution, if applicable.
  • The scoring weights given to the revised mitigating factors are greater than the scoring weights given to the previous mitigating factors.
  • The table titled “Suggested Action Based on Total Matrix Score and Total Assets of Bank” that is to be used in conjunction with the institution CMP matrix is revised to create a single size category for banks with assets up to $250 million and to create narrower size categories for banks with more than $5 billion in assets.  For example, for banks with total assets of $5 billion to $100 billion, the revised table has 3 size categories while the previous table had 2 size categories.  In addition, the revised table has 3 size categories for banks with total assets over $100 billion while the previous table put all banks with total assets over $100 billion in the same size category.
  • The revised table also provides for 19 point increments in the total matrix score ranges to which a suggested maximum CMP applies, with the lowest suggested maximum CMPs applying to a total matrix score of 41-60 and the highest suggested maximum CMPs applying to a total matrix score of 141 or more.  The previous table provided for 29 point increments in the total matrix score ranges to which a suggested maximum CMP applied, with the lowest suggested maximum CMPs applying to a total matrix score of 41-70 and the highest suggested maximum CMPs applying to a total matrix score of 161 or more. 
  • The revised table also increases many of the suggested maximum CMPs.  For example, in the revised table, a total matrix score of 140 will produce a maximum suggested CMP of $400 million for banks with total assets over $1 trillion.  Under the previous table, the same score would have produced a maximum suggested CMP of $150 million.
  • In its discussion of the matrix factor of loss or harm to consumers resulting from violations of consumer laws or to the public resulting from Bank Secrecy Act violations, the revised manual adds guidance on weighing “public harm but no quantifiable loss to specific individual consumers.”  Examiners are advised to use their judgment to determine the level of harm to the public as “minimal,” “moderate,” or “substantial,” based on the scope and severity of the violation.  Examiners are also advised that in redlining cases, there is  a presumption “that the harm is substantial because redlining represents a failure to lend to minority customers on a systematic basis.”

Earlier this week, we wrote about Verizon’s appeal to the Ninth Circuit from a district court ruling that the bellwether provision in its arbitration clause was unconscionable.  Both the U.S. Chamber of Commerce and the California Employment Law Council have filed amicus curiae briefs in support of Verizon’s position that bellwether procedures, which for decades have been used to help resolve complex court litigations, are equally beneficial in mass arbitration situations and not unconscionable.

The Chamber argues that mass arbitrations are “ripe for abuse” because “plaintiffs’ counsel seek … to create coercive settlement leverage based not on the merits of the claims, but based only on the fact that many businesses—like Verizon—agree to pay the costs associated with arbitration …. And the lion’s share of these fees … must be paid almost immediately after the arbitration is filed …. When aggregated in a mass arbitration, these fees become astronomical.”  By contrast, arbitrating bellwether cases ensures merits-based resolutions of mass arbitrations, preserving the benefits of arbitration for all parties, and is more likely to lead to a global settlement of all of the claims.

The Council argues that “[a]rbitration agreements often borrow procedures and processes from the judicial system; doing so is entirely lawful, not unconscionable.  The district court here failed to consider this basic point.  If bellwether procedures are lawful in court, they also are lawful in arbitration.”  The bellwether approach, it contends, “is useful because it benefits the courts and the parties, and it typically results in a quicker resolution of all the claims than if they had been tried individually.”

Appellees’ brief is due to be filed with the Ninth Circuit on December 21, 2022, unless extended.  Verizon will then have 21 days to file a reply.

While most attention is focused on the CFPB, state attorneys general are very active in investigating and enforcing state laws relating to consumer financial services (and often federal laws when incorporated into state law or when using their Dodd-Frank authority).  We first discuss the CPD’s priorities and how they are determined; use of its state law UDAP authority and available remedies; enforcement of federal law; and collaboration with the CFPB and other state AGs. We also discuss how a company’s self-identification/self-remediation of violations factors into the CPD’s enforcement approach.  We then discuss key issues of CPD concern and enforcement activity in specific areas, including mortgage servicing, auto sales and financing, debt collection, fintech/new technologies, and buy-now-pay-later.

Alan Kaplinsky, Senior Counsel in Ballard Spahr’s Consumer Financial Services Group, hosts the conversation joined by John Grugan and Adrian King, partners in the firm’s Litigation Group, who defend companies facing state attorneys general enforcement initiatives.

To listen to the episode, click here.

The Federal Housing Finance Agency (FHFA) recently announced the conforming loan limits for residential mortgage loans acquired by Fannie Mae and Freddie Mac in 2023. Fannie Mae addresses the limits in Lender Letter 2022-06.

As was expected based on the significant increase in housing prices during 2022, the limits increased substantially.  The standard loan limit for a one-unit home increased from $647,200 in 2022 to $726,200 for 2023. For high-cost areas, and also for Alaska, Guam, Hawaii and the U.S. Virgin Islands, the loan limit for a one-unit home increased from $970,800 for 2022 to $1,089,300 for 2023.

The FHFA announcement that is linked above includes links to:

  • A list of conforming loan limits for all counties and county-equivalent areas in the U.S.
  • A map showing the conforming loan limits across the U.S. 
  • A detailed addendum of the methodology used to determine the conforming loan limits.
  • A list of FAQs that covers broader topics that may be related to conforming loan limits.

Fannie Mae advises that the loan limits apply to the original loan balance, and not the loan balance at the time of delivery. 

On November 22, 2022, the Consumer Financial Protection Bureau (“CFPB”) and the Federal Trade Commission (“FTC”) filed an amicus brief in a case involving the right of servicemembers to sue under the Military Lending Act (“MLA”).  In the brief, the agencies ask the Eleventh Circuit to overturn a district court decision that held the plaintiffs (a servicemember and his wife) did not have a right to sue under the MLA because they had not suffered a concrete injury sufficient to confer standing.

The MLA and its implementing regulations contain protections for servicemembers and their dependents who are identified at origination of certain credit transactions as “covered borrowers.”  These protections include a maximum Military Annual Percentage Rate (“MAPR”) of 36%, a prohibition against requiring arbitration, and mandatory loan disclosures. 10 U.S.C. § 987(b), (c), (e)(3); 32 C.F.R. §§ 232.4(b), 232.6, 232.8(c).  In their class action complaint filed in the U.S. District Court for the Southern District of Florida, the plaintiffs alleged that the defendant failed to provide them with protections required under the MLA because it did not check if they were “covered borrowers” prior to extending credit.

In its motion to dismiss the complaint, defendant argued, among other things, that the plaintiffs did not have standing because they had not adequately alleged any resulting injury.  In dismissing the case, the district court found that even if there was a technical MLA violation, there was no concrete injury to the plaintiffs directly or indirectly resulting from it.

On appeal, the plaintiff-appellants present the issue as one fundamental to the MLA and contract law generally:  Do parties who are purportedly obligated to pay money under a void contract have standing to sue to rescind that contract and to seek restitution of any payments already made?  A respondent’s brief has not yet been filed.

In their joint amicus brief, the CFPB and FTC argue that the plaintiffs suffered an injury-in-fact when they made payments under an illegal contract, and that the injuries are traceable to the illegal contract and redressable by a court order compensating the plaintiffs for financial losses suffered and clarifying their ongoing legal obligations.  Perhaps most importantly, the two agencies argue that the district court’s decision undermines the MLA’s remedial purposes, which includes a private right of action and a broad array of remedies in addition to rendering a contract void if it is non-compliant. 10 U.S.C. § 987(f)(5).  According to the CFPB and FTC:

There is no doubt then that Congress intended for servicemembers to bring suit to challenge the legality of contracts that violate the MLA and to demand the remedies to which they are entitled under the statute.  The district court’s holding, however, risks substantially curtailing private enforcement of the MLA and limiting servicemembers’ ability to vindicate their rights under the statute.  It does so by reading the MLA’s voiding provision out of the statute and reading into the statute an atextual materiality requirement.  But it may be very difficult, if not impossible, for servicemembers to demonstrate that certain MLA violations had a direct effect on their decision to procure a financial product or caused them to pay money they would not otherwise have paid.

CFPB/FTC Amicus Brief at 29.

In addition to the amicus brief filed by the FTC and CFPB, an amicus brief supporting the plaintiffs has been filed by the Military Officers Association of America (“MOAA”) and several other military and legal aid organizations.  These groups argue that the MLA has been incredibly effective precisely because it voids agreements that do not meet its requirements,  and that a contrary ruling puts servicemembers and our country at risk during a time of record recruiting shortfalls.  The groups further assert in their brief that, “If this decision is not reversed, predatory lenders will realize they can return to military bases en masse, ignore all of the MLA’s protections, and only have to worry about lawsuits from the small minority of victims able to prove reliance on specific statutory violations.”  MOAA Amicus Brief at 6.

Section 987(f)(3) of the MLA provides that “[a]ny credit agreement, promissory note, or other contract prohibited [by the MLA] is void from the inception of such contract.” 10 U.S.C. § 987(f)(3).  While the MLA is clear on its face, the district court, based on Spokeo v. Robins, nevertheless rejected the notion that contracts are automatically void if they fail to comply with the MLA.  In Spokeo, the Supreme Court held that “Congress’ role in identifying and elevating intangible harms does not mean that a plaintiff automatically satisfies the injury-in-fact requirement whenever a statute grants a person a statutory right and purports to authorize that person to sue to vindicate that right.” 578 U.S. at 341.  The district court observed that this principle was reaffirmed in TransUnion LLC v. Ramirez, where the Supreme Court explained that Congressional authorization of suits alleging only statutory violations without any injury “would flout constitutional text, history, and precedent.” 141 S. Ct. 2190, 2206 (2021).  It remains to be seen whether the Eleventh Circuit will differentiate the failure to comply with the MLA’s requirements from the Fair Credit Reporting Act violations for which concrete injury was lacking in Spokeo and Ramirez.

If the decision is upheld on appeal, it will provide a legal defense for creditors for technical MLA violations in private lawsuits where plaintiffs cannot show concrete harm, such as a failure to provide a mandatory disclosure about the MAPR for loans to covered borrowers with an MAPR that does not exceed the 36% cap.  We would caution, however, that the decision would only be binding in the Eleventh Circuit and, perhaps more importantly, that the CFPB and other regulators are unlikely to recognize this defense in MLA enforcement actions.

The Wall Street Journal has reported that the seven large banks that own Zelle are discussing possible approaches to fraudulent transactions on the Zelle network.  According to the WSJ, the Zelle network rules under consideration would establish network-wide guarantees to reimburse scam victims and create liability sharing agreements, which could go live as soon as January 1, 2023.  If it is determined that a customer has been scammed, the rules would provide for the receiving bank to return the money to the customer’s originating bank, which would subsequently issue a refund to the customer.  The WSJ reports that banks are testing the process to ensure “the changes wouldn’t result in a fresh surge of scams.” Zelle has not confirmed these discussions or plans.

If Zelle moves forward with the new rules, the 1,800+ financial institutions that allow their customers to use Zelle would have to agree to the new fraud rules to continue to participate in Zelle.  We are not aware of other P2P payments providers (such as CashApp, PayPal, Google Wallet, and Venmo) taking similar action to protect consumers from scams.  However, if Zelle adopts its new rules, the other P2P payment providers will receive enormous pressure to follow suit.  Also, should Zelle take this action, it seems likely that CFPB Director Chopra and Senator Elizabeth Warren (D-Mass.) will take credit for the changes just as the CFPB has taken credit for the actions of several banks to eliminate overdraft fees earlier this year.  See our previous blog posts about overdraft changes here and here.

Regulators and lawmakers have increased scrutiny of P2P payments where customers get duped into sending payments to fraudsters.  As we previously blogged, in December 2021, the CFPB updated its Electronic Fund Transfers FAQs by adding new questions focused on P2P payment providers and P2P transfers.  As we also previously blogged, the FDIC’s March 2022 edition of Consumer Compliance Supervisory Highlights addressed fraudulent P2P payments and recommended that banks mitigate risk by: (1) reviewing account agreements and disclosures (including those with P2P payment providers) to ensure they do not attempt to limit consumers’ rights under Regulation E, and (2) implementing effective fraud detection and prevention measures, such as monitoring geographic data, spending patterns, merchant data, and IP addresses, to help detect potential fraudulent activity.

In October 2022, Senator Warren released a report titled “Facilitating Fraud: How Consumers Defrauded on Zelle are Left High and Dry by the Banks that Created It,” finding that P2P fraud is increasing, banks are not repaying customers for the vast majority of fraudulent inducement cases, and banks are not repaying customers for all “unauthorized” payments.  The American Bankers Association, Bank Policy Institute, Consumer Bankers Association and The Clearing House responded to Senator Warren’s report by stating, “[the] report from Sen. Warren fails to acknowledge that 99.9% of the 5 billion transactions processed on the Zelle network in the past 5 years were sent without any report of fraud or scams.”  Additionally, on October 27, 2022, the American Bankers Association sent a letter to CFPB Director Chopra, urging the CFPB not to shift liability to banks for P2P payments using an online-money transfer platform in which the consumer who authorized the payment subsequently claims it was made to a scammer.  See our blog post about the letter here.  Currently, customer-authorized transactions where a customer is scammed into sending money to a fraudster are not considered “unauthorized electronic fund transfers” covered by the Regulation E protections for such transfers.

An appeal pending in the U.S. Court of Appeals for the Ninth Circuit is poised to decide whether an arbitration agreement that requires mass arbitration disputes to be resolved by multiple rounds of bellwether arbitrations lawfully facilitates a quicker and more efficient resolution of the disputes than would be achieved by pursuing thousands of individual arbitrations—as appellant Verizon Wireless, Inc. contends—or whether it is substantively unconscionable because it effectively eliminates the claims of  thousands of Verizon customers who are required to wait for up to 156 years for the bellwether arbitrations to conclude—as appellees assert and the district court found.

In MacClelland v. Cellco Partnership d/b/a Verizon Wireless, 27 named plaintiffs brought a class action against Verizon asserting false advertising claims.  The plaintiffs’ law firm also represents 2,685 Verizon customers with similar claims.  The district court denied Verizon’s motion to compel arbitration pursuant to the arbitration clause in its customer agreement, finding that the clause was substantively unconscionable because, inter alia, the “mass arbitration” provision in the arbitration clause was unreasonably favorable to Horizon.  Under that provision, when 25 or more customers who are represented by the same counsel raise similar claims, the claims must be resolved pursuant to the following “coordinated proceeding”:

Counsel for the Verizon Wireless customers and counsel for Verizon Wireless shall each select five cases to proceed first in arbitration in a bellwether proceeding.  The remaining cases shall not be filed in arbitration until the first ten have been resolved.  If the parties are unable to resolve the remaining cases after the conclusion of the bellwether proceeding, each side may select another five cases to proceed to arbitration for a second bellwether proceeding.  This process may continue until the parties are able to resolve all of the claims, either through settlement or arbitration.  A court will have authority to enforce this clause and, if necessary, to enjoin the mass filing of arbitration demands against Verizon.

According to the district court, this provision is substantively unconscionable because it could take up to 156 years to resolve all of the claims and thus deters potential litigants from enforcing their rights.  Moreover, the statute of limitations provision in Verizon’s customer agreement does not contain a tolling provision to prevent claims that are the subject of later arbitration tranches from becoming time-barred, which would cause a forfeiture of legal rights in contravention of public policy.  On appeal, Verizon contends the district court erred because the bellwether procedure leads to a quicker and more efficient resolution of claims than would be achieved by clogging the system with thousands of individual adjudications and because the court misconstrued the operation of the statute of limitations provision.

We have addressed mass arbitration issues and potential defenses extensively in our blogs and podcasts.  In particular, we have discussed the American Arbitration Association’s (AAA) recent issuance of “multiple consumer case” rules that regulate the filing and administration of consumer mass arbitration claims filed with the AAA.  

Notably, the district court in Verizon Wireless found that the AAA rules stand “in stark contrast” to Verizon’s provision because they “do not require that a party wait a set amount of time before initiating a demand for arbitration.  Nor do they require that arbitrations proceed in tranches.  And while the Supplementary Rules provide that the parties shall participate in a global mediation within a set amount of time, ‘any party may unilaterally opt out of mediation upon written notification to the AAA and the other parties to the arbitration.'”  The Rules also make clear that the global mediation shall take place currently with the arbitrations and “shall not act as a stay of the arbitration proceedings.”  The court concluded: “It is one thing to set up a bellwether system to adjudicate a group of cases with the purpose of facilitating global or widespread resolution via ADR.  It is another to formally bar the timely adjudication of cases that do not settle.”

We will update you when the Ninth Circuit issues its decision.  Verizon just filed its opening brief last week and oral argument has not yet been scheduled, so a decision will not be forthcoming until 2023, at the earliest.  We will also continue to advise you on other important developments in mass arbitration litigation.  The implementation of bellwether procedures is only one of many mass arbitration defense strategies that consumer financial services companies should consider adopting in order to protect against the potentially catastrophic economic consequences of mass arbitrations.

Last week, the U.S. Supreme Court granted the unopposed request of the Community Financial Services Association for a 30-day extension until January 13, 2023 to file its brief in opposition to the CFPB’s certiorari petition seeking review of the Fifth Circuit panel decision in Community Financial Services Association of America Ltd. v. CFPB.  In that decision, the panel held the CFPB’s funding mechanism violates the Appropriations Clause of the U.S. Constitution.  It is likely that the Supreme Court will consider both the CFPB’s certiorari petition and a forthcoming cross-petition for certiorari by the CFSA at its February 17, 2023 conference.

Although it had 90 days from the panel’s decision to file a certiorari petition, the CFPB filed its petition less than a month after the decision was issued.  In the petition, the CFPB indicated that it had expedited the filing “to facilitate consideration of this case this Term.”  In seeking the extension for filing its brief in opposition, CFSA asserted that a 30-day extension was “particularly warranted because the government chose to file its petition more than 60 days before it was due, advancing a lengthy merits argument far more extensive than the one it presented below, including new historical research.”

In its extension request, CFSA indicated that it is also planning to file a cross-petition for certiorari to ask the Supreme Court to review the Fifth Circuit’s rejection of other challenges to the CFPB’s payday loan rule.  It will file its cross-petition on January 13, the same day it files its opposition to the CFPB cert petition.

CFSA also indicated in its extension request that it understood that the CFPB planned to file its brief in opposition to CFSA’s cross-petition early enough to allow the Court to consider both petitions at its February 17, 2023 conference and then, if certiorari is granted, to expedite merits briefing to permit argument and decision this Term.  According to CFSA, even if the Court were to grant certiorari, “it is neither necessary nor appropriate to resolve the significant and novel questions presented here this Term” for the following reasons: (1) the Fifth Circuit’s judgment only vacates the payday loan rule which never went into effect, (2) the CFPB can seek stays of relief in future cases if the Fifth Circuit’s decision “were extended in ways that more significantly impact” the CFPB, and (3) “the parties and the Court would benefit from briefing, arguing, and deciding this case in a more deliberate fashion than a January grant would permit.”  Nevertheless, to facilitate the Court’s ability to consider both petitions at the February 17 conference, CFSA agreed to waive the 14-day waiting period under Rule 15.5 for distributing the cross-petition and the CFPB’s brief in opposition to the Court, which will allow distribution on February 1.

The CFPB responded to the CFSA extension request by stating that it did not oppose the 30-day extension sought by the CFSA and will respond to CFSA’s cross-petition on January 25.  The CFPB reasserted its argument that the Supreme Court should grant its certiorari petition and order expedited briefing so the case can be argued and decided this Term.  It stated: 

Delaying resolution of this case beyond this Term—and thus likely until sometime in 2024—would severely prejudice the Consumer Financial Protection Bureau (CFPB), consumers, and the entire financial industry…. Although the court of appeals’ vacatur affects only the regulation challenged here, the court’s sweeping holdings threaten the validity of virtually every action the CFPB has taken in the 12 years since it was created—as well as its ongoing activities.  Those holdings will remain governing Fifth Circuit precedent until this Court intervenes, and they have already created severe disruption and uncertainty for the CFPB and for the financial services industry, which has ordered its affairs in reliance on the CFPB’s regulations and administrative actions….If the Court does not hear the case until next fall, that disruption and uncertainty would likely persist until sometime in 2024.

The CFPB also argued that the questions to be raised in the CFSA cross-petition “have no legal or logical connection to the important question presented in the government’s petition, and there is no comparable urgency requiring that they be decided promptly,” and thus “the questions presented by the cross-petition could be briefed and argued next Term if this Court grants certiorari.”  The Fifth Circuit rulings that CFSA is likely to ask the Supreme Court to review in its cross-petition are: (1) the payday loan rule was not invalid because it was promulgated by a CFPB Director who was unconstitutionally insulated from removal by the President, (2) the CFPB acted within its UDAAP authority in promulgating the payday loan rule, (3) the payday loan rule’s payment provisions were not arbitrary and capricious in violation of the Administrative Procedure Act either as a whole or as applied to debit and prepaid card transactions or as to separate installments of multi-payment installment loans, and (4) the CFPB’s UDAAP rulemaking authority did not represent an unconstitutional delegation of legislative power by Congress because Congress provided a specific purpose, objectives, and definitions to guide the Bureau’s exercise of its rulemaking authority.

On December 16, 2022, from 2 p.m. to 3:30 p.m. ET, Ballard Spahr’s Consumer Financial Services will hold a webinar, “How the Supreme Court Will Decide Threat to CFPB’s Funding and Structure.”  For more information and to register, click here.

On November 17, 2022, the Consumer Financial Protection Bureau (“CFPB”) announced in a blog post that it is in seeking to build a new data set that “will allow for a more robust understanding of market trends” in the auto market.  According to the CFPB, over 100 million Americans have an auto loan, and auto loan balances (currently estimated at $1.5 trillion nationally) are on pace to surpass student loans as the second-largest debt category in 2023.  Notwithstanding the enormous size of this type of consumer credit, the CFPB maintains that data available to sufficiently understand the market is unavailable.

In announcing this request, “Enhancing Public Data on Auto Lending,” the CFPB stated:

Financial markets and policymakers have long had access to granular mortgage data that has provided insight into patterns in lending and risk.  Because student loans are largely administered by the federal government, we know more about them too.  But, despite its size, we know much less about the auto lending market.  As a result, the CFPB is announcing an effort to work with industry and other agencies to develop a new data set to better monitor the auto loan market.

As an example of data gaps in the auto loan market, the CFPB has pointed to repossession data, which is based on proprietary estimates and does not provide a level of granularity that allows for a deeper analysis.  The Bureau has also pointed to an inability to comprehensively study the subprime and deep subprime auto markets, since many lenders providing auto loans to consumers in those credit segments don’t furnish data on those loans to credit reporting agencies.  The CFPB has expressed a clear concern about the treatment of those customer segments during the COVID 19 pandemic, and we suspect the lack of visibility into the most vulnerable consumers in the auto finance market is a major impetus for this attempt to develop a better data set.  Additional examples of CFPB reports and comments regarding subprime auto loans can be found here and here.

The CFPB hopes that additional data will give it a more robust understanding of market trends, enabling it to identify emerging risks and opportunities as they occur.  The Bureau hopes this will lead to a more competitive auto finance market for consumers and greater visibility into market trends and opportunities for lenders. 

As of this writing, approximately two dozen comments had been received in response to the request.  Posted comments can be found here.  Comments posted to date are predominantly from individuals giving their two cents on the auto finance market and do not appear to add much insight as to how to address the data gaps already identified by the CFPB. 

It is our hope that consumer and industry stakeholders are able to provide meaningful input that will help expand this effort by the CFPB to better understand the auto finance market during the comment period.  Enhanced data and a deeper understanding of the auto finance market would certainly help inform other regulatory efforts, such as the FTC’s proposed Motor Vehicle Dealers Trade Regulation Rule.

The CFPB’s blog post includes instructions for submitting comments.  Comments can be submitted on the federal rulemaking portal or directly to the CFPB by email, mail, or hand delivery to CFPB headquarters in Washington, D.C.  The deadline to submit information and comments responsive to the request is December 19, 2022.