The CFPB’s Fall 2016 rulemaking agenda has been published as part of the Fall 2016 Unified Agenda of Federal Regulatory and Deregulatory Actions.  The preamble indicates that the information in the agenda is current as of October 19, 2016.  Accordingly, given the results of the Presidential election, including its potential impact on the CFPB’s leadership, there is likely to be a post-election reevaluation by the CFPB of its agenda.  The agenda sets the following timetables for key rulemaking initiatives:

Arbitration.  The CFPB released its proposed arbitration rule in May 2016 and the comment period ended on August 22, 2016.  The Fall 2016 agenda indicates that the CFPB “is reviewing and considering comments on the proposed rule” as it “considers development of a final rule for early 2017.”  The agenda gives a February 2017 estimated date for a final rule.  In recent days, we have heard speculation that the CFPB will issue a final rule before Donald Trump’s inauguration as President on January 20.  As we discussed in a recent blog post, a final arbitration rule or other new final rules issued by the CFPB (and potentially any final rules issued since late May 2016) could be nullified by Congress under the Congressional Review Act (CRA).  The CRA establishes a special set of procedures that allow Congress to pass a joint resolution disapproving a rule which cannot be filibustered in the Senate and can be passed by only a simple majority vote.

Payday, title, and deposit advance loans.  The CFPB released its proposed rule on payday, title, and high-cost installment loans in June 2016 and the comment period ended on October 22, 2016.  While there has also been speculation that the CFPB will attempt to finalize a rule by January 20, that possibility seems more remote given the unprecedented level of comments (approximately one million) received by the CFPB and the complexity of the proposed rule.  The Fall 2016 agenda does not give an estimated date for a final rule.

Debt collection.  In November 2013, the CFPB issued an Advance Notice of Proposed Rulemaking concerning debt collection.  In July 2016, it issued an outline of the proposals it is considering in anticipation of convening a SBREFA panel.  It has been reported that the SBREFA panel for the CFPB’s debt collection rulemaking met with small entity representatives (SER) at the end of August 2016.  Within 60 days from the date it is considered to have “convened,” the panel must submit a report to the CFPB on the input received from the SERs.  However, the report will not become public until the CFPB issues its proposed rule.

The CFPB’s proposals only cover “debt collectors” that are subject to the FDCPA.  They are not intended to apply to a first-party creditor collecting its own debts or to a servicer when collecting debts that were current when servicing began to the extent the creditor or servicer would not be a “debt collector” under the FDCPA.  When it issued the proposals, the CFPB stated that it “expects to convene a second proceeding in the next several months” for creditors and others engaged in debt collection not covered by the proposals, noting that it believes a separate SBREFA process “is the most efficient way to proceed, particularly because it will allow participants to provide more focused and specific insights.”

In the Fall 2016 agenda, the CFPB states that it “expects to convene a separate SBREFA proceeding focusing on companies that collect their own debts in 2017.”  The agenda gives a February 2017 estimated date for further prerule activities.

Overdrafts.  The CFPB issued a June 2013 white paper and a July 2014 report on checking account overdraft services.  In the Fall 2016 agenda, as it did in its Fall 2015 and Spring 2016 agendas, the CFPB states that it “is continuing to engage in additional research and has begun consumer testing initiatives related to the opt-in process.”  Although the Spring 2016 agenda estimated an August 2016 date for further prerule activities, the new agenda moves that date to January 2017.  As we have previously noted, the extended timeline may reflect that the CFPB feels less urgency to promulgate a rule prohibiting the use of a high-to-low dollar amount order to process electronic debits because most of the banks subject to its supervisory jurisdiction have already changed their processing order.

Larger participants.  As it did in its Fall 2015 and Spring 2015 agendas, the CFPB states in the Fall 2016 agenda that it is considering “larger participant” rules “in markets for consumer installment loans and vehicle title loans for purposes of supervision.”  It also repeats its previous statement that the CFPB is “also considering whether rules to require registration of these or other non-depository lenders would facilitate supervision, as has been suggested to the Bureau by both consumer advocates and industry groups.”  (Pursuant to Dodd-Frank Section 1022, the CFPB is authorized to “prescribe rules regarding registration requirements applicable to a covered person, other than an insured depository institution, insured credit union, or related person.”)  While the Spring 2016 agenda estimated a December 2016 date for prerule activities, the new agenda estimates a May 2017 date.

Small business lending data.  Dodd-Frank Section 1071 amended the ECOA to require financial institutions to collect and maintain certain data in connection with credit applications made by women- or minority-owned businesses and small businesses.  Such data include the race, sex, and ethnicity of the principal owners of the business.  While the Spring 2016 agenda estimated a December 2016 date for prerule activities, the new agenda estimates a March 2017 date.  The CFPB states in the Fall 2016 agenda that it “is focusing on outreach and research to develop its understanding of the players, products, and practices in business lending markets and of the potential ways to implement section 1071.  The CFPB then expects to begin developing proposed regulations concerning the data to be collected and determining the appropriate procedures and privacy protections needed for information-gathering and public disclosure under this section.”

Mortgage rules.  In July 2016, the CFPB issued a proposed rule containing both substantive amendments and technical corrections to the final TILA-RESPA Integrated Disclosure rule.  The comment period on the proposal ended on October 18, 2016 and the Fall 2016 agenda gives a March 2017 estimated date for issuance of a final rule.  The Fall 2016 agenda gives a March 2017 estimated date for a proposed rule “to amend certain provisions of Regulation C to make technical corrections and to clarify certain requirements under Regulation C” and a proposed rule “to amend Regulation B to reconcile how creditors may collect information about the ethnicity and race of applicants to clarify how financial institutions and creditors subject to Regulation C and Regulation B may comply with both regulations.”

Student Loan Servicing and Consumer Reporting.  As they were in the Fall 2015 and Spring 2016 agendas, both of these topics continue to be listed in the Fall 2016 agenda as “long-term action” items with no estimated dates for further action.  The Office of Management and Budget defines “long-term action” items as “items under development but for which an agency does not expect to have a regulatory action within 12 months after publication of this edition of the Unified Agenda.”

The Consumer Financial Services Association of America (CFSA) issued a statement in which it reported that documents it received from the CFPB in response to a Freedom of Information (FOIA) request filed on December 31, 2015 “reveal for the first time more than 12,000 positive testimonials that payday loan customers submitted to the [CFPB] as part of the Bureau’s “Tell Your Story” initiative.”

According to the CFSA, during the five-year period covered by the FOIA request, 12,308 comments (or more than 98%) of the 12,546 comments submitted on short-term loans praised the industry and its products and services, or otherwise indicated positive experiences.  The CFSA reported that the FOIA documents revealed that only an extremely small number of critical payday lending comments were submitted to the CFPB – just 240 or less than 2%.  (According to the CFSA, of the 240 negative comments, 84 comments were mistakenly categorized as payday lending comments.)

The CFSA observed that this data is consistent with complaint data from the CFPB and FTC.  It stated that “[s]ince the CFPB’s complaint portal came online in 2011, complaints regarding payday loans have been miniscule – just 1.5% of all complaints.  Meanwhile, these complaints continue to decline.”  The CFSA also stated that “[i]n its summary of 2015 consumer complaints, the FTC found that just 0.003% of more than three million complaints related to payday lending.”

The CFPB issued its payday loan proposal in June 2016 and comments are due by October 7, 2016.  The CFSA asserted that, by pursuing this proposal, the CFPB is “ignoring the positive experiences shared by consumers.”

 

The Small Business Administration’s Office of Advocacy will host a roundtable in London, Kentucky on September 14, 2016 on the CFPB’s proposed payday loan rule.  As the Office of Advocacy is an independent office within the U.S. Small Business Administration, the views expressed by the Office of Advocacy do not necessarily reflect the views of the SBA or the Administration.  According to the Office, the roundtable will focus on the proposal’s potential economic impact on small entities and rural communities and feasible alternatives that might be available that would achieve the regulatory objectives in a less costly way.  The tentative agenda indicates that a CFPB representative has been invited to attend.

Prior to issuing its proposed payday loan rule, the CFPB convened a SBREFA panel that met with small entity representatives (SERs) to provide input on the proposals under consideration by the CFPB.  The Chief Counsel for Advocacy was a member of the SBREFA panel.  We understand that the Office of Advocacy views the roundtables as an opportunity for all small businesses (such as those that did not serve as SERs) to provide input on the CFPB’s proposal.  The Office of Advocacy has indicated that it is planning to hold additional roundtables on the CFPB’s payday loan proposal in Madison, WI and Washington, D.C. and submit a comment letter to the CFPB based on the input received at the roundtables.

We understand that the Office of Advocacy expects to post information about the roundtables on its website.

 

The CFPB’s proposed payday loan rule and related Request for Information (RFI) were published in this past Friday’s Federal Register.  The RFI seeks feedback regarding consumer protection concerns pertaining to (1) loan products outside the scope of the proposed payday loan rule, and (2) “risky” credit practices not covered by the proposed rule.

When they were issued in June, the proposal and RFI had comment deadlines of, respectively, September 14, 2016 and October 14, 2016.  In the version published in the Federal Register, the comment deadline for the payday loan proposal is extended to October 7.  However, October 14 remains the comment deadline for the RFI in the published version.

 

 

A group of 27 Democratic Senators joined by Independent Senator Bernie Sanders have sent a letter to Director Cordray urging the CFPB to “strengthen” its proposed payday loan rule.

The Senators take aim at the proposal’s exemptions from an ability to repay (ATR) analysis for both short-term and longer-term credit.  The proposal’s ATR exemption can only be used if it would not result in the consumer having more than six covered short-term loans during a consecutive 12-month period or being in debt for more than 90 days on covered short-term loans during a consecutive 12-month period.  The Senators want the CFPB “to reconsider the six loan exemption and implement strong ability to pay requirements.”  For longer-term credit, they want the CFPB “to strengthen the analysis that lenders must undertake to ensure that borrowers have enough money to pay all basic living expenses.”

The Senators also express concern with the proposal’s 30-day “cooling off” or waiting period for short-term credit.  In particular, the Senators question the CFPB’s rationale for not using a 60-day waiting period, which the CFPB had indicated it was considering in the outline of its proposals used by the SBREFA panel.  The Senators state that “[b]y reducing the cooling off period, the CFPB’s protection against repeated borrowing is substantially weakened.”  They urge the CFPB “to ensure that a cooling off period is long enough that borrowers can manage their expenses and are not reborrowing to service prior short-term loans.”

 

The Independent Community Bankers of America and the Credit Union National Association have sent a letter to Director Cordray “to express serious concerns” about the CFPB’s proposed rule covering single-payment payday and auto title loans, deposit advance products, and certain high-rate installment and open-end loans.

ICBA and CUNA state that the proposal “if finalized in its current form, would unquestionably disrupt lending by credit unions and community banks.”  The trade groups indicate that they believe the proposal’s “extremely complex and prescriptive nature” and its resulting compliance burdens will lead community banks and credit unions “to curtail or eliminate existing products and remove incentives to innovate or develop new consumer-friendly, short-term products and small dollar loans.”  According to the groups, the proposal’s requirements, including its exceptions to an ability to repay analysis, are “inconsistent with how credit unions and community banks that know their members and customers underwrite a loan for a relatively small amount of money.”

ICBA and CUNA indicate that  the proposal’s exceptions need to be broader for community banks and credit unions to remain in the small dollar loan market.  The groups state that they plan to submit detailed comment letters outlining their specific concerns about how the proposal will limit credit availability from community banks and credit unions.

 

As expected, the CFPB issued its proposed payday loan rule, in a release running 1,334 pages.  The CFPB also issued a fact sheet summarizing the proposal.  On June 15, 2016, from 12 p.m. to 1 p.m. ET, we will hold a webinar on the proposal: The CFPB’s Proposed Payday/Auto Title/High-Rate Installment Loan Rule: Can Industry Adapt to the New World Order?  Information about the webinar and a link to register are available here.

Like the proposals under consideration that the CFPB outlined last year in preparation for convening a SBREFA panel, the proposed rule is broad in terms of the products it covers and the limitations it imposes.  Lenders covered by the rule include nonbank entities as well as banks and credit unions.  In addition to payday loans, the rule covers auto title loans, deposit advance products, and certain high-rate installment and open-end loans.

The proposed rule establishes limitations for a “covered loan” which can be either (1) any short-term consumer loan with a term of 45 days or less; or (2) a longer-term loan with a term of more than 45 days where (i) the total cost of credit exceeds an annual rate of 36%, and (ii) the lender obtains either a lien or other security interest in the consumer’s vehicle or a form of “leveraged payment mechanism” giving the lender a right to initiate transfers from the consumer’s account or obtain payment through a payroll deduction or other direct access to the consumer’s paycheck.  The rule excludes from coverage purchase-money credit secured solely by the car or other consumer goods purchased, real property or dwelling-secured credit if the lien is recorded or perfected, credit cards, student loans, non-recourse pawn loans, overdraft services and overdraft lines of credit, and apparently credit sale contracts.

The proposed rule is very restrictive for covered short-term credit, requiring a lender to choose between:

  • Making a reasonable determination of the consumer’s ability to repay, which would require the lender to take account of the consumer’s basic living expenses and obtain and verify the consumer’s income and major financial obligations.  Some additional liberality is provided, however, insofar as lenders are permitted to verify housing expenses by records of expense payments, a lease or a “reliable method of estimating” housing expenses in the borrower’s locality.  The rule includes certain presumptions, such as a presumption that a consumer cannot afford a new loan when the consumer is seeking a covered short-term loan within 30 days of repayment of a prior covered short-term loan or a covered balloon payment longer-term loan.  To overcome the presumption, a lender would have to document sufficient improvement in the consumer’s financial capacity.  A lender would be prohibited from making a covered short-term loan to a consumer who has already taken out three covered short-term loans within 30 days of each other.
  • Making up to three sequential loans in which the first loan has a principal amount up to $500, the second loan has a principal amount that is at least one-third smaller than the principal amount of the first loan, and the third loan has a principal amount that is at least two-thirds smaller than the principal amount of the first loan.  A lender could not use this option if it would result in the consumer having more than six covered short-term loans during a consecutive 12-month period or being in debt for more than 90 days on covered short-term loans during a consecutive 12-month period.  A lender using this option cannot take vehicle security.

For covered longer-term credit, the rule requires a lender to choose between:

  • Making a reasonable determination of the consumer’s ability to repay, with the requirements for making such a determination similar to those that apply to short-term loans.
  • Using one of two options (both of which limit the number of loans a lender can make to a consumer under the option in a 180-day period and, in any event, seem of limited utility at best to “traditional” high-rate lenders):
    • An option modeled on the National Credit Union Administration’s program for payday alternative loans.  Requirements include a principal amount of not less than $200 and not more than $1,000, repayment in two or more fully amortizing, substantially equal payments due no less frequently than monthly and in substantially equal intervals, a term of at least 46 days and not more than six months, an annualized interest rate of not more than 28%, and an application fee of not more than $20, reflecting the actual cost of processing the application.
    • An option under which the total cost of credit does not exceed an annual rate of 36% (excluding a single origination fee of up to $50 or one that is a “reasonable proportion” of the lender’s underwriting costs), the loan term is at least 46 days and not more than 24 months, the loan is repayable in two or more payments that are fully amortizing, substantially equal, and due no less frequently than monthly and in substantially equal intervals, and the lender’s projected default rate on all loans made using this option does not exceed 5%.  If the default rate in any year exceeds 5%, the lender would be required to refund all origination fees paid by all borrowers whose loans were included in the default rate calculation.

For all covered short-term and longer-term credit, the rule would make a lender subject to the following collection restrictions:

  • A lender would generally have to give the consumer at least three business days advance notice before attempting to collect payment by accessing a consumer’s checking, savings, or prepaid account. The notice would have to include information such as the date of the payment request, payment channel, payment amount (broken down by principal, interest and fees), and additional information would be required for “unusual attempts” such as when the payment would be for a different amount than the regular payment or initiated on a date other than the date of a regularly scheduled payment.
  • If two consecutive attempts to collect money from a consumer’s account made through any channel are returned for insufficient funds, the lender could not make any further attempts to collect from the account unless the consumer provided a new authorization.

The rule also contemplates the CFPB’s registration of consumer reporting agencies as “registered information systems” to whom lenders would be required to furnish information about certain covered loans and from whom lenders would be required to obtain consumer reports for use in making ability to repay determinations.

Comments on the proposal are due by September 14, 2016 and the CFPB will undoubtedly require considerable time to address the comments it receives.  The CFPB has proposed that, in general, a final rule would become effective 15 months after publication in the Federal Register.

 

The CFPB has released its Spring 2016 rulemaking agenda.  The agenda sets the following timetables for key rulemaking initiatives: 

Arbitration.  The Spring 2016 agenda does not reflect the CFPB’s release of its proposed arbitration rule on May 5, 2016, stating only that the CFPB “is preparing to issue a Notice of Proposed Rulemaking this spring.”  The CFPB’s proposed rule would prohibit covered providers of certain consumer financial products and services from using an agreement with a consumer that provides for arbitration of any future dispute between the parties to bar the consumer from filing or participating in a class action with respect to the covered consumer financial product or service.  The proposed rule would also require a covered provider that is involved in an individual arbitration pursuant to a pre-dispute arbitration agreement to submit specified arbitral records to the CFPB.  We do not expect to see a final rule until next year.

Payday and deposit advance loans.  The Spring 2016 agenda also does not reflect the CFPB’s announcement that it will hold a field hearing on small dollar lending in Kansas City, Missouri on June 2, 2016.  We anticipate the field hearing will coincide with the CFPB’s release of its proposed rule which is expected to cover single-payment payday and auto title loans, deposit advance products, and certain high-rate installment and open-end loans.  The Spring 2016 agenda indicates only that the CFPB is “conducting a rulemaking to address consumer harms from practices related to payday loans and other similar credit products” and gives a June 2016 estimated date for issuance of a Notice of Proposed Rulemaking (NPRM).

Prepaid financial products.  In November 2014, the CFPB issued a proposed rule for prepaid financial products, including general-purpose reloadable prepaid cards and certain digital and mobile wallets.  The Spring 2016 agenda estimates the issuance of a final rule in July 2016.  The Fall 2015 agenda had estimated that a final rule would be issued in March 2016.

Overdrafts.  The CFPB issued a June 2013 white paper and a July 2014 report on checking account overdraft services.  In the Spring 2016 agenda, as it did in the Fall 2015 agenda, the CFPB states that it “is continuing to engage in additional research and has begun consumer testing initiatives related to the opt-in process.”  Although the Fall 2015 agenda had estimated a January 2016 date for further prerule activities, the new agenda moves that date to August 2016.  In light of the fact that most of the banks subject to CFPB supervisory jurisdiction have changed the order in which they process electronic debits, we believe the CFPB feels less urgency to promulgate a rule prohibiting the use of a high-to-low dollar amount order to process such debits.

Debt collection.  In November 2013, the CFPB issued an Advance Notice of Proposed Rulemaking concerning debt collection.  In the Spring 2016 agenda, as it did in the Fall 2015 agenda, the CFPB states that “it is in the process of analyzing responses to a survey seeking information from consumers about their experiences with debt collectors and is engaged in qualitative testing to determine what information would be useful for consumers to have about debt collection and how that information should be provided to them.”  The agenda estimates that further prerule activities, which are expected to involve the convening of a SBREFA panel, will occur in June 2016.  The CFPB had estimated in its Fall 2015 agenda that further prerule activities would occur in February  2016.

Larger participants.  As it did in its Fall  2015 agenda, the CFPB states in the Spring 2016 agenda that it is considering  “larger participant” rules for “consumer installment loans and vehicle title loans.”  It also repeats the statement in the Fall 2015 agenda that the CFPB is “also considering whether rules to require registration of these or other non-depository lenders would facilitate supervision, as has been suggested to the Bureau by both consumer advocates and industry groups.”  (Pursuant to Dodd-Frank Section 1022, the CFPB is authorized to “prescribe rules regarding registration requirements applicable to a covered person, other than an insured depository institution, insured credit union, or related person.”)  While the prior agenda estimated a September 2016 date for prerule activities, the new agenda estimates a December 2016 date.

Small business lending data.  Dodd-Frank Section 1071 amended the ECOA to require financial institutions to collect and maintain certain data in connection with credit applications made by women- or minority-owned businesses and small businesses.  Such data include the race, sex, and ethnicity of the principal owners of the business.  The Spring 2016 agenda estimates a December 2016 date for prerule activities.  We recently reported that the CFPB had filled the position of Assistant Director for the Office of Small Business Lending Markets.  The CFPB’s job posting indicated that the Assistant Director would head the CFPB’s team involved in developing rules to implement Section 1071.  In the Spring 2016 agenda, the CFPB states that it “will focus on outreach and research to develop its understanding of the players, products, and practices in the small business lending market and of the potential ways to implement section 1071.  The CFPB then expects to begin developing proposed regulations concerning the data to be collected and appropriate procedures, information safeguards, and privacy protections for information-gathering under this section.”

Mortgage rules.  In November 2014, the CFPB issued a proposal to amend various provisions of its mortgage servicing rules.  The Spring 2016 agenda estimates issuance of a final rule in July 2016.  The previous agenda had estimated a June 2016 date.  The new agenda also estimates a September 2016 date for issuance of a proposed interagency rule to implement Dodd-Frank amendments to FIRREA concerning appraisals.  The previous agenda had estimated an April 2016 date.  In April 2016, the CFPB announced its intention to reopen the rulemaking for the TILA/RESPA Integrated Disclosure rule.  At that time, the CFPB indicated that a NPRM would likely be issued in late July and, consistent with that timetable, the Spring 2016 agenda estimates a July 2016 date for a NPRM.

Student Loan Servicing and Consumer Reporting.  As they were in the Fall 2015 agenda, both of these topics continue to be listed as “long-term action” items in the Spring 2016 agenda.

 

The CFPB has issued a new report entitled “Single-Payment Vehicle Title Lending,” summarizing data on single-payment auto title loans.  The latest report is the fourth report issued by the CFPB in connection with its anticipated rulemaking addressing single-payment payday and auto title loans, deposit advance products, and certain “high cost” installment and open-end loans.  The previous reports were issued in April 2013 (features and usage of payday and deposit advance loans), March 2014 (payday loan sequences and usage), and April 2016 (use of ACH payments to repay online payday loans).

In March 2015, the CFPB outlined the proposals then under consideration and, in April 2015, convened a SBREFA panel to review its contemplated rule.  Since the contemplated rule addressed title loans but the previous reports did not, the new report appears designed to supply the empirical data that the CFPB believes it needs to justify the limits on auto title loans it intends to include in its proposed rule.  With the CFPB’s announcement that it will hold a field hearing on small dollar lending on June 2, the new report appears to be the CFPB’s final step before issuing a proposed rule.

The new report is based on the CFPB’s analysis of about 3.5 million single-payment auto title loans made to over 400,000 borrowers in ten states from 2010 through 2013.  The loans were originated in storefronts by nonbank lenders.  The data was obtained through civil investigative demands and requests for information pursuant to the CFPB’s authority under Dodd-Frank Section 1022.

The most significant CFPB finding is that about a third of borrowers who obtain a single-payment title loan default, with about one-fifth losing their car.  Additional findings include the following:

  • 83% of loans were reborrowed on the same day a previous loan was paid off.
  • Over half of “loan sequences” (which include refinancings and loans taken within 14, 30 or 60 days after repayment of a prior loan) are for more than three loans, and more than a third of loan sequences are for seven or more loans.  One-in-eight new loans are repaid without reborrowing.
  • About 50% of all loans are in sequences of 10 or more loans.

The CFPB’s press release accompanying the report commented: “With auto title loans, consumers risk their car or truck and a resulting loss of mobility, or becoming swamped in a cycle of debt.”  Director Cordray added in prepared remarks that title loans “often just make a bad situation even worse.”  These comments leave little doubt that the CFPB believes its study justifies tight restrictions on auto title loans.

Implicit in the new report is an assumption that an auto title loan default evidences a consumer’s inability to repay and not a choice to default.  While ability to repay is undoubtedly a factor in many defaults, this is not always the case.  Title loans are frequently non-recourse, leaving little incentive for a borrower to make payments if the lender has overvalued the car or a post-origination event has devalued the auto.  Additionally, the new report does not address whether and when any benefits of auto title loans outweigh the costs.  Our clients advise that auto title loans are frequently used to keep a borrower in a car that would otherwise need to be sold or abandoned.

 

On May 11, 2016, the CFPB sued All American Check Cashing, Mid-State Finance and their President and owner Michael E. Gray. It alleged that the Defendants engaged in abusive, deceptive, and unfair conduct in making certain payday loans, failing to refund overpayments on those loans, and cashing consumers’ checks.

The CFPB’s claims are mundane. The most interesting thing about the Complaint is the claim that isn’t there. Defendants allegedly made two-week payday loans to consumers who were paid monthly. They also rolled-over the loans by allowing consumers to take out a new loan to pay off an old one. The Complaint discusses how this practice is prohibited under state law even though it is not germane to the CFPB’s claims (which we discuss below). In its war against tribal lenders, the CFPB has taken the position that certain violations of state law themselves constitute violations of Dodd-Frank’s UDAAP prohibition. Yet the CFPB did not raise a UDAAP claim here based on Defendants’ alleged violation of state law.

This is most likely because of a possible nuance to the CFPB’s position that has not been widely discussed until recently. Jeff Ehrlich, CFPB Deputy Enforcement Director recently discussed this nuance at the PLI Consumer Financial Services Institute in Chicago chaired by Alan Kaplinsky. There, he said that the CFPB only considers state-law violations that render the loans void to constitute violations of Dodd-Frank’s UDAAP prohibitions. The Complaint in the All American Check Cashing case is an example of the CFPB adhering to this policy. Given that the CFPB took a more expansive view of UDAAP in the Cash Call case, it has been unclear how far the CFPB would take its prosecution of state-law violations. This case is one example of the CFPB staying its own hand and adhering to the narrower enforcement of UDAAP that Mr. Ehrlich announced last week.

In the All American Complaint, the CFPB cites an email sent by one of Defendants’ managers. The email contained a cartoon depicting one man pointing a gun at another who was saying “I get paid once a month.” The man with the gun said, “Take the money or die.” This, the CFPB claims, shows how Defendants pressured consumers into taking payday loans they didn’t want. We don’t know whether the email was prepared by a rogue employee who was out of line with company policy. But it nevertheless highlights how important it is for every employee of every company in the CFPB’s jurisdiction to write emails as if CFPB enforcement staff were reading them.

The Complaint also shows how the CFPB uses the testimony of consumers and former employees in its investigations. Several times in the Complaint, the CFPB cites to statements made by consumers and former employees who highlighted alleged problems with Defendants’ business practices. We see this all the time in the many CFPB investigations we handle. That underscores why it is very important for companies within the CFPB’s jurisdiction to be mindful of how they treat consumers and employees. They may be the ones the CFPB relies on for evidence against the subjects of its investigations.

The claims are nothing special and unlikely to significantly impact the state of the law. Although we will keep an eye on how certain defenses that may be available to Defendants play out, as they may be of some interest:

  • The CFPB claims that Defendants abused consumers by actively working to prohibit them from learning how much its check cashing products cost. If that happened, it is certainly a problem. Although, the CFPB acknowledged that Defendants posted signs in its stores disclosing the fees. It will be interesting to see how this impacts the CFPB’s claims. It seems impossible to hide a fact that is posted in plain sight.
  • The CFPB also claims that Defendants deceived consumers, telling them that they could not take their checks elsewhere for cashing without difficulty after they started the process with Defendants. The CFPB claims this was deceptive while at the same time acknowledging that it was true in some cases.
  • Defendants also allegedly deceived consumers by telling them that Defendants’ payday and check cashing services were cheaper than competitors when this was not so according to the CFPB. Whether this is the CFPB making a mountain out of the mole hill of ordinary advertising puffery is yet to be seen.
  • The CFPB claims that Defendants engaged in unfair conduct when it kept consumers’ overpayments on their payday loans and even zeroed-out negative account balances so the overpayments were erased from the system. This last claim, if it is true, will be toughest for Defendants to defend.

Most companies settle claims like this with the CFPB, resulting in a CFPB-drafted consent order and a one-sided view of the facts.  Even though this case involves fairly routine claims, it may nevertheless give the world a rare glimpse into both sides of the issues.