Consumer Credit Regulatory News and Trends


This regular publication from the attorneys at DLA Piper aims to help clients navigate the ever-changing consumer credit regulatory landscape.

Enforcement measures

Federal

The CFPB and the OCC announce a $225 million fine against the national bank for administering state unemployment benefits during the pandemic.The Consumer Financial Protection Bureau (CFPB) and the Office of the Comptroller of the Currency (OCC) have announced a consent order with a national bank for alleged unfair, deceptive or abusive acts or practices (UDAAP) and violations of the Electronic Fund Transfer Act (EFTA) in the administration of unemployment benefits. According to the agencies, the bank (i) engaged in unfair practices and failed to conduct reasonable investigations by relying solely on automated fraud detection software and referring consumers who requested information. assisting state unemployment agencies while knowing that the state could not provide services, (ii) engaged in abusive acts by retroactively applying fraud detection software to reverse previous unemployment payments and (iii) engaged in unfair acts by requiring customers to report errors or fraud only via a telephone hotline with wait times of several hours and not allowing online or in-person reporting. Under the consent order, the fine was divided into 0 million imposed by the CFPB and $125 million imposed by the OCC. The bank was further ordered to undertake consumer redress proceedings that are expected to yield hundreds of millions of dollars in consumer redress.

The CFPB announces a settlement of 37.5 million dollars with the national bank following the scandal of fake accounts.The CFPB has announced a consent order with a national bank for alleged violations of the UDAAP, the Fair Credit Reporting Act (FCRA), the Truth in Lending Act (TILA), and the Trade in Services Agreement (TISA). The CFPB alleged that bank employees illegally accessed consumer credit reports and personal data to apply for and open unauthorized accounts, credit cards and lines of credit. The CFPB also claimed that the bank was aware that the pressure to meet sales targets led employees to open accounts without authorization and that the bank had inadequate internal controls to prevent misconduct. In addition to the $37.5 million fine, the consent order also requires the bank to adopt a remedy plan to compensate consumers for all fees and costs incurred and submit a compliance plan for approval and oversight. to the CFPB which includes new internal controls and policies.

CFPB announces $19 million settlement with auto lender over inaccurate credit reports. The CFPB has announced a consent order with a non-bank auto lender for alleged FCRA violations. The CFPB alleged that the lender knew that the computer system it used to report data to credit reporting agencies was inefficient in accurately collecting payment data from the lender’s loan and lease portfolios, which led the lender to provide inaccurate information in more than 8.7 million cases. The consent order requires the lender to pay a $6 million civil penalty and $13.2 million in consumer relief.

CFPB announces enforcement action against payday lender over repayment practices. The CFPB filed a complaint in the United States District Court for the Northern District of Texas against a payday loan and title company for alleged UDAAP violations. The CFPB asserted separate counts of unfair, deceptive and abusive practices based on the company’s practice of sending emails and other communications encouraging distressed borrowers to enroll in programs repayment plans and not to disclose the borrower’s right to free repayment plans under their contracts or applicable. State Law. The CFPB also alleged that the company engaged in unfair practices by resetting attempted withdrawals of payments from consumer accounts beyond the authorized limits of attempted withdrawals. The CFPB is seeking reimbursement of more than $240 million in fees collected by the company, as well as other fines and penalties.

CFPB announces $2.7 million settlement with fintech company over deceptive marketing practices.The CFPB has announced a consent order with a fintech company for alleged UDAAP violations. The CFPB alleged that the firm, which offered an automated savings tool, said it ‘never transfers more than you can afford’ and provided a ‘no overdraft guarantee’, but instead caused regularly overdrafts, failed to reimburse overdraft fees to customers in accordance with the marketed guarantee and interest retained on consumer funds despite marketing to customers that “we don’t keep your interest”.

The FTC and 18 state attorneys general announce a $10.9 million settlement with a jewelry retailer over a purchase financing program involving the military.The Federal Trade Commission (FTC) and a multi-state group of attorneys general have announced a complaint and proposed stipulated order with a nationwide jewelry chain for alleged violations of UDAP, the Military Loans Act (MLA), TILA, EFTA, and Holder’s Rule. According to the agencies, Defendant (i) engaged in deceptive practices by telling service members that using Defendant’s installment contracts would result in higher credit scores and falsely stating that purchasing a separate service/replacement plan was required to obtain financing, (ii) failed to include mandatory advertising and financing contract disclosures required by federal and state law, and (iii) violated EFTA by initiating payment transfers inconsistent with the terms of the TILA payment schedule or without first obtaining valid pre-authorization. The stipulated order would also force the defendant to cease operations and dissolve after reimbursing consumers. This action is notable in that it is the FTC’s first action to enforce the MLA.

FTC announces $2.7 million judgment and permanent ban against cash advance and debt collection system operators. The FTC announced a stipulated order with the New York-based operators of a merchant cash advance and debt collection system for alleged violations of UDAP and the Fair Debt Collection Practices Act (FDCPA). According to the FTC, the companies misrepresented the scope of personal guarantees in loan agreements, unlawfully required borrowers to sign admissions of judgment, misrepresented the amounts of money to be disbursed under loan agreements, and engaged in abusive and harassing collection practices, which included threats of physical violence and destruction of reputation if consumers did not pay. Under the stipulated order, the company will also be required to vacate any judgments against consumers and release any liens.

Regulatory developments

Federal

The CFPB publishes a circular on enforcement measures related to consumer data security. The CFPB published a circular stating that “Covered Persons” and “Service Providers” subject to the jurisdiction of the CFPB – the scope of which is broader than the Gramm-Leach-Bliley Act (GLBA) Safeguard Rule – with security measures of “inadequate” data may be liable for “unfair” practices under the UDAAP, including in the absence of breach. The CFPB provided examples of potentially inadequate practices that could lead to liability, including the lack of multi-factor authentication, the lack of monitoring for breaches in other entities where employees may reuse usernames and passwords, the use of default corporate usernames or passwords, or failure to update software in a timely manner. The CFPB also said that “financial institutions are unable to successfully justify weak data security practices based on compensatory benefits to consumers or competition.”

The CFPB issues an advisory opinion on the fees charged by collection agents. The CFPB issued a advisory opinion stating that Section 808(1) of the FDCPA prohibits debt collectors from collecting a “pay-to-pay” or “convenience” fee unless such fee is expressly authorized by the loan agreement or otherwise expressly authorized by the law. The CFPB also clarified that debt collectors violate the FDCPA when they use payment processors that charge unauthorized fees if the debt collector receives a bribe from the payment processor.

The CFPB issues an advisory opinion on consumer confidentiality obligations by users of the creditors’ report. The CFPB issued a advisory opinion stating that (i) permitted uses under section 604(a)(3) of the FCRA are consumer specific and (ii) a credit reporting agency may not provide consumer reports to a user unless the agency reasonably believes that the information it would provide relates to the specific consumer who is the subject of the request. As the CFPB explained, it prohibits name-matching procedures, providing credit reports of multiple people as “possible matches,” and using warnings of insufficient matching procedures to excuse action. reasonable to ensure that the information contained in a credit report relates only to the specific. consumer.

The New York State DFS is proposing new check cashing regulations. DFS has promulgated a draft regulation on cashing checks which would establish two levels of fees. First, for any check “issued by a federal or state government agency”, the maximum check cashing fee is capped at 1.5%. Second, for all other cheques, the maximum fee allowed is 2.2% or $1, whichever is greater. Beginning in 2027, and every five years thereafter, licensees may request an increase in maximum royalties by filing a written request with the DFS supported by information regarding the licensee’s annual costs and profitability for the five years. previous ones. DFS accepted public comments on the proposed settlement until August 15, 2022.

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