This regular publication by DLA Piper lawyers focuses on helping clients navigate the ever-changing consumer finance regulatory landscape.

Regulatory developments

Federal

Federal financial regulatory agencies extend comment period regarding the use of artificial intelligence in banking. Federal financial regulatory agencies have extended the comment period for their request for information on financial institutions’ use of artificial intelligence. The request seeks information on how financial institutions use artificial intelligence in their fraud prevention, customer service, credit, underwriting and other operations. The request also seeks information on how institutions will address challenges in developing, adopting and managing artificial intelligence. The extended comment period gives the public until July 1, 2021 to respond to the request.

FTC Acting Chairwoman Slaughter responds to US Chamber of Commerce’s opposition to restoring FTC’s enforcement power under Section 13(b). FTC Acting Chairwoman Rebecca Kelly Slaughter has submitted a letter to the Senate Committee on Commerce, Science, and Transportation reaffirming the need for Congress to restore the FTC’s ability to use Section 13(b) of the FTCA to seek financial compensation in consumer protection actions. This comes after the Supreme Court’s holding in AMG Capital Management, LLC v. FTC, which held that Section 13(b) did not authorize the Commission to seek, or a court to award, equitable monetary relief such as restitution or disgorgement in an enforcement action under the FTCA. Acting Chairwoman Slaughter’s letter stresses that the FTC’s ability to seek consumer compensation is necessary for protecting consumers by providing a source of compensation and deterring future violations of the FTCA by disgorging violators of their ill-gotten gains. For more information on the Supreme Court’s decision in AMG Capital, see the May issue of this newsletter.

CFPB releases report on consumer use of payday, auto title and pawn loans. The CFPB released a new report in its Making Ends Meet series that concluded that consumers who use a payday, auto title and/or pawn loan in one year often still use that type of loan a year later. The report noted that many users struggled to access credit and a majority had poor or very poor credit scores. Three quarters of the users reported experiencing a significant income or expense shock and difficulty paying a bill; these shocks were usually larger than other available credit or savings sources. The CFPB stated that, for some consumers, these loans may be part of a broader and more complicated debt portfolio to deal with difficulties.

Senate passes Congressional Review Act resolution to overturn the OCC’s “true lender” final rule. The Senate passed a resolution under the Congressional Review Act to overturn the OCC’s “true lender” final rule. This rule provided a bright-line test for when a national bank or federal savings association was considered the “true lender” for a loan when it partnered with a fintech or other non-bank company. The resolution now moves to the House of Representatives.

OCC releases Community Reinvestment Act evaluations. The OCC published its performance evaluations under the Community Reinvestment Act for 15 national banks, federal savings associations and insured federal branches of foreign banks. These evaluations rate institutions on a scale ranging from outstanding, satisfactory, needs to improve to substantial noncompliance.

State

California DFPI hires several new experts to help form new divisions within the department. The California DFPI has announced several new leadership hires. The DFPI has hired Christina Tetreault, the former Manager of Financial Policy at Consumer Reports, to lead the Office of Financial Technology and Innovation; Suzanne Martindale, a former Senior Policy Counsel and Western States Legislative Manager at Consumer Reports, to lead the Consumer Financial Protection Division; and Brian Gould, from the California Office of the State Treasurer, to lead the Office of the Ombuds.

New York passes legislation protecting consumers’ COVID-19 stimulus payments from debt collectors. New York has passed legislation protecting consumers’ federal coronavirus disease 2019 (COVID-19) relief payments from garnishment by debt collectors, including stimulus payments, tax refunds, rebates and tax credits. The law includes an exception for garnishment and collection for child and spousal support payments as well as collection in situations involving fraud. Under the new law, any attempt to enforce a money judgment against an individual’s bank account must be accompanied by a notice to the debtor under New York Civil Practice Law and Rules Section 5222 that the debtor may recover any COVID-19 stimulus relief payments wrongfully collected.

Enforcement actions

Federal

CFPB announces $615,000 settlement with California auto lender for unfair practices. The CFPB announced a consent order with an auto-loan finance company for illegally charging consumers interest on late payments. The CFPB alleged that the company, which services subprime auto loans assigned to it from car dealers, required its customers to obtain a “Loss Damage Waiver” to supplement their insurance coverage. Without disclosing the fact to consumers, the company allegedly charged interest on late payments of fees for these Loss Damage Waivers. The company is alleged to have charged roughly 5,800 customer accounts a total of $565,813 in interest on these late payments over a period of five years. The consent order requires the company to (i) refund or credit all such interest payments to its customers, as well as pay a civil penalty of $50,000, and (ii) stop charging interest on late payments without making proper disclosures to customers regarding the existence of the interest and how it accrues.

CFPB announces $1.1 million settlement with ride-share lender and CEO for deceptive loan and deposit products. The CFPB announced a consent order with a lender and its CEO based on allegations that the company misrepresented the risks and benefits associated with short-term, high-interest personal loans to drivers working with ride-share companies. The CFPB alleged that the company deceptively marketed loans as having a 440-percent APR when, in fact, the loans had an APR of roughly 975 percent. Further, these loans were primarily funded through consumer investments, and the company misrepresented to consumer-depositors that the return on investment would be 15-percent APY and that deposits would be made into FDIC-insured accounts. In many cases, the deposited funds were lent to borrowers at rates violating Florida’s criminal-usury law, making the loan uncollectable. The consent order requires the company to return roughly $1 million in consumer deposits and interest payments and pay a civil penalty of $100,000. The company will also be permanently banned from engaging in deposit-taking activity and from making deceptive statements to consumers.

CFPB announces $7.7 million settlement with debt-settlement company for abusive practices. The CFPB announced a consent order with a debt-settlement company for UDAP and Telemarketing Sales Rule (TSR) violations concerning charging customers illegal upfront fees. The CFPB alleged that the company (i) charged consumers fees before they had made at least one payment to a creditor under a settlement agreement, (ii) charged consumers fees despite not having negotiated any settlement at all and (iii) charged fees higher than what was agreed to in its consumer contracts. The consent order would impose a judgment of $7.7 million against the company, which will be suspended if the company pays $5.4 million to wronged consumers, and prohibits the company from engaging in the alleged unlawful and deceptive practices.

FTC announces $24.5 million settlement with operators of student loan debt relief scheme for abusive practices. The FTC announced a consent order with a group of debt-settlement companies for UDAP, TSR and TILA violations concerning a student loan debt relief scheme. The FTC alleged that the defendants (i) charged illegal upfront fees, (ii) misled consumers to believe that the fees went towards their student loans and (iii) violated disclosure requirements when soliciting customers for high-interest loans to pay such fees. Under the terms of the settlement, the defendants are permanently banned from the debt relief industry and will be subject to enhanced compliance reporting. In addition, the defendants will only be required to pay $11,500 of the $24.5 million judgment due to inability to pay, the remainder of which will be suspended pending compliance with the settlement.

State

New York DFS announces $1.8 million settlement with life insurance companies for cybersecurity violations. The DFS announced consent order against two state-licensed life insurance companies based on their violations of the DFS’s Cybersecurity Regulation. Specifically, the companies allegedly failed to implement multi-factor authentication or a reasonably equivalent or more secure access control approved in writing by the companies’ chief information security officer, as required by the regulation. Despite this, both companies falsely certified compliance with the Regulation for 2018. These substandard cybersecurity policies allegedly led to attacks that resulted in thousands of consumers’ sensitive, non-public, personal data being exposed.