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

Regulatory developments

Federal

  • OCC issues final “true lender” rule. The OCC has issued a final rule that determines when a national bank or federal savings association (bank) makes a loan and is the “true lender,” including in the context of a partnership between a bank and a third party. The rule specifies that a bank makes a loan and is the true lender if, as of the date of origination, it (1) is named as the lender in the loan agreement or (2) funds the loan. The rule also specifies that if, as of the date of origination, one bank is named as the lender in the loan agreement for a loan and another bank funds that loan, the bank that is named as the lender in the loan agreement makes the loan. The rule also clarifies that as the true lender of a loan, the bank retains the compliance obligations associated with the origination of that loan, thus negating concern regarding harmful rent-a-charter arrangements. The rule takes effect December 26, 2020.
  • OCC announces request for comment on Community Reinvestment Act evaluation standards. The OCC has announced a request for comment on CRA evaluation measure benchmarks, retail lending distribution test thresholds, and community development minimums under the general performance standards set forth in the 2020 final rule. The proposal also explains how the OCC would assess significant declines in CRA activities levels in connection with performance context following the initial establishment of the benchmarks, minimums and thresholds. Finally, the proposed rule would make clarifying and technical amendments to the 2020 final rule. The comment period ends on January 23, 2021.
  • CFPB issues amendment to rule on confidential treatment of information. The CFPB has issued a final rule amending its Disclosure of Records and Information Regulation. The rule addresses the confidential treatment of information that the Bureau obtains from persons in connection with the exercise of its authorities under federal consumer financial laws. The final rule amends several definitions in the rule to clarify intended meaning and reconcile them with CFPB practices and introduces procedures to establish transparency regarding practices and uses of confidential information.
  • CFPB issues final rule governing debt collection practices under the Fair Debt Collection Practices Act (FDCPA). The CFPB finalized its rule implementing revisions to Regulation F, which implements the FDCPA. The rule, in part, clarifies how the FDCPA, which was passed in 1977, applies to newer communication technologies such as email and text messages. For example, the rule requires debt collectors who communicate electronically to offer the consumer a reasonable and simple method to opt out of such communications at a specific email address or telephone number. The rule also provides that consumers may, if the debt collector communicates electronically, use that medium of electronic communications to place a cease communication request or notify the debt collector that they refuse to pay the debt.
  • CFPB issues final advisory opinions policy and announces two new advisory opinions. The CFPB issued its final advisory opinions policy, under which any person or entity may submit a request for an advisory opinion via email to [email protected] The CFPB will review the submissions received, prioritize certain requests for response and issue opinions with a description of the incoming request. In addition to the policy, the CFPB issued two advisory opinions. In the first, the CFPB announced that employers who offer qualified earned wage access (EWA) products to their employees do not involve an extension of “credit” for the purpose of Regulation Z. In the second, the CFPB also announced that certain education loan products that refinance or consolidate a consumer’s pre-existing federal, or federal and private, education loans meet the definition of “private education loan” in Truth in Lending Act and Regulation Z and are subject to the disclosure and other requirements in subpart F of Regulation Z. For more on the EWA advisory opinion, see our prior alert here.
  • CFPB issues no action letter on use of artificial intelligence for pricing and underwriting loans. The CFPB has issued a no action letter to address regulatory uncertainty regarding the application of UDAAP, Equal Credit Opportunity Act (ECOA), and Regulation B to a company’s AI-based pricing and underwriting model. The CFPB stated that it would not bring any enforcement actions under those provisions for a period of 36 months concerning alleged discrimination on a prohibited basis arising from the company’s use of the model described in the application.
  • Financial system supervisory agencies announce joint statement on supervisory guidance. The CFPB, Federal Reserve Board, FDIC, NCUA and OCC have announced a joint statement requesting comment on a proposal outlining and confirming the agencies’ use of supervisory guidance for regulated institutions. The proposal would codify the statement, as amended, that was issued in September 2018 by the agencies that clarified the differences between regulations and guidance. Unlike a law or regulation, supervisory guidance does not have the force and effect of law and the agencies do not take enforcement actions or issue supervisory criticisms based on non-compliance with supervisory guidance. Rather, supervisory guidance outlines supervisory expectations and priorities, or articulates views regarding appropriate practices for a given subject area. In contrast to supervisory guidance, regulations do have the force and effect of law and enforcement actions can be taken if regulated institutions are in violation. Regulations are also generally required to go through the notice and comment process. The comment period ends on December 28, 2020.
  • Federal agencies announce threshold for exception to higher-priced mortgage loan appraisal requirements. The CFPB, Federal Reserve Board and OCC have announced a joint statement that the threshold for exempting loans from special appraisal requirements for higher-priced mortgage loans during 2021 will remain at $27,200, as it was in 2020. The threshold amount will be effective January 1, 2021, and is based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) as of June 1, 2020.

Enforcement actions

Federal

  • CFPB announces $7.5 million settlement with auto loan servicer for deceptive disclosures. The CFPB announced a consent order with a Texas-based auto loan servicer over UDAAP violations concerning misleading disclosures to customers. The CFPB alleged that the servicer provided consumers individualized “benefits summaries” that purported to state a specific amount of interest savings or other money savings consumers would get by enrolling in the company’s automatic payment plan. But in practice the company’s fees would ordinarily exceed the savings, thereby creating the misleading impression that consumers would save money using its product. The CFPB also agreed to reduce the servicer’s payment obligation to $1.5 million based on the company’s alleged inability to pay.
  • CFPB announces $9.3 million settlement with auto loan servicer for deceptive disclosures. The CFPB announced a consent order with a Florida-based auto loan servicer over UDAAP violations concerning misleading disclosures to customers. The CFPB alleged that the servicer misrepresented the amount consumers would save when disclosing an automatic payment program’s benefits by not including a $399 enrollment fee in the calculations presented to consumers, which resulted in the product’s costs ordinarily exceeding any savings. The CFPB also alleged that the servicer stated in advertising that it helped hundreds of thousands of customers save $29 million or more in interest by participating in the program when they had no basis for making this claim. The CFPB also agreed to reduce the servicer’s payment obligation to $900,000 based on the company’s alleged inability to pay.
  • CFPB announces $500,000 settlement with debt collector for credit reporting violations. The CFPB announced a consent order with a non-bank Illinois-based debt collector for violations of the Fair Credit Reporting Act (FCRA) and Regulation V. The CFPB alleged that the debt collector: (i) furnished information to credit reporting agencies (CRAs) that it knew or had reasonable cause to believe was inaccurate and failed to report to CRAs an appropriate date of first delinquency on certain accounts; (ii) failed to conduct reasonable investigations of disputes made by consumers both to the debt collector and to CRAs about furnished information and failed to conduct investigations of disputes in a timely manner; and (iii) failed to send required notices to consumers about the results of such investigations and failed to establish, implement and update its policies and procedures regarding its furnishing of consumer information to CRAs. The consent order requires the debt collector to pay $500,000 in penalties, adopt new policies and procedures relating to credit reporting and dispute investigation, and hire an outside consultant to evaluating existing policies and procedures.
  • CFPB files complaint against lender for unlawful marketing practices. The CFPB filed a complaint in the United States District Court for the Southern District of Florida against a Florida-based consumer loan company and its CEO alleging UDAAP violations concerning the company’s marketing practices in taking deposits from, and offering credit to, consumers. The CFPB alleged that the company misrepresented (i) that consumer funds would be protected from loss because they would be held at FDIC-insured institutions, but were actually lent to borrowers at rates that violated Florida’s criminal-usuary law, rendering the loans uncollectable and creating substantial risk that Driver Loan would not be able to collect delinquent loans or meet its obligations to consumers who sought to withdraw their deposited funds; (ii) that a new consumer deposits funds with the company about every minute; and (iii) that loans would carry APRs of 440%, when in fact the APRs on the company’s loans ranged from 975% to 978%.
  • CFPB files complaint against debt relief agency for unlawful marketing and sales practices. The CFPB filed a complaint in the United States District Court for the Central District of California against two California-based companies and their CEO alleging UDAAP, Telemarketing and Consumer Fraud and Abuse Act (TCFAA), and Telemarketing Sales Rule (TSR) violations by charging illegal advance fees and engaging in deceptive sales practices. The CFPB alleged that the companies engaged in deceptive acts and practices by telling consumers that one of the companies, which did not make loans, had considered and rejected those consumers for personal loans to induce them to sign up for services of the other company. The CFPB also alleged that the companies charged consumers illegal upfront fees using telemarketing campaigns, when it is illegal to request or receive any fees for debt-relief services sold through telemarketing before the terms of the debt are altered or settled, and the consumer has made at least one payment under the newly altered debt.
  • CFPB files complaint against debt settlement company for unlawful marketing and sales practices. The CFPB filed a complaint in the United States District Court for the Northern District of Illinois against an Illinois-based debt relief agency and its two owners alleging UDAAP, TCFAA and TSR violations by charging illegal advance fees and engaging in deceptive sales practices. The CFPB alleged that the company (i) misrepresented material aspects of its student loan debt relief services, such as by telling consumers that it could reduce or eliminate student loan payments and improve credit scores; and (ii) charged consumers illegal upfront fees using telemarketing campaigns.
  • FTC files complaint against fintech provider for unlawful marketing practices. The FTC filed a complaint in the United States District Court for the Northern District of California against a California-based company and its CEO alleging UDAP violations concerning the marketing of a mobile banking application. The FTC alleged that the company (i) promised users of the free mobile banking app that they could make transfers out of their accounts and would receive their requested funds within three to five business days, but some users waited weeks or even months to receive their money, or never received their money at all; (ii) misrepresented the interest rates that consumers would receive; and (iii) ceased paying interest on deposits after a customer requested a withdrawal but prior to actually transferring the funds out of the consumer’s account.
  • FTC announces $62 million settlement with student loan debt relief agency. The FTC announced a consent order with three California-based student loan debt relief agencies and their CEO over alleged UDAP, TCFAA and TSR violations by charging illegal advance fees and engaging in deceptive sales practices. The FTC alleged that the companies (i) sent personalized mail to consumers that falsely claimed they were eligible for federal programs that would permanently reduce their monthly debt payments to a fixed low amount or result in total loan forgiveness; and (ii) charged consumers illegal upfront fees using telemarketing campaigns. The settlement agreement also provides that the companies and the CEO shall be prohibited from providing debt relief services in the future.
  • FTC announces $24.3 million settlement with debt relief company for “debt parking” scheme. The FTC announced a consent order with a Missouri-based company and its co-owners over alleged UDAP, FDCPA, FCRA and Credit Furnisher Rule violations by engaging in deceptive and unfair practices through a “debt parking” scheme. The FTC alleged that the company (i) would place bogus or highly questionable medical or payday loan debts onto consumers’ credit reports to coerce them to make payments to the company; (ii) refused to validate debts as required by the FDCPA; and (iii) must conduct investigations into the reasonableness of disputes required by the FCRA. The settlement agreement also provides that the company must contact consumer credit reporting agencies and request the deletion of all debts reported by the company and surrender all assets to the FTC.

State

  • State attorney generals announce $94.5 million settlement with mortgage servicing company. A joint effort by 51 state attorney generals announced a consent order resolving claims that one of the largest mortgage servicers in the nation violated state and federal laws, including (i) failure to properly administer escrow accounts; (ii) failure to follow foreclosure and pre-foreclosure requirements; (iii) failure to respond to consumer complaints; (iv) failure to provide timely notices of loan servicing transfers; (v) failure to provide private mortgage insurance disclosures; (vi) failure to obtain regulatory approvals to work at certain locations; and (vii) other operational failures relating to administration of servicing records, record retention policies and notices. The consent order requires the company to pay $88 million in restitution and $6.5 million in penalties, and to submit to monitoring and testing for a three-year period.
  • New York DFS announces $12.7 million settlement with four insurers over claims handling practices. The New York DFS announced a consent order resolving claims that the insurers violated New York law by, among other things, failing to (i) pay or deny no-fault claims in a timely manner; (ii) pay statutory interest on overdue no-fault payments; (iii) correctly calculate no-fault payments for loss of earnings from work; (iv) send the explanation of benefits form to the injured party at least every six months; and (v) notify senior citizen insureds annually in writing of the availability of the third-party designee notice procedure.
  • California DFPI announces consent order with company on unlicensed receivables lending. The California DFPI announced a consent order resolving claims that the company engaged in unlicensed lending through a program in which the company purchased merchant receivables. The DPFI alleged that the company’s purchases were not true sales, but disguised lending agreements. Under the purchase program, the merchant was required to make scheduled remittances by fixed ACH debits, and if a merchant failed to make three payments, the company could declare an event of default and automatically seize all assets of the merchant. According to the DFPI, this structure placed the risk of repayment on the merchant until all the repayments were made, therefore making the transaction a loan.