August 5, 2024
Below you will find several key developments in the financial services industry, including related developments in information privacy and data security, from the past week. We add an "Amicus Brief(ly)1" comment to each item, where we briefly (see what we did there?) note for friends (and again?) of CounselorLibrary the important takeaways from the developments outlined in the email. Our legal reporters - CARLAW, HouseLaw, InstallmentLaw, PrivacyLaw, and BizFinLaw - provide more comprehensive, real-time updates of federal and state laws, regulations, litigation, and other industry items of interest. For a personal guided tour and free trial of any of these legal reporters, please contact Michael Willer at 614-855-0505 or mwiller@counselorlibrary.com.
On July 26, U.S. Senators Ron Wyden and Edward J. Markey sent a letter to Federal Trade Commission Chair Lina Khan urging the FTC "to investigate automakers' disclosure of millions of Americans' driving data to data brokers." The senators noted that automakers have been sharing data from their customers' internet-connected cars, without informed consent and through use of deceptive tactics, with data brokers, which pay the automakers a per-car fee for that data.
General Motors, Honda, and Hyundai apparently confirmed to Senator Wyden's office that they disclose driver data to Verisk and other brokers, which use that information to create driver behavior reports that the brokers then sell to insurance companies. Moreover, GM confirmed that it shared location data on all drivers who activated the internet connection for their car without the drivers' informed consent.
Additionally, the senators shared that some automakers may have deceived customers by telling them that sharing their driving data would reduce their insurance bills. However, the senators stated that customers were not informed that the shared information would not necessarily result in discounts and that, as confirmed by an insurance industry trade association expert, the data might cause insurers to charge drivers higher premiums based on their data.
The senators concluded the letter by noting that the "problematic practices [they] have uncovered and documented ... are likely just the tip of the iceberg" and that, therefore, the FTC should "broadly investigate these auto industry practices" and hold automakers, data brokers, and their senior officials "responsible for their flagrant abuse of their customers' privacy."
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On July 26, the Consumer Financial Protection Bureau sued Acima Holdings, LLC, Acima Digital, LLC, and their former chief executive officer (collectively, "Acima") for violating the Consumer Financial Protection Act, the Truth in Lending Act, the Fair Credit Reporting Act, and the Electronic Fund Transfer Act in connection with Acima's so-called "virtual rent-to-own" product, through which Acima nominally purchases household goods selected by consumers from independent merchant partners and then purports to "lease" the goods to consumers, usually for a 12-month term. The CFPB alleges that Acima used misleading marketing and enrollment practices that materially interfered with consumers' ability to understand the nature and terms of its product and that Acima referred to its product sometimes as a leasing product and sometimes as a credit product in an attempt to avoid certain consumer financial protection laws governing only leasing or only credit products.
Acima allegedly marketed its product to consumers as credit but later called the agreements it entered into with consumers a "lease." The Bureau alleges that the purported "leases" were actually credit. In addition, Acima allegedly marketed its 90-day "early purchase option" with misleading statements indicating that it was offering an interest-free 90-day loan or 90-day purchase for a small pre-determined fee. According to the complaint, Acima also allegedly failed to properly train and adequately monitor its merchant partners that also allegedly used misleading marketing practices in connection with the product.
With respect to Acima's enrollment practices, the complaint alleges that Acima used a mobile application process designed to interfere with the consumer's ability to understand the nature and cost of the product by, among other things, presenting the agreement through a hard-to-read mobile application that physically obscured the fine print through various formatting and design features. In addition, the complaint alleges that Acima made it unnecessarily difficult for consumers to return the goods before the end of the "lease" term.
Finally, the complaint alleges unlawful credit reporting practices by Acima. Acima allegedly furnished inaccurate information about borrowers to consumer reporting agencies. Further, when a consumer alleged fraud or identity theft, Acima allegedly refused to investigate unless the consumer submitted a police report. Acima also allegedly failed to properly notify consumers when reporting negative information and, depending on how its product is construed, may have illegally obtained and used consumer reports to target potential borrowers.
The CFPB's lawsuit seeks, among other things, injunctive relief to prevent future violations, redress for harmed borrowers, and the imposition of a civil money penalty.
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On July 31, the Federal Trade Commission filed a complaint and proposed order against NRRM, LLC, d/b/a CarShield, a seller of vehicle service contracts, and American Auto Shield, LLC, the administrator of CarShield's VSCs. The FTC alleged that the defendants violated the Federal Trade Commission Act and the FTC's Telemarketing Sales Rule by advertising, marketing, and selling VSCs to consumers using false or deceptive claims regarding, among other things:
The proposed order imposes a $10 million judgment against the defendants and prohibits them from making the alleged misrepresentations in their telemarketing, testimonials and endorsements, and advertisements in the future.
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Michigan recently enacted House Bill 5460, which amends Michigan's Motor Vehicle Sales Finance Act to allow a motor vehicle installment sale contract for a new motor vehicle to provide for unequal payments under certain conditions. The legislation also requires new disclosures and prohibits certain fees.
Before H.B. 5460 took effect, the MVSFA required that a motor vehicle installment sale contract provide for weekly, semi-monthly, or monthly payments of the time balance in substantially equal periods and amounts. There were only a few exceptions to this general rule: installment sales in which the buyer was an employee of the installment seller and balloon payments if the buyer had the right to refinance the balloon payment at a refinance charge that was not greater than the finance charge permitted by the first contract. The law also permitted contracts that extended the time for making installment payments for a period of no more than three months.
H.B. 5460 permits a motor vehicle installment sale contract to provide for unequal payments under the following conditions:
To accommodate this new exception, H.B. 5460 adds the following new definitions to the MVSFA:
H.B. 5460 amends Section 13 of the MVSFA to require that the following new disclosure be included prominently in any installment sale contract for a new motor vehicle in 12-point type or larger directly below the federal Truth-In-Lending disclosure box:
"Notice: Customer should review the payment schedule to determine if the contract requires payments in equal amounts."
As amended by H.B. 5460, the MVSFA now prohibits the following fees related to a new motor vehicle installment sale contract that requires unequal monthly payments:
These new requirements take effect immediately, with no grace period to give installment sellers, sales finance companies, and forms providers an opportunity to update their policies, procedures, or forms. For example, Section 13 of the MVSFA now requires a change to every contract for the installment sale of a new vehicle. Generally, these kinds of changes cannot be implemented overnight. Note, however, that the MVSFA also has a "safe harbor" provision stating that compliance with the federal Truth in Lending Act is deemed to be compliance with the disclosure provisions of Section 13 of the MVSFA. In most instances, motor vehicle installment sales must comply with TILA, and contract forms are designed to do so. Any installment sale contract that complies with TILA should (based on the "safe harbor" provision) also comply with Section 13's new disclosure requirement, even if that contract does not include the most recent notice instructing consumers to review their payment schedules.
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On August 2, the Department of Housing and Urban Development published a final rule in the Federal Register, Modernization of Engagement with Mortgagors in Default. The rule, which adopts the July 31, 2023, proposed rule with only minor, non-substantive changes, updates HUD's current regulation that requires mortgagees of Federal Housing Administration-insured single family mortgages to meet in person with borrowers who are in default on their mortgage payments. For most mortgages insured pursuant to 24 CFR Part 203 - Single Family Mortgage Insurance - the amended rule:
According to HUD, "this final rule will improve mortgagee engagement with mortgagors, reduce the cost of mortgage default servicing, and align HUD's regulations with advancements made in electronic communication technology and in mortgagor communication preferences, while preserving consumer protections." The amended rule is effective January 1, 2025.
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