November 11, 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 November 4, the Federal Trade Commission announced that a federal district court issued a temporary restraining order against a debt collection company and its owner for allegedly engaging in deceptive and abusive debt collection practices in violation of the FTC Act, the Fair Debt Collection Practices Act and its implementing Regulation F, and the Gramm-Leach-Bliley Act. The court's TRO freezes the company's assets and puts it under the control of a court-appointed receiver.
Specifically, the FTC alleged that the company called and emailed consumers to collect debts that the consumers did not actually owe or that the company was not authorized to collect. In addition, the FTC alleged that, in voicemails left on consumers' phones and in emails sent to consumers, the company did not disclose that it was a debt collector attempting to collect a debt and threatened consumers with legal action unless the consumers called back. The company also allegedly contacted consumers' family members about purported debts, making similar threats of legal action, and, in many instances, continued to call consumers' family members even after it located the consumers who purportedly owed the debts. And the company allegedly failed to provide consumers, either in its initial communication or in writing within five days after the initial communication, a validation notice containing information about the purported debt and the creditor and the consumers' ability to dispute the debt. Finally, the FTC alleged that the company told consumers that legal action, such as wage garnishment, asset seizure, or arrest, was pending or would be taken shortly if they did not pay the purported debts and that consumers could avoid legal action by making a payment over the phone by credit or debit card.
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On November 5, the Federal Trade Commission filed a complaint for a permanent injunction, monetary judgment, and other relief against a company that operates a personal finance mobile application that offers short-term cash advances, alleging violations of the FTC Act and the Restore Online Shoppers' Confidence Act.
Specifically, the FTC alleged that the company advertises that it offers cash advances of "up to $500" to consumers who download and use its app but that few consumers actually receive amounts of $500 or amounts anywhere near $500. The FTC also alleged that the company advertises that consumers can receive cash advances in an "instant" but that the company actually requires consumers to pay an "Express Fee" to get instant access to money and that fee is not disclosed until after the sign-up process is complete and the consumer has given the company access to his bank account. Consumers who elect not to pay the Express Fee - ranging from $3 to $25 - wait two to three business days to receive their cash advance. The FTC went on to allege that the company imposes a fee of 15% of the cash advance, described by the company as a "tip," and that many consumers are either unaware that the company is charging them this "tip" or unaware that there is any way to avoid being charged the "tip." According to the FTC's allegations, the company also misrepresents that, based on the consumer's payment of the optional "tip," it will pay for or donate a specified number of meals to children in need when, according to the complaint, the company makes only "a token charitable donation - usually $1.50 or less - while keeping the bulk of the [tip] charge for itself." Finally, the FTC alleged that the company charges all consumers, even those who cannot get a cash advance, a $1 membership subscription fee, sometimes without their knowledge or consent.
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On November 1, the Consumer Financial Protection Bureau and a non-depository mortgage lender and broker agreed to a stipulated final judgment and order, resolving allegations that the lender engaged in unlawful discrimination in violation of the Equal Credit Opportunity Act. The CFPB alleged that, from 2014 through 2017, the lender engaged in acts or practices directed at prospective applicants that discouraged them, on the basis of race, from applying to the lender for mortgage loans. The proposed settlement follows a July 2024 decision from the U.S. Court of Appeals for the Seventh Circuit holding that the ECOA prohibits lenders from discouraging, on a prohibited basis, prospective applicants from applying for credit.
The CFPB sued the mortgage lender and its co-founder and chief executive officer in July 2020 for violating Regulation B by making statements on their radio show and podcast discouraging prospective Black applicants from applying for mortgage loans. The defendants moved to dismiss the complaint, arguing that the ECOA does not impose liability for the discouragement of prospective applicants. The trial court agreed and granted the motion, but the Seventh Circuit reversed. Reg. B prohibits creditors from discouraging, on a prohibited basis, applicants or prospective applicants from making or pursuing an application for credit. The ECOA, however, does not specifically mention prospective applicants when it prohibits a creditor from discriminating against any applicant, with respect to any aspect of a credit transaction, on the basis of race, color, religion, national origin, sex or marital status, or age. The ECOA defines "applicant" as "'any person who applies to a creditor directly for an extension, renewal, or continuation of credit, or applies to a creditor indirectly by use of an existing credit plan for an amount exceeding a previously established credit limit.'" The Seventh Circuit noted that the text of the ECOA vested the Federal Reserve Board (and later the CFPB after Congress transferred rulemaking authority from the FRB to the CFPB) with the broad power to prescribe regulations to, among other things, "prevent circumvention or evasion of" the Act. The court further noted that, in 1991, Congress amended the ECOA to require agencies that enforce the Act to refer to the attorney general cases in which they have reason to believe that a creditor has engaged in a pattern or practice of discouraging or denying applications for credit in violation of the Act. Finally, the Seventh Circuit noted that the ECOA prohibits discrimination with regard to "any aspect of a credit transaction." The Seventh Circuit concluded that the text of the ECOA as a whole must be read to include actions taken by a creditor before a prospective applicant submits an application.
If entered by the court, the current proposed settlement with the CFPB would prohibit the lender from taking any actions that violate the ECOA and require the lender to pay a $105,000 civil penalty to the CFPB's victims relief fund.
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On October 29, the Department of the Treasury released the National Strategy for Financial Inclusion in the United States for financial service providers, government agencies, community-based organizations, employers, researchers and academia, and others. The purpose of the Strategy is to advance consumer access to safe financial products and services and strengthen financial security. As noted in the report's Executive Summary, "[t]he ability to fully and beneficially participate in the financial system is a foundation for household financial resilience, well-being, and the opportunity to build wealth. While the United States has a robust financial infrastructure, the financial system does not work well for all consumers. There are significant disparities in how different populations interact with and benefit from financial products and services, particularly members of underserved communities, including people with lower incomes and wealth, people of color, and those in rural areas. These disparities contribute to persistent inequities in broader economic measures. Improving inclusion in the financial system is critical to fostering financial resilience and well-being and addressing wealth inequality."
The Strategy sets forth the following five objectives:
The report refers to the Strategy as "an actionable roadmap for stakeholders ... to work collaboratively towards a more inclusive financial system" and notes that the "objectives and recommendations are meant to be revisited and built upon over time to advance financial inclusion in the context of emerging trends and opportunities."
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On November 7, the Consumer Financial Protection Bureau issued a consent order against the country's largest retail credit union, resolving allegations that it engaged in unfair acts or practices in violation of the Consumer Financial Protection Act in connection with the charging of certain overdraft fees.
The credit union offers customers an overdraft service for their checking accounts, authorizing it to impose a $20 charge for each overdraft transaction. First, the CFPB alleged that credit union customers made purchases using their debit cards when their account balances showed sufficient funds to cover the transactions, but, in some circumstances, the credit union charged customers overdraft fees on those transactions because the accounts had negative balances once the purchases posted to the accounts, sometimes days later. The CFPB alleged that the credit union was aware that customers were not likely to understand the details of how overdraft fees are assessed and the complexities of how various transactions are paid after being authorized by a consumer. Second, the CFPB alleged that the credit union charged unanticipated overdraft fees when it delayed posting credits to customers' accounts from funds received through person-to-person payment services, such as Zelle, PayPal, and Cash App, even when those funds appeared to customers to be available for immediate use. The credit union allegedly failed to disclose that funds received through such payment services after a certain time of day are not actually credited to the customer's account until the next business day.
In addition to prohibiting the credit union from charging either overdraft fee in the future, the consent order requires the credit union to pay at least $80,689,100 in consumer redress and a $15 million civil penalty to the Bureau's victims relief fund.
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