Last Week, This Morning

February 3, 2025

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 January 24, three days before the Federal Communications Commission's new Telephone Consumer Protection Act "one-to-one" consent standard was due to take effect, the FCC issued an order postponing the standard's effective date, and the U.S. Court of Appeals for the Eleventh Circuit vacated the standard altogether. Businesses that had been hurrying to implement changes to their lead generation model to comply with the FCC's new standard can now pause those activities and use this postponement to revisit how their current models comply with the FCC's existing consent standards.

The Eleventh Circuit's decision in this case upends the FCC's two recent changes to its "prior express written consent" standard: one that would have required lead generators and others to obtain prior express written consent from consumers one company at a time (as opposed to providing consent to numerous providers in bulk) and another that would have limited the scope of the "prior express written consent" standard to marketing calls and text messages that are "logically and topically associated with the interaction that prompted the consent." The Eleventh Circuit held that these FCC changes were improper because both impermissibly conflicted with the ordinary statutory meaning of "prior express consent." Depending on the circumstances, a consumer could provide valid consent to two or more companies at a time. As a result, the FCC's insistence on "one-to-one" consent improperly conflicted with the ordinary statutory meaning of "prior express consent." Similarly, a consumer could provide valid consent for marketing calls and text messages that were not "logically and topically associated with the interaction that prompted the consent." As a result, the Eleventh Circuit found this FCC restriction improper.

The Eleventh Circuit's opinion includes a succinct, if abstract, statement of what the TCPA's "prior express consent" standard requires: a consumer's clear and unmistakable statement that he or she is willing to receive the marketing robocall or robotext. This clear and unmistakable statement does not require a "one-to-one" exchange or a sales pitch that is logically and topically related to the interaction that prompted the consent but leaves open the question of what this consent does require.

Amicus brief(ly): On the same day as the court's opinion, in anticipation of the court's ruling but not knowing what the ruling would be, the FCC issued an order announcing that it was postponing the effective date of these amendments to the regulation's "prior express written consent" standard. Under new leadership, the FCC must now assess whether to leave the definition as previously written or to try again to amend it. However that goes, the immediate impact of this decision and the FCC's announcement is a reprieve from the one-to-one consent standard that was due to take effect on January 27, 2025. Lead generators and other providers should remain mindful of TCPA compliance generally, given the active plaintiffs' bar and the ongoing threat of private TCPA lawsuits challenging the form of consent lead generators acquire that should still be designed to obtain "clear and unmistakable" consumer consent.

On January 27, the U.S. Court of Appeals for the Fifth Circuit vacated the Federal Trade Commission's Combating Auto Retail Scams Trade Regulation Rule ("CARS Rule"), agreeing with the National Automobile Dealers Association and the Texas Automobile Dealers Association ("petitioners") that the FTC violated its own regulations by failing to issue an advance notice of proposed rulemaking before promulgating the final rule. The court found that despite the FTC's statement in the CARS Rule that it was written under the FTC's authority in the Dodd-Frank Act (which would not have required an ANPR), the CARS Rule was in fact a trade regulation only authorized by the FTC Act. Therefore, the FTC was required by its own procedures to issue an ANPR before promulgating the rule. The court declined to address the petitioners' remaining substantive challenges to the CARS Rule. The dissent did not tackle an analysis of whether the FTC was required to issue an ANPR. Instead, the dissent focused on the "notice" purportedly given to the petitioners - a decade of roundtables, enforcement actions, and over 100,000 consumer complaints - and lack of prejudice.

The FTC published the final CARS Rule in the Federal Register on January 4, 2024, with an effective date of July 30, 2024. The CARS Rule was intended to curtail certain practices by motor vehicle dealers that the FTC identified as unfair or deceptive. The CARS Rule generally identifies and prohibits 16 specific kinds of vehicle dealer misrepresentations; requires vehicle dealers to make certain disclosures regarding price, add-ons, and payments; prohibits vehicle dealers from charging consumers for add-ons that provide no benefit to the consumer; prohibits vehicle dealers from charging consumers for any item unless they obtain express, informed consent from the consumer; and requires vehicle dealers to implement certain recordkeeping requirements. On January 18, 2024, the FTC issued an order postponing the effective date of the CARS Rule indefinitely because of the petitioners' pending legal challenge, which was brought on the same day the CARS Rule was published.

Amicus brief(ly): We did not anticipate this outcome, but here we are. Dealers have spent a lot of time gearing up for CARS Rule compliance. Anticipating that this is not likely the end of the road for the CARS Rule, dealers should consider continuing down the road of implementation of at least the minimal requirements of the CARS Rule, like the misrepresentation limitations and the pricing disclosure requirements. Though strict compliance with the now-vacated CARS Rule is clearly not required, dealers should not give up on the effort to adhere to what they now might consider at least "best practices" that can help prevent future lawsuits and/or expensive investigations.

On January 29, the Consumer Financial Protection Bureau released a new report - "Auto Lending to Servicemembers" - which examines data collected from the auto finance data pilot conducted by the CFPB in February 2023. In connection with the auto finance data pilot, the CFPB issued market monitoring orders to three banks, three finance companies, and three captive lenders to provide information about their auto financing portfolios. The orders requested data regarding accounts originated or with servicing activity from January 1, 2018, through December 31, 2022. For accounts originated prior to 2018 with servicing activity during the 2018-2022 period, the entities were asked to provide key data from account origination. This is the third report examining the data collected from the auto finance data pilot; the first report provided findings on negative equity, and the second report provided findings on auto repossessions. This report provides an analysis comparing servicemembers' origination and servicing outcomes with those of non-servicemembers in the auto financing market.

The CFPB's findings include:

• Servicemembers financed more than non-servicemembers. The average amount financed by servicemembers for new vehicles was approximately $39,000, over $2,200 more than the average amount financed by non-servicemembers. For used vehicles, servicemembers' average amount financed was over $27,500, almost $400 more than the average amount financed by non-servicemembers.
• Servicemembers and non-servicemembers purchased similarly priced vehicles.
• Servicemembers were less likely to make a cash down payment for both new and used vehicles and made smaller down payments when they did. The average down payment for servicemembers who did make a down payment was about $1,100 less than for non-servicemembers for new vehicles and, for used vehicles, about $500 less than for non-servicemembers.
• Servicemembers were more likely to trade in vehicles with negative equity.
• Servicemembers spent more on add-on products than non-servicemembers, although both groups paid for similar add-on products. Over 70 percent of both servicemembers and non-servicemembers purchased at least one add-on product with their vehicle.
• Servicemembers had higher rates and longer financing terms than non-servicemembers.
• Higher amounts financed and higher APRs translated into higher monthly payments for servicemembers than for non-servicemembers, even accounting for servicemembers' longer financing terms. The average monthly payment for a new vehicle financed by servicemembers was approximately $20 more than for non-servicemembers and, for a used vehicle, the average monthly payment was $7 more than for non-servicemembers.
• Servicemembers were less likely to have their vehicles repossessed or voluntarily surrendered compared with non-servicemembers. Modifications of financing terms were also slightly less likely among servicemembers. However, according to the CFPB, the data did not allow it to determine if servicemembers had less need for or less access to modifications.

Amicus brief(ly): This report from the CFPB features some information the market already possesses or could predict - that servicemembers, often young and without good credit histories, buy used cars from dealers close to the military bases where they are stationed and typically do not get good deals on those cars or the financing of their purchases. The report does not answer the question of whether those findings are the result of predatory practices or the natural consequences of financing vehicle purchases by risky consumers (notwithstanding their military service). In fact, Appendix A of the study reveals data that make clear that almost all creditworthiness indicators for servicemembers were worse than for non-servicemembers, which suggests that disparities in their down payment amounts, finance charge rates, and other outcomes have a basis in responsible underwriting. The study is just that - it does not require anything of anyone. Creditors ought to review the study and then their underwriting policies to ensure that they are not treating servicemembers unfairly vis-à-vis their civilian counterparts.

On January 24, the Maryland Department of Labor, Office of Financial Regulation, published in the Maryland Register final rules governing shared appreciation agreements.

The final rules implement Maryland House Bill 1150, enacted in May 2023. HB 1150 subjects shared appreciation agreements to the Maryland Mortgage Lender Law, which requires persons who make mortgage loans to obtain a mortgage lender license. HB 1150 also provides that shared appreciation agreements are governed by the Credit Grantor Revolving Credit Provisions, Md. Code Ann., Com. Law §§ 12-901 et seq. ("Subtitle 9") or the Credit Grantor Closed End Credit Provisions, Md. Code Ann., Com. Law §§ 12-1001 et seq. ("Subtitle 10"). Loans are not subject to Subtitle 9 or 10 unless the lender makes a written election of Subtitle 9 or 10 in the loan agreement. However, a loan will be subject to Subtitle 9, regardless of whether the lender elects Subtitle 9, if the loan: (1) is a shared appreciation agreement; and (2) allows the borrower to repay advances and have any repaid amounts subsequently readvanced to the borrower. Alternatively, a loan will be subject to Subtitle 10, regardless of whether the lender elects Subtitle 10, if the loan: (1) is a shared appreciation agreement; and (2) does not allow the borrower to repay advances and have any repaid amounts subsequently readvanced to the borrower.

The new final rules update the OFR's licensing regulations by adding: (1) definitions for certain terms used in shared appreciation agreements; (2) a description of the required disclosures in shared appreciation agreements; (3) procedures for the calculation of the property value; and (4) a description of the ability to repay standard.

The final rules were effective on November 25, 2024.

Amicus brief(ly): For lenders considering a shared appreciation loan program, we commend you to the published regulations and especially the safe harbor form found in Appendix A of the regulations. The regulations require certain disclosures about the current home value (at origination), the means the lender used to calculate the value, and a means for calculating an annualized cost to compare to an APR. These disclosure requirements are more detailed than anything the Department of Housing and Urban Development issued after the mortgage foreclosure crisis about 15 years ago with its quietly unsuccessful Hope for Homeowners program that included shared appreciation mortgages. We recommend that lenders in the space take advantage of the safe harbor disclosure form the Maryland regulator issued in connection with the regulations.

On January 30, the Consumer Financial Protection Bureau entered into a consent order with a company that provides remittance transfer services, resolving allegations that it violated the Consumer Financial Protection Act and the Electronic Fund Transfer Act and its implementing Regulation E by, among other things, failing to provide accurate fee disclosures. The company allows consumers to send, receive, and store remittances using its mobile application and prepaid account product. Another one of the company's products, a debit card, allows consumers to spend money stored on the prepaid account.

The CFPB specifically alleged that the company violated the CFPA by advertising inaccurate ATM fees, leading to ATM fee overcharges, and violated the EFTA and Reg. E by failing to provide disclosures and notices, including change-in-terms notices, failing to adhere to error resolution provisions and to correct errors, failing to comply with the retention of document requirements, and failing to develop and maintain policies and procedures that are designed to ensure compliance with error resolution requirements. Additionally, the CFPB alleged that the company failed to disclose accurate fees to consumers who funded prepaid accounts using a credit card through Apple Pay or Google Pay, failed to properly disclose exchange rates, and failed to refund fees when funds were not available to the recipient by the date of availability.

Under the settlement, the company is required to provide $450,000 in consumer redress to affected consumers and to pay a $2.025 million civil penalty. The company must also implement compliance reforms, including improving its consumer disclosures, properly investigating and resolving reported errors, and maintaining transaction records to ensure accountability.

Amicus brief(ly): Disclosure, disclosure, disclosure. That is the theme of this consent order (and so many others). Consumer disclosures for financial products have to be timely, accurate, and complete. In this consent order, the CFPB alleges that the money transmission provider (which, importantly, does not admit or deny the allegations) failed on a number of fronts to provide timely and accurate disclosures related to fees, exchange rates, and changes in terms. In connection with its prepaid account, the provider allegedly offered the required disclosures but not in a form that required the customer to review and acknowledge them. The consent order's affirmative requirement that the provider develop, implement, and maintain a compliance management system that addresses the regulatory compliance requirements that apply to the company's money business serves as a useful reminder that a good compliance management system can and should identify the laws that apply to a financial services business and how to comply with those laws and avoid costly investigations and penalties.

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¹ For the unfamiliar, an “Amicus Brief” is a legal brief submitted by an amicus curiae (friend of the court) in a case where the person or organization (the “friend”) submitting the brief is not a party to the case, but is allowed by the court to file the brief to share information or expertise that bears on the issues in the case.