Last Week, This Morning

February 10, 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 February 1, Rohit Chopra formally announced on X that he was removed as the director of the Consumer Financial Protection Bureau, the day after President Trump designated U.S. Treasury Secretary Scott Bessent as the acting director of the agency. Upon taking control of the agency, Bessent ordered that the CFPB will:

• not approve or issue any proposed or final rules or formal or informal guidance;
• suspend the effective dates of all final rules that have been issued or published but have not yet become effective;
• not commence, take additional investigative activities related to, or settle enforcement actions; and
• not issue public communications of any type, including research papers.

On February 8, it was reported that Russell Vought was named acting director of the CFPB, replacing Bessent and reaffirming Bessent's earlier orders. Vought was recently confirmed by the Senate as the head of the Office of Management and Budget. Vought got right to work applying the brakes at the CFPB. He sent an email on Saturday to Bureau staff, telling them to stop all supervision and examination, to stop work on proposed rules, to suspend the effective dates of any rules that were finalized but not yet effective, and to stop investigative work and not begin any new investigations. And then he closed the CFPB offices for this week and ordered staff not to issue any kind of public communication. Vought also advised the Federal Reserve Board that the CFPB would not be seeking its next round of quarterly funding, pointing to the $700M+ in the Bureau's account.

It is unknown when President Trump will nominate a permanent CFPB director, who will have a term of five years.

Amicus brief(ly): The CFPB has given us plenty of fodder for our weekly report for as long as we have been writing it, but it appears that we are going to need a new newsmaker. Last week and this weekend were eventful at the CFPB, with the firing of Rohit Chopra from his director position and then the appointment of two acting directors who predictably put a stop to ongoing Bureau work. Readers will recall the flurry of investigative and rulemaking activity over the past few months, anticipating the events of this weekend. Rules that have not yet reached their effective dates, like the Medical Debt/Consumer Reporting rule (set to be effective March 17) and the Overdraft Lending rule (set to be effective October 1), are suspended and face an uncertain future. The industry will welcome a reprieve from that level of action but is unlikely to abandon the compliance frameworks built over the past decade that, while painful to construct, have generally helped avoid successful plaintiffs' lawsuits and expensive outcomes from government investigations based on consumer financial services laws. The recent whirlwind does not mean the story is over; we will all be watching closely to see what comes next.

On February 4, the U.S. Court of Appeals for the Eleventh Circuit held that convenience fees that a mortgage loan servicer charged for making mortgage payments online or by phone were an unconscionable means of collecting a debt under the Fair Debt Collection Practices Act. The mortgage servicer acquired the servicing rights to two borrowers' mortgage loans after they defaulted. The servicer offered the borrowers the option to make expedited payments online or over the phone, rather than by mail, for a convenience fee ranging from $7.50 to $12. A fee was not charged for mailed payments. Neither of the borrowers' mortgage loan agreements or promissory notes mentioned fees for making payments online or by phone. The borrowers brought separate lawsuits against the servicer, alleging that it violated Section 1692f(1) of the FDCPA, which prohibits a debt collector from using "unfair or unconscionable means to collect or attempt to collect any debt," including collecting "any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law." The lawsuits were subsequently consolidated. The trial court entered judgment in favor of the borrowers, and the Eleventh Circuit affirmed.

The Eleventh Circuit noted a split in federal district courts around the country regarding whether the FDCPA prohibits loan servicers from collecting "pay-to-pay" or "convenience" fees for the use of certain payment methods. The appellate court first concluded that the mortgage servicer in this case was a "debt collector" under the FDCPA where it purchased the servicing rights of the borrowers' defaulted mortgage loans and collected monthly mortgage payments on behalf of the lenders. The servicer argued that it was not acting as a debt collector when it charged the convenience fee because the fee is a voluntary fee for a separate service of accepting expedited payment. The appellate court rejected this argument, finding that, under the FDCPA, the borrowers "need not show [that the servicer] was acting as a debt collector when it collected the [convenience] fee, only that it charged the amount while collecting or attempting to collect a debt."

Next, the Eleventh Circuit addressed whether the convenience fee charged by the servicer was "any amount" under Section 1692f(1). The appellate court rejected the argument that Section 1692f(1) is limited to amounts "incidental" to the principal obligation or debt, concluding that "any amount" in the statute means what it says...any amount. Therefore, it concluded that "a debt collector violates the FDCPA when [it] charge[s] 'any amount' which is not expressly authorized by the agreement or permitted by law while collecting or attempting to collect a debt."

Finally, given that the parties agreed that the mortgage loan agreements and promissory notes creating the debts at issue did not "expressly authorize" the mortgage servicer's convenience fee, the appellate court went on to determine whether the fee was "permitted by law" under Section 1692f(1). The servicer pointed to the Truth in Lending Act and the Electronic Fund Transfer Act as the laws permitting the fee, but the appellate court concluded that these statutes do not provide substantive permission, either explicitly or implicitly, to collect the specific fee at issue in this case. The appellate court also rejected the servicer's argument that the convenience fee is permitted by state contract law.

Amicus brief(ly): The courts have spoken again. This case underscores the need for credit agreements to specifically provide for payment convenience fees in circumstances where state law does not prohibit them. The FDCPA rule on this has not changed: a "debt collector" may not impose a fee or charge that is not expressly authorized by law or agreement (the latter assumes that state law at least does not prohibit the fee). Once upon a time, the argument that a fee for accepting an expedited payment as a service separate from the subject of the consumer credit agreement could prevail, at least when the entity charging the fee was not subject to the FDCPA (e.g., a creditor collecting its own debt in its own name). For debt collectors, though, that argument was on shakier ground given the FDCPA rule. Creditors can help their downstream collection agents and debt buying partners by adding a simple provision to the credit agreement that - when state law does not prohibit it - allows the creditor and its agents to charge a payment convenience fee when the consumer opts to make an expedited payment through a service that charges a fee.

On February 4, numerous trade associations - the American Financial Services Association, ACA International, the American Fintech Council, the Consumer Data Industry Association, the Electronic Transactions Association, the Financial Technology Association, the Online Lenders Alliance, the Receivables Management Association International, and the U.S. Chamber of Commerce - sent a letter to then-Acting CFPB Director Scott Bessent requesting that the CFPB rescind its Registry of Nonbank Covered Persons Subject to Certain Agency and Court Orders rule. The rule requires covered nonbanks subject to certain final public orders issued by a government agency in connection with the offering or provision of a consumer financial product or service to report the existence of the orders to a registry and file annual reports regarding compliance with registered orders.

In the letter, the trade associations state that they are "concerned that the rule will be overtly used to 'name and shame' highly regulated entities rather than act as a useful tool to effectively monitor and reduce any potential risks to consumers from legitimate bad actors in the financial marketplace." The letter states that compliance with the rule will be costly and complex for members of the trade associations, particularly small nonbanks, will provide no additional protections for consumers, and will have little impact on consumer behavior.

Amicus brief(ly): The industry's reaction to the non-bank registry rule is justified, and the short letter to then-Acting Director Bessent (who kept the seat warm for Russel Vought of the OMB - see the discussion above) gets right to the point: the registry was likely to serve as a scarlet letter for providers that have agreed to resolve investigations with a consent order. Negotiated consent orders include language stating plainly that the subject of the consent order does not admit or deny the substantive allegations, but that important fact is unlikely to be on anyone's mind when they review the registry. The registry never seemed like a useful idea that would do more than brand all companies subject to consent orders bad actors and would not necessarily drive changes in consumer behavior. We are skeptical that the new-look CFPB will leave it in place.

On February 4, Senators Bernie Sanders (I-VT) and Josh Hawley (R-MO) introduced Senate Bill 381, titled "A bill to amend the Truth in Lending Act to cap credit card interest rates at 10 percent." The bill was referred to the Senate Committee on Banking, Housing, and Urban Affairs. Although the text of the bill is not yet available, the American Financial Services Association released a blog post opposing the bill, noting that rate caps hurt, rather than help, consumers by limiting the availability of this type of credit. AFSA's blog post stated that the trade organization "does not anticipate broad Republican support for this legislation. However, President Trump has previously said that he would support a temporary cap on credit card fees." According to a press release on Sanders' website, sanders.senate.gov, the interest rate cap would go into effect immediately upon enactment of the bill and would remain in place for five years.

Amicus brief(ly): We predict - and it does not feel like we are going out on a limb - that this bill is not going to make it to President Trump's desk for signature, notwithstanding his support for the concept. Leaving aside the strong bank lobby and its anticipated reaction to the concept of capping credit card rates at the federal level and at such a low number, setting a national interest rate cap for credit cards ignores some important history and facts. Recall that the high inflation rates of the late 1970s gave rise to the deregulation of interest rates by act of Congress (DIDMCA) in 1980 for banks, credit unions, and first-lien mortgage lenders, and many states followed that lead in subsequent years. A fixed 10% interest rate may seem like plenty in the long low-rate environment that preceded the post-COVID inflation spike, but if inflation gets going again, that rate cap is untenable, and, as AFSA suggested, banks will simply stop offering credit cards. The deregulation of interest rates through DIDMCA led some states to adopt usury limit structures that allow lending at rates based on a formula that takes into account the federal funds rate (e.g., usury is the greater of 12% or a certain number of points above a rate that can vary based on the cost of federal funds). If there is going to be a federal limit on credit card interest rates, a flexible formula structure like that has a better chance of succeeding, but still not good odds of success. And finally, unsecured credit cards (the vast majority of the market) are inherently risky credit products because of the lack of collateral. Bank issuers price that risk into the interest rates they charge, knowing that their recourse for non-payment is limited to credit reporting, hiring collection agencies, and filing collection lawsuits. This bill has the potential to be impactful if passed, but not in the way its sponsors appear to hope it will.

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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.