Last Week, This Morning

February 18, 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 11, President Trump nominated Jonathan McKernan to serve as the director of the Consumer Financial Protection Bureau. McKernan would replace Russell Vought, who is serving as the acting director of the CFPB. McKernan is a former board member of the Federal Deposit Insurance Corporation and has also had positions with the U.S. Senate Banking Committee, the Federal Housing Finance Agency, and the Treasury Department.

Amicus brief(ly): While acting director Vought has paused all actions by and through the CFPB, McKernan will go through the nomination and confirmation process in the Senate. McKernan resigned from the FDIC board just before his nomination, and it appears that if he is confirmed, he will land on that board again. The nomination of McKernan at this stage is inconsistent with the idea that the new administration could, or plans to, simply eradicate the agency. In fact, because the CFPB exists by statute, the new administration and its appointees cannot simply shut it down. If that is the intended outcome, it will have to happen through an act of Congress to change the law. The CFPB may be quiet for a while, and an act of Congress may do away with it at some point. For now, while the lawsuits and nomination hearings play out, the best available advice we have come across for those not in control of the outcome appears to be to remain patient.

The U.S. Court of Appeals for the Eleventh Circuit recently concluded that a credit union did not violate the Equal Credit Opportunity Act's adverse action notification requirements when it mistakenly acted on factual inaccuracies when providing the principal reason for denying credit to a prospective borrower. The appellate court also concluded that the credit union's use of approved language in sample adverse action notification forms provided by certain federal agencies satisfied the ECOA's notification requirements.

A Coast Guard veteran opened a savings account with the credit union. A couple years later, the credit union notified the individual that someone had fraudulently accessed his savings account. The identity thief changed the mailing address on the savings account and opened a checking account and obtained a debit card, using the savings account in tandem with the checking account to fraudulently withdraw funds. Although the credit union investigated the activity and adjusted the individual's account accordingly, it notified him that he was being held liable for an outstanding balance of $3,933.51. The individual refused to pay and twice appealed the credit union's decision to hold him liable for the outstanding balance. While these appeals were pending, the individual submitted an application to the credit union to refinance his mortgage loan. The credit union denied the application, citing "[p]oor credit performance with [the credit union]" as the principal reason for the denial. The individual submitted complaints about the credit union to the FBI Internet Crime Complaint Center and the Florida Department of Agriculture and Consumer Services. The credit union ultimately concluded that the individual's claims were valid and credited $4,433.68 to his savings account.

The individual then sued the credit union for violating the ECOA and Florida law, alleging that the credit union's notification of adverse action violated the ECOA's notification requirements. The trial court dismissed the ECOA claim for failure to state a claim and remanded the remaining state law claims to state court. The individual appealed.

The Eleventh Circuit affirmed. Section 1691(d) of the ECOA requires a creditor that takes adverse action against an applicant for credit to provide a "statement of reasons for such action." The statement of reasons must be specific and indicate the principal reason(s) for the adverse action. The Federal Reserve Board and the Consumer Financial Protection Bureau provide sample notification forms. The appellate court concluded that the credit union's notification of adverse action used approved language from the sample forms - that is, "[p]oor credit performance with [the creditor]" - and, therefore, did not violate Section 1691(d).

On appeal, the consumer argued that his allegation that the credit union acted on factual inaccuracies when providing its principal reason for the adverse action negated the credit union's compliance with the notification requirements in Section 1691(d). However, according to the appellate court, "Section 1691(d) says nothing about the accuracy of the statement of reasons for a creditor's adverse action, only requiring it to be 'specific.' '[T]he notice requirement serves two purposes: it discourages discrimination and it educates consumers as to the deficiencies in their credit status.' If the applicant learns that the creditor, in determining that the applicant's credit status was insufficient, has "'acted on misinformation or inadequate information, the statement of reasons gives the applicant a chance to rectify the mistake.'" So, in requiring notice, the statutory framework accounts for creditors making mistakes in their notifications. An allegation that a creditor mistakenly acted on factual inaccuracies when providing the principal reason for an adverse action cannot sensibly constitute a violation of [Section] 1691(d) when the statutory framework is viewed through this lens."

Amicus brief(ly): The Eleventh Circuit gives creditors a break with this case, finding that a creditor can satisfy the ECOA's adverse action notice requirements as long as it sends the required notice and cites its actual principal reason(s) for the adverse decision, even if the basis for its decision is wrong information. In the end, it appears that what mattered most was that the creditor's adverse action notice was not misleading. This case offers a good defensive position in the event a creditor denies credit to a consumer based on wrong or incomplete information, despite the creditor's best efforts to get accurate and complete information on which to evaluate an application. The ability of a creditor to argue, based on this case, that the adverse action notice gives consumers an opportunity to challenge an incorrect basis for credit denial gives creditors a chance to not just avoid ECOA liability based on an information mistake but also to correct wrong information and offer credit to creditworthy applicants.

The American Financial Services Association released its Consumer Credit Conditions Index Survey last week, a quarterly survey of senior executives of AFSA consumer finance company members, including providers of mortgages, vehicle financing, personal installment loans, credit cards, and other products. Participants in the survey provide their views on several key business indicators, including how they see consumer lending evolving in the coming months. The first C3 Index Survey was released in April 2024.

This latest survey was conducted in the second half of January 2025. According to AFSA's blog post, the survey "reveals that lender expectations are consistently positive across all business indicators. Twice as many respondents reported that overall business conditions strengthened during the last three months of 2024 than reported conditions weakened." This is in contrast to the results from the first C3 Index Survey, in which respondents claimed conditions facing consumer lenders deteriorated on balance in the first quarter of 2024 compared to the fourth quarter of 2023. AFSA also noted that the "share of respondents expecting business conditions to improve over the next six months exceeded the share expecting conditions to weaken by a five-to-one margin."

Amicus brief(ly): It will be interesting to see how these views and expectations play out over the next several months, with concerns about increasing consumer default rates and debt loads heavy on the minds of market participants. We prefer the positive outlook expressed in AFSA's survey, but at some point we expect the market to reset itself when the apparent consumer distress overcomes the strong indicators that pulled lenders through the end of 2024. For now, though, it is clear from the report that sentiment among surveyed executives is positive, and they expect business conditions to strengthen in the near term. That is welcome news.

Effective February 19, the Missouri Department of Revenue increased, on an emergency basis, the maximum administrative fee that may be collected by licensed motor vehicle dealers, boat dealers, and powersport dealers. The maximum fee, which is determined by the annual average of the Consumer Price Index for All Urban Consumers, rose from $587.43 in 2024 to $604.47 in 2025 based on a 2.9% increase in the CPI.

Under Missouri law, if a dealer charges an administrative fee, the dealer must charge the same fee to all retail customers unless the fee is limited by the dealer's franchise agreement to certain classes of customers. In addition, the dealer must disclose the amount of the fee and the following notice in reasonable proximity to the place on the buyer's order, the preliminary worksheet on which a sale price is computed and that is shown to the purchaser, or the retail installment sale contract where the administrative fee is disclosed:

AN ADMINISTRATIVE FEE IS NOT AN OFFICIAL FEE AND IS NOT REQUIRED BY LAW BUT MAY BE CHARGED BY A DEALER. THIS ADMINISTRATIVE FEE MAY RESULT IN A PROFIT TO DEALER. NO PORTION OF THIS ADMINISTRATIVE FEE IS FOR THE DRAFTING, PREPARATION, OR COMPLETION OF DOCUMENTS OR THE PROVIDING OF LEGAL ADVICE. THIS NOTICE IS REQUIRED BY LAW.

The notice must be bold-faced, capitalized, underlined, or otherwise conspicuously set out from the surrounding written material.

Amicus brief(ly): This update to the amount of the permissible administrative fee serves as a reminder to dealers and form companies to ensure that they are giving the required disclosure in their buyer's order, purchase agreement, and/or retail installment contract - wherever that fee appears. As a reminder, dealers may not collect a fee for completing the blank spaces in a standardized form for a customer, but they may impose an administrative fee for "the storage of documents or any other administrative or clerical services" unless otherwise prohibited. The fee has to be the same for all purchasers unless a dealer's franchise agreement limits the dealer's ability to charge the fee to certain customers. The update is an opportunity for Missouri dealers and finance companies to audit origination processes and documents to ensure compliance not just with the limitation on the amount of the fee but also the disclosure requirement.

Massachusetts Governor Maura Healey recently signed House Bill 4840, which updates and modernizes the law governing money transmission services in the state. The new law establishes a framework for the licensing, examination, and regulation of money transmitters, including those engaging in both foreign and domestic money transmissions, by the Division of Banks. The new law will require payment applications like Venmo, PayPal, and Cash App to obtain a license. The licensing requirements go into effect on January 1, 2026. The Division of Banks recently issued Frequently Asked Questions on the new law, confirming, among other things, the process for existing licensees to update their licenses, that the new law applies only to consumer-purpose transactions, and that there is an exemption from licensing for agent-of-the-payee transactions.

Amicus brief(ly): From the governor's announcement, it sounds like the focus in the new, updated law on money transmission is on domestic transfers through payment apps like Venmo, PayPal, and Cash App, all of which will need a license and to comply with the consumer protection aspects of the law. The comprehensive new law, most of which goes into effect in nine months, requires the attention of any money transmitter operating in Massachusetts. Licensed check cashers, however, are unaffected by this legislative change.

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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.