On December 3, the CFPB published a report summarizing the impact of the Credit Card Accountability Responsibility and Disclosure Act (CARD Act) on consumers and the credit market. According to the report, access to credit has increased by 10% since early 2012, with more than 60% of adults owning at least one credit card account. The report states that as a result of the CARD Act placing limitations on the use of over-limit fees, and its requirement that such fees and other penalty fees be “reasonable and proportional” to the underlying violation of account terms, consumers saved billions of dollars from 2011 through 2014. The CFPB’s outstanding areas of concern relating to the credit market include: (i) deferred-interest promotions; (ii) debt collection practices; and (iii) rewards program offers that provide only partial information.
The past year has seen heightened CFPB interest in the following areas: (i) deferred interest and rewards, (ii) limited English proficiency consumers, and (iii) the recent revisions to the Military Lending Act (MLA). Pursuing simplicity in the design of product features and closely following limited English proficiency issues will help credit issuers mitigate their regulatory risk. Also on the horizon in 2016 is the effective date of the MLA revisions, which were announced in July 2015.
Deferred Interest and Rewards
The Bureau has been focused on the marketing and design of deferred interest products and issued a strong admonition in September 2014 relating to the potential for consumer surprise. However, there has been relatively little enforcement activity in this regard. Instead, enforcement generally has focused on technical violations of law. For example, an August 2015 consent order arose out of point-of-sale disclosures as opposed to the product features themselves. Some deferred interest issues, such as “old fashioned mistakes,” (e.g., “if paid in full” is dropped from the marketing copy) may represent low-hanging fruit for the CFPB and should be addressed to mitigate enforcement risk. The Bureau has also expressed concern about technical issues that may complicate deferred interest for consumers, such as expiration of the promotional period prior to the payment due date.
The Bureau has suggested that consumers base their choice of credit card more on the nature and richness of the rewards than on the interest rate. Accordingly, the Bureau has expressed concern about various aspects of rewards programs, including the expiration of points and complexity surrounding how they are earned and redeemed. While simplicity may reduce regulatory risk, it undoubtedly makes rewards programs more expensive for issuers, and makes it more difficult for consumers to distinguish among them. Read more…
On November 19, the Court of Appeals for the Second Circuit affirmed the Southern District of New York’s decision to dismiss a case alleging that two leading credit card issuing banks schemed to require that disputes be settled in arbitration, as opposed to class action lawsuits. The plaintiffs challenged the District Court’s decision on the grounds that language in United States v. General Motors Corp. should be used “to adopt a rule that the existence of conspiracy is a legal conclusion subject to review de novo.” Ross v. Citigroup, Inc., No. 14-1610 (2nd Cir. Nov. 19, 2015). Plaintiffs further argued that the District Court’s conclusion that the defendants’ actions did not constitute as conspiracy in violation of the Sherman Act should not be shielded by the “clearly erroneous” test. The District Court analyzed various “plus factors,” including motive, the quantity and nature of inter-firm communications, and whether the arbitration clauses were “artificially standardized” because of an illegal agreement, to determine whether or not conspiracy existed among the credit card issuing banks. The District Court concluded that the credit card issuing banks’ final decision to implement class-action-barring clauses was reached “individually and internally.” Stating that General Motors has never been applied as generously as the plaintiffs argued for it to be, the Second Circuit’s review of the record found the District Court’s conclusion plausible and not “clearly erroneous.”
CFPB, 47 State AGs, and District of Columbia Announce $216 Million Settlement to Resolve Credit Card Debt-Buying Investigation
On July 8, the CFPB along with 47 state attorneys general and DC announced an agreement with a major bank to resolve allegations that it sold faulty credit card “zombie debts” to third-party debt buyers, which included accounts with unlawfully obtained judgments, inaccurate or paid-off balances, and debts owed by deceased borrowers. The federal and state investigators also claimed that the bank filed deceptive debt-collection lawsuits against borrowers using robo-signed or illegally sworn affidavits to obtain false or inaccurate judgments for unverified debts. Under terms of the consent order, the bank agreed to, among other things, pay (i) $106 million to 47 state attorneys general, (ii) a $30 million civil money penalty to the CFPB, and (iii) provide at least $50 million in restitution to affected borrowers. The bank also agreed to cease collections on more than 528,000 accounts, and require that third-party debt buyers be prohibited from reselling debts purchased from the bank, unless they are sold back to the bank.
In a related announcement, the OCC imposed a $30 million civil money penalty over allegedly illegal non-home debt collection litigation practices and Servicemembers Civil Relief Act (SCRA) compliance practices. The OCC’s action stems from the bank’s practices related to the preparation and notarization of sworn documents used in debt litigation proceedings, and inadequate policies and procedures to ensure compliance with the SCRA.
Tennessee Enacts Legislation Requiring Payment Service Providers to Provide Adequate Disclosures to Merchants
On April 17, the Tennessee Governor Bill Haslem signed H.B. 547, which requires the disclosure of fees and other details in contracts entered into by payment service providers with merchants located within the state. The legislation requires the payment service providers to provide merchants with information detailing where the merchant can obtain access to operating rules, regulations, and bylaws under the agreement. In addition, the law requires payment service providers to disclose (i) the effective date of the agreement; (ii) terms of the agreement; (iii) any provisions relating to early termination or cancellation of the agreement; and (iv) a full schedule of all payment services fees with respect to the credit card, debit card, or other payment services under the agreement. The law also requires payment service providers to supply merchants with a monthly statement of fees, total value of transactions, and in some cases the aggregate fee percentage.