CFPB Issues Fall Rulemaking Agenda, Potential Student Loan Servicing Rules on Horizon

On November 20, the CFPB released its fall rulemaking agenda. The CFPB’s notable current initiatives include: (i) addressing arbitration clauses in contracts related to consumer financial products and services and  providing an outline of rulemaking ideas such as “whether to propose rules that would prevent companies from using these agreements to foreclose consumers’ ability to bring class action lawsuits”; (ii) developing a Notice of Proposed Rulemaking, with an anticipated release date in the first quarter of 2016, to address concerns relating to payday and auto title lending; (iii) finalizing its December 2014 proposed rule, “Prepaid Accounts Under the Electronic Fund Transfer Act (Regulation E) and the Truth in Lending Act (Regulation Z),” to address consumer protection concerns relating to reloadable cards and other similar prepaid products; and (iv) considering rules to designate consumer installment loans and vehicle title loans as  “larger participants” under the CFPB’s supervisory authority. Looking ahead, the CFPB’s report highlights the potential for rulemaking to address issues related to credit reporting and student loan servicing. Regarding student loan servicing, the CFPB stresses that it “has made it a priority to take action against companies that are engaging in illegal servicing practices,” and that it will “continue to monitor the market for trends and developments and evaluate possible policy responses, including potentially proposing rules.”

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Special Alert: CFPB Issues Guidance Regarding Preauthorized Debit Transactions Under the Electronic Fund Transfer Act and Regulation E

On November 23, 2015, the Consumer Financial Protection Bureau (“CFPB”) released Compliance Bulletin 2015-06 (“Bulletin”), which provides industry guidance on the Electronic Fund Transfer Act (“EFTA”) and Regulation E requirements for obtaining consumer authorizations for preauthorized electronic fund transfers (“EFTs”). The CFPB issued this Bulletin, in part, because it observed during its examinations that some companies are not fully complying with the EFTA and Regulation E. Principally, this Bulletin addresses two areas of concern: (i) obtaining the customer’s authorization for preauthorized EFTs over the telephone; and (ii) providing a copy of the authorization to the customer. Read more…

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Large National Bank Fights Against Latest Suit Alleging Improper Overdraft Fees

On January 6, a large national bank filed a motion to dismiss a suit alleging it charged improper overdraft fees. Filed last year in the Central District of California, the suit claims the bank violated federal and state laws – the EFTA and California’s unfair competition law – by posting customers’ larger debit transactions first, causing customer accounts to deplete faster resulting in more overdraft fees. In its motion, the bank claims it voluntarily stopped charging overdraft fees for one-time debit card transactions and most ATM withdrawals prior to the effective date of the amended regulations. The bank also argues that state law claims regarding good faith practices are preempted by the federal National Banking Act (NBA). The matter is scheduled to be heard on March 3. Stanionis et al v. Bank of America, No. 14-cv-2222

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CFPB & State Attorneys General Fine Retailer and Debt Collectors for Alleged Illegal Debt Collection Practices Against Military Servicemembers

On December 18, the CFPB and the Attorneys General of North Carolina and Virginia announced an enforcement action against three affiliated companies offering credit and financing services to military servicemembers. The complaint filed in the Eastern District of Virginia alleges that the companies used illegal tactics to collect debts in violation of Dodd-Frank, including by (i) filing illegal lawsuits; (ii) debiting consumers’ accounts without authorization; and (iii) contacting servicemembers’ commanding officers. The complaint also charges that one of the companies violated the EFTA by failing to properly disclose the terms of preauthorized transfers, while another company violated TILA by failing to properly disclose terms and interest rates on the loans it offered to servicemembers. The CFPB and the Attorneys General filed a consent order in the district court to require the companies and their owners and chief officers to provide over $2.5 million in consumer redress, pay a $100,000 civil penalty, and undergo ongoing compliance monitoring for a period of five years.

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CFPB Holds Field Hearing On Prepaid Products, Proposes New Rule

On November 13, the CFPB held a field hearing in Delaware to discuss its proposed rule regarding prepaid products. The proposal, which would amend Regulation E and Regulation Z, requires prepaid companies to provide certain protections under federal law.

In his opening remarks, Director Cordray noted that the many prepaid card consumers are some of the most economically vulnerable among us and that such cards have few, if any, protections under federal consumer financial law. Cordray outlined the reasons the Bureau’s proposed rule would “fill key gaps” for consumers. First, the proposed rule would provide consumers free and easy access to account information. Second, the proposed rule would mandate that financial institutions work with consumers to investigate any errors on registered cards. Third, the proposed rule would protect consumers against fraud and theft. Fourth, the rule includes “Know Before You Owe” prepaid disclosures, which would highlight key costs associated with the cards. Fifth, where prepaid card providers also extend credit to consumers such offers would be treated the same as credit cards under the law.

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