On April 4, Tennessee Governor Bill Haslam signed into law SB 1486, which authorizes registered industrial banks, industrial loan and thrift companies, and industrial investment companies to charge a convenience fee to any borrower making payment by credit card, debit card, electronic funds transfer, electronic check, or other electronic means in order to offset actual costs incurred by the lender. The convenience fees cannot exceed the actual costs incurred by the registrant for each payment type, or the average of the actual cost incurred for the various types of electronic payments accepted by the registrant. Registrants who elect to charge a convenience fee must also allow payment by non-electronic means—check, cash, or money order—without the imposition of a convenience fee. The changes take effect July 1, 2014.
On June 9, the FTC announced that it has provided to the CFPB its 2014 Annual Financial Acts Enforcement Report. The report highlights the FTC’s enforcement, research, rulemaking, and policy development activities with respect to the Truth in Lending Act (Regulation Z), the Consumer Leasing Act (Regulation M), and the Electronic Funds Transfer Act (Regulation E). Areas detailed within the report include enforcement actions related to non-mortgage credit, including auto finance and payday lending, mortgage loan advertising, and forensic audit scams; and consumer and business outreach related to truth in lending requirements. The report, submitted on May 29, will be used to prepare the CFPB’s Annual Report to Congress. The FTC also submitted a copy of the report to the Federal Reserve Board.
On January 23, the CFPB proposed a rule that would allow the agency to supervise nonbank “larger participants” in the international money transfer market. The proposed rule defines “larger participant” to include any entity that provides one million or more international money transfers annually, which the CFPB estimates will extend oversight to roughly 25 of the largest providers in the market. Providers that do not meet the million-transfer threshold may still be subject to the CFPB’s supervisory authority if the Bureau has reasonable cause to determine they pose risk to consumers. Although the CFPB proposes to use aggregate annual international money transfers as the criterion for establishing which entities are “larger participants” of the international money transfer market, the CFPB also considered and has requested comment on use of annual receipts from international money transfers and annual transmitted dollar volume as potential alternatives.
The CFPB suggests that examinations of such providers will focus on compliance with the Remittance Rule—particularly with respect to new requirements addressing disclosures, cancellation options, and error corrections—and that the agency will “coordinate [examinations] with appropriate State regulatory authorities.” The CFPB released examination procedures for use in assessing compliance with the remittance transfer requirements last year.
Dodd-Frank granted the CFPB authority to supervise “larger participants” in the consumer financial space, as defined by rule. The agency has already finalized similar rules covering “larger participants” in student loan servicing, debt collection, and consumer reporting markets. The proposal, if finalized, would be the fourth larger-participant rule adopted by the CFPB.
A CFPB factsheet on the proposal is available here. The CFPB will accept comments for 60 days from publication of the proposed rule in the Federal Register.
Missouri District Court Holds State Funds Transfer Act Preempts Certain Customer Indemnity Agreements
On August 20, the U.S. District Court for the Western District of Missouri dismissed a bank’s counterclaims that its customer’s agreement to indemnify the bank for any losses, costs, or expenses covers the customer’s losses from an allegedly fraudulent transfer of funds. Choice Escrow & Title, LLC v. BancorpSouth Bank, No. 10-03531, slip op. (W.D.Mo. Aug. 20, 2012). The customer sued the bank claiming that a $440,000 wire transfer from its account through the bank’s internet wire transfer system was fraudulently initiated by a third-party. The bank filed four counterclaims for the same amount based on indemnity agreements signed by the customer. The customer moved to dismiss the counterclaims, arguing that the state Funds Transfer Act, part of the Uniform Commercial Code, displaces the counterclaims. Describing its decision as a “very close call,” the court held that the Funds Transfer Act preempts the types of indemnity agreements relied upon by the bank in its counterclaims and dismissed those claims. The court reasoned that while the Funds Transfer Act generally was not intended to preempt or displace all causes of action between a bank and its customers, the Act does provide that common law causes of action based on allegedly fraudulent transfers are preempted where the common law claims would create rights, duties, or liabilities inconsistent with the Act or where the circumstances giving rise to the claims are specifically covered by the Act. The court held the indemnity agreements could require the customer to pay back to the bank the very losses the bank might owe if the customer proves a fraudulent transfer, a result that is inconsistent with the Act.