On April 6, the FTC released its 2015 Annual Highlights report, which is comprised of four key sections: (i) enforcement; (ii) policy; (iii) education; and (iv) stats and data. Regarding enforcement highlights in 2015, the report covers a range of administrative and court actions related to, among other things, technological innovations that pose fraud and security risks, the security of consumers’ personal identifiable information, and alleged payday loan scams. Significant actions summarized in the enforcement section include the FTC’s (i) December settlement with a leading U.S.-based hotel and resort chain resolving charges that its data security practices were unfair and deceptive; (ii) Operation Ruse Control, a nationwide cross-border crackdown designed to protect consumers from alleged fraud within the auto industry; and (iii) Operation Collection Protection, a federal, state, and local initiative implemented to combat alleged abusive and deceptive debt collection practices. The policy and education sections of the report separately highlight the agency’s efforts to provide guidance and recommendations to government bodies and lawmakers at the state and federal levels regarding best practices for implementing competition principals into proposed laws, regulations, or policies, as well as its education outreach program, such as Start with Security, a conference designed to provide companies with tips for implementing effective data security. Notably, according to the stats and data section of the report, the FTC received more than three million consumer complaints in 2015, with debt collection, “other,” and identity theft leading the numbers at 897,655, 512,022, and 490,220 complaints, respectively.
CFPB Issues Report on Payday and Installment Loans; Director Cordray Weighs in on Online Lending Industry
On April 20, the CFPB issued a report titled “Online Payday Loan Payments,” which covers an 18-month period in 2011 and 2012 and examines how online lenders’ attempts to recover debts are affecting consumers. Also on April 20, the CFPB held a press call during which Director Cordray delivered remarks regarding the small-dollar lending market, specifically focusing on findings included in the simultaneously released report. According to Director Cordray, online payday lenders have considerable power over consumers’ bank accounts because they use automated networks to deposit loans and collect payments, which often results in banks or credit unions charging consumers overdraft and non-sufficient funds fees. Director Cordray further summarized key findings from the report, including, but not limited to: (i) half of online consumers incurring an average of $185 in bank penalties – in addition to the penalties imposed by the lenders and the average annualized interest rate of 300% to 500% – as a result of reoccurring failed debits made by online payday lenders; (ii) one-third of online consumers losing their checking or savings accounts due to overdraft and non-sufficient funds fees; and (iii) consumers facing “hefty bank fee[s]” due to lenders’ repeated debit requests, despite the fact that second payment requests have a 70% failure rate, with third or subsequent payment attempts failing at an even higher rate. Director Cordray concluded by emphasizing that the CFPB’s “process of reforming the market for small-dollar loans” is ongoing, and that the CFPB will consider the data from the report as it prepares new regulations to address the industry.
Recently, the New York DFS announced that an online payday loan lead generator and its CEO will pay a $1 million penalty and cease payday loan lead generation activities in New York to resolve allegations that its payday loans charge fees had interest rates greater than the usury limits allowed under New York law, and that it failed to protect consumers’ personal information. According to the DFS, the company (i) “advertised payday loans and connected New York consumers to payday lenders without disclosing that the payday loans contained terms that violate New York usury laws”; and (ii) failed to take any protective measures when selling leads to its network of lead buyers, despite advertising that it “‘prides itself in putting [its] customer’s security and personal information protection at the top of [its] priority list.’” In the event that the company solicits non-payday lending services in New York in the future, the order requires it to establish and adhere to data security protocols for the secure use, transfer, and storage of consumers’ personal information. This action represents the DFS’s first action to require a company to implement consumer data security measures to its future collection of consumers’ personal information.
Fourth Circuit Reverses District Court’s Decision; Rules Debt Collector’s Arbitration Provisions Unenforceable
Recently, the U.S. Court of Appeals for the Fourth Circuit reversed a District Court’s decision that a debt collector’s arbitration provisions in loan agreements were enforceable. Hayes v. Delbert Services Corp., No. 15-1170 (4th Cir. Feb. 2, 2016). The defendant collected on loans that were transferred from an online payday lender owned by a member of the Cheyenne River Sioux Tribe. The loan agreements for the transferred loans provided that disputes between the borrower and the payday lender, or any assignee, would be resolved by binding arbitration “conducted by the Cheyenne River Tribal Nation by an authorized representative in accordance with its consumer dispute rules and the terms of this Agreement.” The loan agreement also provided that the agreement “IS MADE PURSUANT TO A TRANSACTION INVOLVING THE INDIAN COMMERCE CLAUSE OF THE CONSTITUTION OF THE UNITED STATES OF AMERICA, AND SHALL BE GOVERNED BY THE LAW OF THE CHEYENNE RIVER SIOUX TRIBE. The arbitrator will apply the laws of the Cheyenne River Sioux Tribal Nation and the terms of this Agreement.” The agreement went on to state that the arbitrator would not apply “any law other than the law of the Cheyenne River Sioux Tribe of Indians to this Agreement.” Read more…
This week, the Obama Administration released the Fiscal Year 2017 Budget Proposal. President Obama’s proposed budget for the Department of the Treasury would, through the Community Development Financial Institutions (CDFI) Fund, reserve at least $10 million until September 30, 2018 to provide grants for loan loss reserve funds and to provide technical assistance for small dollar loan programs under section 1206 of the Dodd-Frank Act. The Small Dollar Loan Program, according to the budget proposal, “will support broader access to safe and affordable financial products and provide an alternative to predatory lending by encouraging CDFIs to establish and maintain small dollar loan programs.” Earlier this year, Senator Sherrod Brown (D-OH), in a letter to the President, requested that the FY 2017 budget proposal prioritize funding for small dollar loan programs, as outlined in Title XII – Improving Access to Mainstream Financial Institutions – of the Dodd-Frank Act. Read more…