BuckleySandler & PLI Release 2015 Edition of “Consumer Financial Services Answer Book”

BuckleySandler LLP is pleased to announce the availability of the 2015 edition of the “Consumer Financial Services Answer Book,” published by the Practising Law Institute. Twenty-one BuckleySandler attorneys contributed to 12 chapters in this leading desk reference, which uses an easy question and answer format to address matters involving consumer financial services law. BuckleySandler Partner Richard Gottlieb also served as lead editor, a role he has held since publication of the first annual edition in 2011.

The 2015 edition of this publication continues to provide practitioners with a core understanding of the laws governing consumer financial services, addressing the latest developments in Consumer Financial Services Bureau (CFPB) enforcement activities, regulations and guidelines, fair lending, auto lending, the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA), among others.

New chapters in the 2015 edition address:

  • Credit Cards
  • Electronic Records and eSignatures
  • Short-Term Lending
  • Unfair and Deceptive Acts and Practices (UDAAP)
  • Servicemembers Civil Relief Act (SCRA)
  • Telemarketing and the Telephone Consumer Protection Act (TCPA)

From compliance counseling to enforcement, BuckleySandler has been handling precedent-setting CFPB matters since the Bureau was established in 2011 — experiences which enabled its attorneys to contribute the added insight and advice on current and emerging CFPB developments, trends, and expectations for the Answer Book.

The Consumer Financial Services Answer Book is for sale in hard copy format by the Practising Law Institute at www.pli.edu.

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FFIEC and CFPB Announce Updates To Web-Based HMDA Database And Tools

On September 22, the FFIEC announced an update to its online database for analyzing HMDA data and the CFPB announced updates to the agency’s corresponding HMDA tools. Originally launched in September 2013, the tool focuses on the number of mortgage applications and originations, in addition to loan purposes and loan types, and allows the public to see nationwide summaries or employ interactive features to isolate the information for metropolitan areas. The updated database includes 2013 data of approximately 17 million records from 7,190 financial institutions. In both Director Cordray’s 2013 remarks and blog post, the CFPB appeared to indicate that HMDA data may be used to identify institutions that may be discriminating against protected classes of borrowers. On Monday, the Bureau encouraged the public to view the introductory video, maps and charts, data, and share their ideas and findings through its Twitter account.

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CFPB Sues For-Profit College For Alleged Predatory Lending

On September 16, the CFPB filed a civil action against a for-profit college for allegedly engaging in an “illegal predatory lending scheme.” Specifically, the CFPB alleges that the school engaged in unfair and deceptive practices by: (i) inducing enrollment through false and misleading representations about job placement and career opportunities; (ii) inflating tuition to require students to obtain private loans in addition to Title IV aid; (iii) persuading students to incur significant debt through private loans that had substantially high interest rates (as compared to federal loans) and required repayment while students attended school; (iv) misleading students to believe that the school did not have an interest in the private loans offered; and (v) knowing its students were likely to default on the private loans made. In addition, the CFPB alleges that the school violated the FDCPA by taking aggressive and unfair action, including pulling students out of class, blocking computer access, preventing class registration, and withholding participation in graduation, to collect payments on the private loans as soon as they became past due. The CFPB is seeking to permanently enjoin the school from engaging in the alleged activity, restitution and damages to consumers, disgorgement, rescission of all private loans originated since July 21, 2011, civil money penalties, and costs and other monetary relief. Read more…

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CFPB Warns Credit Card Issuers Regarding Offering Promotional APRs

On September 3, the CFPB published Bulletin 2014-02 warning credit card issuers of the risk of engaging in deceptive or abusive acts and practices in connection with solicitations offering a promotional annual percentage rate (APR). In particular, the bulletin discusses the risk associated with balance transfer solicitations that fail to clearly disclose all material costs of the promotional APR offer, including the failure to disclose that consumers will lose their interest-free grace periods on new purchases if the entire statement balance—including the transferred balance—is not paid in full. The bulletin warns that, depending on the facts and circumstances, card issuers’ solicitations may be considered deceptive and/or abusive if they do not disclose that transferring an outstanding balance may result in additional interest charges for new purchases until a consumer’s grace period is restored by paying in in full. Furthermore, the bulletin notes that while Regulation Z does not require marketing materials to include additional disclosures alerting consumers to the potential effect of accepting a promotional APR offer, some offers may risk being deceptive or abusive even if Regulation Z is not violated. In a press release regarding the bulletin, Director Cordray stated, “[W]e are putting credit card companies on notice that we expect them to clearly disclose how these promotional offers apply to consumers so that they can make informed choices about their credit card use.” Finally, the bulletin states that the CFPB expects card issuers to incorporate adequate measures into their compliance management systems in order to prevent violation of Federal consumer financial laws, including the prohibition on deceptive, unfair, or abusive practices. These measures should include steps to ensure that all marketing materials clearly, prominently, and accurately describe the effect of promotional APR offers on the grace period for new purchases.

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POSTED IN: Consumer Finance, Federal Issues

New York AG Sues Bank for Alleged Redlining

On September 2, the NY AG sued a regional bank claiming the bank engaged in unlawful discriminatory practices by intentionally avoiding offering mortgage loan products to predominately African-American neighborhoods in Buffalo. People of the State of New York v. Evans Bancorp, Inc. et al., No. 14-cv-00726 (W.D.N.Y. Sept. 2, 2014). In the complaint, the NY AG asserts that by creating a map of its lending area in Buffalo that included most of the city and its surroundings, but excluded certain African-American neighborhoods on the city’s east side, the bank engaged in redlining in violation of the Fair Housing Act, New York state human rights law, and city code. The suit also alleges that the bank did not market its loan products to minority customers and located bank branches and ATMs outside of minority neighborhoods. The NY AG further claims that the bank’s rates of lending and receiving applications from African-American borrowers allegedly lags behind comparable banks and that these purported discriminatory effects are due to the bank’s alleged redlining practices.  The NY AG seeks injunctive relief, damages, civil penalties, punitive damages, fees and costs.  In its release announcing the lawsuit, the NY AG stated that the suit is part of ongoing investigations by the AG into potential mortgage redlining across the state.

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POSTED IN: Mortgages, State Issues

CFPB Fines Online Mortgage Company And Its Owner For Alleged Deceptive Rate Advertising

On August 12, the CFPB announced a consent order with a nonbank mortgage lender, its affiliated appraisal management company (AMC), and the individual owner of both companies to resolve allegations that the lender deceptively advertised mortgage rates to consumers, improperly charged fees before providing consumers with Good Faith Estimates (GFE), and failed to disclose its affiliation with the AMC while allowing the AMC to charge inflated fees.

Allegations

As explained in the consent order, the lender primarily conducts business online through its own website, and also advertises its mortgages through display ads on independent websites and the website of an unaffiliated third-party rate publisher. The CFPB asserts that, over a roughly two-year period, a “systemic problem” caused the lender to list on the rate publisher’s website lower rates for certain mortgages than the lender was willing to honor, and that the lender supplied other rates to the rate publisher that were unlikely to be locked for the majority of the lender’s borrowers. The CFPB claims that the lender failed to perform systematic due diligence or quality control to ensure the accuracy of listed rates, even though the lender was made aware through consumer complaints that certain rates were inaccurate. Read more…

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CFPB, State AGs Announce Joint Enforcement Action Against Military Consumer Lender

On July 29, the CFPB and 13 state AGs announced a consent order that requires a consumer lender currently in Chapter 7 bankruptcy to provide $92 million in debt relief for about 17,000 U.S. servicemembers and other consumers harmed by the company’s alleged predatory lending scheme. The lender offered credit to consumers purchasing computers, videogame consoles, televisions, or other products, which typically were purchased at mall kiosks near military bases. In some cases the lender was the initial creditor, and in other cases, the lender provided indirect financing by agreeing to buy the financing contracts from merchants who sold the goods. Read more…

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CFPB, FTC, And State Authorities Coordinate Action Against Foreclosure Relief Companies

On July 23, the CFPB, the FTC, and 15 state authorities coordinated to take action against foreclosure relief companies and associated individuals alleged to have employed deceptive marketing tactics to obtain business from distressed borrowers. The CFPB filed three suits, the FTC filed six, and the state authorities collectively initiated 32 actions. For example, the CFPB claims the defendants (i) collected fees before obtaining a loan modification; (ii) inflated success rates and likelihood of obtaining a modification; (iii) led borrowers to believe they would receive legal representation; and (iv) made false promises about loan modifications to consumers. The CFPB and FTC allege that the defendants violated Regulation O, formerly known as the Mortgage Assistance Relief Services (MARS) Rule, and that some of the defendants also violated the Dodd-Frank Act’s UDAAP provisions and Section 5 of the FTC Act, respectively. The state authorities are pursuing similar claims under state law. For example, New York Attorney General Eric Schneiderman announced that he served a notice of intent to bring litigation against two companies and an individual for operating a fraudulent mortgage rescue and loan modification scheme that induced consumers into paying large upfront fees but failed to help homeowners avoid foreclosure.

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CFPB Sues Debt Collection Law Firm

On July 14, the CFPB sued a Georgia-based law firm and its three principal partners for allegedly using high-volume litigation tactics to collect millions of dollars from consumers who may not actually have owed the debts or may not have owed the debts in the amounts claimed. The suit relates to the firm’s attempts to collect, directly or indirectly, consumer credit-card debts on behalf of both credit-card issuers and debt buyers that purchase portfolios of defaulted credit-card debts. The CFPB alleges the defendants violated the FDCPA and engaged in unfair and deceptive practices by: (i) serving consumers with deceptive court filings generated by automated processes and the work of non-attorney staff, without any meaningful involvement of attorneys; and (ii) introducing faulty or unsubstantiated evidence through sworn statements even though some signers could not have known the details they were attesting to. The CFPB is seeking to permanently enjoin the firm from engaging in the alleged activity, restitution to borrowers, disgorgement, civil money penalties, and damages and other monetary relief.

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CFPB UDAAP Action Targets Payday Lender’s Collection Activities

This afternoon, the CFPB announced that a nonbank consumer lender will pay $10 million to resolve allegations that it engaged in certain unfair, deceptive, and abusive practices in the collection of payday loans. This action comes exactly one year after the CFPB issued guidance that it would hold supervised creditors accountable for engaging in acts or practices the CFPB considers to be unfair, deceptive, and/or abusive when collecting their own debts, in much the same way third-party debt collectors are held accountable for violations of the FDCPA. Read more…

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DOJ, CFPB Fair Lending Enforcement Actions Target Credit Card Repayment Programs, Marketing Of Add-On Products

On June 19, the CFPB and the DOJ announced parallel enforcement actions against a federal savings bank that allegedly violated ECOA in the offering of credit card debt-repayment programs and allegedly engaged in deceptive marketing practices in the offering of certain card add-on products. The bank will pay a total of $228.5 million in customer relief and penalties to resolve the allegations.

ECOA Violations

The CFPB and DOJ charge that the bank excluded borrowers who indicated that they preferred communications to be in Spanish or who had a mailing address in Puerto Rico, even if the consumers met the promotion’s qualifications. The CFPB and DOJ assert that as a result, Hispanic populations were unfairly denied the opportunity to benefit from the promotions, which constitutes a violation of the ECOA’s prohibition on creditors discriminating in any aspect of a credit transaction on the basis of characteristics such as national origin. Read more…

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New York Financial Services Regulator First To Sue Under Dodd-Frank’s UDAAP Provisions

On April 23, New York State Department of Financial Services (NYS DFS) Superintendent Benjamin Lawsky became the first state regulator to sue a financial services company to enforce the Dodd-Frank Act’s Title X prohibitions against unfair, deceptive, and abusive practices (UDAAP). Last month, Illinois Attorney General Lisa Madigan filed what appears to be the first suit by a state attorney general to enforce Dodd-Frank’s UDAAP provisions. Although state authorities generally are limited to enforcing Title X against state banks and non-bank financial service companies—except that state attorneys general may enforce rules of the CFPB against national banks and thrifts—these actions bring into sharp focus the full scope and reach of the Title X’s enforcement provisions and are likely to inspire similar state actions.

Mr. Lawsky’s complaint accuses a nonbank auto finance company of violating Sections 1031 and 1036 of the Dodd-Frank Act, as well as Section 408 of the New York Financial Services Law and Section 499 of the New York Banking Law by, among other things, “systematically hid[ing] from its customers the fact that they have refundable positive credit balances.” The complaint alleges that the company concealed its customers’ positive account balances—from insurance payoffs, overpayments, trade-ins, and other reasons—by programming its customer-facing web portal to shut down a customer’s access to his or her loan account once the loan was paid off, even if a positive credit balance existed. The company allegedly failed to refund such balances absent a specific request from a customer. In addition, the complaint charges that the company hid the existence of positive credit balances by submitting to the New York State Comptroller’s Office false and misleading “negative” unclaimed property reports, which represented under penalty of perjury that the company had no unrefunded customer credit balances. Read more…

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Illinois AG Sues To Enforce Dodd-Frank “Abusive” Prohibition

On March 19, Illinois Attorney General (AG) Lisa Madigan announced a suit against a lender for allegedly offering a short-term credit product designed to evade the state’s usury cap. The AG claims the lender offers a revolving line of credit with advertised interest rates of 18 to 24%, and then adds on “account protection fees.” The AG characterizes those fees as interest substantially in excess of the state’s 36% usury cap. According to the AG, after a borrower takes out the short-term loan, the lender allegedly provides a payment schedule and instructs the borrower to make minimum payments, which consumers who filed complaints with the AG’s office believed was a timeline to pay off the full debt. The complaint is the AG’s first under the Dodd-Frank Act and claims that the lender’s practices take unreasonable advantage of consumers and constitute abusive practices. The complaint also alleges violations of the state Consumer Fraud and Deceptive Businesses Practice Act and seeks restitution, civil penalties, disgorgement, and an order nullifying all existing contracts with Illinois consumers and prohibiting the company from selling lines of credit and revolving credit in Illinois.

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CFPB Sues For-Profit Educational Institution Over Private Student Loan Origination Practices

On February 26, the CFPB filed its first enforcement action against a for-profit higher-education company, alleging that the company engaged in unfair and abusive private student loan origination practices.

In a civil complaint filed in the U.S. District Court for the Southern District of Indiana, the CFPB asserts that the company offered first-year students no-interest short-term loans to cover the difference between the costs of attendance and federal loans obtained by students. The CFPB claims that when the short-term loans came due at the end of the first academic year and borrowers were unable to pay them off, the company forced borrowers into “high-rate, high-fee” private student loans without providing borrowers an adequate opportunity to understand their loan obligations. Moreover, the CFPB claims that the company’s business model is dependent on coercing students into “high-rate, high-fee” private loans, despite the low average incomes and credit profiles of the students, and a 64 percent default rate on such loans.

The company issued a statement denying the charges, criticizing the CFPB’s decision to file suit, and challenging the CFPB’s jurisdiction. The statement describes the suit as an “aggressive attempt by the Bureau . . . to extend its jurisdiction into matters well beyond consumer finance” and expresses the company’s intent to “ vigorously contest the Bureau’s theories in court.” Read more…

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CFPB Releases Money Transfer Exam Procedures, Launches New e-Regulations Tool

On October 22, the CFPB released the procedures its examiners will use in assessing financial institutions’ compliance with the remittance transfer requirements of Regulation E. Amendments to those regulations, finalized by the CFPB earlier this year, are set to take effect October 28, 2013. In general, the rule requires remittance transfer providers that offer remittances as part of their “normal course of business” to: (i) provide written pre-payment disclosures of the exchange rates and fees associated with a transfer of funds as well as the amount of funds the recipient will receive; and (ii) investigate consumer disputes and remedy errors. The rule does not apply to financial institutions that consistently provide 100 or fewer remittance transfers each year, or to transactions under $15.

The new examination procedures detail the specific objectives examiners should pursue as part of the examination, including to: (i) assess the quality of the regulated entity’s compliance risk management systems with respect to its remittance transfer business; (ii) identify acts or practices relating to remittance transfers that materially increase the risk of violations of federal consumer financial law and associated harm to consumers; (iii) gather facts that help to determine whether a supervised entity engages in acts or practices that are likely to violate federal consumer financial law; and (iv) determine whether a violation of a federal consumer financial law has occurred and, if so, whether further supervisory or enforcement actions are appropriate. In doing so, CFPB examiners will look not only at potential risks related to the remittance regulations, but also outside the remittance rule to assess “other risks to consumers,” including potential unfair, deceptive, and abusive acts and practices and Gramm-Leach-Bliley Act privacy violations.  Finally, consistent with other examination procedures published by the CFPB, the examiners are instructed to conduct both a management- and policy-level review as well as a transaction-level review to inform the stated examination objectives.

Also on October 22, the CFPB announced a new tool designed to make it easier for the public to navigate the regulations subject to CFPB oversight. To start, the new eRegulations tool includes only Regulation E, which implements the Electronic Funds Transfer Act and includes the remittance requirements discussed above. Noting that federal regulations can be difficult to navigate, the CFPB redesigned the electronic presentation of its regulations, including by (i) defining key terms throughout, (ii) providing official interpretations throughout, (iii) linking certain sections of the “Federal Register preambles” to help explain the background of a particular paragraph, and (iv) providing the ability to see previous, current, and future versions. The CFPB notes that the tool is a work in progress and that suggestions from the public are welcome. Further, the CFPB encourages other agencies, developers, or groups to use and adapt the system.

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