Consumer Financial Protection Bureau Reporter

Recess appointment actions ratified by CFPB
Richard Cordray, Director of the Consumer Financial Protection Bureau, has issued a notice ratifying all the actions taken by the bureau between the time he was recess appointed by President Obama on Jan. 4, 2012, and confirmed by the Senate as CFPB Director on July 16, 2013. Cordray noted that "I believe that the actions I took during the period I was serving as a recess appointee were legally authorized and entirely proper." He took this action "to avoid any possible uncertainty, however, I hereby affirm and ratify any and all actions I took during that period." The notice of ratification is reported at ¶200-264

Chase to pay $309 million for illegal credit card practices under CFPB order
The Consumer Financial Protection Bureau has announced the entry of a consent order against Chase Bank USA, N.A. and JPMorgan Chase Bank, N.A. (Chase) to refund an estimated $309 million to more than 2.1 million customers for illegal credit card practices. The enforcement action is the end result of action taken by the Office of the Comptroller of the Currency. The CFPB joined the OCC’s investigation last year. The enforcement action against Chase is reported at ¶200-269.

Modifications to mortgage rules finalized
The Consumer Financial Protection Bureau has issued a final rule that amends some of the final mortgage rules issued in early 2013. The bureau’s mortgage rules implemented provisions of the Mortgage Reform and Anti-Predatory Lending Act—Title XIV of the Dodd-Frank Act. The final rule also changed the effective date for certain provisions of the Loan Originator Compensation final rule from Jan. 10, 2014, to Jan. 1, 2014, to simplify compliance since compensation plans, training, and licensing and registration are often structured on an annual basis. The CFPB’s final rule is reported at ¶300-172.

Employers reminded of EFTA/Reg. E obligations regarding payroll card accounts
Employers were reminded by the Consumer Financial Protection Bureau that they are prohibited, under by Regulation E, from requiring that their employees receive their wages by electronic transfer to a payroll card account at a particular financial institution. The bureau issued CFPB Bulletin 2013-10 in light of reports of employers, particularly in the retail and food service industries, distributing wages solely through payroll cards and complaints from employees that they were charged unexpected fees for activities such as ATM use, teller withdrawals, and checking the balance. CFPB bulletin 2013-10 is reported at ¶41-514.

CFPB adopts examiner guidance on payday lending to servicemembers
The Consumer Financial Protection Bureau has updated its payday lending examiner guidance to add a focus on loans to servicemembers. Under the new guidance, examiners will look specifically at lenders’ compliance with the Military Lending Act (MLA), which sets special requirements for short-term loans to active duty servicemembers and their dependents. The new examination procedures manual updates the CFPB’s original manual issued in January 2012. The guidance is reproduced at ¶1510.

Consumer information furnishers warned of need for proper dispute investigations
Persons that supply information on consumers to consumer reporting agencies (CRAs) must have the ability to consider all relevant information they have or receive when a consumer disputes an entry in his consumer report, according to a new Consumer Financial Protection Bureau bulletin (CFPB Bulletin 2013-09). Under the Fair Credit Reporting Act (FCRA), consumers have the right to dispute consumer report information, and the CFPB intends the bulletin to ensure that disputes are resolved based on a consideration of all of the appropriate information. Bulletin 2013-09 is reproduced at ¶11-519.

Federal Banking Law Reporter

Fed rules explain Basel III effects on stress tests, capital plans
The Federal Reserve Board has adopted two interim rules that are intended to clarify how the Basel III capital rules will affect bank and holding company stress tests and capital plans during the next cycle. The rules are necessary, the Fed says, because the Basel III capital reforms will take effect in 2014 and 2015, and the planning horizon for the next cycle runs through the end of 2015, resulting in an overlap. The capital plan process and stress test process are two tools used by the federal financial regulatory agencies to examine the capital adequacy of the institutions they regulate. The interim rule that applies to the largest holding companies will require them to calculate their tier 1 common ratio under the existing capital guidelines, not the guidelines set by the regulation adopted in July 2013. Holding companies and Fed-supervised banks in the $10 billion to $50 billion total consolidated assets range are being given a one-year transition period to incorporate the revised capital framework into their company-run stress tests The notices are at ¶152-657 and ¶152-659.

FHFA adopts rules on stress tests for GSEs
The Federal Housing Finance Agency has adopted rules on the annual company-run stress tests that the Dodd-Frank Act requires Fannie Mae, Freddie Mac, and the Federal Home Loan Banks to perform. While Fannie Mae and Freddie Mac (the GSEs) have been performing stress tests under FHFA rules, the rules will impose a new requirement on the FHLBanks  The notice is at ¶152-658.

Mortgage rules amended for smoother implementation
The Consumer Financial Protection Bureau has issued a final rule that amends some of the final mortgage rules issued in early 2013. The latest amendments will, among other things: clarify what servicer activities are permitted in the first 120 days of delinquency by allowing servicers to send certain early delinquency notices required under state law that may provide borrowers beneficial information about legal aid, counseling, or other resource; provide specific procedures for servicers to use for obtaining follow-up information on loss-mitigation applications; and facilitate servicers’ offering of short-term forbearance plans by permitting the servicer to provide a six-month forbearance to a borrower who is suffering a short-term, temporary hardship; The notice is at ¶152-640.

Employers reminded of Reg. E payroll card obligations
Employers were reminded by the Consumer Financial Protection Bureau that they are prohibited, under Regulation E, from requiring that their employees receive their wages by electronic transfer to a payroll card account at a particular financial institution. The bureau issued CFPB Bulletin 2013-10 in light of reports of employers, particularly in the retail and food service industries, distributing wages solely through payroll cards and complaints from employees that they were charged unexpected fees for activities such as ATM use, teller withdrawals, and checking the balance. The bulletin is at ¶49-997.

Consumer Credit Guide

Standards for information furnisher investigations under FCRA set
Persons that supply information on consumers to consumer reporting agencies (CRAs) must have the ability to consider all relevant information they have or receive when a consumer disputes an entry in his or her consumer report, according to a new Consumer Financial Protection Bureau (CFPB) bulletin. Under the federal Fair Credit Reporting Act (FCRA), consumers have the right to dispute consumer report information, and the CFPB intends to ensure that disputes are resolved based on a consideration of all of the appropriate information. Accordingly, the bulletin indicates that an “information furnisher” must: (i) have in place a system reasonably capable of receiving dispute notices and supporting information from CRAs; (ii) investigate the dispute by reviewing all relevant information forwarded by the CRA, including information provided by the consumer and information in its own possession; (iii) inform the CRA of the results of the investigation; (iv) if the information was inaccurate or incomplete, provide corrections to all nationwide CRAs that previously were given the information; and (v) if the information was inaccurate, incomplete, or unverifiable, then modify, delete, or block the information in its own files so that the information will not again be furnished to a CRA. This story appears in Report No. 1176, Sept. 17, 2013.

Attorney’s collection letter “overshadowed” FDCPA notice
An attorney’s collection letter to a consumer, which was the only communication initiated by the attorney, was not harassing or abusive in violation of the federal Fair Debt Collection Practices Act (FDCPA), a federal district court in Massachusetts has ruled. In the court’s view, the letter was one of the least intrusive methods of communication available, and the letter did not contain any profane or obscene language or threaten the use of force. While the attorney’s letter to the consumer did threaten a collection lawsuit, that alone was not tantamount to harassing or abusive conduct. However, the court further ruled that the collection letter’s threat of a lawsuit overshadowed the notice required under the FDCPA concerning the consumer’s right to demand verification of the debt within 30 days. The court determined that while it was permissible to urge a consumer to pay quickly, it was not permissible to do so without making clear that the consumer’s FDCPA right to demand verification was not affected. Pollard v. Law Offices of Mandy L. Spaulding (D. Mass.) is at ¶52,530.

Consumers compelled to arbitrate claims against car dealers
In connection with claims by consumers against two car dealerships, alleging that the dealers were engaged in misleading business practices by charging unlawful fees, the South Carolina Court of Appeals ruled that the consumers were required to arbitrate their claims. In affirming the trial court’s dismissal of the consumers’ lawsuit, the appellate court determined that almost all of the pertinent arbitration agreements were valid, and the consumers’ claims were within the scope of those agreements. York v. Dodgeland of Columbia, Inc. (S.C. App.) is at ¶52,531.

State Law Update

California: Amendments to the California Finance Lenders Law (CFLL) clarify licensing exemptions for industrial development corporations, pawnbrokers, and certain commercial lenders. Analysis appears in Report No. 1176, Sept. 17, 2013.

North Carolina: Changes to North Carolina’s anti-predatory lending law conform the state’s restrictions on "rate spread home loans" to federal law. The legislation establishes specific consumer protections relating to "rate spread home loans" in addition to other consumer protections that may otherwise be allowed by law. The law is at North Carolina ¶6406.

Smart Charts Highlights

Some of the latest changes reflected in Consumer Credit Smart Charts include:

• The Legislative Developments Smart Charts are updated regularly as legislation is enacted, allowing users to keep up to date without waiting for a scheduled Report. Links to legislative summaries and to full text of laws amended, repealed or added are provided. Recent updates include:
• California: Financial Code—Clarifying Amendments

Secured Transactions Guide

Waiver of claims against creditor valid under Article 2A of New York UCC
In accordance with New York law, Article 2A of the New York Uniform Commercial Code applied to a creditor’s disposition of an aircraft and pursuit of a deficiency judgment because the agreement governing the transaction specifically provided that it was a “true lease,” the U.S. District Court for the Eastern District of Michigan has held. Thus, the guarantor’s waiver of claims and defenses against the creditor was valid, and the creditor was free to pursue a deficiency judgment against the debtor’s guarantor. Canal Air, LLC v. McCardell (E.D. Mich.) is at ¶56,329.

Creditor’s security interest in vehicles, equipment not recognized
In connection with an assignee creditor’s property interests in a debtor’s vehicles and the equipment contained in some of them, the U.S. Bankruptcy Court for the Middle District of Florida in Tampa ruled that, although the creditor properly noted its liens on the respective certificates of title to the vehicles under Florida law, the bankruptcy debtor was entitled to avoid the creditor’s security interests as a “preferential transfer” under the Bankruptcy Code. Further, the court held that the creditor did not hold a valid security interest in the equipment contained in certain news trucks because the equipment was not adequately described in the parties’ security agreement, as required by Article 9 of the Florida Uniform Commercial Code (Fla. UCC). Moreover, the court determined that even if the creditor arguably could be viewed as holding a valid security interest in the debtor’s equipment, the debtor could also avoid it because the creditor’s financing statement did not properly perfect the security interest under the Fla. UCC. In re LDB Media, LLC; LDB Media, LLC v. Gravitas Leasing, LLC (BankrMDFla) is at ¶56,332.

State Law Update

Alabama: The Alabama Department of Revenue’s Motor Vehicle Division (Ala. Department) has amended its rules pertaining to the titling of motor vehicles in the state as well as the release of liens or security interests associated with a vehicle. In addition, the new rules covering vehicle titling address the treatment of altered documents and the requirements for dealer records. The law begins at ¶1413.

North Carolina: The North Carolina legislature has amended the Motor Vehicle Code to allow the Division of Motor Vehicles (Division) to issue a salvage certificate of title to an insurance company or used car dealer in certain situations where the insurance company or used car dealer is unable to obtain the original certificate of title from the owner of the motor vehicle. The law begins at ¶1041.

Oklahoma: Oklahoma has amended the provision under Article 1 of the Uniform Commercial Code governing the "obligation of good faith." While the Oklahoma UCC provision continues to indicate that every contract of duty within the UCC imposes an obligation of good faith in its performance and enforcement, the amendment clarifies that a breach of the obligation of good faith does not give rise to a separate tort cause of action. The law is at ¶R678.

Financial Privacy Law Guide

ATM users class certified despite damages/notice issues
Reversing a lower court’s class decertification ruling, the U.S. Court of Appeals for the Seventh Circuit held that a class of ATM users may be certified to seek statutory damages under the Electronic Funds Transfer Act (EFTA) for a company’s failure to post stickers notifying users of ATM fees despite the low amount of damages that could be awarded and the difficulty of notifying class members. The suit charged that Kore of Indiana Enterprise, which owned ATMs in two bars in Indianapolis and “said to be popular with college students,” failed to post a notice on the ATMs that Kore charges a fee for their use. The court said that, since distribution of damages to the class members would provide no meaningful relief, the best solution may be a “cy pres” decree, which would award to charity the money that would otherwise go to class members if distribution to the members is infeasible. It also said that notice by publication would be sufficient. Hughes v. Kore of Indiana Enterprise, Inc. (7thCir) is at ¶100-643.

Privacy rules permit reporting elder abuse, regulators agree
Eight federal regulatory agencies have joined in issuing guidance intended to make clear that financial institutions generally can report suspected financial abuse of older adults to law enforcement agencies without violating the Gramm-Leach-Bliley Act (GLBA) privacy rules. The agencies note that several exceptions exist that permit firms to report suspected abuse without first notifying the consumer and obtaining consent. The interagency guidance was issued jointly by the Federal Reserve Board, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, Consumer Financial Protection Bureau, Securities and Exchange Commission, Commodities Futures Trading Commission, National Credit Union Administration, and Federal Trade Commission. This story appears in Privacy Extra, Sept. 30, 2013.

FTC settles first debt collection text messaging case
A California-based debt collector has agreed to pay $1 million to settle Federal Trade Commission charges that the defendants violated federal law by using text messages to collect debts in an unlawful manner. This marks the first time that the FTC has filed an action against a debt collector for the use of text messages. The FTC alleged that the debt collector and his companies used English- and Spanish-language text messages and phones calls in which they neglected to reveal that they were debt collectors. The FTC charged them with violating the Fair Debt Collection Practices Act and the FTC Act. This story appears in Privacy Extra, Sept. 30, 2013.

State Law Update

Maryland: The Maryland legislature has added a new section to the Consumer Protection Act to require that security freezes be placed on the consumer reports or financial records of foster care children who qualify as protected consumers. The explanation is at ¶50-101, and the law is at ¶50-462C.