Consumer Financial Protection Bureau Reporter

 

CFPB takes steps to target payday loan debt traps
Consumer Financial Protection Bureau Director Richard Cordray announced that the bureau is in the “late stages” of considering how best to formulate rulemaking that would address needed reforms to the payday lending industry. While consumers have “shown a clear and steady demand for small-dollar products,” and such products can be of benefit to consumers on an occasional basis, there are many aspects of payday loans that are of concern to the bureau, Cordray said in remarks at a Payday Lending Field Hearing in Nashville, Tenn. The bureau conducted a detailed study of the payday lending industry and found that four out of five payday loans are rolled over or renewed within 14 days. In a report issued by the CFPB’s Office of Financial Research (OFR), the bureau states that the majority of payday loans are made to borrowers who renew the loans to the point where the interest on a loan is greater than the amount of the original loan. The CFPB’s notice and report are at ¶200-365.

Mortgage lender self-reports to CFPB on fee-splitting violations
The Consumer Financial Protection Bureau has entered a consent order against a Connecticut mortgage lender, 1st Alliance Lending, LLC (First Alliance), for violating the Real Estate Settlement Procedures Act and Regulation X by illegally splitting real estate settlement fees. The bureau said that First Alliance self-reported the violations to the CFPB, consistent with the bureau’s Responsible Business Conduct bulletin, admitted liability, and provided information related to the conduct of others that the bureau said has assisted in other enforcement investigations, all of which the bureau took into account when issuing the consent order. The consent order is at ¶200-351.

CFPB addresses top consumer credit reporting complaints, issues supervisory bulletin
Following the release of a report on consumers’ top credit reporting complaints, the Consumer Financial Protection Bureau has issued a supervisory bulletin reminding companies that furnish information to credit reporting agencies (CRAs) of their obligations under the Fair Credit Reporting Act to investigate disputed information in a consumer report. The CFPB is concerned that furnishers, in response to a dispute, are simply directing the consumer reporting agency to delete the disputed item without conducting an investigation. The CFPB is also urging credit card companies to make credit scores and related content freely available to their customers. The CFPB bulletin is at ¶11-518 and a related report is at ¶200-353.

House passes CFPB reform bill
The House of Representatives has passed a bill that would vastly change the structure and funding of the Consumer Financial Protection Bureau. The bill would eliminate the position of CFPB Director; end the CFPB’s independent funding stream, making the agency go through the regular appropriations process; and make it easier for CFPB rulings to be overturned. H.R. 3193, the Consumer Financial Protection Safety and Soundness Improvement Act of 2013, was passed on Feb. 27, 2014, by a vote of 232 to 182, with 16 not voting. Ten Democrats voted for the bill, with no Republicans voting against. Rep. Sean Duffy (R-Wis), who sponsored the bill, asserted that “This is a bill about accountability and transparency.” House Democrats issued a press release saying “This legislation is opposed by more than 100 organizations with long records of standing up for the interests of consumers, including the AFL-CIO, Americans for Financial Reform, the NAACP, U.S. PIRG, and the National Consumers Union.” The story appears in No. 129, March 20, 2014.

CFPB recovers more than $1 million for servicemembers and families
The Consumer Financial Protection Bureau has announced that the bureau has recovered more than $1 million for servicemembers, their families, and veterans from complaints the CFPB received. The relief was reported in the CFPB’s second snapshot of complaints from military consumers which covered more than 14,000 complaints from servicemembers, veterans, and their families received by the CFPB from July 21, 2011 through Feb. 1, 2014. The CFPB’s first snapshot detailing servicemember complaints was published in the spring of 2013. The CFPB’s notice, blog post, and snapshot are reported at ¶200-358.

Federal Banking Law Reporter

National bank only in main office state for federal jurisdiction
For purposes of federal district court diversity of citizenship jurisdiction, a national bank is located only in the state where the bank’s articles of association place its main office, the U.S. Court of Appeals for the Ninth Circuit has decided. The opinion rejects the assertion that a national bank has dual citizenship and settles, at least for the Ninth Circuit, an open question that has resulted in conflicting district court decisions The story on Rouse v. Wachovia Mortgage, FSB is in Report No. 2563, April 3, 2014.

Debit card swipe fee, network exclusivity rules upheld
The Federal Reserve Board’s rules limiting debit card interchange fees and network exclusivity provisions are reasonable interpretations of the Dodd-Frank Act, the U.S. Court of Appeals for the District of Columbia Circuit has decided. A July 31, 2013, decision striking down the rules by the U.S. District Court for the District of Columbia has been reversed, and the rules will remain in effect. The notice is at ¶101-488.

Senior management accountable for BSA violations, Curry says
Comptroller of the Currency Timothy J. Curry is blaming Bank Secrecy Act infractions on financial institutions’ senior management and boards of directors. Speaking before the Association of Certified Anti-Money Laundering Specialists, Curry stated that the issues underlying BSA infractions “can almost always be traced back to decisions and actions of the institution’s Board and senior management.” In his remarks, Curry stated that, while the vast majority of our institutions are doing a good job with BSA compliance, too many BSA programs don’t meet the requirements of the law. This story is in Report No. 2561, March 20, 2014.

Regulators issue stress test guidance for mid-size institutions
The Federal Reserve Board, Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation have issued final guidance describing supervisory expectations for stress tests to be conducted by financial companies with total consolidated assets of between $10 billion and $50 billion. These companies are required by the Dodd-Frank Act to carry out annual company-run stress tests. The first round of tests had to be completed by March 31, 2014. The notice is at ¶47-747.

Consumer Credit Guide

Offer to settle time-barred debt could mislead consumers
Collection letters that offered to settle consumers’ debts could have mislead the consumers in violation of the federal Fair Debt Collection Practices Act, particularly since the letters neither indicated when the debts were incurred nor disclosed that the debts were time-barred. In addressing two proposed class actions consolidated on appeal, the U.S. Court of Appeals for the Seventh Circuit determined that, regardless of whether a collection letter actually threatens litigation, if a debt collector uses language in its collection letter that would mislead an unsophisticated consumer into believing that the debt is legally enforceable, then the collector has violated the FDCPA. In reaching its decision, the Seventh Circuit recognized that its interpretation of the FDCPA differed from that of the Third and Eighth Circuits. McMahon v. LVNV Funding, LLC (7th Cir.) ¶52,574.

Credit card switch required no consumer application
Target Corporation’s unsolicited replacement of its customers’ limited-use charge cards with general-purpose credit cards did not violate the federal Truth in Lending Act or South Dakota state law, the U.S. Court of Appeals for the Seventh Circuit decided. TILA did not ban the company from sending cards consumers had not asked for, and the accompanying disclosures were adequate under the version of Regulation Z (Truth in Lending, 12 CFR Part 226) that was in effect at the time. This story about the Acosta v. Target Corporation decision (7th Cir.) appears in Report No. 1189, April 1, 2014.  

Expiration of time limit on mortgage rescission did not bar claim for damages
While consumers’ failure to file a lawsuit to enforce their demand to rescind a mortgage loan transaction within three years doomed their rescission efforts, it was not automatically fatal to their claim for damages, the U.S. Court of Appeals for the Eighth Circuit decided. A claim for damages against a bank for wrongfully refusing to rescind the transaction could be filed within one year of the bank’s refusal. This story about the Bank of America, N.A. v. Peterson decision (8th Cir.) appears in Report No. 1189, April 1, 2014.

State Law Update

South Dakota: Amendments to South Dakota’s banking law and money lending law clarify that a credit card is not required in order for a bank to establish a revolving loan account. The law is at South Dakota ¶6071.

Wyoming: Amendments to the Wyoming Uniform Consumer Credit Code will provide consumer protections for payday loan borrowers, including the power to cancel a transaction and to repay a loan over an extended period of time. Analysis appears in Report No. 1188, March 18, 2013.

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:
• Idaho: Payday Loans.
• Indiana: Financial Institutions, UCCC.
• Iowa: Consumer Credit Code—Monetary Limits—Loan Charges.
• Kentucky: Consumer Loan Companies.
• Maine: Unlicensed Loan Transactions.
• Washington: Nondepository Institutions.

Secured Transactions Guide

Five-year statute of limitations applies to conversion actions
A secured creditor’s action brought against an auction house for the conversion of the creditor’s secured collateral was not barred by a three-year statute of limitations period found in Article 3 of the Illinois UCC. The action was subject instead to the five-year statute of limitations period for an action for conversion of secured collateral. The debtors had granted a security interest in all of their farming equipment to their lending bank.  The FDIC closed the bank, and, as its receiver, later sold the notes and assigned the security interest to the creditor. The debtors later ended their farming operation, and the auction house conducted an auction of the farming equipment. The creditor, which was not notified of the auction, brought an action for conversion against the auction house for the sale proceeds. The auction house argued the action was barred by the three-year statute of limitations period found in Article 3; however, under Illinois law, an auctioneer who conducts an auction without the consent of a secured party may be liable to the secured party for conversion of the secured party’s interest in the collateral, and actions for conversion of personal property are subject to a five-year statute of limitations. EBC Asset Investment, Inc. v. Sullivan Auctioneers, LLC (C.D. Ill.), ¶56,354.

Knowledge of bank’s security interest amounted to bad faith
A purchaser of metal fabricating equipment that had knowledge that the equipment was subject to a bank’s security interest failed to act in good faith when it purchased the equipment from the debtor. As a result, a Louisiana appellate court concluded that the purchaser was personally liable to the bank. Section 9-315 of the Louisiana UCC provides that a security interest continues in collateral notwithstanding a sale or other disposition of the collateral, unless the secured party authorized the disposition free of the security interest. Subsection (a)(3) further provides that “a purchaser of collateral incurs no personal liability on account of an unauthorized transfer unless he has failed to act in good faith.” The evidence established that the purchaser knew about a lien and acted to deprive the bank of its security interest. As such, the court concluded that the purchaser failed to act in good faith when it purchased the equipment. General Electric Capital Corporation v. FPL Service Corp. (La. App.), ¶56,355.

State Update

Oregon: Oregon has added a new section to the state’s Vehicle Code to permit a vehicle dealer to request expedited titling services for a $100 fee. The provision directs the Department of Transportation to adopt rules establishing the criteria and procedures for providing the service. The law appears at Oregon, ¶1076A.

South Dakota: In accordance with recently amended certificate of title provisions, any boat dealer or motor vehicle dealer transferring a large boat requiring titling must transfer the title within 30 days. Similarly, any individual selling, assigning, or transferring a large boat titled by the state must deliver the certificate of title evidencing the transfer of ownership to the purchaser or transferee within 30 days. A failure to comply with either requirement is a Class 2 misdemeanor. Any subsequent violation that occurs within two years of any other violation is a Class 1 misdemeanor. The law appears at South Dakota ¶1095, ¶1097.

Virginia: A new class of vehicle for autocycles has been added to Virginia’ certificate of title definitions. An “autocycle” is defined as “a three-wheeled motor vehicle that has a steering wheel and seating that does not require the operator to straddle or sit astride and is manufactured to comply with federal safety requirements for motorcycles.” An autocycle is not a motorcycle, unless otherwise provided. The law appears at Virginia, ¶1049, ¶1065B.

Wyoming: Wyoming has amended its Uniform Commercial Code provisions relating to the central filing system for agricultural products to allow for the electronic filing of financing statements. The amendment removes references to “writing” and allows for electronic authentication. In addition, an “effective financing statement" is now defined as a statement that is “signed, authorized or otherwise authenticated by the secured party,” filed by the secured party in the office of the secretary of state, and is “signed, authorized or otherwise authenticated” by the debtor. The amended law also provides for the use of an “approved unique identifier” in the place of the debtor’s social security number. The law appears at Wyoming, ¶911—¶914

Financial Privacy Law Guide

Regular user of cell phone had standing under TCPA
Progressive Casualty Insurance Co. could be held liable under the Telephone Consumer Protection Act (TCPA) for calling a cellular telephone number using an automatic dialing system in order to collect a debt from a third party, according to the U.S. District Court for the Southern District of California. Progressive allegedly used an automatic telephone dialing system to call the complaining recipient multiple times. Progressive unsuccessfully argued that the plaintiff lacked standing because the "called party" for TCPA purposes was the "intended recipient" of the call. The phrase "intended recipient" did not appear anywhere in the TCPA. The regular user of a cellular telephone had standing to bring a claim under the TCPA, regardless of whether he was responsible for paying the bill. Olney v. Progressive Casualty Insurance Co. is at ¶100-651.

FTC settlement warns against lead-generated call lists
The Federal Trade Commission, with the assistance of the Department of Justice, has reached a $3.4 million settlement of a complaint against a Massachusetts-based home security company—Versatile Marketing Solutions (VMS)—that illegally called millions of consumers on the FTC’s National Do Not Call Registry to market home security systems.  According to the FTC’s complaint, VMS bought phone numbers from “lead” generator companies that blasted illegal robocalls and fake home security survey calls to identify homeowners who didn’t already have a security system installed in their homes, in violation of the FTC’s Telemarketing Sales Rule. VMS then called those people to sell them home security monitoring services despite two important facts: their phone numbers were on the National Do Not Call Registry, and none of them had given VMS written permission to call. This story is in Report No. 153, March 20, 2014.

Hearing focuses on protecting financial information
In light of several recent high-profile thefts of consumer financial information, a House Financial Institutions and Consumer Credit Subcommittee hearing focused on why and how these data breaches occur; what happens during and after a breach; what security measures are in place to prevent breaches; and what types of payment system technologies are on the horizon that will help reduce the risk of future breaches. This story is in Report No. 153, March 20, 2014.