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On October 5th, the CFPB finalized its long-awaited payday lending rule, reportedly five years in the making. The final rule is substantially similar to the proposal the Bureau issued last year. However, the Bureau decided not to finalize requirements for longer-term high-cost installment loans, choosing to focus only on short-term loans and longer-term loans with a balloon payment feature.

The final rule will be become effective in mid-summer 2019, 21 months after it is published in the Federal Register (except that provisions facilitating “registered information systems” to which creditors will report information regarding loans subject to the new ability-to-repay requirements become effective 60 days after publication).

The final rule identifies two practices as unfair and abusive: (1) making a covered short-term loan or longer-term balloon payment loan without determining that the consumer has the ability to repay; and (2) absent express consumer authorization, making attempts to withdraw payments from a consumer’s account after two consecutive payments have failed. Continue Reading CFPB’s Final Payday Lending Rule: The Long and Short of It

The ABA Business Law Section is holding its 2017 Annual Meeting in Chicago next week and will offer over 90 CLE programs and many more committee meetings and events.

Mayer Brown’s Financial Services Regulatory & Enforcement (FSRE) partner David Beam (Washington DC) will moderate a panel on payment network rules and their impact in the marketplace. FSRE partner Melanie Brody (Washington DC) will participate on a panel on how fintech is changing the way consumer credit offerings work.

FSRE associate Matthew Bisanz (Washington DC) will co-moderate, and FSRE partner Stephanie Robinson (Washington DC) will participate on, a panel discussing innovative enforcement techniques being employed by bank regulators and how the industry can adapt to them. FSRE associate Eric Mitzenmacher (Washington DC) will participate on a panel on bank technology services and marketplace lending developments.

Mayer Brown’s Government Relations partner Mitchell Holzrichter (Chicago) will participate on a panel discussing the life-cycle of public-private partnership projects.

For more information, please visit the event webpage.

Pay-by-phone fees continue to attract the Consumer Financial Protection Bureau’s attention. Compliance Bulletin 2017-01, issued on July 27, 2017, indicates that the following acts or practices may constitute unfair, deceptive, or abusive acts or practices (“UDAAP”) or contribute to the risk of committing UDAAPs:

  1. Failing to disclose the prices of all available phone pay fees when different payment options carry materially different fees;
  2. Misrepresenting the available options or that a fee is required to pay by phone;
  3. Failing to disclose that a phone pay fee would be added to a consumer’s payment, which could create the misimpression that there is no service fee; and
  4. Lack of employee monitoring or service provider oversight, which may lead to misrepresentations or failure to disclose available options and fees.

The Bureau has previously raised concerns about phone pay fees. In a 2014 enforcement action, the Bureau and the Federal Trade Commission alleged that a mortgage servicer engaged in deceptive acts or practices by misrepresenting that the only payment method consumers could use to make timely payments was a particular method that required a convenience fee. In 2015, the Bureau took action against a bank for allegedly misrepresenting that a phone pay fee was a processing fee rather than a fee to enable the payment to post on the same day. The bank also allegedly failed to disclose other no-cost payment options. This week’s Bulletin 2017-01 suggests that companies should disclose such fees in writing to consumers, as opposed to relying solely on phone representatives to  explain the fees to consumers.

Bulletin 2017-01 also reiterates that certain practices in connection with phone pay fees may conflict with the Fair Debt Collection Practices Act (“FDCPA”). For example, Bureau examiners have found alleged violations of the FDCPA where the underlying consumer debt contract did not expressly permit the charging of phone pay fees and where the applicable state law was silent on the fees’ permissibility. The Bureau indicated last year that it may propose rules under the FDCPA to clarify that debt collectors may charge convenience fees only where state law expressly permits them or the consumer expressly agreed to them in the contract that created the underlying debt.

The Bulletin recommends that companies review their phone pay fee practices, including reviewing applicable state and federal laws, underlying debt contracts, service provider procedures, other consumer-facing materials, consumer complaints, and employee incentive plans for potential risks.

The Consumer Financial Protection Bureau (CFPB) marks its fifth birthday having made a substantial mark on the consumer financial services marketplace. To mark this event, we have compiled a retrospective of the CFPB’s first five years. The retrospective provides an overview of the CFPB’s actions in the realms of rulemaking, supervision, and enforcement. While it would be difficult to chronicle all of the CFPB’s activities over that period, the articles in the retrospective provide a snapshot of the rules the CFPB has written or proposed, the supervision program it has implemented, and the enforcement actions it has taken across the landscape of consumer financial services. Some of the articles appeared previously on this blog, others appeared as Mayer Brown Legal Updates, and many are new analyses or summaries of the CFPB’s actions.  Read the retrospective, available here.

 

Tomorrow the CFPB will issue an interim final rule that will increase the maximum amount of civil penalties that the CFPB and certain other enforcers can obtain for various consumer protection violations.  The maximum amount for most CFPB civil penalties will increase by about 8%.

A budget bill passed last year instructed federal agencies, including the CFPB, to make a one-time “catch-up” inflation adjustment to the civil penalties that they impose, based on the Consumer Price Index (CPI) in October of the “year during which the amount of such civil monetary penalty was established or [last] adjusted….”  This will be followed by regular inflation adjustments by January 15 of every year.

Most CFPB civil penalties for violations of the various laws that the CFPB administers are assessed under Section 1055(c) of the Dodd-Frank Act.  Because the Dodd-Frank Act was enacted in 2010, the CFPB takes the position that the baseline for the “catch up” should be the CPI in October 2010.  This will result in an 8.475% increase, meaning that that maximum amount will be $5,437 for any “Tier 1” violation; $27,186 for any “Tier 2” violation, which requires recklessness; or $1,087,450 for any “Tier 3” violation, which requires knowledge.  These amounts are calculated “for each day during which such violation continues.”  The CFPB is also adjusting certain other civil penalty authorities that are less commonly used.

Notably, the interim final rule provides that the adjustments “shall apply to civil penalties assessed after [the effective date], regardless of when the violation for which the penalty is assessed occurred.”  The effective date is scheduled to be July 14, 2016.  Thus, the CFPB takes the position that the increased civil penalties will be available for violations that have already occurred, even if they occurred several years ago.

On June 2, 2016, the CFPB proposed new ability-to-repay and payment processing requirements for short-term and certain longer-term consumer loans.  Relying largely on the CFPB’s authority to prohibit unfair or abusive practices, the proposal would generally require that lenders making payday, vehicle title, and certain high-rate installment loans either originate loans satisfying strict product characteristic limitations set by the rule or make an ability-to-repay determination based on verified income and other information.

To facilitate the ability-to-repay determination, the CFPB is also proposing to establish special “registered information systems” to which lenders would have to report information about these loans.  In addition, servicers would have to obtain new payment authorizations from consumers after making two consecutive unsuccessful attempts at extracting payment from consumer accounts, and would be subject to new disclosure requirements related to payment processing. Continue Reading CFPB Proposes Underwriting and Payment Processing Requirements for Payday, Title, and High-Rate Installment Loans