In a decision expressly based on the novelty of the legal claims brought by the Consumer Financial Protection Bureau (CFPB), a federal district court has rejected the CFPB’s broad demand for consumer restitution and civil money penalties in a case that has already produced several important rulings. The case represents the second time that a federal district judge has rejected the CFPB’s expansive view of remedies following a bench trial. The CFPB’s loss suggests that parties willing to litigate against the CFPB may achieve success even if they lose on the merits, as courts appear reluctant to award the robust remedies the CFPB typically demands, particularly in cases where the CFPB’s claims do not sound in fraud or are based on novel legal theories. Continue Reading District Court Rejects CFPB Restitution and Penalty Demand
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
Dealing the Consumer Financial Protection Bureau (CFPB) another setback, on April 21, 2017, the DC Circuit Court of Appeals refused to enforce a Civil Investigative Demand (CID) issued by the CFPB. The decision is likely to have broad implications for how the CFPB identifies the nature and scope of its investigations in its CIDs, which to date have provided investigation subjects with little information about the nature of the CFPB’s concerns. More precisely defined investigations could provide significant benefits to CID recipients, as well as establish a basis to challenge the requests set forth in CIDs. To learn more about the ruling and its implications, read our Legal Update.
On January 20, the Ninth Circuit handed the Consumer Financial Protection Bureau (CFPB) a victory in one of the first cases challenging the CFPB’s investigative authority — although that victory seems tied to the particular facts of the case.
The court held that the CFPB has the authority to investigate the activities of for-profit, small-dollar lenders created by three Indian tribes (the Tribal Lending Entities). Given the unique facts of the case, however, the decision may provide scant guidance for the other pending cases challenging the CFPB’s authority to issue administrative subpoenas known as Civil Investigative Demands (CIDs).
The case before the Ninth Circuit involved CIDs issued to the Tribal Lending Entities as part of an investigation into whether small-dollar online lenders were violating federal consumer financial laws. Unlike the other pending challenges to the CFPB’s investigative authority, the Tribal Lending Entities did not claim that the nature of their activities (lending money) was outside the scope of the CFPB’s authority. Instead, they argued that the CFPB’s investigative powers – which are limited to sending CIDs to “persons” – did not authorize the agency to send such demands to tribal entities. The Ninth Circuit disagreed. Continue Reading Ninth Circuit Affirms CFPB Authority to Investigate Tribal Lenders
Claims brought by the Consumer Financial Protection Bureau (CFPB) alleging that a company engaged in deceptive conduct must be accompanied by specific factual allegations or face dismissal, according to a ruling by a federal judge in the Central District of California. Because the Central District of California is a favorite forum of the CFPB’s and allegations of deceptive conduct are a common claim brought by it, the decision may have long-term implications for how the CFPB pleads its cases, which cases it brings and where it brings them. To learn more about the ruling and its implications, read our Legal Update.
A federal district court in California handed the Consumer Financial Protection Bureau (CFPB) a big win on Wednesday, August 31, 2016, granting the agency summary judgment on liability in its lawsuit against CashCall, Inc., its affiliated entities and its owner. In a 16-page decision and order, the US District Court for the Central District of California ruled that CashCall engaged in deceptive practices by servicing and collecting on loans in certain states where the interest rate on the loans exceeded the state usury limit and/or where CashCall was not a licensed lender. The decision represents an additional judicial touchpoint on the important question of who is a “true lender” in a transaction and validates, at least for now, the CFPB’s theory that collecting on loans that state law renders void and/or uncollectable constitutes a violation of federal law. Read more about the decision in Mayer Brown’s Legal Update, available here.
On Tuesday, August 2, 2016, at 2:00pm EDT, Mayer Brown and Paybefore.com will present a webinar on the CFPB’s actions against payment processors for allegedly facilitating illegal transactions by their clients. The presenters will be Mayer Brown attorneys David Beam, Ori Lev, and Jeremy McLaughlin, and the moderator will be Paybefore’s Evan Schuman. The webinar will discuss the CFPB’s enforcement actions against payment processors, explain the factors that led the CFPB to conclude that the payments companies were culpable, and discuss practical steps companies can take to avoid the same fate.
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.
The Consumer Financial Protection Bureau (CFPB) has teed up another D.C. Circuit battle regarding the scope of its authority. On Monday, June 13, the CFPB filed a notice of appeal of the district court’s decision to dismiss the CFPB’s petition to enforce a Civil Investigative Demand (CID) issued to the Accrediting Council for Independent Colleges and Schools (ACICS). A CID is akin to an administrative subpoena, which the CFPB is authorized to issue as part of its investigative authority. The CFPB had issued a CID to ACICS as part of an investigation whose purpose was to determine whether any person (presumably including ACICS) had engaged in unlawful practices “in connection with accrediting for-profit colleges” in violation of the Dodd-Frank Act’s prohibition on unfair, deceptive and abusive acts and practices (UDAAP). The UDAAP prohibition, however, is generally only applicable to those persons who provide consumer financial products or services, or those who knowingly or recklessly provide substantial assistance to a UDAAP violation. ACICS moved to dismiss the petition, arguing that the CFPB’s investigation was outside the agency’s jurisdiction, since ACICS did not provide consumer financial products or services. The CFPB argued that ACICS’ accreditation of for-profit schools may have substantially assisted those schools in committing unfair, deceptive or abusive acts or practices in connection with their lending programs. The district court agreed with ACICS, finding that the CFPB’s investigation of the accreditation process was outside the scope of the agency’s authority, and dismissed the petition. Now that the CFPB has appealed the district court’s decision, the D.C. Circuit will have an opportunity to opine both on the scope of the agency’s investigative authority and its jurisdiction.
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