Financial Services Law

The Bureau of Consumer Financial Protection (CFPB or Bureau) may have changed its name under Acting Director Mick Mulvaney, but its recent enforcement action against a small-dollar lender in Tennessee makes it look just like the old CFPB.

In other CFPB news, the Bureau released a 50-state snapshot of consumer complaints, received more objections to its disclosure sandbox proposal and announced its reconsideration of the already long-delayed Payday Loan Rule.

What happened

Enforcement redux—Looking much like the old CFPB, the Bureau settled an enforcement action with a Tennessee-based small-dollar lender that included both restitution and a civil monetary penalty. The lender, which offers high-cost, short-term loans as well as check-cashing services, owns and operates 328 retail lending outlets in Alabama, Kentucky, Mississippi and Tennessee.

The consent order notes that the lender violated the Consumer Financial Protection Act (CFPA) by sending collection letters threatening borrowers with legal action even where the applicable statute of limitations to collect the debt was expired, the CFPB said.

The lender also allegedly misrepresented that it might report negative credit information to consumer reporting agencies for late or missed payments even though it did not actually report any such information. In addition, it allegedly withheld funds during check-cashing transactions to satisfy outstanding amounts on prior loans without disclosing the practice to borrowers prior to the transaction, the CFPB said.

Pursuant to the consent order, the lender is prohibited from misrepresenting its consumer reporting activities and its intention (or likelihood) of filing suit to collect a debt; deducting money from check-cashing transactions is also prohibited unless certain conditions—including adequate disclosures—are met. The lender must also pay roughly $32,000 to consumers (representing payments made by borrowers for time-barred debts during the relevant period) as well as a $200,000 civil money penalty to the Bureau.

Snapshot—Collecting consumer complaints since January 1, 2015, the CFPB released a “Complaint snapshot: 50 state report,” summarizing the 494,540 complaints received through June 2018 (an average of 27,000 complaints per month from January 2017 through June 2018).

Highlights include the states with the most complaints (California took the top spot, followed by Florida, Texas, New York and Georgia) and the most popular type of complaint (attempts to collect debt not owed, incorrect information on credit or consumer reports, trouble encountered in the process of making mortgage payments, problems with credit card purchases shown on statements, and issues managing checking or savings accounts).

The Bureau also received more objections to its plans for a disclosure sandbox. The proposed policy would allow the CFPB to deem a covered entity conducting a trial disclosure program to be in compliance with or exempt from a requirement of a Bureau rule or certain federal laws.

But following in the footsteps of consumer groups, a coalition of 12 state attorneys general submitted a comment urging the Bureau to withdraw or substantially modify its proposal, arguing that the program would decrease transparency and potentially enable financial services companies to evade compliance with consumer protection laws.

“The proposed Disclosure Sandbox allows the Bureau to broadly grant waivers for any specified reason, with minimal to no consumer safeguards, without transparency, and for potentially indefinite periods of time,” the AGs of California, the District of Columbia, Illinois, Iowa, Maryland, Massachusetts, New Jersey, North Carolina, Oregon, Pennsylvania, Virginia and Washington wrote. “In its current form, the proposed Disclosure Sandbox appears to be nothing more than a broad safe harbor from federal disclosure law and not a program designed to supplement and improve upon the Bureau’s disclosure regulations.”

Payday delays—Finally, the CFPB announced its plans to reconsider the Payday, Vehicle Title and Certain High-Cost Installment Loans Rule, saying it would issue a proposal in January 2019. “The Bureau will make final decisions regarding the scope of the proposal closer to the issuance of the proposed rules,” according to the statement.

“However, the Bureau is currently planning to propose revisiting only the ability-to-repay provisions and not the payments provisions, in significant part because the ability-to-repay provisions have much greater consequences for both consumers and industry than the payment provisions.”

The current rule, promulgated in October 2017, declares it an “unfair and abusive practice” for any lender to make covered short-term or longer-term balloon payment loans before reasonably determining that consumers have the ability to repay the loans according to their terms.

Two industry groups challenged the rule, arguing that the CFPB failed to comply with the Administrative Procedures Act when the rule was promulgated. In May, the parties filed a joint request asking a Texas federal court to stay both the case and the rule itself, which is set to take effect August 19, 2019.

The court granted the motion with regard to staying the litigation due to the Bureau’s pending reconsideration of the rule, but it denied the motion to stay the compliance date.

To read the consent order, click here.

To read the complaint snapshot, click here.

To read the AGs’ letter, click here.

To read the statement on reconsideration of the Payday, Vehicle Title and Certain High-Cost Installment Loans Rule, click here.

Why it matters

For all the talk about CFPB changes under Acting Director Mulvaney’s leadership, the enforcement action against a Tennessee lender takes a page out of the early Bureau’s playbook, with a fairly stiff restitution remedy for a relatively small number of consumers. While the CFPB has plainly pursued far fewer enforcement actions, where it does perceive abuses, the Bureau is still willing to take an aggressive posture.



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