Category: UDAAP

1
Financial Choice Act Moves to the House Floor
2
FDIC Economic Inclusion Summit A Good Reminder of Fair and Responsible Banking Practices
3
Will Assignee Liability Increase as FTC Seeks Comments on the Holder Rule?
4
Splitting the Baby — CFPB Pursues Aggressive Statute of Limitations Argument but Effectively Concedes Limits to Its Authority
5
CashCall Revisited (Again): The CFPB’s Continued Federalization of State Law
6
What’s Driving the CFPB’s Latest Administrative Enforcement Action?
7
UDAAP Round Up: 2014 Year in Review
8
State Enforcement of the Consumer Financial Protection Act: State Lawsuits Offer a Sign of What’s to Come
9
What’s the Deal With the CFPB and Bitcoin?
10
Commonwealth of Massachusetts v. FHFA: Fremont Meets The Federal Government

Financial Choice Act Moves to the House Floor

By Daniel F. C. CrowleyBruce J. HeimanWilliam A. KirkKarishma Shah PageMark A. Roszak and Eric A. Love

On May 4, the House Financial Services Committee (“HFSC”) concluded its three-day markup of H.R.10, the Financial Choice Act (“FCA”), a bill to reform the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). The HFSC reported the bill favorably to the full House by a vote of 34-26. All 19 Democratic amendments were rejected on party-line votes. Republicans did not offer any amendments but focused their efforts on raising concerns about the extent to which Dodd-Frank has stifled economic growth and put taxpayer money at risk. Committee members debated a number of the more controversial provisions of the FCA, including Title VII to restructure the Consumer Financial Protection Bureau (“CFPB”) and remove its unfair, deceptive, or abusive acts or practices (“UDAAP”) authority; Section 841 to repeal the Department of Labor’s conflict of interest-fiduciary duty rule; Section 111 to repeal the Federal Deposit Insurance Corporation’s (“FDIC”) Orderly Liquidation Authority; Title IX to repeal the Volcker Rule; and numerous reforms to the Securities and Exchange Commission’s (“SEC”) shareholder proxy voting rules.

To read the full alert, click here.

FDIC Economic Inclusion Summit A Good Reminder of Fair and Responsible Banking Practices

By Soyong Cho

Yesterday, the FDIC hosted a day-long Economic Inclusion Summit that brought together stakeholders in private industry, the government, and non-profit organizations to discuss strategies to expand credit to under-served communities. Speakers stressed the need to understand the personal and financial challenges facing low- and moderate-income (“LMI”) populations in order to more effectively design products and marketing channels to reach LMI communities. Leveraging big data and technology were identified as key factors to reducing costs and profitably serving LMI customers.

Banks are of course rated on their outreach initiatives to under-served communities under the Community Reinvestment Act (“CRA”), but profitably expanding their customer base is also good business. The FDIC’s Summit serves as a reminder of the established programs, partnerships, and networks that exist to assist banks to meet their CRA obligations. However, it is also a good reminder that banks must be sensitive to the regulatory compliance and other risks attendant with marketing to and servicing LMI communities in particular, as even the best intentions can be undermined by flawed implementation or unclear regulatory guidance. Among others, UDAAP, fair lending, and privacy issues should be considered in all phases of product development and delivery. In the coming months, K&L Gates will be hosting a series of webinars focused on the nuts and bolts of consumer protection compliance.

Will Assignee Liability Increase as FTC Seeks Comments on the Holder Rule?

The “Adam’s Rib” of assignee liability ̶ the “Holder Rule” issued by the Federal Trade Commission (“FTC”) in 1976 ̶ is up for review. Imposing liability on innocent purchasers of consumer credit loans for the legal violations of the originating creditors has long been a controversial issue in the capital markets. The FTC is seeking public input as it reviews the Trade Regulation Rule Concerning Preservation of Consumers’ Claims and Defenses, commonly known as the Holder Rule. Although the Rule has not garnered significant attention over its 40-year existence, industry members should consider commenting by the February 12 deadline. Changes to the Holder Rule, including the scope and types of claims and defenses that can be asserted against a holder, could have a material impact on the market. The Consumer Financial Protection Bureau can also enforce the Holder Rule against covered institutions.

Splitting the Baby — CFPB Pursues Aggressive Statute of Limitations Argument but Effectively Concedes Limits to Its Authority

Last month, we wrote about how the Consumer Financial Protection Bureau’s (CFPB) administrative enforcement action against Integrity Advance might signal that the agency believes it can pursue claims of unfair and deceptive conduct without regard to either the statute of limitations or the effective date of the Dodd-Frank Act. In a brief made public yesterday, the CFPB revealed its hand when it filed its opposition to Integrity Advance’s motion to dismiss. In its brief, the CFPB indeed asserted that its administrative enforcement authority is not limited by any statute of limitations. But the CFPB did not seek to pursue its claims for conduct that occurred before the July 21, 2011 effective date of Dodd-Frank.

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CashCall Revisited (Again): The CFPB’s Continued Federalization of State Law

Last August, we wrote about the Consumer Financial Protection Bureau’s (CFPB) complaint against NDG Financial Corp. and how it represented a continuing evolution of the CFPB’s theory that certain state law violations might be predicates for federal law claims of unfair, deceptive, and abusive conduct (UDAAP). We refer to this as the “CashCall theory,” because the CFPB first articulated this novel approach to UDAAP enforcement in its complaint against CashCall, Inc. In December, the CFPB took two more steps down this road.

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What’s Driving the CFPB’s Latest Administrative Enforcement Action?

The Consumer Financial Protection Bureau’s (CFPB) latest enforcement action suggests that the CFPB may seek to use its administrative enforcement authority to pursue claims of unfair or deceptive conduct that would otherwise be time-barred and that pre-date the agency’s formation. The CFPB Director’s ultimate decision on these issues—and any court decisions that may result from any appeal—are likely to have widespread implications for the agency’s enforcement powers.

On November 18, the CFPB filed a Notice of Charges (essentially an administrative complaint) against Integrity Advance, LLC and its CEO and president, James R. Carnes. The Notice of Charges, which was made public last week, alleges that from May 15, 2008 through December 2012, Integrity Advance and Carnes engaged in unfair and deceptive conduct, and that Integrity Advance also committed violations of the Truth in Lending Act (TILA) and the Electronic Funds Transfer Act (EFTA) in the origination of online payday loans.

UDAAP Round Up: 2014 Year in Review

By: Soyong Cho, Stephanie C. Robinson, Anjali Garg, Christopher E. Shelton, Kathryn M. Baugher

In the last few years, the consumer financial services industry has increasingly faced the new darling tool of government enforcers — the prohibition of unfair or deceptive acts or practices (“UDAP”) found in Section 5 of the FTC Act and the prohibition of unfair, deceptive, or abusive acts or practices (“UDAAP”) found in Section 1031 of the Dodd-Frank Act. In 2014 alone, federal regulators resolved approximately 50 UDAP/UDAAP cases involving various forms of consumer financial services. These settlements resulted in over $2.5 billion in civil money penalties and consumer redress.

In this report, we provide a detailed view of the specific acts and practices that were challenged as unfair, deceptive, or abusive in 2014. We also include a summary of formal and informal UDAP/UDAAP guidance issued in the past year. Taken together, this compendium is a useful introduction for consumer financial services companies interested in evaluating and mitigating their UDAP/UDAAP risk.

To read the report, click here.

State Enforcement of the Consumer Financial Protection Act: State Lawsuits Offer a Sign of What’s to Come

By: Melanie Brody and Anjali Garg

At the end of 2014, the New York Department of Financial Services (“DFS”) became the first state regulator to settle a case using its authority to enforce the federal Consumer Financial Protection Act (“CFPA”).[1] In Benjamin M. Lawsky, Superintendent of Financial Services of the State of New York v. Condor Capital Corporation and Stephen Baron,[2] the DFS claimed that indirect auto lender Condor Capital Corporation (“Condor”) and its sole shareholder, Stephen Baron, violated both New York State law and the CFPA’s prohibition on unfair, deceptive, or abusive acts or practices (“UDAAP”) by, among other matters, overcharging consumers and deceptively retaining credit balances due to them. The settlement requires Condor and Baron to admit to New York and federal violations, pay an estimated $8-9 million in restitution and pay a $3 million penalty, and surrender all of Condor’s state lending licenses.

To read the full alert, click here.

What’s the Deal With the CFPB and Bitcoin?

By: David L. Beam

The Consumer Financial Protection Bureau just released an advisory for consumers on digital currencies (a.k.a. “virtual currencies”) like Bitcoin. But the thing that’s most extraordinary about the advisory on digital currency is what it doesn’t say. Read More

Commonwealth of Massachusetts v. FHFA: Fremont Meets The Federal Government

By: Irene C. Freidel

On June 2, 2014, the Commonwealth of Massachusetts sued the Federal Housing Finance Agency (FHFA), Fannie Mae, and Freddie Mac in state court, under Massachusetts’ consumer protection statute (“Chapter 93A”) to force them to sell foreclosed properties to non-profit organizations at fair market value, so that the properties can then be re-sold or leased back to the former homeowner. See Commonwealth of Massachusetts v. Federal Housing Finance Agency, et al., C.A. No. 14-1763 (June 2, 2014). Among other things, the lawsuit seeks a declaration that the GSEs’ current anti-fraud guidelines violate Massachusetts foreclosure law (M.G.L. c. 244, § 35C(h)), an order requiring property sales to non-profits in specific transactions, an injunction to prevent the GSEs from refusing to adhere to Massachusetts law, and an award of penalties of up to $5,000 for each transaction that the court determines constituted an unfair and deceptive practice under state law. The lawsuit follows a series of communications between the Massachusetts Attorney General and FHFA beginning in 2012 in which the state has demanded that FHFA direct the GSEs to change their anti-fraud “arms-length” requirements that apply to short sales and REO transactions. Read More

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