CFPB News This Week

Biden Asks Supreme Court to Overturn Fifth Circuit’s CFPB Ruling

The Biden Administration on Monday asked the U.S. Supreme Court to overturn an appeals court decision that found that the CFPB’s funding scheme was unconstitutional.

Inside the Petition
“The CFPB’s critical work administering and enforcing consumer financial protection laws will be frustrated,” the administration wrote. “And because the decision below vacates a past agency action based on the purported Appropriations Clause violation, the decision threatens the validity of all past CFPB actions as well.”

Other federal agencies are funded outside the annual appropriations process, according to the administration. “The court of appeals’ novel and ill-defined limits on Congress’s spending authority contradict the Constitution’s text, historical practice, and this Court’s precedent,” the petition states.

Further, administration officials added, “The CFPB’s funding mechanism is entirely consistent with the text of the Appropriations Clause, with longstanding practice, and with this Court’s precedent.”

Additional Support for the CFPB
Biden Administration officials not the only ones blasting the Fifth Circuit and its ruling. During a Senate Banking Committee hearing featuring banking regulators, Sen. Elizabeth Warren, D-Mass., called the Fifth Circuit “the Republicans’ go-to court.” Warren, who is credited with developing the idea of the consumer bureau, said that Congress created independent funding structures for bank regulators to insulate them from political pressure.

Under questioning by Warren, each of the banking regulators—including NCUA Chairman Todd Harper—acknowledged that their agencies are funded outside the appropriations process. The NCUA, for instance, is funded by fees paid by credit unions. READ MORE

---

The CFPB Finalizes Rule to Increase Transparency Regarding Key Nonbank Supervision Tool

Today, we finalized changes to our nonbank supervision procedural rule. The changes will provide transparency to the public about how we are using an important supervisory tool to keep pace with fast-moving consumer finance markets.

Based on public comments, in this final version of the procedures, we are clarifying the standard we will apply to decide what information is appropriate for public release. We are also extending the amount of time that is available to the nonbank entity to provide us with input about what information we should release.

Agility in Nonbank Supervision

The Consumer Financial Protection Act (CFPA) enables the CFPB to supervise a nonbank covered entity that we have reasonable cause to determine is engaging, or has engaged, in conduct that poses risks to consumers with regard to consumer financial products or services.

This statutory authority gives the CFPB’s supervision program the ability to move as quickly as the marketplace. For instance, fast-growing companies in nontraditional areas of the consumer finance market may be engaged in novel activities that warrant supervisory attention. There can also be supervisory gaps in more traditional areas of the market that ought to be filled. Through the supervisory process, CFPB examiners can work with the company in question to fully understand and manage its risks.

When we make a determination that supervision is warranted, our focus is on identifying risks to consumers, preferably before they manifest in violations of law or consumer harm. READ MORE

---

CFPB Reports Highlight Problems with Tenant Background Checks

Errors and false information in tenant background checks raise costs and barriers to quality rental housing.

CFPB issued two reports on the tenant background check industry. The reports describe how errors in these background checks contribute to higher costs and barriers to quality rental housing. Too often, these background checks – which purport to contain valuable tenant background information – are filled with largely unvalidated information of uncertain accuracy or predictive value. While renters bear the costs of errors and false information in these reports, they have few avenues to make tenant screening companies fix their sloppy procedures. The CFPB’s analysis of more than 24,000 complaints highlighted the renter challenges associated with the industry’s failures to remove wrong, old, or misleading information and to provide adequate investigations of disputed information.

The tenant background check industry creates reports that include extensive personal information, such as credit history, civil and criminal records, and credit scores, as well as the proprietary risk scores on which many landlords and property management companies base their decision to rent to a prospective tenant. The CFPB’s report on the state of the tenant screening market is an analysis of industry research, legal cases, academic research, the CFPB’s market monitoring, and other third-party sources. The CFPB’s consumer snapshot analyzes more than 24,000 complaints and results from focus groups with 44 renters.

Both reports reveal that people are denied rental housing because negative information is reported that belongs to someone else; outdated information remains on reports; and inaccurate or misleading details about arrests, criminal records, and eviction records are not corrected nor removed from reports. The consumer snapshot reveals that renters submitted more than 16,000 complaints about incorrect information on their reports and another 4,500 complaints about obstacles faced trying to get companies to fix their errors. READ MORE

---

CFPB Takes Action Against Carrington Mortgage for Cheating Homeowners out of CARES Act Rights

Company wrongly charged fees and inaccurately reported homeowner credit information despite pandemic-era housing protections.

The CFPB investigated Carrington and found they violated the Consumer Financial Protection Act when they misrepresented the requirements of the CARES Act and related federal agency guidelines. The company misrepresented to borrowers that they could not have 180 days of forbearance upon request and that certain borrowers could not have forbearance at all. Carrington also implied that homeowners had to make more detailed attestations than were actually required by law, and the company imposed late fees when they were not permitted.

Specifically, the CFPB found that Carrington:

• Wrongly charged late fees: Carrington deceived certain borrowers, stating they were required to pay late charges they did not owe while their accounts were in forbearance. Carrington also falsely told borrowers in forbearance that they would “be assessed” or had “been assessed” late charges. In some cases, Carrington did wrongfully charge late fees.
• Repeatedly provided false information about pandemic protections: Carrington told certain homeowners that they were required to remit their monthly payments “immediately” and could be facing foreclosure proceedings if they did not do so. In fact, no payment was required nor could the homeowners face foreclosure proceedings. The company also misrepresented to homeowners that they needed to provide specific reasons in order to obtain a forbearance when they only needed to attest to financial hardship during the pandemic. Carrington also told homeowners that to get a forbearance of more than 90 days, they had to make another request after the first 90 days.
• Botched homeowners’ credit reports: Carrington illegally furnished information to consumer reporting companies that certain borrowers’ accounts were delinquent, rather than current, even though the homeowners’ accounts were current entering forbearance. Carrington also inaccurately furnished reports on the delinquency of certain homeowners in forbearance who were delinquent at the time they entered forbearance. Carrington failed to promptly notify the big three credit reporting companies about the errors.

READ MORE

Complementary Webinar 

---

The 5^th Circuit’s Decision on the CFPB’s Funding: What Does it Mean for the Bureau and are there Implications for NCUA and other Federal Agencies?

Join us in a discussion with our friends from the Manatt, Phelps & Phillips law firm about the implications of the 5^th Circuit Court of Appeals decision in Community Financial Services Association of America v. Consumer Financial Protection Bureau, ruling that the CFPB’s independent funding structure is unconstitutional.

During this live webinar, we will walk through what was at issue in the case, what the court actually said, and what it means for the CFPB now.

We will also discuss the broader implications of the court’s ruling concerning the future of the CFPB and the scope of its delegated authority, and what the ruling could mean for other agencies, such as the NCUA, that also do not go through the Congressional appropriations process.

Guest speakers include:

• Scott Pearson, Partner, Manatt, Phelps & Phillips
• Bryan Schneider, Partner, Manatt, Phelps & Phillips
• Mehul Madia, Counsel, Manatt, Phelps & Phillips

Registration is unlimited. This webinar is free of charge.

---

For more background, see this article from the attorneys at Manatt:
https://www.manatt.com/insights/newsletters/financial-services-law/lights-out-fifth-circuit-finds-cfpbs-funding-mech

Federal Reserve’s Michael Barr highlights priorities in initial public remarks

Sept. 7, 2022—The Federal Reserve’s new regulatory chief said Wednesday that the central bank is considering how to more-closely scrutinize bank mergers and may beef up the way it requires certain banks to plan for their own demise.

Read Barr’s entire remarks here “Making the Financial System Safer and Fairer”

The remarks from Fed Vice Chairman Michael Barr, his first in public since taking office July 19, suggest a more aggressive approach to overseeing Wall Street than his Republican predecessor Randal Quarles.

Mr. Barr said he aims to evaluate how the Fed reviews proposed bank tie-ups and to assess “where we can do better,” speaking at an event hosted by the Brookings Institution, a Washington think tank.

The remarks are consistent with those from others made by the Biden administration and its top regulators, who are seeking to address concerns that the steady growth of the nation’s largest regional banks has introduced new risks to the financial system. While these firms might lack the vast trading floors and international operations of megabanks such as JPMorgan Chase & Co. and Bank of America Corp., the biggest regionals’ balance sheets are now approaching the size of some of so-called systemically important banks.

The push to revamp the way regulators assess the mergers of large banks is in its early stages but could make bank tie-ups more difficult.

“These risks may be difficult to assess, but this consideration is critical to assess how we are performing merger analysis and where we can do better,” Mr. Barr said Wednesday.

The remarks were being closely watched by banks and officials to get a sense of Mr. Barr’s priorities.

He spoke about so-called living wills, or plans for banks to wind themselves down in a crisis without a government bailout. Mr. Barr said regulators need to continue to analyze whether firms are taking “all appropriate steps to limit the costs to society of their potential failure.” He also warned about the so-called resolvability of some larger regional banks that have grown in size and in importance to the financial system.

Mr. Barr’s remarks didn’t go into detail on whether he plans to alter bank capital and liquidity levels through changes to the central bank’s rulebook or its annual “stress tests,” which aim to determine how large lenders would react to drastic market and economic shock.

Still, he suggested he was looking at ways to beef up stress tests, the value of which some critics say has eroded over time, becoming less stressful for banks. “The stress tests need to continue to evolve,” Mr. Barr said. “They’re supposed to be stressful. They’re supposed to be tough. And I want to make sure that they are that way.”

He said he would have more to say about certain bank-capital requirements in the fall. Mr. Barr has previously said he wants to get a broad view of requirements before pushing for adjustments to rules piece by piece.

Industry groups, such as the Bank Policy Institute and the Financial Services Forum, had no immediate comment on Mr. Barr’s remarks.

Mr. Barr’s supervision role is the government’s most influential bank overseer, responsible for developing a vision for the regulation of big banks and other financial firms. That includes developing policy recommendations for the Fed board and for overseeing its regulatory staff, which supervises some of the largest U.S. financial firms, including JPMorgan, Bank of America and Citigroup Inc.

Mr. Quarles, who previously held the Fed supervision post, focused on simplifying financial regulations enacted after the 2008-09 financial crisis. Supporters say those moves clarified or better calibrated the central bank’s rules. Some Democrats say they significantly softened the impact of the Wall Street rulebook. Mr. Quarles left the Fed in December.

At the event, Mr. Barr also addressed monetary policy. He said inflation was too high and that the Fed was committed to bringing it down. Acknowledging that the Fed’s rate increases risk a further slowdown to the economy—and even some pain—he said it is far worse to let “inflation continue to be too high.”

He didn’t specify how high the Fed’s benchmark interest rate should rise.

Mr. Barr was the last of President Biden’s slate of five appointees to the central bank. Fed Chairman Jerome Powell and three other appointments were confirmed in recent months.

Formerly a dean of public policy at the University of Michigan, Mr. Barr also served in the Treasury Department during the Clinton and Obama administrations, including as a top lieutenant to then-Treasury Secretary Timothy Geithner. Mr. Barr played a role as an architect of the 2010 Dodd-Frank financial overhaul, including the law’s creation of the Consumer Financial Protection Bureau.

Courtesy Andrew Ackerman, Wall Street Journal

The Consumer Financial Protection Bureau is taking heat from banks and credit unions over its proposal to limit increases in credit card late fees that would otherwise increase because of rising inflation.

August 05, 2022 — Banks and credit unions are pushing back hard against an effort by the Consumer Financial Protection Bureau to put a halt to a roughly 9% hike next year in credit card late fees pegged to inflation.

The issue has been moot for years because inflation has been so low. But with the Consumer Price Index up 9% in the past year, the CFPB is calling into question whether credit card late fees should be tied to inflation, a provision set by the Federal Reserve in 2010.

Under the “safe harbor” provision, institutions can raise late fees due to inflation without any cost-benefit analysis as long as the fees being charged are “reasonable and proportional.” To receive the safe harbor, credit card issuers can charge $30 for the first late payment and $41 for subsequent late payments within six billing cycles.

Under a complicated formula, credit card late fees are expected to rise next year to an estimated $33 for the first late payment and $45 for subsequent late payments.

Consumer advocates and critics of the Fed’s safe harbor suggest that the CFPB intervene and put a halt to the inflation adjustments. CFPB Director Rohit Chopra wants to lower credit card late fees generally and has already called out financial institutions for charging consumers roughly $12 billion a year in late fees.

The CFPB received 42 comments to an advance notice of proposed rulemaking in June that seeks to determine how credit card issuers set late fees.  A core part of the CFPB’s review involves determining whether late fees are generating more revenue than is necessary to cover their cost, a requirement set by the Fed.

But Chopra also has raised concerns about whether the Fed initially set late fees too high more than a decade ago and whether giving financial firms a safe harbor, with immunity from enforcement actions for setting fees at the safe harbor level, gives issuers an incentive to raise late fees every year.

David Silberman, a former acting CFPB deputy director who is now a lecturer at Harvard Law School, said the bureau should issue an interim final rule to prevent late fees from rising in 2023. Silberman, who is also an adjunct professor at Georgetown University’s McCourt School of Public Policy, said the increases pegged to inflation do not meet the Fed’s own standards.

“There is ample reason to doubt whether a safe harbor which increases with the current cost of living increases meets the reasonable and proportional requirement,” Silberman wrote in a comment letter. “Even if the safe harbor levels were set correctly in 2010 to cover costs and deter violations, there is no basis to presume that the current levels are reasonable and proportional to the violations (i.e. the late or missed payment) that triggers the fee.”

“These late fees are calculated as a business judgment to establish a deterrent effect to mitigate the risk of extending credit,” said Ann Petros, vice president of regulatory affairs at the National Association of Federally-Insured Credit Unions. “The bureau should not second-guess this business judgment or further limit fees across the board by reducing the safe harbor fee amounts.”

Of the 20 largest card issuers, 18 charge late fees at or near the maximum allowed. Many small banks and credit unions charge late fees of $25 or less, though Petros said that credit card payment processors set most fee limits and then pass their costs onto credit unions.

Bankers consider late fees to be a deterrent to consumers piling on debt. (Late fees and interest are charged to cardholders that fail to make the minimum payment by their credit card’s due date.)

Some commenters said the CFPB should look elsewhere for culprits charging excessive fees such as fintechs and buy now/pay later companies.

Others said that reducing late fees or eliminating the safe harbor would cause some level of havoc for the industry, forcing financial institutions to raise fees elsewhere or raise the cost of credit overall, which would impact small banks and credit unions.

“Any reduction in the safe harbor amount or elimination of the safe harbor would have an impact on the thousands of credit card issuers operating in this market, including small issuers,” wrote Paige Pidano Paridon, senior vice president and senior associate general counsel at the Bank Policy Institute.

The CFPB has the authority to regulate late fees under the Truth in Lending Act and Regulation Z, the Card Act’s implementing regulation.

Chi Chi Wu, a staff attorney at the National Consumer Law Center, said credit card late fees should be proportional to the debt owed. She suggested that the CFPB create a sliding scale under the safe harbor so that late fees are proportional to the account balance.

Technology also has lowered the cost of collections, making it easier and cheaper for credit card issuers to use automated methods to collect overdue payments and delinquent debts, Wu said.

Another wrinkle involves minimum credit card payments. Currently, a late fee cannot exceed the minimum amount required. But if late fees go up, issuers also will have to raise the minimum payment floor, Silberman said.

Click here to read the entire article with quotes.

---

Courtesy of Kate Berry, American Banker

Financial Crimes Enforcement Network (FinCEN), Treasury

ACTION: Advance notice of proposed rulemaking. No-Action Letter Process

TOPIC: FinCEN is issuing this advance notice of proposed rulemaking (ANPRM) to solicit public comment on questions relating to the implementation of a no-action letter process at FinCEN. Given that the addition of a no-action letter process at FinCEN may affect or overlap with other forms of regulatory guidance and relief that FinCEN already offers, including administrative rulings and exceptive or exemptive relief, this ANPRM, among other things, seeks public input on whether a no-action letter process should be implemented and, if so, how the no-action letter process should interact with those other forms of relief.

DATES: Comments must be received by August 5, 2022.

Click here to read the full NASCUS Summary (Member login required.)

---

BUREAU OF CONSUMER FINANCIAL PROTECTION ( 12 CFR Part 1006) Debt Collection Practices (Regulation F); Pay-to-Pay Fees

ACTION: Advisory opinion

TOPIC: Section 808(1) of the Fair Debt Collection Practices Act (FDCPA or Act) prohibits debt collectors from collecting any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless that amount is expressly authorized by the agreement creating
the debt or permitted by law. The Consumer Financial Protection Bureau (CFPB) issues this advisory opinion to affirm that this provision prohibits debt collectors from collecting pay-to-pay or ‘‘convenience’’ fees, such as fees imposed for making a payment online or by phone, when those fees are not expressly authorized by the agreement creating the debt or expressly authorized by law. This advisory opinion also clarifies that a debt collector may also violate section 808(1) when the debt collector collects pay-topay fees through a third-party payment processor.

DATES: This advisory opinion is effective on July 5, 2022.

Click here to read the full NASCUS Summary (Member login required.)

---

BUREAU OF CONSUMER FINANCIAL PROTECTION

ACTION: Request for Information Regarding Employer-Driven Debt

TOPIC: The Consumer Financial Protection Bureau (CFPB or Bureau) is charged with monitoring markets for consumer financial products and services to ensure that they are fair, transparent, and competitive. As part of this mandate, the CFPB is seeking input from the public on debt obligations incurred by consumers in the context of an employment or independent contractor arrangement. Areas of inquiry include prevalence, pricing and other terms of the obligations, disclosures, dispute resolution, and the servicing and collection of these debts.

DATES: Comments must be received by September 7, 2022.

Click here to read the full NASCUS Summary (Member login required.)

---

BUREAU OF CONSUMER FINANCIAL PROTECTION

ACTION: Advance notice of proposed rulemaking. Credit Card Late Fees and Late Payments

TOPIC: In order to support its rulemaking and other functions, the Consumer Financial Protection Bureau (Bureau or CFPB) is charged with monitoring for risks to consumers in the offering or provision of consumer financial products or services, including developments in markets for such products or services. As part of this mandate, the Bureau is seeking information from credit card issuers, consumer groups, and the public regarding credit card late fees and late payments, and card issuers’ revenue and expenses. For example, the Bureau is seeking information relevant to certain provisions related to credit card late fees in the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act or the Act) and Regulation Z. Areas of inquiry include: factors used by card issuers to set late fee amounts; card issuers’ costs and losses associated with late payments; the deterrent effects of late fees; cardholders’ late payment behavior; methods that card issuers use to facilitate or encourage timely payments, including autopay and notifications; card issuers’ use of the late fee safe harbor provisions in Regulation Z; and card issuers’ revenue and expenses related to their domestic consumer credit card operations.

DATES: Comments must be received by July 22, 2022.

Click here to read the full NASCUS Summary (Member login required.)

BUREAU OF CONSUMER FINANCIAL PROTECTION [Docket No. CFPB–2022–0040] Federal Register Posting: Request for Information Regarding Relationship Banking and Customer Service

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Request for information.

SUMMARY: The Consumer Financial Protection Bureau (Bureau or CFPB) is seeking comments from the public related to relationship banking and how consumers can assert the right to obtain timely responses to requests for information about their accounts from banks and credit unions with more than $10 billion in assets, as well as from their affiliates.

DATES: Comments must be received by July 21, 2022.

Click here to read the full NASCUS Summary
(Member login required.)

 

 

June 29, 2022 — When credit risk is on the rise, such as during an economic downturn, credit card companies may look at reducing consumers’ available credit limits to prevent against losses. Credit card line decreases are an industry practice where a company cuts a consumer’s credit limit on an existing account. A consumer’s available credit can disappear, sometimes without warning or subsequent explanation.

A new CFPB report  describes how credit card companies increasingly used credit line decreases during both the Great Recession and at the start of the COVID-19 pandemic. Due to the critical role credit plays in financial resiliency, especially during a downturn, we sought to examine the importance and impact of these decisions by credit card companies.

The impact of limiting available credit lines

The following highlights our key findings:

---

Majority of decreased credit lines were not linked to recent credit card delinquencies

Credit line decrease actions were four times as common if a consumer had a recent credit card delinquency. However, approximately 67 percent of consumers who experienced declines in their credit line showed no evidence of a recent credit card delinquency.

For these consumers, the decision may be driven by other changes in their credit profile, internal account performance data, or by changes in institution risk management unrelated to their credit standing. Credit reports don’t currently indicate whether the action was driven by the consumer’s risk or the lender’s internal decision-making.

---

Credit line decreases led to dramatic reductions in available credit

Our research showed that line decreases resulted in a dramatic reduction in credit available on a consumer’s impacted credit card. For consumers across different credit score tiers, the median amount of credit decreased by approximately 75 percent. Median available credit was often reduced to less than $400 for all consumers except those with superprime credit scores (generally a superprime score is 720 or greater compared to deep subprime of 579 or less).

We also showed that a credit line decrease on a consumer’s highest balance card significantly affects a consumer’s total access to credit card lines. The impact of a line decrease may be more acutely felt for consumers in lower score ranges who are less likely to have as many cards as their prime counterparts and may find it more challenging to access new credit.

---

Rates of credit utilization went up

The credit utilization rate – or the amount of credit used against the available credit limit – also significantly increased, with most consumers essentially “maxing out” the card.

When their available credit decreased, median deep subprime, subprime, near-prime, and prime consumers reached 94 percent of their available credit. Even for super-prime consumers, their utilization rate more than doubled from 37 percent to 78 percent. We also showed that total combined utilization also increased after a credit line decrease for all but deep subprime scored consumers. This can have an impact on their credit scores – when utilization goes up, consumer credit scores tend to go down.

---

Credit line decreases tend to coincide with decreasing credit scores

Credit scores declined around the time of a line decrease, and this was felt by consumers of different credit scores. The decline, however, was significantly greater if a consumer had a recent credit card delinquency. During the analysis period, median credit scores for consumers with a recent card delinquency on any card decreased between 33 and 87 points. For consumers without a recent card delinquency on any card, median scores decreased between 1 and 12 points.

---

Credit balances remained depressed for subprime borrowers

While prime consumers may have used other credit cards or new accounts to offset the line decrease and return to previous total card balance levels, subprime and deep subprime balances remained depressed three quarters later, meaning that subprime borrowers are likely less able to return to previous card use.

This research is part of a series looking at consumer credit trends using a longitudinal sample of approximately five million de-identified credit records maintained by one of the three nationwide consumer reporting agencies.

Read the report, Credit Card Line Decreases .

America’s second-largest bank unlawfully garnished the accounts of thousands of its customers

May 04, 2022 – The Consumer Financial Protection Bureau (CFPB) finalized an enforcement action against Bank of America for processing illegal, out-of-state garnishment orders against its customers’ bank accounts. Bank of America unlawfully froze customer accounts, charged garnishment fees, garnished funds, and sent payments to creditors based on out-of-state garnishment court orders that should have been processed under the laws and protections of the states where the consumers lived. Bank of America also violated the law by inserting unfair and unenforceable language into customer contracts that purported to limit customers’ rights to challenge garnishments. The CFPB’s order requires Bank of America to refund or cancel imposed fees from unlawful garnishments, review and reform its system for processing garnishments, and pay a $10 million civil penalty.

“Bank of America imposed unlawful garnishment fees and injured its customers by inserting unenforceable clauses into contracts in an attempt to strip legal rights from families,” said Rohit Chopra. “The CFPB is ordering Bank of America to fix its systems, clean up its contracts, and make its victims whole.”

Bank of America (NYSE: BAC) is a very large national bank headquartered in Charlotte, North Carolina, with approximately 4,100 branches and 16,000 ATMs. It has been designated as a global systemically important bank by the Financial Stability Board, and as of December 31, 2021, the company had $2.5 trillion in consolidated assets, which makes it the second largest bank in the United States. The bank has previously been sanctioned by the CFPB. In 2014, the CFPB ordered Bank of America to pay $727 million in redress to its victims for illegal credit card practices.

Garnishments occur when a creditor takes a portion of an individual’s paycheck, or money from their bank account, to collect a debt. Most garnishments occur following court orders. State laws have limits or “exemptions” that apply to bank account and paycheck garnishments that are usually designed to make sure people have money left to live on following garnishment. The exemptions in this case refer to state laws that limit what types and amounts of funds can be taken from a consumer’s bank account.

Since August 1, 2011, Bank of America unlawfully garnished at least 3,700 out-of-state accounts, and the customers whose accounts were garnished have paid at least $592,000 in garnishment fees. The CFPB found that Bank of America engaged in unfair and deceptive acts and practices that resulted in money from customers’ bank accounts being frozen or taken when the garnishments were not permissible under the state laws where the accounts were located. In addition to the $592,000 in unlawful fees, the company harmed consumers by:

• Deceiving customers about their rights: Bank of America falsely represented to customers that their rights to have certain funds exempted from garnishment were governed by the law of the issuing court’s state. By stating to its customers that it applied the exemption law of the garnishment issuing state, Bank of America misrepresented to customers that their rights to have certain funds exempted from garnishment orders were governed by the laws of the issuing states when, actually, in most states, customers’ own state laws apply.
• Imposing unenforceable clauses in take-it-or-leave-it customer contracts: Bank of America required customers to “direct” it not to contest garnishment orders and to waive the company’s liability for its actions regarding the out-of-state garnishment orders. This prevented customers from pursuing legal claims against Bank of America for improperly handling garnishments. Bank of America also represented to its customers that they waived their right to hold the company liable for improperly responding to garnishment notices; however, account holders have the right to challenge garnishments despite any language in their account agreements to the contrary.
• Failing to adhere to consumer protections governing customers’ bank accounts: Bank of America acted on garnishment orders without disclosing that the accounts were located out-of-state and protected from the issuing courts’ garnishment orders. Bank of America applied the consumer protections and exemption rights of the state that issued the garnishment order and not those of the state where the individual lived. As a result, it improperly held, froze, and eventually turned over its customers’ funds to judgment creditors.

---

Enforcement Action

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB has the authority to take action against institutions violating consumer financial laws, including engaging in unfair, deceptive, or abusive acts or practices. The CFPB’s order requires Bank of America to:

• Refund at least $592,000 in garnishment-related fees to harmed consumers: Bank of America must refund or cancel all unlawful garnishment-related fees.
• Fix its broken garnishment process: Bank of America must review and reform its system for processing garnishments, and it must notify courts or other garnishment issuers when accounts are located out-of-state.
• Eliminate unenforceable clauses from its contracts: Bank of America must cease including language in customer contracts that purports to limit customer rights to challenge garnishments.
• Pay a $10 million fine: Bank of America must pay a $10 million dollar penalty to the CFPB, which will be deposited into the CFPB’s Civil Penalty Fund.

Read today’s order 

CFPB Bulletin 2022-04: Compliance Bulletin re: Mitigating Harm from Repossession of Automobiles
12 CFR Chapter X

The Consumer Financial Protection Bureau (CFPB) is moving to thwart illegal repossessions in the heated auto market. A compliance bulletin issued today reveals conduct observed during CFPB examinations and enforcement actions, including the illegal seizure of cars, sloppy record-keeping, unreliable balance statements, and ransom for personal property.

The bulletin became effective on March 3, 2022 and can be found here.

As a benefit to our members, NASCUS has provided a summary of that bulletin below.

Summary

The Bureau is concerned that market conditions around the automobile industry might create incentives for risky auto repossession practices, since repossessed automobiles can command  higher prices when resold.  To mitigate harms from these risks, the Bureau is issuing this bulletin to remind market participants about certain legal obligations under Federal consumer financial laws.

Generally, servicers do not immediately repossess a vehicle upon default and instead attempt to contact consumers before repossession, usually by phone or mail.  While some repossessions are unavoidable, the Bureau pays particular attention to servicers’ repossession of automobiles. Loan holders and servicers are responsible for ensuring that their repossession-related practices, and the practices of their service providers do not violate the law.  The Bureau intends to hold loan holders and servicers accountable for UDAAPs related to the repossession of consumers’ vehicles.

The bulletin summarizes the current law and highlights relevant examples of conduct observed during supervisory examinations or enforcement investigations that may violate Federal consumer financial law.

Under Dodd Frank, all covered persons or service providers are prohibited from committing unfair, deceptive or abusive acts or practices in violation of the Act. An act or practice is unfair when (i) it causes or is likely to cause substantial injury to consumers; (ii) the injury is not reasonably avoidable by consumers; and (iii) the injury is not outweighed by countervailing benefits to consumers or to competition.

Section 5 of the Federal Trade Commission Act informs decisions with regard to whether or not a particular act or practice is “deceptive.” In addition, Dodd Frank prohibits two types of abusive practices.  First, materially interfering with the ability of a consumer to understand a term or condition of a product or service is abusive.  Second, taking unreasonable advantage of statutorily specified market imbalances is abusive.  Those market imbalances include (i) a consumer’s lack of understanding of the material risks, costs, or conditions of a product or service, (ii) a consumer’s inability to protect their interests in selecting or using a product, or (iii) a consumer’s reasonable reliance on a covered person to act in their interests.

The Bureau highlights the following examples of repossession conduct (among others) to be in violation of UDAAP:

• Wrongful repossession of consumer’s vehicles
• Failing to provide consumers with accurate information about the amount required to bring their accounts current
• Applying payments in a different order than disclosed to consumers, resulting in repossession
• Applying unlawful fees that push consumers into default and repossession
• Charging illegal personal property fees
• Charging for collateral protection insurance after repossession

The Bureau will continue to closely review the practices of entities repossessing automobiles for potential UDAAPs, including the practices described in the bulletin.  The Bureau will use all appropriate tools to hold entities accountable if they engage in UDAAPs in connection with these practices.

CFPB Bulletin 2022-02: Compliance Bulletin on the Electronic Fund Transfer Act’s Compulsory Use Prohibition and Government Benefit Accounts

Section 913 of the Electronic Fund Transfer Act (EFTA) provides, among other things, that no person may require a consumer to establish an account for receipt of electronic fund transfers with a particular financial institution as a condition of receipt of a government benefit. The Consumer Financial Protection Bureau (CFPB) is issuing this Compliance Bulletin to reiterate that this prohibition in EFTA applies to government benefit accounts.

The bulletin became effective on February 24, 2022, and the Federal Register notification be found here.

As a benefit to our members, NASCUS has provided a summary of that bulletin below.

Summary

Section 913 of the EFTA provides, among other things, that no person may require a consumer to establish an account for receipt of electronic fund transfers (EFTs) with a particular financial institution as a condition of employment or receipt of a government benefit.  The provision is implemented in Section 1005.10(e)(2) of Regulation E.  The Bureau is reissuing this compliance bulletin to reiterate the compulsory use prohibition in the EFTA applies to government benefit accounts. Congress amended the EFTA to exempt “needs-tested” state and local electronic benefit transfer (EBT) programs.  However, all account used to distribute benefits for federally administered programs (including Federal needs-tested programs) as well as non-needs tested State and local government benefit programs remained covered by Regulation E.  In October 2016, the Prepaid Accounts rule extended Regulation E coverage to prepaid accounts.

Compulsory Provision Prohibition

The compulsory provision of the EFTA provides that no person may require a consumer to establish an account for receipt of EFT with a particular financial institution as a condition of receipt of a government benefit.  This provision ensures that consumers receiving the government benefits have a choice with respect to how they receive their funds.  As noted earlier, this provision applies to “government benefit accounts” but not does not include a government benefit account used to distribute needs-tested benefits in a program established under State or local law or administered by a state or local agency.  The Bureau provided examples of needs-tested benefits that are not subject to the compulsory use provisions, such as those used to distribute TANF (Temporary Assistance for Needy Families), WIC (Special Supplemental Nutrition Program for Women, Infants and Children) and SNAP (Supplemental Nutrition Assistance Program) funds.

Examples of government benefit accounts administered by State or local agencies that are subject to the compulsory use prohibition because they are not needs-tested include accounts used to distribute unemployment insurance, child support, certain prison and jail “gate money” benefits, and pension plan payments. In addition, all accounts used to distribute funds under federally administered benefit programs are “government benefit accounts” subject to the compulsory use prohibition; for example, accounts used to distribute Social Security, Social Security Disability Insurance and Supplemental Security Income (SSI) payments; or Federal tax credits like the Earned Income Tax Credit (EITC) or the Child Tax Credit (CTC) are subject to the compulsory use prohibition.

Additional Protections under Regulation E for Government Benefit Accounts

Government benefit accounts are entitled to the protections of the EFTA generally and Regulation E’s provisions applicable to prepaid accounts specifically.  Those protections are:

• Disclosures – Under Regulation E, consumers are entitled to three types of disclosures for government benefit accounts – pre-acquisition disclosures, disclosures on the access device or entry point and initial disclosures.
• Change in Terms Notices – Change in terms notices are required when a term or condition required to be disclosed in the initial disclosures, changes or the change results in an increased fee, increased liability for the consumer, fewer types of available EFTs, or stricter limitations on the frequency of dollar amount of EFTs
• Access to Account History – Government agencies must either provide a periodic statement or must have available to the consumers (i) the consumer’s account balance, by telephone; (ii) an electronic history such as through a website of account transactions covering at least 12 months preceding the cate the consumer electronically accesses the account; (iii) written account transaction histories provided upon request must cover at lest the 24 months preceding the sate on which the government agency receives the consumer’s request for the account transaction history.

Limited Liability for Unauthorized Transfers and Error Resolution Rights – Regulation E’s limited liability protections and error resolution rights fully apply to government benefit accounts.