CFPB and FTC Stop Two Payday Lending Scams

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In separate suits brought by the Consumer Financial Practices Bureau (“CFPB”) and the Federal Trade Commission (“FTC”) federal courts have frozen the assets of two separate groups who allegedly defrauded consumers by creating unauthorized payday loans.

Payday loans are short term loans generally made in small amounts that are intended to be repaid out of the borrower’s next paycheck, together with interest. The interest is generally at a very high annual rate, but due to the short anticipated duration of the loan borrowers do not expect to pay a large amount of interest. Consumers often seek online payday loans through websites operated by “lead generators”. Consumers must provide their social security numbers and checking account numbers in order to apply for these loans. This information is then sold to firms who make the loans, according to the CFPB complaint.

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Truth in Lending Act and Consumer Leasing Act Dollar Thresholds Raised: Fewer Transactions Exempt

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More consumer credit and leasing transactions will be subject to the Truth in Lending Act (TILA) and Consumer Leasing Act (CLA) in 2015.

Effective January 1, 2015, the dollar threshold for exemption of most consumer credit transactions and consumer leases from TILA, the CLA, and their implementing regulations (Regulations Z and M) was increased from $53,500 (the threshold for 2014) to $54,600. The exemption applies only if the principal amount of credit extended, or the maximum principal amount of credit to be extended pursuant to a written commitment, exceeds the threshold. This means that consumer credit and leases with an extended or committed principal amount over $53,500 but not more than $54,600 are exempt from TILA, the CLA and Regulations Z and M in 2014, but not in 2015.

Pursuant to Regulation Z, this exemption does not apply to private education loans or to credit secured by real property or by personal property used or expected to be used as the consumer’s principal dwelling (e.g., a manufactured home). In these cases, unless another exemption applies, TILA and Regulation Z apply regardless of the dollar amount of the credit extended or committed to be extended.

As required by Section 1100E of the Dodd-Frank Consumer Financial Protection Act, the Consumer Financial Protection Bureau and the Board of Governors of the Federal Reserve System reset this threshold each year based upon the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) as of June 1 of the preceding year, as published by the Bureau of Labor Statistics.

The CFPB Alerts Credit Card Issuers That Marketing of Credit Card Promotional APR Offers May Violate Federal Law

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The Consumer Financial Protection Bureau (“CFPB”) recently issued a bulletin alerting credit card companies that they may be at risk of breaking the law as a result of the way they market promotional rates. Specifically, credit card issuers may be at risk of engaging in deceptive and/or abusive acts and practices  in connection with solicitations that offer a promotional annual percentage rate (“APR”) on a particular transaction over a defined period of time. These transactions include, but are not limited to, convenience checks, deferred interest/promotional interest rate purchases, and balance transfers. The CFPB’s areas of concern are as follows:

  • Risk of Deceptive Advertising Practices: Card issuers often market promotional offers as an opportunity for the consumer to save money. The misimpression conveyed in the promotional materials is that the only cost of obtaining the promotional interest rate is the one-time transaction fee. Credit card issuers fail to correct that misimpression by failing to provide clear and prominent information about the cost of new purchases due to the loss of the “grace period.” Said conduct may constitute a deceptive advertising practice in violation of the Dodd-Frank Act.
  • Risk of Abusive Practices: Similarly, credit card issuers may be at risk of engaging in an abusive practice if they fail to provide adequate information alerting consumers that they will be unable to maintain a grace period on new purchases if they do not repay their entire balance, including any promotional balance, by the statement due date. Credit card issuers may take unreasonable advantage of consumers by failing to adequately inform them of these conditions and by exploiting their lack of understanding to impose additional costs.  Said conduct may constitute an abusive practice in violation of the Dodd-Frank Act. Continue reading this entry

Credit Card Issuers Beware: CFPB Fires Warning Shot on Promotional APRs

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Who could possibly object to zero or low promotional interest rates offered for convenience checks, balance transfers or new purchases?

The Consumer Financial Protection Board (CFPB), that’s who.

In a new Bulletin based on its findings from examinations of large banks and card issuers, the CFPB warns that some credit card issuers may be engaging in deceptive or abusive acts or practices when promoting or offering promotional APRs, in violation of Section 1031 of the Dodd-Frank Consumer Financial Protection Act. According to the CFPB, some card issuers are failing to sufficiently warn consumers that their continued use of credit cards for purchases during a promotional period may forfeit the grace period on new purchases if the consumers do not pay the entire statement balance (including the amount subject to the promotional APR) by the payment due date.

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