CFSL Bulletin

The latest Consumer Financial Services Litigation news, developments, and legal thinking

CFSL Action Update: March 15, 2012 – April 16, 2012

Posted by Pooja S. Nair on Posted in Consumer Financial Protection Bureau

The Consumer Financial Protection Bureau issued new regulations on topics including confidentiality protections and information collection:

CFPB Strengthening Confidentiality Protections

77 FR 15286
On March 15, 2012, the Consumer Financial Protection Bureau (CFPB) issued a proposed amendment to 12 CFR Part 1070, subpart D that will reinforce the confidentiality protections for supervised entities that provide information to the CFPB. The proposed amendments strengthen the prior regulation and “clarify that it is intended to be a rule with the force and effect of law.” The rule is intended to govern all federal and state claims that an entity supervised by the CFPB has waived privilege by providing information to the CFPB.

Amending Regulation Z
77 FR 21875
On April 16, 2012, the CFPB issued a proposed rule to amend Regulation Z of the Truth in Lending Act (TILA). Regulation Z currently limits the total amount of fees that a credit card issuer may require a consumer to pay for an account to 25% of the credit limit in effect when the account is opened. The proposed rule would apply the limit only during the first year after account opening.

Collecting Information on Payday Lending
77 FR 18793
On March 28, 2012, the CFPB posted a notice of its field hearing on payday lending, held in the Birmingham field location. The agency requested further public feedback on issues that came up during the field hearing including the impact of payday loans on consumers, marketing of these loans, and the effect of how the loan is provided to the consumer.

Information Collection
77 FR 18795
On March 28, 2012, the CFPB announced that it would commission a yearly consumer research survey in order to “better understand the attitudes, understanding, and behaviors of American adult consumers around issues of consumer finance.” The first year survey would create a baseline, and then subsequent surveys would build off the baseline results.

77 FR 18794
On March 28, 2012, the CFPB announced its intention to commission periodic user testing of information the Bureau provides to consumers to help them achieve their financial goals and to better understand financial products and services available to them. This information collection will help the CFPB understand which information communication methods are best for consumer information.

77 FR 18793
On March 28, 2012, the CFPB proposed quantitative testing of the integrated disclosures once they have been published. This quantitative testing would examine whether integrated disclosures actually help consumers understand the terms of their mortgage loans.

CFPB Says Rescission Complete on Notice

Posted by Michael C. Lueder on Posted in Bureau of Consumer Financial Protection; Truth in Lending Act

In a brief filed Tuesday the CFPB argued to the Tenth Circuit Court of Appeals in Denver that a consumer need not file a lawsuit in order to rescind a home equity line of credit, second mortgage or refinance when proper disclosures have not been given.

Section 1635 of the Truth in Lending Act requires lenders to disclose certain terms. Consumers are entitled to rescind loans within three business days following the consummation of a transaction or the delivery of the required disclosures and rescissions forms. However, if proper disclosures and forms are not provided, the consumer has three years after the consummation of the transaction (or upon the sale of the property) to rescind. 

Continue reading this entry

Court Permits Creditor to Charge and Collect Convenience or Expedited Payment Fees

Posted by Timothy S. Crisp on Posted in State Consumer Protection Laws

In recent years, many creditors instituted convenience or “expedited payment” fees, charging consumers for payments made by telephone and/or online rather than by mail. However, some state regulators, including those in Colorado, Texas and Wyoming, have taken the position that such fees are incident to the extension of credit (requiring disclosure as a “finance charge”) and are not expressly permitted to be separately charged under state law.

In perhaps the first precedential court opinion on this issue in the country, Vogel v. Onyx Acceptance Corp., 2011 Wyo. 163 (2011), the Wyoming Supreme Court recently affirmed a sales finance company’s ability to separately charge such fees to consumers. In doing so, the Court rejected the positions taken by the Wyoming Division of Banking and, for that matter, other state regulators.

The Court opined that fees charged for an optional mode of payment — particularly if disclosed after the credit transaction — are not charges which are incident to or a condition of the extension of credit.  Moreover, the Court held that the absence of convenience fees from the Uniform Consumer Credit Code’s list of permissible fees does not preclude convenience fees.

The Consumer Financial Protection Bureau Proposes Boundaries for its Nonbank Supervision of Debt Collection and Credit Reporting Organizations

Posted by Michael S. Lawrence on Posted in Consumer Financial Protection Bureau

On February 16, 2012, the Consumer Financial Protection Bureau (“CFPB”) proposed a new regulation, pursuant to Section 1024 of the Consumer Financial Protection Act of 2010 (Title X of the Dodd-Frank Act) (the “Act”), intended to establish “the scope of coverage of the Bureau’s supervision authority for nonbank covered persons,” in particular as pertains to credit reporting and debt collection organizations.Continue reading this entry

Second Circuit Panel Strikes Arbitration Agreement With Class Action Waiver

Posted by Michael D. Leffel on Posted in Class Actions

In In Re: American Express Merchants’ Litigation (No. 06-1871-cv), a two judge panel of the Second Circuit breathes new life into arguments to strike arbitration clauses. The court held that, because of the allegedly prohibitive costs for pursuing antitrust claims on an individual basis, forcing the plaintiffs to pursue their claims in arbitration would prohibit them from effectively vindicating their federal claims. The court therefore held that the arbitration agreement at issue was unenforceable. Continue reading this entry

Supreme Court In CompuCredit Corp. v. Greenwood Gives Another Victory to Proponents of Arbitration

Posted by Michael D. Leffel on Posted in Class Actions

Following on the heals of its pro-arbitration decision in Concepcion from earlier this year, the United States Supreme Court ruled today that a federal statute that provides for a private right of action and even for class actions, but is silent as to whether these claims can proceed in arbitration, does not trump the Federal Arbitration Act. See CompuCredit Corp. v. Greenwood, 566 U.S. __ (2011).

As the U.S. Supreme Court has stated on numerous occasions, there is “a liberal federal policy favoring arbitration.” Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). In CompuCredit Corp. v. Greenwood, No. 10-948 (U.S. Jan. 10, 2012), the Court trotted out that old refrain again today, holding that the fact that a federal statute provides for a private right of action—while silent on the issue of whether claims under the statute can be pursued in arbitration—does not mean that the plaintiffs can get out of their agreement to arbitrate with the defendant. The plaintiffs were unhappy with the agreement for a credit card they entered into. They argued that the Credit Repair Organizations Act (CROA), 15 U.S.C. § 1679 et seq., specifically provided a requirement for the defendant to disclose to consumers that “You have a right to sue a credit repair organization that violates the Credit Repair Organization Act.”  15 U.S.C. § 1679c(a). The CROA also provides that “Any waiver by any consumer of any protection provided by or any right of the consumer under this subchapter—(1) shall be treated as void; and (2) may not be enforced by any Federal or State court or any other person.” 15 U.S.C. § 1679f(a). 

Continue reading this entry

Defying Senate, President Obama purportedly makes recess appointment of Cordray to lead CFPB

Posted by Timothy S. Crisp on Posted in Consumer Financial Protection Bureau

For nearly six months, President Obama’s nomination of Richard Cordray to be the first Director of the Bureau of Consumer Financial Protection (CFPB) has been blocked by Senate Republicans. Today, the President is attempting to call the Senate’s bluff by making a legally questionable recess appointment of Cordray.

Under Article II, Section 2, Clause 3 of the federal Constitution, the President is empowered to make appointments to fill vacancies while the Senate is in recess. These so-called “recess appointments” have a limited duration, expiring when the next session of Congress ends, so Cordray’s appointment would not be effective for the full five-year term contemplated by the Dodd-Frank Act unless he were renominated by the President and confirmed by the Senate.

Continue reading this entry

The Fourth Circuit Declines to Put TILA Form Over Substance

Posted by Michael S. Lawrence on Posted in Truth in Lending Act

In the recent decision, Watkins v. SunTrust Mortg., Inc., No. 10-1915, 2011 WL 6188751 (4th Cir. Dec. 14, 2011), the Fourth Circuit ruled on the specific information that a lender must provide to a borrower in order to comply with TILA’s rescission notice requirement.

 The Truth in Lending Act, 15 U.S.C. § 1601 et seq. (“TILA”) and the corresponding Regulation Z, 12 C.F.R. pt. 226, require that a borrower in a secured credit transaction be provided with notice of his or her right to rescind the transaction. This rescission right lasts for three days after the closing, unless the lender fails to provide the TILA mandated rescission notice, in which case, the rescission period can last for up to three years. 

Continue reading this entry

CFPB Republishes Certain Existing FTC Rules

Posted by Timothy S. Crisp on Posted in Consumer Financial Protection Bureau

The Consumer Financial Protection Bureau (CFPB) issued three interim final rules, each effective December 30, 2011, which republish and make minor, nonsubstantive changes to certain existing regulations of the Federal Trade Commission (FTC). The Dodd-Frank Act transferred rulemaking authority for those existing regulations to the CFPB effective July 21, 2011. 

CFPB Regulation F (12 CFR Part 1006) republishes the FTC’s regulation (16 CFR Part 901) on procedures for states to apply for exemptions from certain provisions of the Fair Debt Collection Practices Act where the states’ laws are at least as protective of consumers as the federal law. CFPB Regulation I (12 CFR Part 1009) republishes the FTC’s regulation (16 CFR Part 320) on disclosure requirements for depository institutions which do not maintain federal deposit insurance. CFPB Regulation N (12 CFR Part 1014) republishes the FTC’s Mortgage Acts and Practices–Advertising Rule (16 CFR Part 321). CFPB Regulation O (12 CFR Part 1015) republishes the FTC’s Mortgage Assistance Relief Services Rule (16 CFR Part 322).

The CFPB has apparently elected to designate its regulations by letter, which had been the convention used by the Federal Reserve Board. The new CFPB Regulations F, I, N and O should not be confused with existing Federal Reserve Board Regulations F, I, N and O, which address topics such as correspondent banking, issuance and cancelation of Federal Reserve Bank capital stock, relations with foreign banks and bankers, and loans to bank insiders.

Seventh Circuit Reverses Summary Judgment in Dispute Over Truth-in-Lending Act Rescission Notices

Posted by Timothy S. Crisp on Posted in Truth in Lending Act

Can a lender ever obtain summary judgment in a dispute over delivery of Truth-in-Lending Act rescission right disclosures? A recent decision by the Seventh Circuit raises significant doubts.

The Truth-in-Lending Act (TILA) requires that lenders notify consumer borrowers in writing of their right to rescind a mortgage loan transaction (secured by their principal residence) within three business days following consummation of the transaction. In implementing this requirement, Federal Reserve Board Regulation Z increased lenders’ burden by requiring them to deliver two such notices in order for notice to be effective (12 C.F.R. § 226.23(b)(1)). If no notice–or only one notice–is given, the consumer may rescind the transaction within three years (rather than three business days) from closing (12 C.F.R. § 226.23(a)(3)). Under TILA, a consumer’s written acknowledgment of receipt of disclosures creates a rebuttable presumption of delivery.

Continue reading this entry