On May 8, 2013 Florida Judge Robert Scola, Jr. rejected the Federal Communications Commission longstanding definition of express consent. In Mais v. Gulf Coast Collection Bureau, plaintiff Mark Mais went to the emergency room at the Westside Regional Hospital in Broward County, Florida for treatment. His wife completed the admission paperwork and provided his cell phone number on the form. When Mais did not pay a Florida United Radiology bill of $49.03 for emergency room services, the debt was referred to Gulf Coast Collection. The collection agency made between 15 and 30 autodialed calls to Mais’s cell phone.
During the past year, the CFPB has engaged in an in-depth review of short term and small dollar loans, specifically payday loans extended by non-depository institutions and deposit advance products offered by depository institutions to their customers. These are loans that are due to be repaid on the consumer’s next payday, or when a significant deposit is expected. On April 24, 2013, the CFPB published a white paper titled “Payday Loans and Deposit Advance Products” containing its findings. CFPB Director Richard Cordray has described the purpose of the CFPB study as being “to help us figure out how to determine the right approach to protect consumers and ensure that they have access to a small loan market that is fair, transparent, and competitive.”
In this week’s episode of As the CFPB Turns questions remain regarding Director(?) Richard Cordray’s constitutional authority to act as the Director of the CFPB. House Financial Services Committee Chairman, Jeb Hensarling, R-Texas, advised Cordray that the D.C. Circuit’s recent decision, which found that President Obama’s recess appointments to the National Labor Relations Board were unconstitutional, applied to the CFPB director as well. Mr. Hensarling advised Director(?) Cordray that “absent contrary guidance from the United States Supreme Court, you do not meet the statutory requirements of a validly serving director of the CFPB, and cannot be recognized as such.” Thus, Mr. Hensarling advised Director(?) Cordray that he was not allowed to testify before the House Financial Services Committee. Mr. Hensarling’s comments received the expected cheers from the right side of the legislative aisle and jeers from the left. Stay tuned for next week’s episode to find out whether Director(?) Cordray and Mr. Hensarling will meet for beers at the White House. On to other news …
Last month the Consumer Financial Protection Bureau announced that it will start holding banks accountable for the discriminatory actions of indirect auto lenders. The issue arises when a consumer goes to purchase a car and applies for financing right at the dealership. That dealer then takes the loan application and submits it to a bank which either declines the loan or offers to make the loan at a fixed rate. Pursuant to the dealer’s arrangement with the bank, it can then markup the loan in what is known in the industry as “dealer reserve.” Its not that different from a yield spread premium in the mortgage industry.
For years there has been litigation about whether banks can be held accountable for a dealer’s discriminatory markups. Some courts say yes. Some say no. The CFPB has now weighed in and as a result we can expect many more of these types of cases. The CFPB has found that giving discretion to dealers to markup loans creates a significant risk of price disparity based on race, national origin and potentially other prohibited bases.
The Consumer Financial Protection Bureau (CFPB) recently expanded its existing Consumer Complaint Database to cover additional consumer financial products and services.
The CFPB had previously included consumer complaints relating to credit cards in the database; now, the database also covers mortgage loans, other consumer loans and leases, student loans, and bank accounts and services. In expanding and releasing the publicly-accessible database, the CFPB is underscoring its commitment to soliciting and revealing consumers’ complaints about financial products and services and their providers.
The Consumer Financial Protection Bureau (CFPB or Bureau), through its Office of Enforcement, may conduct inquiries of institutions or persons to investigate compliance with the federal consumer financial laws for which it is responsible. The CFPB currently has many such investigations underway. The CFPB’s basic investigative tool is a Civil Investigative Demand (CID), or a demand for documents and written answers to questions. A CID also may seek tangible things, reports, or oral testimony in an investigational hearing. The CID will specify the enforcement staff involved, instructions for dealing with the dreaded electronically stored information (ESI), and the deadline for response (which is typically fairly short).
In a recent decision, Tyler v. Michaels Stores, Inc., the Massachusetts Supreme Judicial Court held that zip codes are “personal identification information” and that a merchant asking for that information during a credit card transaction violates a Massachusetts statute [G.L.c. 93, Section 105(a)] designed to protect consumer privacy, becoming the second state high court, after California, to declare that merchants can no longer request zip codes in credit card transactions with their customers. The Court also made clear that its decision applies equally to electronic and paper transaction forms.
The Court reasoned that a zip code, “when combined with the consumer’s name, provides the merchant with enough information to identify through publicly available databases the consumer’s address or telephone number, the very information Section 105(a) expressly identifies as personal identification information….”
Today, Foley & Lardner LLP issued a Legal News Alert for our clients regarding the recent decision of the Massachusetts Supreme Judicial Court that ZIP Codes are “personal identification information” and therefore it is a violation of Massachusetts law for a merchant to ask for that information during a credit card transaction. See Tyler v. Michael’s Stores, Inc. My original thought was that almost every gas station in Massachusetts will likely have to change its pay-at-the-pump stations that require you to provide your ZIP Code prior to pumping gas. This security feature was originally instituted as fraud protection at un-manned pumps. Less fraud detection typically means that the cost of the good will go up to compensate for the fraud losses. Nevertheless, the practice may be no more, so I feel for my Massachusetts brethren that may eventually have to pay more for gas.
The Consumer Financial Protection Bureau’s (“CFPB”) Escrow Requirements under the Truth in Lending Act rule (“Escrows Rule”) will go into effect on June 1, 2013. The Rule amends Regulation Z (Truth in Lending) to implement certain amendments to the Truth in Lending Act made by the Dodd-Frank Act. The Escrows Rule requires certain creditors to create escrow accounts for a minimum of five years for higher-priced mortgage loans. The Rule, however, exempts high-priced mortgage loans made by certain small creditors that operate predominantly in rural or underserved counties from this requirement. Rural counties are defined by using the USDA Economic Research Service’s urban influence codes, and underserved counties are defined by reference to data collected under the Home Mortgage Disclosure Act.
Consumer complaints are playing a big role in the federal government’s identification of and investigations into violations of consumer protection laws. The Federal Trade Commission (“FTC”) recently released its 2012 annual report of consumer complaints, which revealed that consumer fraud complaints make up over half of all the 2012 complaints received by the FTC.
The FTC enters complaints into the Consumer Sentinel Network (“CSN”), which is a secure online database of consumer complaints that is available only to law enforcement. The CSN contains consumer complaints received by the FTC, the Consumer Financial Protection Bureau (“Bureau”), the Federal Bureau of Investigation’s Internet Crime Complaint Center, the Council of Better Business Bureaus, state law enforcement organizations, and a number of other state and federal entities.