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The Business Lawyer

Spring 2022 | Volume 77, Issue 2

Introduction to the 2022 Annual Survey of Consumer Financial Services Law

John L Ropiequet, Anna-Katrina S Christakis, Christopher Keith Odinet, and Eric J Mogilnicki

Summary

  • This year’s Annual Survey begins with an overview of the first ten years’ experience at the Consumer Financial Protection Bureau (“CFPB”).
  • The Survey’s overview details how the Dodd-Frank Act’s solution to regulatory inconsistency, consolidating authority to enforce the many federal consumer financial laws in a single agency led by a single Director, has paradoxically led to a different kind of regulatory inconsistency.
  • It traces what has happened as directors with different philosophies have changed the CFPB’s direction in regulation, supervision, innovation, and enforcement after they were appointed.
Introduction to the 2022 Annual Survey of Consumer Financial Services Law
iStock/Jyeshern Cheng Zeiss4Me

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This year’s Annual Survey begins with an overview of the first ten years’ experience at the Consumer Financial Protection Bureau (“CFPB”). From its creation by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the CFPB has had profound effects on the development of consumer finance law that have been chronicled in successive Annual Surveys during what may fittingly be called “the Dodd-Frank Decade.” The Survey’s overview details how the Dodd-Frank Act’s solution to regulatory inconsistency, consolidating authority to enforce the many federal consumer financial laws in a single agency led by a single Director, has paradoxically led to a different kind of regulatory inconsistency. It traces what has happened as Directors with different philosophies have changed the CFPB’s direction in regulation, supervision, innovation, and enforcement after they were appointed.

Although the COVID-19 pandemic continued throughout the past year, there were few developments in consumer financial services law that related to it, unlike the year before it. The CFPB took some actions relating to COVID-19 assistance in mortgage servicing. It issued an interim final rule effective in July 2020 to allow mortgage servicers to offer loss mitigation options based on incomplete applications due to the effects of the pandemic. It also issued a final rule in June 2021 with changes to Regulation X that would allow servicers to deal with the expected flood of loan modification requests as well as loss mitigation requests based on incomplete applications. The CFPB cautioned loan servicers to avoid discrimination that would violate the Equal Credit Opportunity Act as borrowers emerge from COVID-19 relief plans. It also made several changes to the rules in Regulation Z that govern qualified mortgages.

In the area of bank deposits and payment systems, the Federal Deposit Insurance Corporation (“FDIC”) issued a final rule effective in April 2021, with full compliance required by January 2022, to modernize its approach to regulation of deposit brokers that would reflect technological changes over the past thirty years. Nacha, formerly known as the National Clearing House Association, took actions to strengthen fraud prevention requirements for electronically authorized debits to consumer deposit accounts. The CFPB and the Federal Trade Commission (“FTC”) filed several enforcement actions for violations of the Telemarketing Sales Rule in the processing of remotely created checks, for violations of several statutes in installment loan repayment practices, for illegal practices in automatic payments on student loans, and for violations of the Remittance Transfer Rule.

The U.S. Supreme Court accepted certiorari petitions during the past year that addressed circuit splits on two arbitration issues. A ruling was expected during the October 2021 Term on the question of whether federal law permits parties in a private international arbitration to apply to a U.S. federal court to compel document production or testimony as it would be able to do if the matter were before a foreign or international tribunal, but the parties settled and the petition was dismissed. Absent a similar development, the Court is expected to rule on the question of whether an action in state court to confirm or vacate an arbitration award under sections 9 and 10 of the Federal Arbitration Act may be removed to federal court by “looking through” the arbitration petition to determine whether the underlying claim is based on federal law, so that a federal court has federal question jurisdiction over the matter. Several federal appellate decisions dealt with issues of whether an enforceable agreement to arbitrate disputes had been created under different factual scenarios.

One topic that is new to the Annual Survey is litigation involving the compliance of websites and mobile applications with the Americans with Disability Act (“ADA”). A circuit split has arisen on the issue of whether and under what circumstances the ADA’s accessibility requirements for places of public accommodation apply to a business’s online presence as opposed to a physical business location. Some circuits require that there must be a nexus between its website and a physical business location; others have ruled that no nexus is required and that websites must be fully accessible to the disabled even if no physical location is involved. Most recently, the Eleventh Circuit disagreed with both approaches, ruling that the plain language of the ADA limits its applicability to transactions at physical locations, so that website inaccessibility to the visually-impaired, for example, is not actionable.

The California Consumer Privacy Act of 2018 (“CCPA”) continued to evolve over the past year. Although few legislative changes were made to the provisions of the act, the new California Privacy Protection Agency (“CPPA”), which was established by another ballot proposition, began its work to implement the CCPA. The California attorney general issued amendments in March 2021 to the original CCPA regulations that were issued just seven months earlier. Little enforcement activity was reported because most businesses responded in a positive way to the attorney general’s notices of violation within the thirty-day cure period. Two states, Virginia and Colorado, enacted privacy laws modeled on the CCPA that provided new privacy rights to consumers and imposed new duties on those who control and process protected personal data.

The regulation of bank partnerships between non-depository financial technology services companies and traditional depository institutions continued in flux during the past year. The True Lender Rule issued by the Office of the Comptroller of the Currency (“OCC”) that was designed to provide certainty as to whether a loan is actually made by the originating lender was repealed by a joint resolution of Congress, leaving an uncertain legal environment for such partnerships. Further uncertainty arose from court challenges to regulations promulgated by the OCC and the FDIC to codify the valid-when-made doctrine that allows loans that were non-usurious when they were originally contracted for to remain so upon assignment, a common feature for bank partnership programs.

The CFPB promulgated a new Regulation F to interpret the provisions of the Fair Debt Collection Practices Act (“FDCPA”), in two parts. Part 1 of the regulation addresses technological developments in communications that debt collectors use to communicate with consumers, such as email and voice mail, that have come into use since the FDCPA was enacted in 1977. Among other things, Part 2 of the regulation clarifies what information debt collectors must provide to consumers, prohibits them from threatening suit or suing on time-barred debt, and eliminates passive debt collection through credit reporting.

The Ninth Circuit issued an en banc decision that may upend municipal fair lending litigation by ruling that municipal governments’ damage claims are too remote from the underlying injuries to their residents due to alleged mortgage lending discrimination to be recoverable under Supreme Court precedent. The U.S. Department of Housing and Urban Development issued a Disparate Impact Rule in 2020 that set a burden-shifting framework for disparate impact claims and replaced an earlier rule, but the rule was quickly stayed and then was abandoned by the new Administration in 2021. The CFPB began the work of promulgating a rule that would, for the first time, expand Regulation B to cover non-consumer lending to women-owned, minority-owned, and small businesses.

This year’s auto finance survey reports on two CFPB consent orders with large automotive finance companies concerning alleged improper repossession practices and alleged credit reporting violations. It also reports on a large nationwide settlement with a major bank for failing to refund unearned fees on GAP agreements and other significant case developments. Finally, it reports on the consent orders entered in the first two fair lending enforcement actions against auto lenders brought by a state enforcement official.

Another topic that is new to the Annual Survey is developments in student lending. One court ruled that a servicer of student loans that were in a federal rehabilitation program after default was not a collector of defaulted debt and therefore was not subject to the requirements of the FDCPA. Another court held that a state attorney general is entitled to bring an enforcement action against a student loan servicer that parallels an enforcement action brought by the CFPB. Yet another court held that private student loans, unlike government-backed student loans, are dischargeable in bankruptcy.

A circuit split on a significant issue, what constitutes an “automatic telephone dialing system” (“ATDS”) subject to regulation by the Telephone Consumer Protection Act (“TCPA”), was resolved by the U.S. Supreme Court. It unanimously held that an ATDS must use a random or sequential number generator to both store and produce calls for the requirements of the TCPA to apply to the system. The lower courts have begun to address issues that were not fully resolved by the Supreme Court’s decision.

Litigation over the validity of the CFPB’s Payday Loan Rule came to a halt during the past year when the federal district court that was dealing with challenges to the final rule promulgated in 2020 approved it, although the decision was quickly appealed. The CFPB and the FTC both entered into consent orders with small-dollar lenders over alleged illegal practices. State enforcement officials also entered into such consent orders. The U.S. Supreme Court upended years of consent orders and judgments in which the FTC had obtained monetary relief from wrongdoers in the form of consumer restitution and disgorgement when it ruled in a case in which the FTC had obtained over $1 billion in such relief from a small dollar lender that the FTC Act did not permit such recoveries. This year’s small-dollar lending survey also reports on several state statutory and regulatory developments.

John L. Ropiequet and Christopher K. Odinet are co-editors of the Annual Survey.

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