UDAAP – Consumer Financial Services Watch

Financial Choice Act Moves to the House Floor

May 31 2017

By Daniel F. C. Crowley, Bruce J. Heiman, William A. Kirk, Karishma Shah Page, Mark A. Roszak and Eric A. Love

On May 4, the House Financial Services Committee (“HFSC”) concluded its three-day markup of H.R.10, the Financial Choice Act (“FCA”), a bill to reform the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). The HFSC reported the bill favorably to the full House by a vote of 34-26. All 19 Democratic amendments were rejected on party-line votes. Republicans did not offer any amendments but focused their efforts on raising concerns about the extent to which Dodd-Frank has stifled economic growth and put taxpayer money at risk. Committee members debated a number of the more controversial provisions of the FCA, including Title VII to restructure the Consumer Financial Protection Bureau (“CFPB”) and remove its unfair, deceptive, or abusive acts or practices (“UDAAP”) authority; Section 841 to repeal the Department of Labor’s conflict of interest-fiduciary duty rule; Section 111 to repeal the Federal Deposit Insurance Corporation’s (“FDIC”) Orderly Liquidation Authority; Title IX to repeal the Volcker Rule; and numerous reforms to the Securities and Exchange Commission’s (“SEC”) shareholder proxy voting rules.

To read the full alert, click here.

FDIC Economic Inclusion Summit A Good Reminder of Fair and Responsible Banking Practices

Apr 27 2017

By Soyong Cho

Yesterday, the FDIC hosted a day-long Economic Inclusion Summit that brought together stakeholders in private industry, the government, and non-profit organizations to discuss strategies to expand credit to under-served communities. Speakers stressed the need to understand the personal and financial challenges facing low- and moderate-income (“LMI”) populations in order to more effectively design products and marketing channels to reach LMI communities. Leveraging big data and technology were identified as key factors to reducing costs and profitably serving LMI customers.

Banks are of course rated on their outreach initiatives to under-served communities under the Community Reinvestment Act (“CRA”), but profitably expanding their customer base is also good business. The FDIC’s Summit serves as a reminder of the established programs, partnerships, and networks that exist to assist banks to meet their CRA obligations. However, it is also a good reminder that banks must be sensitive to the regulatory compliance and other risks attendant with marketing to and servicing LMI communities in particular, as even the best intentions can be undermined by flawed implementation or unclear regulatory guidance. Among others, UDAAP, fair lending, and privacy issues should be considered in all phases of product development and delivery. In the coming months, K&L Gates will be hosting a series of webinars focused on the nuts and bolts of consumer protection compliance.

Proactive Protection of Consumers or Premature Penalty? Consumer Financial Protection Bureau Bucks the Trend in Data Security Breach Cases

Mar 15 2016

By: R. Bruce Allensworth, Ryan M. Tosi, Lindsay S. Bishop

Data breaches and cybersecurity attacks appear to be growing in frequency. Despite the increase in the number of such attacks, plaintiffs have found it difficult to establish a legal foothold for data breach claims, as federal courts across the country have routinely dismissed data breach claims brought by private litigants where no cognizable harm has been alleged. The Consumer Financial Protection Bureau (“CFPB”), however, now appears poised to enforce regulations regarding the protection of private consumer information, including holding companies accountable — even without any data breach or misuse of private consumer information.

To read the full alert, click here.

Splitting the Baby — CFPB Pursues Aggressive Statute of Limitations Argument but Effectively Concedes Limits to Its Authority

Jan 22 2016

Last month, we wrote about how the Consumer Financial Protection Bureau’s (CFPB) administrative enforcement action against Integrity Advance might signal that the agency believes it can pursue claims of unfair and deceptive conduct without regard to either the statute of limitations or the effective date of the Dodd-Frank Act. In a brief made public yesterday, the CFPB revealed its hand when it filed its opposition to Integrity Advance’s motion to dismiss. In its brief, the CFPB indeed asserted that its administrative enforcement authority is not limited by any statute of limitations. But the CFPB did not seek to pursue its claims for conduct that occurred before the July 21, 2011 effective date of Dodd-Frank.

CashCall Revisited (Again): The CFPB’s Continued Federalization of State Law

Jan 04 2016

Last August, we wrote about the Consumer Financial Protection Bureau’s (CFPB) complaint against NDG Financial Corp. and how it represented a continuing evolution of the CFPB’s theory that certain state law violations might be predicates for federal law claims of unfair, deceptive, and abusive conduct (UDAAP). We refer to this as the “CashCall theory,” because the CFPB first articulated this novel approach to UDAAP enforcement in its complaint against CashCall, Inc. In December, the CFPB took two more steps down this road.

What’s Driving the CFPB’s Latest Administrative Enforcement Action?

Dec 10 2015

The Consumer Financial Protection Bureau’s (CFPB) latest enforcement action suggests that the CFPB may seek to use its administrative enforcement authority to pursue claims of unfair or deceptive conduct that would otherwise be time-barred and that pre-date the agency’s formation. The CFPB Director’s ultimate decision on these issues—and any court decisions that may result from any appeal—are likely to have widespread implications for the agency’s enforcement powers.

On November 18, the CFPB filed a Notice of Charges (essentially an administrative complaint) against Integrity Advance, LLC and its CEO and president, James R. Carnes. The Notice of Charges, which was made public last week, alleges that from May 15, 2008 through December 2012, Integrity Advance and Carnes engaged in unfair and deceptive conduct, and that Integrity Advance also committed violations of the Truth in Lending Act (TILA) and the Electronic Funds Transfer Act (EFTA) in the origination of online payday loans.

In Win for CFPB, Federal Court Clarifies Scope of “Substantial Assistance” and “Service Provider” Provisions of Dodd-Frank Act

Sep 08 2015

In the first court decision to opine on the “service provider” and “substantial assistance” provisions of the Dodd-Frank Act, a federal district court in Georgia denied a motion to dismiss brought by payments processors who had been sued by the Consumer Financial Protection Bureau (“CFPB”) for their role in an alleged phantom debt collection scheme. The decision addresses two novel areas of the CFPB’s jurisdiction – its ability to enforce the prohibition against unfair, deceptive, and abusive acts and practices (“UDAAPs”) against “service providers,” and its ability to go after those individuals and entities that “knowingly or recklessly provide substantial assistance” to the commission of a UDAAP. While grounded in the specific facts pled in the CFPB’s detailed complaint, the opinion nevertheless provides insight into how the federal courts may interpret these provisions, and serves as a warning sign to companies about the importance of implementing robust compliance programs.

CashCall Revisited: The CFPB’s Evolving Theory of Abusiveness

Aug 05 2015

In 2013, the CFPB filed a complaint against CashCall, Inc. and others, alleging that their conduct in collecting on payday loans that allegedly violated certain states’ usury and/or licensing requirements constituted unfair, deceptive and abusive acts and practices (UDAAPs) under federal law. Late last week, the CFPB struck again, filing suit against NDG Financial Corp. and others, making similar claims. The complaint against NDG, however, both expands the list of states where the CFPB alleges that collecting on a usurious and/or unlicensed payday loan is a UDAAP and changes the theory of abusiveness upon which the CFPB relies.

Happy Birthday, CFPB!

Jul 21 2015

By: Stephanie Robinson, Anjali Garg

While the Dodd-Frank Act turns five, today marks the fourth birthday of the CFPB. Despite a controversial start between recess appointments and enforcement attorneys at examinations, the CFPB has come a long way since its inception. The Bureau has brought more than 90 enforcement actions, filed numerous complaints, and obtained countless supervisory agreements in its four short years. It has expanded its regulatory reach through the newly implemented mortgage servicing rules and nonbank supervisory program. Just recently, the CFPB issued its first agency decision in a contested administrative proceeding, resulting in a disgorgement figure nearly 17 times the amount originally recommended in the proceeding. The CFPB has fundamentally changed the consumer finance landscape through its regulatory, enforcement, and supervisory activities. Here we highlight a few ways that the CFPB has made a difference in the areas of nonbank supervision; consumer complaints; unfair, deceptive, and abusive acts and practices; and individual liability.

UDAAP Round Up: 2014 Year in Review

Feb 10 2015

By: Soyong Cho, Stephanie C. Robinson, Anjali Garg, Christopher E. Shelton, Kathryn M. Baugher

In the last few years, the consumer financial services industry has increasingly faced the new darling tool of government enforcers — the prohibition of unfair or deceptive acts or practices (“UDAP”) found in Section 5 of the FTC Act and the prohibition of unfair, deceptive, or abusive acts or practices (“UDAAP”) found in Section 1031 of the Dodd-Frank Act. In 2014 alone, federal regulators resolved approximately 50 UDAP/UDAAP cases involving various forms of consumer financial services. These settlements resulted in over $2.5 billion in civil money penalties and consumer redress.

In this report, we provide a detailed view of the specific acts and practices that were challenged as unfair, deceptive, or abusive in 2014. We also include a summary of formal and informal UDAP/UDAAP guidance issued in the past year. Taken together, this compendium is a useful introduction for consumer financial services companies interested in evaluating and mitigating their UDAP/UDAAP risk.

To read the report, click here.

Tag:UDAAP