The CFPB continued their busy 2024 with a lot of activity in March. In this article, we’ll share some of our top CFPB “bites” of the month so you can stay on top of recent developments.   

Bite 10: CFPB Issues Statement on Privacy and Personal Data

On February 28, 2024, the CFPB issued a statement on privacy and personal data, responding to an executive order President Biden issued the same day. President Biden’s executive order imposed various requirements on the Department of Justice and Homeland Security, as well as other agencies, all intended to protect Americans’ sensitive personal data from countries of concern. The Executive Order specifically encouraged the CFPB to consider taking steps to protect Americans from data brokers that are illegally assembling and selling extremely sensitive data, including that of U.S. military personnel. The CFPB indicated that consistent with the executive order and the Fair Credit Reporting Act, it will propose rules to limit activities of data brokers, including those that sell personal data to overseas entities. CFPB Director Rohit Chopra released a statement saying that the executive order is a reminder of the urgent need to protect the personal data of Americans, and that the CFPB will propose new rules to safeguard families and national security.

Bite 9: Director Chopra’s Remarks at Financial Data Summit

On March 13th, Director Chopra spoke at the Financial Data Exchange Global summit to discuss the CFPB’s goal to shift the country towards open banking. He said that it is widely known that the United States has a “clunky system” when it comes to switching financial service providers and gave the example that moving a checking account involves resetting direct deposits and recurring bill payments, printing new checks, and obtaining a new card device. According to Director Chopra, this clunky system is the reason the largest banks maintain their depositor base even though they have not changed their rates. Chopra said that open banking will involve less red tape and allow for more seamless switching between institutions. He noted that the CFPB has proposed rules to serve as a key foundation in the shift towards open banking. Director Chopra went on to address growing discussion about how to set relevant industry standards without micromanaging or dictating prescriptive technical details. He concluded his remarks by recommending that financial institutions prepare now, before the CFPB finalizes its rulemaking this fall.

Bite 8: Director Chopra Submits Letter on Appraisal Foundation

On March 18, 2024, Director Chopra submitted issued a public letter to other federal financial regulators after a recent hearing hosted by the Appraisal Subcommittee of the Federal Financial Institutions Examination Council (FFIEC). The letter concerned the Appraisal Foundation, which is a not-for-profit corporation that sets qualifications and standards for appraisers. Congress established the FFIEC’s Appraisal Subcommittee in 1989 to monitor and review the Appraisal Foundation. Last year, the Subcommittee started a series of hearings focused on appraisal bias. Following a hearing on February 13th, Director Chopra claimed that the Appraisal Foundation serves as a lawmaking body but is not accountable to the public or subject to competitive market forces. Director Chopra alleged deficiencies in the foundation’s conflict of interest policies, an insular governance structure that favors private interests, and a lack of transparency. Director Chopra stated that the foundation plays a controlling role in the key issues that may contribute to appraisal bias.

Bite 7: CFPB Weighs in on State UDAAP Laws

On March 19, 2024, the CFPB announced that it wrote a letter to New York Governor Kathy Hochul and other state leaders highlighting the importance of banning abusive conduct. Legislative reforms in New York would expand the state’s consumer protection laws to address abusiveness, and in its letter, the CFPB indicated that this ban would be an important tool in the state’s arsenal. According to the CFPB, the Consumer Financial Protection Act empowers state attorneys general, state regulators, and certain banking regulators to address consumer protection laws.

Bite 6: CFPB Asks for Public Input on Closing Costs and Fees

On March 8, 2024, the CFPB announced that it is seeking consumer input and market research to better understand how closing costs impact households and families. According to the CFPB, total loan costs for mortgage loans, which include origination fees, appraisal and credit report fees, title insurance, discount points, and other fees rose sharply, increasing by 21.8% on home purchase loans from 2021 to 2022, to a median amount of nearly $6,000. The CFPB said that these fixed costs do not fluctuate based on loan amount, and therefore have an outsized impact on borrowers with smaller mortgages. According to the CFPB, high closing costs are increasing due to a lack of competition in the market. The CPFB noted that it will continue to analyze data and consumer input, which it may use to issue rules and guidance, while continuing to use its supervision and enforcement tools in this industry.

Bite 5: CFPB Issues New Guidance on Comparison Shopping

On February 29, 2024, the CFPB issued a new Circular explaining how comparison-shopping tools may violate consumer protection laws when they steer consumers due to incentives like “kickbacks.” According to the CFPB, consumers often encounter manipulated results or practices the CFPB calls “digital dark patterns” when using comparison-shopping tools for financial services. The CFPB claims that manipulated results appear because some providers pay financial kickbacks, sometimes referred to as “bounties” to create the lists of results that consumers see. According to the Circular, comparison-shopping tools may violate the federal prohibition on abusive conduct, because these comparison sites may take “unreasonable advantage” of consumers relying on the comparison-shopping tool to act in their interests.

Bite 4: CFPB and FTC Write Amicus Brief in Mortgage Case

On February 27, 2024, the CFPB announced that it joined the FTC in writing an amicus brief in an appeal case, arguing against fees that the agencies characterized as “unlawful junk fees.” In the original case, two mortgage borrowers separately sued their servicer over fees charged for making telephone and online payments. Allegedly, the creditor did not disclose those fees in the credit agreement, and applicable law did not expressly authorize the fees. The borrowers argued that the Fair Debt Collection Practices Act prohibits charging fees of this type. After the borrowers won, the servicer appealed to the Eleventh Circuit, arguing that the FDCPA’s protections do not apply to such fees, and that the borrowers agreed to the fees upon payment. The CFPB and FTC argued that the FDCPA applies to all fees related to the collection of a debt, and that servicers can only charge fees that lenders previously disclosed in the credit agreement or are expressly authorized by law. According to the agencies, this interpretation aligns with Congressional intent.

Bite 3: CFPB Orders Federal Supervision for Installment Lender

On February 23, 2024, the CFPB announced that it had published an order establishing supervisory authority over a national installment lender, using the authority granted to the CFPB under the Dodd-Frank Act. According to the CFPB, Congress gave the agency the authority to supervise nonbanks whose activities the CFPB has reasonable cause to determine pose risks to consumers. Back in 2022, the CFPB identified that it was failing to conduct oversight using that legal authority. Afterwards, the CFPB began to use this “dormant” authority and finalized its nonbank supervision procedural rules in November of 2022. When the CFPB issues a notice of a supervisory examination to an organization, the organization can either consent to supervision or contest the notice. The supervisory designation order in this case (“Order”) is the first one that the CFPB is conducting in a contested manner. In the Order, the CFPB claims it has “reasonable cause” to find that the lender’s activities constitute a risk to consumers, and addresses its interpretation of the “reasonable cause” standard, the meaning of “risk” under the statute, and the use of unverified consumer complaints on the CFPB’s portal. The Order specifies that the CFPB does not need to determine that an entity has violated federal laws or regulations to determine that the entity poses risks to consumers. Finally, the Order also notes that the CFPB can rely on consumer complaints it receives in making a risk-based supervision determination.

Bite 2: CFPB Issues Final Rule on Credit Card Late Fees

On March 5, 2024, the CFPB announced that it finalized a rule to cut credit card late fees for large card issuers, a move that the CFPB says will save consumers more than $10 billion annually. In 2009, the CARD Act banned credit card companies from charging excessive penalty fees. In 2010, the Federal Reserve Board issued an implementing regulation, stating that under the CARD Act, banks could only charge fees to recover costs associated with a late payment, with safe harbor amounts that would adjust with inflation. According to the CFPB, these safe harbor amounts have “ballooned” to $30 for a first late payment and $41 for subsequent late payments, even though credit card companies have moved to cheaper forms of payment processing. The new rule lowers the immunity provision fee to $8 for large card issuers and eliminates the automatic annual inflation adjustment. Instead, the CFPB will monitor market conditions and claims it will adjust the threshold. The rule provides that covered issuers can charge higher fees if they can show they are necessary to cover costs. The CFPB says this new rule is part of a continued effort to address problems and foster competition in the credit card market.

Bite 1: CFPB Sued Over Credit Card Late Fee Cap Rule

On March 7, 2024, several industry groups sued the CFPB over the credit card late fee rule. Banking groups and trade organizations sued the CFPB, asserting that the new rule capping credit card late fees punishes consumers who pay on time. According to the plaintiffs, the CFPB exceeded its authority and ignored Congressional intent. The plaintiffs note that Congress intended the fees to be high enough to deter late payments, ensure accountability, and compensate card issuers for the costs to process late payments. The complaint states that the new rule will cause irreparable harm through losses and costs, including the costs to service accounts that issuers would have never opened with this late fee cap, and will push the associated servicing costs on to all card holders, including those who have never made a late payment. The CFPB promised to defend the rule, saying that it will save consumers significant money and close a loophole that has turned late fees into a major revenue stream, and characterized late charges as “junk fees.” The CFPB also said that the plaintiffs engaged in “forum shopping” when they brought their case in the Northern District of Texas. The judge presiding over the case ordered the parties to submit briefs addressing their positions on the appropriate venue.

Extra Bite: FTC Updates Telemarketing Sales Rule

On March 7, 2024, the FTC announced an amendment to the Telemarketing Sales Rule, extending the rule to business-to-business calls. The TSR has been in place since 1995, and it applies to nearly all telemarketing activities, including calls that originate in the United States and calls made internationally to American consumers. The FTC says that it regularly reviews the rules it enforces to ensure that they are keeping up with advances in technology. The new final rule expands prohibitions against misrepresentations to include business to business telemarketing and revises the recordkeeping requirements for telemarketers. These recordkeeping changes include a requirement to maintain “call detail records” – which includes the phone number that placed and received each call, which the FTC says will help cut down on abuses that arise from spoofing or faking the calling number. The proposed additional change will extend the TSR to cover inbound telemarketing calls from consumers to technical support services, which the FTC says will help fight against scams that often start with a call to a consumer, or a pop-up notification, with a fraudulent warning that their computer is infected.

Extra Bite: FTC Settles Deception Case

On March 18, 2024, the FTC announced that two companies have agreed to settle with the agency over charges they made false promises to small businesses who were trying to use the Paycheck Protection Program during the COVID-19 pandemic. Under the settlement terms, one company will pay $33 million and the other will pay $26 million, in what the FTC said were the largest damages amounts ever secured by the agency under Section 19 of the FTC Act. Both companies are also subject to injunctions preventing them from making future misrepresentations. The FTC alleged that one of the companies deceptively advertised that consumers’ emergency loan applications would be processed in an average of 10-14 business days when the average processing actually took well over a month, and ignored repeated, urgent pleas by the applicants to withdraw their applications, which prevented these consumers from obtaining the emergency funds elsewhere. The other company allegedly advertised that small businesses and gig workers would successfully get PPP funding through its program, even though more than 60% of applications never resulted in funding. The FTC indicated that the company also made representations about the availability of helpful customer service that never materialized.

Still hungry? Please join Hudson Cook for our next CFPB Bites of the Month. If you missed any of our prior Bites, including the webinar that covered the above topics, request a replay on the Hudson Cook website here. 

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This article is provided for informational purposes and is not intended nor should it be taken as legal advice.  The views and opinions expressed in this article are those of the authors in their individual capacity and do not reflect the official policy or position of the partners of Hudson Cook, LLP or clients they represent.

Recently, the U.S. Court of Appeals for the Fifth Circuit ordered an FDCPA case to be reversed and remanded after the U.S. District Court for the Eastern District of Louisiana granted a motion for summary judgment.

The plaintiffs filed a putative class action alleging that the defendant law firm violated the FDCPA for misrepresenting judicial enforceability of a debt in their dunning letters. The case concerned Congress’s “Road Home” grant program, which was created to provide grants to repair and rebuild homes in the aftermath of Hurricanes Katrina and Rita. All Road Home grant recipients were required to disclose repair benefits previously received. The named plaintiffs in this case applied for and received Road Home grants but failed to disclose repair benefits previously received from FEMA or a privacy insurance carrier. 

In March 2008, the State’s contractor, ICF, noticed the potential double payments to the two named plaintiffs and placed an internal flag on their accounts in the Road Home database. After a decade, the defendant law firm was engaged to help recover these double payments. The defendants sent a dunning letter demanding repayment in 90 days or the defendants “may proceed with further action against you, including legal action.” The dunning letter further stated that “you may be responsible for legal interest from judicial demand, court costs, and attorneys fees if it is necessary to bring legal action against you.”

The plaintiffs filed suit under Section 1692e of the FDCPA and, in an amended complaint, alleged the defendants collected or attempted to collect time-barred debts, failed to itemize the alleged debts, and threatened to assess attorneys’ fees without determining if that right existed. The district court granted summary judgment to the defendants.

The 5th Circuit reversed on appeal. Concerning the first allegation of collecting or attempting to collect a time-barred debt, the court reasoned that while it does not violate the FDCPA to collect on a time-barred debt, a debt-collector “can run afoul of the FDCPA by threatening judicial action while completely failing to mention that a limitations period might affect judicial enforceability.”

Further, the appellate court found the dunning letters were “untimely even under the most liberal, 10-year time window” as the plaintiffs breached their agreements when they closed on their Road Home grants or when the State of Louisiana was provided actual notice of the alleged duplicative payments, both of which occurred more than 10 years before the dunning letters were received. The court also found that the defendants mischaracterized one plaintiff’s debt as the dunning letter said the amount owed was for insurance proceeds when it included a 30 percent penalty for lack of flood insurance. Finally, the court explained that because there was no lawful basis to recover attorneys fees, the defendants violated the FDCPA.

NEW YORK, N.Y. – Kredit, the leading centralized debt resolution platform and network, is thrilled to announce that it has successfully achieved SOC 2 Type 1 compliance. This significant milestone demonstrates the company’s commitment to maintaining the highest standards in data security and protection for its customers.

SOC 2 (Service Organization Control 2) Type 1 compliance assures customers that Kredit has implemented stringent controls and safeguards to ensure the confidentiality and integrity of their data.

“We are extremely proud to have achieved SOC 2 Type 1 compliance,” said Dave Hanrahan, Kredit CEO + Co-Founder. “This reaffirms our unwavering commitment to data security and highlights our dedication to maintaining the trust of our customers. Our team has worked diligently to meet the rigorous requirements of the SOC 2 framework, and we are excited to continue enhancing our security practices to provide the highest level of protection for our customers’ data.”

In today’s digital landscape, data security is of utmost importance, and organizations must adopt robust measures to safeguard sensitive information. By obtaining SOC 2 Type 1 compliance, Kredit not only meets industry standards but also demonstrates its proactive approach to ensuring data security and privacy.

About Kredit

Kredit is the leading centralized debt resolution platform and network. Its software applications help lenders, ARM organizations, and consumer financial advisors to simplify and modernize how debt gets resolved. Consumers can address all accounts in collections within a central platform that helps them understand, communicate with, and pay the various organizations they may need to interact with regarding one or many accounts.

For more information, you can contact them here.

On April 2, the California Senate Judicial Committee passed Senate Bill 1061. The bill seeks to prevent health care providers and contracted collection agencies from providing information about patients’ medical debt to credit reporting agencies. The bill would also prevent credit reporting agencies from accepting, storing, or sharing information related to medical debt.

The bill defines “medical debt” as “a debt related to, in whole or in part, a transaction, account, or balance arising from a medical service, product, or device.” “Medical debt” does not include any debt charged to a credit card.

California Attorney General Rob Bonta has sponsored the bill. Bonta says the bill “can stop the harmful spiral where people have unforeseen, catastrophic medical debt and become unhoused, unemployed, or [are] without a vehicle to get to work.”

SB-1061 is the latest in a wave of efforts to limit credit reporting of medical debt. If the bill is enacted, California would be the third state to remove medical bills from credit reports, joining Colorado and New York. Minnesota legislators have introduced a similar bill, and the Consumer Financial Protection Bureau is also beginning a rulemaking process to remove medical bills from credit reports. These efforts follow a 2022 announcement that the three largest credit reporting agencies in the United States would stop reporting medical debt under $500 and any paid-off medical debt.

Last week our editorial team picked out the most relevant news for ARM industry professionals trying to stay on top of the ever-changing debt collection landscape. This included an article warning nonbanks to plan for CFPB oversight, a breakdown of the impacts of the CFPB’s late fee rule, and a notice to compliance professionals regarding consumer complaints. Read on to see a synopsis of everything we highlighted during the week and why our editorial team thinks you should know about it. 

On Tuesday, we brought you an article from Orrick about a concerning decision from the CFPB. In a recent order the CFPB exerted its authority over a non-consenting nonbank for the first time. This warning also came with key takeaways from the CFPB’s action, which included: an explanation of its authority, what the CFPB considers consumer risk, and the effects (or lack thereof) of refusing to consent to CFPB supervision. Nonbanks should prepare accordingly and expect that this is not a one-time thing from the CFPB.

Wednesday’s news touched on the hottest topic in the Arm industry: the CFPB’s Late Fee rule. The article from Ballard Spahr discussed the expected operational changes that will need to be made if the $8 cap on late fees goes into effect. Disclosure language will have to be altered, and strategic decisions will need to be made regarding interest rates, attempting cost analysis-based late fees, and charge-off procedures. This is a rule that has, and will continue to, shake up the industry for both creditors and consumers alike.

Thursday we highlighted an article from Alston & Bird that provided a reminder to handle consumer complaints promptly and competently. California’s DFPI recently entered into a consent order with a financial services company that it believed violated the CCFPL due to a small number of mistakes regarding the handling of consumer complaints. The consent order included a $2.5 million penalty, major changes to the company’s policies & procedures, and a requirement to report to the DFPI for the next two years. Let this serve as a reminder to review and, if necessary, revise your company’s complaint management policy and procedure.

Thanks for reading this weekly recap. For a recap from the week of March 25th, click here.

To talk about issues every Monday with a group of peers, and get the feedback you need on your most pressing issues, learn more about insideARM’s Research Assistant here. 

Did you know that a consumer’s credit score isn’t the most indicative measure of their capacity to pay? Credit scores lag, they don’t provide a full picture, and they can’t be monitored daily. By focusing on capacity to pay instead of a credit score, many in the collections industry are seeing an uptick in their paying accounts. But what is capacity to pay, and why does it matter?

Consumers often show an improved capacity to pay before their traditional credit scores fully recover. Capacity to pay considers certain events in a consumer’s financial life and how those events can impact repayment. By studying consumer behavior and the correlation between certain events and repayment of accounts, triggers have been identified that indicate timely contact with a consumer which can convert a warehoused or stale account into a performing account. 

Listen to our Executive Q&A with Experian’s Matt Baltzer, or read below to learn about capacity to pay, why it matters, and how your organization can unlock its potential. 

Missy Meggison: 

Hi, everyone! We’re here today with another episode of Executive Q&A. I’m Missy Meggison, editor of insideARM, brought to you by Auriemma Roundtables, and I’m joined today by Matt Baltzer, Senior Director of Product Management at Experian. Matt, can you give us a quick introduction?

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Matt Baltzer: 

Hi, Missy, it’s great to be here. So I’m Matt and I’m one of the product leaders at Experian’s consumer information business, and one of the areas I focus on for solutions is to help debt collectors manage accounts.

[Missy]: 

Wonderful thanks for joining me today. Let’s talk about capacity to pay. In your experience, what does capacity to pay mean, and how does it differ from a credit score?

[Matt]: 

That’s a good question. Most consumers fully intend to satisfy a loan when it’s originated, but somewhere along the way something changes in their finances or life circumstances that forces difficult choices about payments. Fortunately, consumers typically find their financial footing, and as they do, they’ll start to show signs of an improved capacity to pay often before their traditional credit scores fully recover.

[Missy]: 

So let’s talk about that a little bit. What type of events may indicate that a consumer has an improved capacity to pay? What should debt collectors be looking for?

[Matt]:

The most telling events are actually when consumers begin to settle or pay off accounts that have been placed in collections. They may also bring current accounts that were previously delinquent. These are signs that the consumer may be in an improved financial situation, and that they’re taking an active interest in rebuilding their credit standing. Debt collectors should be looking for these signs because they may indicate an increased capacity and willingness to pay or settle your account next.

[Missy]: 

So let’s dig into that a little bit. How do you know these events lead to an improved capacity to pay?

[Matt]:

We’ve long known this from working directly with clients that use these positive improvement triggers as a signal to re-engage consumers who may have been falling behind on payments. But recently, we conducted a study to see how much in which events are most predictive. This demonstrated that a charged-off account for a consumer with a positive improvement or new trade event was more than 30% more likely to receive payment in the subsequent 90 days. And this was absent a direct intervention, meaning collectors probably were not acting on most of these signals. For some of these triggers, the improvement was as dramatic as 250%**.

[Missy]: 

Wow! That’s a significant number. And speaking of signals, how important is it for a debt collector to act quickly when there’s been an improvement in capacity to pay?

[Matt]:

For older or warehoused accounts, debt collectors are typically not actively engaging them or obtaining refreshed credit data. Even a quarterly refresh may miss a key moment when a consumer is actively repaying prior financial obligations. If a consumer hasn’t recently been contacted about an account that’s in collection, it may not be top of mind. So, it’s very important to leverage a solution that can enable you to act within days of consumers illustrating and improve capacity to pay.

[Missy]: 

So, what kinds of benefits and improvements have you seen from companies that have been effectively managing and monitoring capacity to pay?

[Matt]:

Companies that effectively manage and monitor capacity to pay can identify older inventory that would normally have a very low yield and reinsert some of those accounts into their outreach strategies. This approach can help companies improve their bottom line while putting consumers on a path to improve their credit history and overall financial health.

[Missy]: 

Well, that sounds like it could be a big undertaking. How have you seen debt collectors effectively implement a successful “capacity to pay” monitoring program?

[Matt]: 

It could be a big undertaking, but a solution like Experian’s Collection Triggers℠ is quite easy to start out with. Our team can work with debt collectors to select the handful of events to start, and you can easily manage your spend and workload to ensure you’ll see real benefit before ramping up. I’ve seen the entire process from contracting to receiving triggers take as little as just a few weeks.

[Missy]:  

Well, I certainly learned a lot there. Thank you so much, Matt, for answering all of my questions. I’ll turn it over to you for the closing and final thoughts for the audience.

[Matt]:

Thanks, Missy for the opportunity to talk with your audience. I’d invite anyone that’s interested in learning more to check out the links in this posting or contact us with questions. We’re here to help.

[Missy]: 

Wonderful. Thank you again so much for your time today, and thanks to everyone for turning into this episode of Executive Q&A. We’ll see you the next time.

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Learn more about Experian’s Collections Triggers here. 

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** Experian analysis of Trades that were charged off as of January 2023 using April 2023 Trigger file to capture Triggers in the last 90 days 

On February 27, 2024, the California Department of Financial Protection and Innovation (the Department) entered into a public consent order with a company that provides consumer financial services to California residents. The consent order alleges that between January 2020 and September 2022, the Department received complaints from consumers raising concerns about their accounts and customer service interactions with the company, which the Department forwarded to the company for investigation and response. The Department also investigated the company’s handling of those consumer complaints.

The Department found that the company’s complaint handling was deficient in that “occasional mistakes” that occurred in the Company’s responsiveness to consumer complaints were substantial enough to have violated the California Consumer Financial Protection Law (CCFPL). The Department alleged that as between the company and the consumer, the company was in the better position to accurately evaluate the available information in most cases and to respond to consumers’ complaints in a timely manner and while the number of mistakes during the Department’s investigation period was relatively small in comparison to the overall number of consumer complaints received, the Department concluded that the mistakes were important to the affected consumers.

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To resolve these allegations, the company agreed to (1) desist and refrain from violating the CCFPL through its complaint handling processes, (2) pay a penalty of $ 2.5 million, (3) enhance existing customer service procedures or processes, (4) establish, implement, enhance, and maintain testing policies, procedures, and standards reasonably designed to, at a minimum, ensure compliance with the law, and (5) report to the Department annually for two years on these standards. These standards require the company to:

• Ensure customer service support 24 hours a day, seven days a week;
• Ensure sufficient customer service support staffing;
• Ensure sufficient customer service support training; and
• Investigate and implement policies and procedures to maintain the accurate, prompt and proper handling of consumer complaints.

Why is it Important?

The CCFPL was enacted in September 2020 and grants the Department expanded authority over persons engaged in offering or providing a consumer financial product or service in California and their affiliated service providers. Notably, under the CCFPL, it is unlawful for a “covered person” or “service provider,” to do any of the following:

• Engage, have engaged, or propose to engage in any unlawful, unfair, deceptive, or abusive act or practice (UDAAP) with respect to consumer financial products or services.

• Offer or provide to a consumer any financial product or service not in conformity with any consumer financial law or otherwise commit any act or omission in violation of a consumer financial law.

• Fail or refuse, as required by a consumer financial law or any rule or order issued by the Department thereunder, to do any of the following:

                 – Permit the Department access to or copying of records.

                 – Establish or maintain records.

                 – Make reports or provide information to the Department.

The CCFPL defines a “covered person” to mean, to the extent not preempted by federal law, any of the following:

• Any person that engages in offering or providing a consumer financial product or service to a resident of California.
  
• Any affiliate of a person described above if the affiliate acts as a service provider to the person.
• Any service provider to the extent that the person engages in the offering or provision of its own consumer financial product or service.

A “servicer provider” includes any person that provides a material service to a covered person in connection with the offering or provision by that covered person of a consumer financial product or service, including a person that either:

• Participates in designing, operating, or maintaining the consumer financial product or service.
• Processes transactions relating to the consumer financial product or service, other than unknowingly or incidentally transmitting or processing financial data in a manner that the data is undifferentiated from other types of data of the same form as the person transmits or processes.

The term “service provider” does not include a person solely by virtue of that person offering or providing to a covered person either a support service of a type provided to businesses generally or a similar ministerial service, or time or space for an advertisement for a consumer financial product or service through print, newspaper, or electronic media.

Notwithstanding the broad definition of “covered person,” the CCFPL contains numerous exemptions, including for banks; licensed escrow agents; licensees under the California Financing Law; licensed broker-dealers or investment advisers; licensees under the Residential Mortgage Lending Act; licensed check sellers, bill payers, or proraters; and licensed money transmitters, among others.

The Department is authorized to impose civil money penalties for any violation of the CCFPL, rule or final order, or condition imposed in writing by the Department in an amount not to exceed the greater of $5,000 for each day during which a violation or failure to pay continues, or $2,500 for each act or omission. Reckless violations are subject to increased penalties not to exceed the greater of $25,000 for each day during which the violation continues, or $10,000 for each act or omission. For knowing violations, the Department is authorized to assess penalties not to exceed the lesser of one percent of the person’s total assets, $1 million for each day during which the violation continues, or $25,000 for each act or omission.

What Do You Need to Do?

It is always important to take consumer complaints seriously and to respond timely and accurately. Now is the time to review your company’s complaint management procedures to make sure they are robust. It is always important to mine your consumer complaints so that you can learn from them and correct errors timely to ensure mistakes don’t recur, and the Department’s latest settlement is a reminder that companies subject to the CCFPL also have a legal obligation to do so.

MENLO PARK, CA — It’s easy to overlook the significance of grassroots engagement and local participation in the democratic process—however, leaders like the Sr. Director of Business Operations at Latitude by Genesys, Cris Bjelajac, are setting an example by actively participating in their local elections. Bjelajac volunteered as a Precinct Officer for his local elections on Super Tuesday, March 5th.

“I started volunteering in 2020 because most of the existing volunteers were the incredible women of the League of Women Voters, but due to pandemic concerns they could not risk leaving their homes.” Bjelajac said. “You may remember that during the primary season that year, voters were waiting sometimes hours to cast their ballot at locations across the country. That’s because at many polling places there were so many voters and a lack of able volunteers. Since then, I have really enjoyed doing it, both in local elections and town meetings, as well as State and National Primaries and Elections. Getting to be part of the democratic process in this country is truly an honor.”

The Local Elections Landscape

Local elections often serve as the bedrock of any democratic society. They impact immediate communities, shaping policies and decisions that directly affect residents’ day-to-day lives. From school board positions to city council seats, these elections provide an opportunity for citizens to have a direct hand in crafting the future of their neighborhoods. “If you’ve never gone to a town meeting, I highly recommend you try to attend one this year. It’s democracy at its most basic. Enlightening, encouraging, sometimes maddening, and yet often fun,” says Bjelajac.

Being There for the Community

A precinct director plays a crucial role in ensuring that the democratic process is accessible and inclusive. Being there for the community means creating an environment where every voice can be heard, regardless of background or circumstance. By volunteering time and expertise, this leader exemplifies a commitment to fostering an environment where diverse perspectives are valued and respected.

Latitude By Genesys’ commitment to a smooth electoral process reflects a broader corporate ethos of social responsibility. “Genesys has a huge commitment to volunteerism, and provides not only the ability to redirect my time to charitable causes, it also matches those contributions monetarily allowing me to donate hard dollars to charities of my choice.” Bjelajac explained. By actively participating in local elections, the company not only demonstrates a commitment to citizenship but also recognizes that a thriving community is essential for sustainable local and national success.

About Latitude by Genesys

Latitude by Genesys® is a comprehensive debt collection and recovery solution for managing all pre- and post-charge-off accounts and workflow processes. It provides collectors and agents with the tools to manage the debt collection and recovery process and provides full functionality for the collector’s or agent’s desktop and deploys as a true zero-footprint, browser-based environment. Since 1996, Latitude’s focus has been to provide the most forward-thinking, attractive solution to the business needs of different people and companies in the accounts receivable management (ARM) space. Acquired by Genesys in 2016, Latitude is continually growing, innovating, and reshaping the technology expectations and customer experiences of ARM companies and their consumers.

On March 5, 2024, the Consumer Financial Protection Bureau (“CFPB”) issued its final credit card late fee rule (the “Final Rule”), which, amongst other things, significantly reduces the late fee safe harbor cap for issuers other than “smaller card issuers” from the currently permitted $30 (and $41 for repeat violations) to a flat fee of $8 for all violations. In prior blogs, we have discussed the Final Rule and how it compares to Regulation Z and the previously Proposed Rule, and a legal challenge to the Final Rule brought by financial industry trade associations in a lawsuit and motion for preliminary injunction. Below, we discuss some of the operational impacts we expect to see when the Final Rule becomes effective.

Anticipated impacts of the Final Rule include:

• Revised disclosures: The CFPB’s justification for setting the effective date 60 days after publication in the Federal Register is that the Final Rule does not require any disclosure that differs from the current requirement, just a “mere alteration of the disclosed maximum late fee amounts.” 89 FR 19187-19188 (Mar. 15, 2024). However, the CFPB fails to account for the time and effort that will go into programming changes and revising cardholder agreements, disclosures, and marketing materials for – by the CFPB’s own estimate – 95% of the $1 trillion credit card market. During the 60-day time period, account opening disclosures will need to be revised, all existing paper inventory that reference late fees must be destroyed, statements will need to be reprogrammed, and websites will need to be updated. The same product, operations, IT, compliance and legal subject matter experts will be tasked to complete all these changes in a severely compressed period of time. When disclosure changes are rushed less change management testing can be performed and the risk of error rises.

• Challenges in setting a cost analysis-based late fee in lieu of the safe harbor amount: While the safe harbor penalty fee has been the industry standard, the reduction of that safe harbor fee to $8 under the Final Rule may result in issuers choosing to instead perform a cost analysis to establish penalty fees that represent a reasonable proportion of the total costs incurred by the issuer as a result of a violation if an issuer elects to charge penalty fees based on such costs, rather than the safe harbor fees. However, while it amends the Regulation Z Official Interpretation to state that post charge-off collection costs may not be included in the cost analysis (as further discussed below), the Final Rule fails to provide any affirmative guidance to enable issuers to determine how to perform a cost analysis that would satisfy the CFPB. Rather, the Final Rule Supplemental Information just reiterates that card issuers bear the burden of demonstrating that cost analysis-based late fees are reasonable and proportional to the costs incurred due to the violation. While the CFPB cites the ability of an issuer to use the cost analysis in setting a reasonable and proportional fee as a justification for the drastically lower safe harbor amount, any large issuer that does so should anticipate doing so under great regulatory scrutiny, with added risk of litigation.

• Detrimental effects on consumers – the possibility of higher APRs and other charges: In light of the drastic reduction of the late fee safe harbor amount and the fact that it will no longer be adjusted for inflation (except for smaller card issuers), it is reasonable to expect that the true cost impact of late payments will be incorporated into credit card pricing in the form of higher APRs imposed on many cardholders who pay on time. In fact, the CFPB anticipates this, stating in the commentary to the Proposed Rule that one option to cover collection costs if the $8 safe harbor fee is insufficient would be to “use interest rates or other charges to recover some of the costs of collecting late payments.” 88 FR 18919 (Mar. 29, 2023). Essentially, cardholders who pay on time will subsidize late payers through increased finance charges, or other charges as suggested by the CFPB.

• Effects and costs related to APR increases: An issuer that decides to increase APRs in an effort to cover late payment-related expenses would face added costs and burdens. In addition to the costs associated with change in terms notifications, issuers may be required to conduct and document periodic rate increase re-evaluations and adjustments. Since an increased APR cannot be applied to pre-existing balances or charges incurred within 14 days after notice of the increase, and subject to certain exceptions notice must be provided at least 45 days prior to the increase, it likely would take considerable time for an APR increase to offset costs associated with late payments. Further, if an APR increase is imposed on balances incurred in the future, the complexity of disclosing and administering multiple APRs will further add to issuers’ costs.

• Inability to recover actual credit losses related to charge-off: As noted above, the Regulation Z Official Interpretation is amended by the Final Rule to state that post-charge-off collection costs are excluded from the penalty fee calculation. Currently, the Regulation Z Official Interpretation, at 52(b)(1)(i)-2.i, provides that “Losses and associated costs (including the cost of holding reserves against potential losses and the cost of funding delinquent accounts)” are not to be taken into consideration in determining the cost incurred due to a violation in calculating a reasonable and proportional penalty fee. The Final Rule expressly expands this interpretation (for both larger card issuers and smaller card issuers) to exclude consideration of post-charge-off collection costs in the cost analysis of the late fee, further impairing issuer’s ability to set the fee based on the actual cost of default.

• Other consequences: A myriad of other potential results of the Final Rule that would affect cardholders and issuer operations, not addressed and apparently not taken into consideration by the CFPB, include possible increases in minimum monthly payments (requiring a 45-day change in terms notice), reductions in credit limits (might require adverse action notices), and the cancellation of some accounts (again, might require adverse action notices).

The Final Rule is to be effective May 14, 2024, 60 days after its publication in the Federal Register on March 15, 2024, subject to any court-imposed injunction resulting from litigation. We continue to monitor the litigation brought by financial industry trade groups that may impact the effective date of the Final Rule.

ROCHESTER, N.Y. — Continental Service Group, LLC d/b/a ConServe, in conjunction with the company’s “Matching Gift Program”, donated its March ConServe Cares proceeds to the American Heart Association. The ConServe team supports and funds the efforts of numerous local non-profit agencies that strive to make a difference. Due to the kindness and generosity of their employees, numerous lives in their community have been positively impacted and enriched.

Giving back to their communities is a fundamental aspect of ConServe’s mission statement. “Our dedicated team of employees is proud to support various local and national agencies that assist individuals facing health challenges, making their lives a bit easier,” said George Huyler, Vice President of Human Resources at ConServe.

“For 100 years, the American Heart Association has saved and improved lives, pioneered scientific discovery and advocated for healthy communities. With bold moves and support from donors like ConServe, we are saving lives from heart disease and stroke,” said Megan Vargulick, Executive Director of the American Heart Association Rochester/Buffalo Region. “All of us have raised millions of dollars to improve health and quality of life for everyone, transformed communities, and significantly reduced heart disease and stroke death rates. And we’re just getting started. With ConServe’s help, we are working to ensure all people can enjoy longer, healthier lives.”

About ConServe

ConServe is a top-performing accounts receivable management service provider specializing in customized recovery solutions for their Clients. Anchored in ethics and compliance, and steadfast in their pursuit of excellence, they are a consumer-centric organization that operates as an extension of their Clients’ valued brands. For over 38 years, they have partnered with their Clients to provide unmatched customer service while simultaneously helping them achieve their accounts receivable management goals. Visit online at: www.conserve-arm.com.

About the American Heart Association

The American Heart Association is a relentless force for a world of longer, healthier lives. They are dedicated to ensuring equitable health in all communities. Through collaboration with numerous organizations, and powered by millions of volunteers, they fund innovative research, advocate for the public’s health and share lifesaving resources. The Dallas-based organization has been a leading source of health information for a century. During 2024 – their Centennial year – they celebrate their rich 100-year history and accomplishments. As they forge ahead into their second century of bold discovery and impact their vision is to advance health and hope for everyone, everywhere. Connect with them at heart.org, Facebook, X or by calling 1-800-AHA-USA1.