On November 16, 2023,  the Consumer Financial Protection Bureau (CFPB) released a new Supervisory Highlights report, focusing on the auto servicing industry, consumer reporting, mortgage servicing, and COVID-19 relief funds. The report highlights the CFPB’s continued focus on so-called junk fees and inaccurate credit reporting.

Among other findings from the report, the CFPB says that:

Examiners identified unfair and deceptive acts or practices across many aspects of auto servicing, including violations related to add-on product charges, loan modifications, double billing, use of devices that interfered with driving, collection tactics, and payment allocation.

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• Examiners identified instances where consumers paid off their loans early, but servicers failed to ensure consumers received refunds for unearned fees related to add-on products, such as GAP protection, that no longer offered any benefit to the customer.

• Examiners found that servicers engaged in deceptive acts or practices by representing to consumers that their modifications were preliminarily approved pending a “good faith” payment, when in fact, they denied most of the modification requests.

• When consumers enter into auto finance agreements, lenders sometimes require consumers to have technologies that interfere with driving (sometimes called starter interrupt devices) installed in their vehicles. These devices, when activated by servicers, either beep or prevent a vehicle from starting. Examiners found that, in certain instances, servicers engaged in unfair acts or practices by activating these devices in consumers’ vehicles when consumers were not past due on payment.

Examiners found deficiencies in national credit reporting agencies’ compliance with Fair Credit Reporting Act (FCRA) dispute investigation requirements and furnisher compliance with FCRA and Regulation V accuracy and dispute investigation requirements.

• CFPB examiners found that one or more of the nationwide consumer reporting companies failed to report to the CFPB the outcome of their reviews of complaints about inaccuracies on consumers’ credit reports.

• Examiners continued to find that furnishers, specifically auto loan furnishers, are violating FCRA by inaccurately reporting information despite actual knowledge of errors.

• In reviews of third-party debt collection furnishers, examiners found that furnishers failed to send updated or corrected information to credit reporting agencies after making a determination that information the furnishers had reported was not complete or accurate.

In its continued focus on so-called junk fees, CFPB examiners found that mortgage servicers violated federal law by charging sizable phone payment fees — even though consumers were not made aware of these pay-by-phone fees.

• During calls with borrowers, customer service representatives did not disclose the existence or cost of fees for paying over the phone, yet the borrowers were charged fees anyway.

• Following these findings, the CFPB required the servicers to reimburse all borrowers who paid phone payment fees when those fees were not properly disclosed.

CFPB examiners conducted assessments to evaluate how financial institutions handled pandemic relief benefits deposited into consumer accounts.

• They identified instances of institutions using protected unemployment insurance or economic impact payments funds to set off a negative balance in the account into which the benefits were deposited (a.k.a. same account setoff) or to set off a balance owed to the financial institution on a separate account (a.k.a. cross-account setoff) when such practices were prohibited by applicable state or territorial protections. They further identified instances of institutions garnishing protected economic impact payments funds in violation of the Consolidated Appropriations Act of 2021.

  In response to these findings, the CFPB directed the institutions to issue refunds and make process changes to ensure they comply with applicable state and territorial protections regarding garnishments and setoff practices.

• CFPB examiners identified violations regarding failure to timely provide homeowners with CARES Act forbearances. Examiners also found that servicers unfairly charged some individuals fees, while they were in CARES Act forbearances.

Beyond the series of findings described above, this edition of Supervisory Highlights was notable for the announcement that the CFPB had created a “Repeat Offender Unit” within supervision, the focus of which will be to “enhance the detection of repeat offenses, develop a process for rapid review and response designed to address the root cause of violations, and recommend corrective actions designed to stop recidivist behavior. This will include closer scrutiny of corporate compliance with orders to ensure that requirements are being met and any issues are addressed in a timely manner.” We presume that the “orders” referred to in this description are consent orders, and we note that in the past, monitoring for compliance with consent orders has occurred predominantly within the CFPB’s enforcement division. This announcement may signal that the CFPB intends to use supervisory exams to monitor for consent order compliance to a greater degree in the future.

ROCHESTER, N.Y. –Continental Service Group, Inc., d/b/a ConServe’s charitable giving program, ConServe Cares, allows both the employees and the organization as a whole to support a wide range of community investment efforts, thereby engaging and inspiring employees while also reinforcing ConServe’s outstanding corporate citizenship.  The October ConServe Cares program has been allocated to The Salvation Army of Rochester.

“The needs of our neighbors are present year-round, but most prevalently during the Christmas season.  We’re grateful for community partners, like ConServe, who donate so generously knowing that donations stay right here in our area,” said Maureen Hill, Community Relations for The Salvation Army of Rochester.  “This donation will help provide shelter, food, and many emergency services to those struggling in Monroe County.”

“Our team of caring and committed employees take great pride in supporting a diverse group of local and national agencies that help to make life a little easier for those that may be struggling due to national disasters, households in crisis, lack of shelter, hunger relief, and financial hardships,” said George Huyler, Vice President of Human Resources at ConServe.

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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 37 years, they have partnered with their Clients to provide unmatched customer service while simultaneously helping them achieve their accounts receivable management goals.  Visit us online at: www.conserve-arm.com

About The Salvation Army  

The Salvation Army is part of the universal Christian church, whose mission is to support those in need in His name without discrimination. The Salvation Army serves the community with social services that range from providing emergency food and shelter, relief from disasters, rehabilitation from drug and alcohol addiction, support after abuse and trafficking, and opportunities for underprivileged children. The Salvation Army has been in Rochester, NY since 1884. Last year, more than 26,000 bags of groceries and over 30,000 nights of lodging were provided for those in the most need in our community.  Visit them online at:  RochesterNY.SalvationArmy.org

If you own or run a company, and you’re considering selling out or buying another company, I strongly encourage you to watch this video. 

Mergers and acquisitions are happening in the U.S. accounts receivable management (ARM) industry, although the marketplace following the midterm elections is vastly different than it was before and during the global pandemic. Variable economic conditions, political uncertainties, increased regulatory actions, and rising capital costs are having a profound effect on the frequency and outcome of many business sales over recent years.  

At Kaulkin Ginsberg, we are very proud to have clients like Chad Silverstein, former owner of Choice Recovery based in Columbus, Ohio. Over a twenty-five-year career, Chad and his team built a successful ARM company uniquely focused on servicing smaller healthcare providers. 

Chad
and I recently recorded our candid discussion about the sale of his business.

This is a must-see video for owners who are thinking about selling their business or buying another ARM company.  

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We cover critical topics including:

1. What motivates a young owner to sell a successful business?
2. The challenges of selling a private company.
3. What distinguished Choice Recovery from its competitors, including a unique way to help unemployed consumers who are heavy in debt find employment.
4. Why Chad decided to hire Kaulkin Ginsberg to handle the sale.
5. What would Chad tell an owner who is thinking about selling his/her business? 

The New York Department of Consumer and Worker Protection (DCWP) is proposing to amend its rules relating to debt collectors.  DCWP will hold a public hearing to address the proposed rules at 11 am ET on Monday, December 5, 2022.

The proposed amendments include provisions regarding:

• Written notice to consumers regarding an expired statute of limitations. (Section 1)
• Requirements for annual reports identifying actions taken by the agency in a language other than English. (Section 2)
• Additional definitions. (Sections 3 and 4)
• Guidance regarding how debt collection agencies must provide information on DWCP’s website and post information on their own websites. (Section 5)
• Substantive edits addressing disclosures, communication frequency, credit reporting, and communication channels. (Section 5)

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Instructions regarding how to participate or comment on the proposed rules can be found on the first page of this document; all proposed changes can be found on pages 4-19. 

On November 15, 2022, the FTC announced that it was extending by six months the deadline for companies to comply with some portions of the updated Safeguards Rule. The extension comes as a welcome relief to companies racing to meet the rapidly nearing effective date.

The FTC approved changes to the longstanding Safeguards Rule in October 2021.  The updated rule includes several components that could require significant operational modifications, such as encryption at rest and multifactor authentication whenever nonpublic personal information is accessed.  While some components went into effect 30 days after publication, the most substantive changes were set to go into effect on December 9, 2022. 

The FTC voted unanimously to extend that December 9 date to June 9, 2023.  Accordingly, subject companies will have an additional six months to:

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• Designate a qualified individual to oversee their information security program;
• Develop a written risk assessment;
• Limit and monitor who can access customer information;
• Encrypt information in transit and at rest;
• Train security personnel;
• Develop a written incident response plan; and
• Implement multifactor authentication whenever anyone accesses customer information.

While the new deadline certainly provides breathing rom, companies should not take it as an opportunity to delay.  Indeed, between the holidays and state law compliance initiatives, the new deadline will also soon be rapidly approaching. 

As discussed here, on October 19, a three-judge panel of the Fifth Circuit Court of Appeals held that the Consumer Financial Protection Bureau’s (CFPB) funding mechanism violates the appropriations clause because the CFPB does not receive its funding from annual congressional appropriations like most executive agencies, but instead receives funding directly from the Federal Reserve based on a request by the CFPB’s director. Yesterday, the CFPB filed a petition for a writ of certiorari to the U.S. Supreme Court, requesting not only that the Court hear the case, but also that it be decided on an expedited basis during the Court’s current term. Given the importance of the decision and the gravity of the potential implications, the Court may well take the unusual step of granting the petition and agreeing to the requested expedited schedule.

Highlights From the Petition

In its petition, the CFPB argues that the Fifth Circuit erred in holding that the CFPB’s funding through the Federal Reserve unconstitutionally insulates it from congressional oversight and appropriations. In support of its position, the CFPB points to the fact that the Dodd-Frank Act requires the CFPB director to regularly submit reports to and make appearances before Congress to justify the CFPB’s budget requests. The comptroller general also must conduct annual financial audits of the CFPB and submit annual reports to Congress.

The CFPB further argues that its funding mechanism is not meaningfully different from numerous other agencies, such as the Federal Reserve Board, Office of the Comptroller of the Currency (OCC), and Federal Deposit Insurance Corporation (FDIC), all of which the CFPB argues are funded outside the congressional appropriations process. Relying on existing Supreme Court precedent, the CFPB argues that the appropriations clause leaves it to Congress to determine the duration, form, source, and specificity of such appropriations to government agencies. By prescribing the source, amount, duration, and purpose of the CFPB’s funding in the Dodd-Frank Act, Congress satisfied these requirements.

The CFPB also took on the Fifth Circuit directly in several places. First, with respect to the Fifth Circuit’s highlighting Dodd-Frank’s provision stating funds transferred to the CFPB “shall not be construed to be Government funds or appropriated monies,” the CFPB argues this merely exempts those funds from statutes that impose limitations. The CFPB highlighted similar provisions in the funding statutes for the Farm Credit Administration, Federal Reserve Board, and the OCC as illustrative.

Further, to the extent the Fifth Circuit was motivated by separation of powers concerns, the CFPB argues such concerns are misplaced. “Where, as here, Congress has enacted a law that expressly authorized the Executive Branch expenditures at issue, ‘the straightforward and explicit command of the [a]ppropriations [c]lause’ is satisfied. And courts have no license to depart from the text and history of the constitutional provisions adopted by the Founders in pursuit of their own views about the proper structure and funding of administrative agencies.”

Lastly, the CFPB challenged the Fifth Circuit’s remedy on two grounds. First, arguing that even if the Fifth Circuit correctly held the CFPB’s funding process violates the appropriations clause, it failed to conduct a severability analysis to see if any defects in the statute could be severed, while leaving the rest intact. Second, arguing that even if the entire funding mechanism were to be found unconstitutional, that would only require that the CFPB halt further spending of funds, but it would not compel courts to unwind already completed actions like the Payday Lending Rule at issue.

Request for Expedited Review

Beyond the asserted errors above and the circuit split on the issue, the CFPB argued the Supreme Court should grant the petition because of the potentially massive implications of the decision. According to the CFPB, the Fifth Circuit’s decision “calls into question virtually every action the CFPB has taken in the 12 years since it was created … [and] threatens to inflict immense legal and practical harms on the CFPB, consumers, and the Nation’s financial sector.” Due to the gravity of the decision, the CFPB requests that the Supreme Court “consider the petition at its January 6, 2023 conference and hear the case during its April 2023 sitting.”

Going Forward

While requesting an expedited review is unusual, given the real-world implications for the financial industry highlighted in the petition if the decision is upheld, we suspect the case will indeed be decided this term, i.e., by June 2023. The CFPB’s decision to highlight just how similar its funding structure is to other agencies could serve to encourage broader challenges in the future with regard to those agencies. One thing is certain — uncertainty will remain with respect to actions taken by the CFPB, and possibly others, for the foreseeable future.

Earlier this year, the Federal Communications Commission (FCC) issued a notice of proposed rulemaking targeting unlawful text messages. Despite its targeted title, if left unchanged, the text of the rule may affect text messages sent for valid business purposes. On November 9, 2022, the Consumer Relations Consortium (CRC) submitted comments to the FCC regarding the proposed rule’s shortcomings.

The CRC’s comments were prepared by Legal Advisory Board (LAB) Brit Suttell of Barron and Newburger and Abigal Pressler of Ballard Spahr.

The CRC supports regulations involving illegal texts. However, to avoid blocking lawful text messages, the CRC urged the FCC to consider making the following changes to the proposed rule:

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• Clarify that the rule applies to illegal texts, not unwanted texts. The proposed rule appears to conflate the terms “unwanted” and “illegal.” The comment explains that, for several reasons, an unwanted text is not necessarily illegal. 

• Recognize and avoid conflict with the portions of  Regulation F wherein the Consumer Financial Protection Bureau (CFPB) provided methods for consumers to opt-out of unwanted debt collection text messages.

• Update the proposed rule to avoid any appearance of a content-based restriction in violation of the First Amendment to the United States Constitution. 

• Decline to regulate Over the Top (OTT) messaging because OTT uses internet-based instant messaging applications, which can be done from either a computer or mobile phone. Since a mobile network is not required for OTT messaging, the FCC would overstep by attempting to regulate these messages.

The CRC praised the FCC for requiring providers to create a single point of contact to address blocked texts and asked the FCC to pay attention to digital equity and inclusion in any rule it ultimately adopts.   

The full comment can be found here. 

Creditors and medical services providers should reevaluate their consumer credit agreements and collection practices in light of a recent amendment to Washington, D.C.’s debt collection law, which goes into effect on January 1, 2023. The D.C. Council previously adopted emergency debt collection restrictions in response to the COVID-19 pandemic. These restrictions are now being adopted on a permanent basis via the new amendment and impose new restrictions on communicating with consumers via email, text message and social media.

The amendment adopts a definition of “consumer debt” that is subject to the debt collection law that includes medical debts, and it also defines “consumer debt” to include only debts that are “more than 30 days past due and owing, unless a different period is agreed to by the consumer.” Creditors, including medical services providers, should consider updating their customer agreements to better define at what stage of delinquency a debt will become subject to the D.C. debt collection law.

In addition, the amendment limits the number of permitted consumer communications, shortens the statute of limitations, prohibits collecting debts on which applicable statutes of limitations have run, limits the collection of attorneys’ fees in collection actions and requires debt collectors to provide extensive disclosures in their initial written communication in connection with a charged-off consumer debt, in English and in Spanish.

In contrast to the CFPB’s Regulation F, the amendment expressly prohibits communicating with consumers electronically via email, text message or “private messages through social media platforms.” Subject to numerous restrictions, however, debt collectors may use such electronic communications methods to obtain consumers’ consent to continue to use such methods. The amendment is unclear if creditors collecting on non-charged-off consumer debts may also communicate electronically with consumers to obtain consent to further electronic communications.

Penalties for violations of D.C.’s debt collection law include actual damages, costs and attorneys’ fees, punitive damages of between $500 and $4,000 per violation, and any other relief that the court deems appropriate.

D.C.’s debt collection amendments continue a nationwide trend toward imposing restrictions on medical debt collection practices, such as the enactment of the No Surprises Act, the Consumer Financial Protection Agency’s recent medical debt collection enforcement bulletin, California’s recent prohibition against certain sales of medical debt and its increased minimum income qualification for financial assistance, and the recent passage of Arizona Proposition 209, which limits the rate of interest on medical debt to 3% and imposes various other restrictions on debt collection practices.

The CFPB has issued a circular (2022-07) to address “shoddy investigation practices” and “affirm that neither consumer reporting companies nor information furnishers can skirt dispute investigation requirements.”  

The Fair Credit Reporting Act (FCRA) requires both consumer reporting agencies (CRAs) and furnishers of information to CRAs  to conduct a reasonable investigation when properly notified of a dispute about information furnished in a consumer report.  The first question discussed in the circular is whether the FCRA permits CRAs and furnishers “to impose obstacles that deter submission of disputes.”

The CFPB indicates that CRAs and furnishers can violate the FCRA by requiring any specific format or specific attachment to a dispute, other than as described in the FCRA and regulations, as a precondition to conducting an investigation.  It gives the following examples of requirements that would not be permissible:

• A requirement by a CRA that a consumer must provide a recent copy of the consumer’s report or file disclosure before the CRA will investigate a dispute despite the consumer providing sufficient information to investigate the disputed information;

• A requirement by a furnisher that a consumer must provide additional specific documents even though the consumer has already provided the supporting documentation or other information reasonably required to substantiate the basis of a direct dispute; and

• A requirement by a CRA or furnisher that a consumer must attach a completed proprietary form before investigating the consumer’s dispute.

The CFPB notes that while a CRA or furnisher must reasonably investigate a dispute received directly from a consumer unless it has reasonably determined that the dispute is frivolous or irrelevant, a furnisher is not permitted to deem disputes as frivolous or irrelevant if the dispute has been provided to the furnisher from a CRA pursuant to FCRA Section 623(b).  Thus, a CRA or furnisher must reasonably investigate direct disputes that are not frivolous or irrelevant and furnishers must reasonably investigate all indirect disputes “even if such disputes do not include the entity’s preferred format, preferred intake forms, or preferred documentation or forms.”

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The second question discussed in the circular is whether CRAs need to forward to furnishers consumer-provided documents attached to a dispute.  A CRA can violate the FCRA by failing to promptly provide to a the furnisher “all relevant information” regarding the dispute that the CRA receives from the consumer.  The CFPB states that while there is no affirmative requirement for a CRA to provide original copies of documentation received from consumers, it would be difficult for a CRA to prove that it provided all relevant information if it failed to forward “even an electronic image of documents that constitute a primary source of evidence.”

The CFPB notes that, through its supervisory activity, it has found that CRAs “tend to ingest dispute information from consumers using automated protocols, and they also share dispute information with furnishers electronically” and that “[t]he use of these technologies has reduced the cost and time to transmit relevant information.”  Although a CRA might be able to show that it transmitted “all relevant information” about a dispute even if it did not provide original documents received in paper form, it will be difficult for the CRA to do so.  The CFPB states that “given that primary sources of evidence provided by consumers can be dispositive in determining whether there has been a furnishing error, and given that the character of a primary source of evidence is probative and thus relevant to the investigation,” it will be difficult for a consumer reporting agency to prove that it complied with the FCRA if it does not provide electronic images of primary evidence for evaluation by the furnisher.”