Archives for March 2024

As discussed here, on March 5, 2024 the Consumer Financial Protection Bureau (CFPB or Bureau) finalized its credit card late fee rule (Final Rule). The Final Rule sets a safe harbor amount for late fees at $8 and eliminates the annual inflation adjustments to that safe harbor amount, for larger card issuers. The timing of the Final Rule’s announcement, just days before the State of Union address, did not go unnoticed. President Biden highlighted this development in his speech, emphasizing his administration’s commitment to eliminating so-called hidden fees.

However, the administration’s efforts do not stop at late fees. They are assembling a Strike Force to combat unfair and illegal pricing. Led by the Department of Justice and the Federal Trade Commission, the Strike Force aims to “root out” illegal corporate behavior that raises prices through anti-competitive, unfair, deceptive, or fraudulent business practices.

The industry, however, is not standing idle. The announcement of the Final Rule on credit card late fees sparked immediate reaction. A collective of trade groups, including the U.S. Chamber of Commerce, Fort Worth Chamber of Commerce, Longview Chamber of Commerce, the American Bankers Association, the Consumer Bankers Association, and Texas Association of Business (collectively, the trade groups) filed a complaint in the U.S. District Court for the Northern District of Texas challenging the Final Rule.

The trade groups argue that in enacting the Final Rule “the CFPB violated the Appropriations Clause, exceeded its statutory authority, and offered deficient analysis and reasoning, all in order to achieve a pre-ordained outcome that will ultimately harm those consumers the CFPB is charged with protecting.” The trade groups further argue that the Final Rule’s effective date violates the Truth in Lending Act (TILA).

The complaint includes five counts. In the first count, the trade groups argue that the Final Rule should be invalidated because the CFPB’s funding mechanism violates the Appropriations Clause of the U.S. Constitution, a claim that is currently pending before the U.S. Supreme Court in Community Financial Services Association v CFPB (CFSA case). Oral arguments in the CFSA case, discussed here, were heard in October. A decision is expected in the coming months.

In the subsequent counts, the trade groups argue that the Final Rule violates the Administrative Procedure Act (APA) because the CFPB: (i) violated the express requirements of the Credit Card Accountability Responsibility and Disclosure (CARD) Act by repealing the old safe harbor and establishing a new safe-harbor amount based on only a fraction of the costs incurred by issuers from late payments, and not allowing issuers to charge fees that sufficiently account for deterrence; (ii) did not rationally analyze or explain its decisions, nor base those decisions on substantial evidence, including by using inappropriate, incomplete, and non-public data to estimate card issuers’ costs and using deeply flawed analysis to dismiss concerns about the decreased deterrent effect of reducing late fees to $8; (iii) relied heavily upon the Federal Reserve’s Y-14M data that was not made available to the public for comment; and (iv) violated TILA by having its new credit card disclosures take effect prior to the October 1 date required by the statute.

Concurrently with the complaint, the trade groups filed a motion for preliminary injunction requesting that the court enjoin the Bureau from implementing the Final Rule against their members until the conclusion of the case.

Troutman Pepper’s Take:

The federal “war on fees” has become highly politicized and multifaceted, targeting the financial services industry specifically but also encompassing many other industries as well. The inevitable has happened, with the dispute spilling over into the courts, which may be the final arbiter on the legality and limits of the federal initiatives. As for the financial services industry in particular, it appears that litigation is becoming an integral part of the rulemaking process going forward.

PITTSBURGH, Pa. — From the era of flip phones to the advanced age of AI, Solutions for Account Management (SAM) proudly marks its 20th anniversary, a testament to its enduring commitment to innovation, integrity, and the spirit of compassion within the debt management industry. Founded in 2004 with a heartfelt mission to honor Brenda Meli’s father, Sam, the company was born out of a vision to revolutionize the Accounts Receivable Management (ARM) industry with a unique ‘business concierge’ approach.

“Our story is one of struggle, sacrifice, and immense accomplishments,” says Brenda Meli, Co-founder and CEO. “It all began with a dream to pay tribute to my father’s legacy and to transform the ARM industry. What makes our journey special is the collective spirit and dedication of the SAM Squad, our remarkable team. We wouldn’t have come this far or accomplished so much without them.”

A Vision Turned Reality

SAM’s inception story is one of destiny and determination. Brenda’s first client, Lauren, was not just a client but a pivotal part of SAM’s evolution. In 2014, she joined forces with Brenda, transforming SAM into a woman-owned powerhouse that has since emerged as a leading debt sale broker. Together, they have championed the concept of corporate matchmaking, helping countless businesses navigate the complexities of debt management with unparalleled expertise and personalized care.

Two Decades of Pioneering Success

Over the years, SAM has introduced groundbreaking solutions, such as their proprietary DebtSales360 platform, setting new industry standards for managing and selling debt portfolios. The company’s relentless pursuit of excellence has not only earned it the status of an RMAi Certified Debt Sale Broker but has also redefined what it means to deliver client-centric solutions in the debt management space.

“As we look back on these 20 years, we’re filled with gratitude for every client, partner, and team member who’s been part of our journey,” Lauren McIlroy, Co-founder and COO, reflects. “Our story is made of every challenge we’ve faced and every success we’ve celebrated. And as we look to the future, we’re excited for the endless possibilities that lie ahead.”

In the spirit of celebrating two decades of success, SAM continues its commitment to community engagement by supporting meaningful initiatives with organizations like Autism Speaks, Maddie’s Message, and Special Olympics. These partnerships highlight SAM’s dedication to not just business excellence but also to making a positive impact in the lives of individuals and communities.

As SAM commemorates this monumental anniversary, it stands as a beacon of innovation, compassion, and excellence in the debt management industry. Here’s to 20 years of making a difference and many more to come. 

Recently, three Republican members of the U.S. House of Representatives’ Financial Services Committee, Patrick McHenry, Mike Flood, and French Hill, sent a joint letter to the Consumer Financial Protection Bureau (CFPB or Bureau) urging the agency to reopen the comment period and reconsider its November 2023 proposed rule regarding digital consumer payment applications. 

As discussed here, the Bureau is seeking to amend existing regulations by adding a new section to define larger participants that offer digital wallets, payment applications, and other services to fall within the CFPB’s supervisory scope. The Congressmen urge the CFPB to open the comment period on the proposed rule for an additional 60 days arguing that “[a]s it currently stands, this rule would introduce more regulatory uncertainty into the payment industry, particularly with respect to third-party service providers and digital asset companies.”

Specifically, under the proposed rule the CFPB seeks to supervise large nonbanks that provide peer-to-peer (P2P) payments, funds transfers, or wallet functionalities through a digital payment application. The proposed rule would subject companies that offer one or more of the covered activities to the CFPB’s supervisory authority, which would allow the CFPB to conduct examinations and assess compliance with all federal consumer financial protection laws and regulations enforced by the CFPB, not merely the ones relating to digital payments.

The comment period on the proposed rule closed on January 8, but the Congressmen argue it should be reopened for various reasons:

• The proposed rule does not adequately justify the need to expand the Bureau’s regulatory scope into the payments industry. For example, the proposed rule fails to provide any evidence of non-compliance with federal consumer financial laws or explain how it would be addressed by this new regulation. As such, the Congressmembers urge the CFPB to provide sufficient justification demonstrating the need for the proposed rule, including a more detailed analysis of the scope of the proposed rule and its impact. “Absent such justification, the CFPB should forgo finalizing the rule.”

• As written, it is unclear whether the proposed rule covers third party service providers and, if so, to what extent. “Service provider” is broadly defined under the Dodd-Frank Act and so relying on the statutory definition leaves many unanswered questions regarding how the CFPB intends to conduct oversight of third-party service providers to covered entities offering consumer payment applications.

• It is unclear when the rule would apply to specific entities. On one hand, the proposed rule explicitly states that fiat-to-crypto and crypto-to-crypto transactions conducted on an exchange would not be covered. However, it remains unclear if this exclusion would exempt digital asset exchanges entirely, or only in instances where they offer services limited to the conversion of fiat-to-crypto and crypto-to-crypto transactions. Likewise, the proposed rule’s language pertaining to digital asset wallet providers raises questions as to which entities would be included under CFPB’s purview.

Notably, the day after the Republican Congressmen submitted their letter to the Bureau, three Democratic U.S. Senators issued a letter supporting the proposed rule.

The CFPB recently published a notice in the Federal Register indicating that it is seeking approval from the Office of Management and Budget (OMB) for the collection of additional auto finance data pursuant to its authority under the Dodd-Frank Act .

In February 2023, the CFPB announced that it had issued market monitoring orders to nine large auto lenders requesting information about their auto lending portfolios.  The CFPB published a sample order on its website.

The requests within the order asked for detailed loan level data regarding originations and servicing from January 1, 2018 through December 31, 2022.  For example, the originations section asked for 23 different categories of data (plus sub-categories) regarding vehicle pricing and loan terms and another 23 categories of data regarding the dealer, lender, and borrower(s).  The servicing section included, among other requests, a request for 28 different data categories regarding repossessions and voluntary surrenders.

In the notice of its new request to OMB, the CFPB refers to the February 2023 orders as the “initial Auto Finance Data Pilot” project  (Pilot).  It states that the data from the Pilot both confirmed the benefit of additional data collection to fully carry out the CFPB’s mission, to fulfill the CFPB’s mandate to monitor the auto finance market for risks to consumers, and to inform the way the CFPB would propose to collect data in the future.  

The CFPB is now proposing to collect data in the following two processes:

• An annual collection of a set of data from lenders that originate greater than 20,000 auto loans in the previous calendar year.  The data collection would mirror the data collected in the Pilot.

• An annual collection of a set of data from lenders that originate greater than 500 auto loans and fewer than 20,000 auto loans in the previous calendar year.  The data collected would be information on the number of vehicles repossessed and the number of loan modifications. 

As we noted when the CFPB issued the initial market monitoring orders last year, the CFPB has been focused on rising auto prices and a corresponding increase in loan amounts, monthly payment amounts, and delinquencies, especially in the subprime and deep subprime market segments. 

These types of data collections typically result in the issuance of a report that is a precursor to new guidance or rulemaking.  It is likely that the CFPB will receive objections to the new data collection from industry. 

Early this morning, and just in time for Thursday’s State of the Union Address, the Consumer Financial Protection Bureau (CFPB) issued a press release announcing its much-anticipated Credit Card Late Fee Rule (Rule). Claiming to “close a loophole,” the Rule reduces a typical fee of $32.00 to $8.00 and ends automatic inflation adjustment for issuers with 1 million or more open accounts. 

According to the CFPB, credit card companies have increased fees despite moving to cheaper, digital processes. In a published statement released contemporaneously with the announcement of the Rule, CFPB Director Rohit Chopra stated the CFPB’s research shows late fee revenue generated by the credit card industry is more than five times the companies’ associated costs.  

The Final Rule, which changes very little (if anything) from the original proposal, institutes the following:

• Lowers the immunity provision dollar amount for late fees to $8. The CFPB says its analysis shows a late fee of $8 is sufficient for larger card issuers to cover collection costs incurred due to late payments.

• Ends abuse of the automatic annual inflation adjustment. The CFPB claims that issuers hiked their late fees in lockstep each year without evidence of increased costs. The CFPB will monitor market conditions and adjust the $8 late fee immunity threshold as necessary.

• Requires credit issuers to show their math. The Rule will allow larger card issuers to charge fees above the $8 late fee threshold so long as they can prove the higher fee is necessary to cover their actual collection cost. 

The Rule does not change the credit card issuer’s ability to raise interest rates, reduce credit lines, and take other actions to deter consumers from paying late. 

After listing the main tenets of the Rule, the tone of the press release shifted. Per the CFPB, the rule is part of its continued efforts to address problems and foster competition in the $1 trillion credit card market. In support of those efforts, the CFPB raised its findings on APR margins charged by the largest issuers, data that the CFPB says shows small banks and credit unions offer significantly lower rates, the CFPB’s recent guidance to rein in “rigged comparison-shopping results” for credit cards and other products, and recent enforcement actions.

The Final Rule can be found here. History and comments are linked here.

insideARM Perspective

The 338-page Rule was released less than two hours before this article was published. Therefore, the above covers the main points cited by the CFPB in its press release. In the coming days, we at insideARM, along with our news partners, will publish more details and insight regarding the Rule’s substance and its official comments. In other words, this is a developing story and we will bring you more details and analysis as it becomes available, and once we’ve all had a chance to meaningfully review the Rule and its implications.

That said, noticeably absent from the press release and Director Chopra’s prepared remarks is any mention of the Rule’s downstream effects. The press release and the prepared remarks frame the issue as a simple one; to summarize, “credit card issuers charge too much for late fees, let’s make them charge less = a win for everyone.” Rarely is it ever that simple.

As reported in insideARM last year, when the proposed rule was first released, both the Consumer Bankers Association, the American Bankers Association, and Auriemma Roundtables* cautioned that if finalized as-is (which is exactly what has happened), the Rule would ultimately limit consumers’ access to financial products and would effectively penalize those who pay on time.  In a complex financial ecosystem, actions have consequences, rules have both intended and unintended effects. This rule wasn’t created in a vacuum and won’t exist in one.  

Read the Consumer Bankers Association Statement here.

Read the American Bankers Association Statement here. 

A summary of the Auriemma Roundtables Comment can be found here.

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*Note: Auriemma Roundtables owns insideARM (acquisition press release here)

The Federal Reserve just released its fourth quarter 2023 credit card charge-off and delinquency data with both reaching a 12-year high.

The charge-off rate increased from the third quarter’s 3.48% to 3.96%, for the first time surpassing the pre-pandemic level of 3.65%. The delinquency rate increased from 2.83% to 2.97%. The delinquency rate is often an early indicator of the future charge-off rate. The Q4 trend suggests a continued increase in charge-off volume should be expected, although the rate of that increase may be leveling off as the increase slowed.

Another observation is that for seven years before the pandemic the delinquency rate stayed in a narrow 2.0 – 2.5% band.  This band was at a lower rate than several previous decades of data. Now for three quarters, the delinquency rate has been above this pre-pandemic seven-year band.

The Federal Reserve’s charts for the data referenced follow. The charts are easily downloadable in several formats.

Charge-off Rate on Credit Card Loans

Deliquency Rate on Credit Card Loans

On February 12, the FTC provided the CFPB with an annual summary of its 2023 enforcement, research and policy development, and educational-related initiatives on ECOA, as Dodd-Frank allows the Commission to enforce ECOA and any CFPB rules applicable to entities within the FTC’s jurisdiction. The letter emphasized the commitment of each agency to enforce laws protecting civil rights, fair competition, consumer protection, and equal opportunity in the development and use of automated systems and artificial intelligence. 

Additionally, the letter stated the FTC continued its involvement in initiatives such as military outreach and participation in interagency task forces on fair lending. Its initiatives focused on consumer and business education regarding issues related to Regulation B and guiding fair lending practices. The Commission also highlighted 

1. an enforcement action against a group of auto dealerships alleging ECOA and its implementing Regulation B violations in connection with the sale of add-on products; 
2. refund checks sent as a result of the settlement of two enforcement actions against auto dealerships in which it was alleged that the dealerships violated ECOA and Regulation B by discrimination against Black and Latino consumers by charging them higher financing costs; and 
3. an amicus brief submitted to an appeals court in support of the CFPB’s appeal to the U.S. Court of Appeals for the Seventh Circuit of the lower court’s decision regarding the applicability of ECOA to individuals other than “applicants.” 

On February 16, the CFPB issued a procedural rule updating its process for financial institutions that appeal the Bureau’s supervisory findings. The CFPB examined financial institutions to ensure they followed federal consumer financial law. After an examination or targeted review, supervised entities may appeal their compliance rating or any other findings.

First, the procedural rule expanded the pool of potential members for the appeals committee within the CFPB. Now, any CFPB manager with relevant expertise who did not participate in the original matter being appealed can be considered, rather than previously only managers from the Supervision department. The CFPB’s General Counsel will assign three CFPB managers and legal counsel to advise them. 

Second, the revised process introduced a new option for resolving appeals—in addition to upholding or rescinding the original finding, matters can now be remanded back to supervision staff for further consideration, potentially resulting in a modified finding. The Bureau also recommended in its procedural rule that entities engage in “open dialogue” with supervisory staff to discuss their preliminary findings to attempt to resolve disputes before an examination is final.

Third, institutions now can appeal any compliance rating issued to them, not just negative ratings, as was the case previously. Fourth, the updated process included additional clarifications and specifies that it applied to pending appeals at the time of its publication. 

In Perrong v. Chase Data Corp., et al., a court in the Eastern District of Pennsylvania recently ruled that no personal liability attaches to the owner of a company for Telephone Consumer Protection Act (TCPA) violations.

The case arose out of the defendant companies selling “turnkey” calling and texting services. The defendants allegedly sent three text messages to the plaintiff asking him to call a number to discuss potential injuries and possible compensation. Plaintiff alleged that the texts were sent to generate leads for personal injury lawyers, and asserted violations of Section 227(b) of the TCPA, which prohibits automated calling by using a pre-recorded message. The defendants moved to dismiss.

The court found the plaintiff sufficiently alleged a violation against one company and would be allowed to amend his complaint against the successor company. However, the plaintiff’s claims against the owner were another matter.

The court initially noted that the claims against the owner were conclusory and merely recast the allegations against the company by arguing the owner was personally involved. But the deciding factor was Third Circuit precedent, which “raised ‘doubt’ as to whether ‘common-law personal participation liability is available against corporate officers under the TCPA.’” Specifically, the appellate court stated that Congress can and does impose personal-participation liability when it chooses, and there is no such language in the TCPA. Following other courts in the Third Circuit, the court dismissed the claims against the owner without leave to amend.

ROCHESTER, N.Y. — Continental Service Group, LLC d/b/a ConServe, announces that they have once again earned a spot on Training magazine’s, 2024 Training APEX Awards. The Training APEX Awards ranking is determined by assessing a range of qualitative and quantitative factors, including financial investment in employee development, the scope of development programs, how closely such development efforts are linked to business goals and objectives, and their effectiveness of business outcomes resulting from training.

“The 2024 Training APEX Awards winners are the shining stars in the learning and development industry,” notes Training Editor/Publisher Lorri Freifeld. “They light the way for engaging, innovative, and continuous learning. We are thrilled to recognize their stellar accomplishments and dedication to helping their employees and organizations grow and succeed.”

“Our Organizational Development team, aligned with ConServe’s corporate Mission, Vision, and Values, delivers exceptional training, emphasizing compliance and ethics,” said George Huyler, ConServe Vice President of Human Resources. David Bucciarelli, Director of Organizational Development at ConServe said, “I’m proud of ConServe and our training team for earning the Training APEX Award for the tenth consecutive year. This acknowledgement from industry experts reinforces our position as a leader in providing exceptional training initiatives and programs that nurture talent within the organization.”

The rankings of leading organizations that excel at employee training was revealed on February 26, 2024 at the Training APEX Awards held in Orlando, Florida.

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 them online: www.conserve-arm.com

About Training magazine

Training magazine is the leading business publication for learning and development and HR professionals. It has been the ultimate resource for innovative learning and development—in print, in person, and online—over the last 55-plus years. Training magazine and Training magazine Events are produced by Lakewood Media Group. For more information about the 2023 Training Conference & Expo, please visit: www.trainingconference.com