On October 27, the Federal Trade Commission (FTC) announced a final rule amending the Standards for Safeguarding Customer Information (Safeguards Rule) under the Gramm-Leach-Bliley Act. The Safeguards Rule requires nonbanking financial institutions to develop, implement, and maintain a comprehensive information security program to keep their customers’ information safe. The amendment will require financial institutions to notify the FTC no later than 30 days after discovery of a security breach involving the information of 500 or more consumers. The amendment will go into effect 180 days after publication of the final rule in the Federal Register.

Specifically, the amendment applies to “notification events,” which are defined as the “acquisition of unencrypted customer information without the authorization of the individual to which the information pertains.” Notably, the FTC final rule requires notification where customer information has been acquired, rather than when misuse is considered likely, although the FTC agrees that notification should not be required when harm to consumers is rendered extremely unlikely because the customer information is encrypted. Although the FTC received public comments advocating for the inclusion of a “risk of harm” to consumers analysis, the FTC believes that determining whether acquisition has occurred simplifies the requirement and will enable financial institutions to more speedily determine whether a notification event has occurred.

If a notification event involves the information of 500 or more consumers, the covered entity must notify the FTC “as soon as possible, and no later than 30 days after discovery of the event” using a form on the FTC’s website. The FTC will deem a financial institution to have knowledge of a notification event if such event is known to any person, other than the person committing the breach, who is the financial institution’s employee, officer, or other agent.

The notice must include:

• The name and contact information of the reporting financial institution;

• A description of the types of information involved;

• If possible, the date or date range of the notification event;

• The number of consumers affected or potentially affected;

• A general description of the notification event; and

• If applicable, whether any law enforcement official has provided the financial institution with a written determination that notifying the public of the breach would impede a criminal investigation or cause damage to national security, and the contact information for the law enforcement official.

This is a supplemental rulemaking to the Safeguards Rule updates previously finalized on December 9, 2021.

Four Quick Steps to Take Now:

1. Incident Response Plan. Update your incident response plan in line with the requirements of the amendment and its 30-day period to notify the FTC.

2. Service provider agreements and security assessment questionnaires. Update service provider contracts, statements of work, and security diligence assessment questionnaires to make sure service providers of financial institutions (including nonbanking financial institutions): (i) have developed, implemented, and maintained a comprehensive information security program around customers’ information; and (ii) are required to promptly notify their financial institution customers given that the 30-day notification clock starts when the triggering event is known not just by a company officer or employee, but also by an agent, including service providers.

3. Update training to make sure the updated incident response plan, service provider contracting processes, and new amendment requirements are explained.

4. Update/conduct cyber simulation tabletop training exercises that include FTC notification questions and third-party service provider security incident scenarios to further provide exposure and practice to the new amendment.

Troutman Pepper will continue to monitor important developments involving the FTC and the Safeguards Rule and will provide further updates as they become available. If you need assistance with complying with the requirement of the new amendment, please reach out to the authors of this article or any member of our Privacy & Cyber or Consumer Financial Services groups.

On October 29, the Biden Administration issued a broad Executive Order (Order) on artificial intelligence (AI).  Titled “Executive Order on the Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence,” the Order establishes guidelines for AI safety and security, aims to shield Americans’ data privacy, and emphasizes equity and civil rights.  As stated by the White House in its Fact Sheet about the Order, the Order “stands up for consumers and workers” while fostering innovation and competition.

Ballard Spahr has issued a legal alert that provides an overview of the Order.  In this blog post, we highlight the provisions of the Order that are most noteworthy for providers of consumer financial services that use AI.

Guidelines and Best Practices

For consumer financial services providers that use proprietary AI, the Order includes provisions directed at AI developers and designers.  It directs the Secretary of Commerce, acting through the Director of National Institute of Standards and Technology, in coordination with certain other agencies, to “establish guidelines and best practices, with the aim of promoting consensus industry standards for developing and deploying safe, secure, and trustworthy AI systems.”

AI and Civil Rights

 Last October, the White House identified a framework of five principles, also known as the “Blueprint for an AI Bill of Rights,” to guide the design, use, and deployment of automated systems and AI.  One of those principles is that automated systems should be used and designed in an equitable way to prevent algorithmic discrimination.  For instance, measures should be taken to prevent unfavorable outcomes based on protected characteristics.  In April 2023, the CFPB, FTC, Justice Department, and Equal Employment Opportunity Commission issued a joint statement about enforcement efforts “to protect the public from bias in automated systems and artificial intelligence.”  (CFPB Director Chopra has repeatedly raised concerns that the use of AI can result in unlawful discriminatory practices.)

Building on those developments, the Order encourages the CFPB Director and the Director of the Federal Housing Finance Agency, in order “to address discrimination and biases against protected groups in housing markets and consumer financial markets, to consider using their authorities, as they deem appropriate, to require their respective regulated entities, where possible,” to do the following:

• Use appropriate methodologies including AI tools to ensure compliance with federal law; 

• Evaluate their underwriting models for bias or disparities affecting protected groups; and

• Evaluate automated collateral valuation and appraisal processes in ways that minimize bias.

The Order also requires the Secretary of Housing and Urban Development and “encourage[s]” the CFPB Director, in order “to combat unlawful discrimination enabled by automated algorithmic tools used to make decisions about access to housing and in other real estate-related transactions,” to issue additional guidance within 180 days of the date of the Order that addresses:

• The use of tenant screening systems in ways that may violate the Fair Housing Act, the Fair Credit Reporting Act, or other relevant federal laws, including how the use of data, such as criminal records, eviction records, and credit information can lead to discriminatory outcomes in violation of federal law; and

• How the Fair Housing Act, the Consumer Financial Protection Act, or the Equal Credit Opportunity Act apply to the advertising of housing credit, and other real estate-related transactions through digital platforms, including those that use algorithms to facilitate advertising delivery, as well as best practices to avoid violations of federal law.

Protecting Consumers  

The Order encourages independent regulatory agencies, as they deem appropriate, to consider using the full range of their authorities to protect consumers from fraud, discrimination, and threats to privacy, and to address other risks that may arise from AI, including risks to financial stability.  The agencies are also encouraged to consider rulemaking, as well as emphasizing or clarifying where existing regulations apply to AI.  The agencies are also encouraged to clarify the responsibility of regulated entities to conduct due diligence and monitor any third-party AI services they use, and to emphasize or clarify requirements and expectations related to the transparency of AI models and regulated entities’ ability to explain their use of AI models.

The impact of AI on the consumer financial services industry has been the focus of two episodes of our Consumer Finance Monitor Podcast.  The episodes are available here and here.

CHICAGO, Ill. — Harris & Harris (“H&H” or the “Company”), a leader in accounts receivable management and customer care solutions, announced today that it has made an organizational change.  David Peters, who has successfully led the Company as Chief Operating Officer, will assume the role of Chief Executive Officer.  Salvador (“Sal”) Hazday, the former Chief Executive Officer, notified the Board of Directors that he wished to resign for personal and professional reasons. The Company is thankful for Sal’s service and wishes him well in his future endeavors.   

Prior to joining Harris & Harris, Peters spent six years at Automatic Data Processing, Inc. (“ADP”) where he held increasingly senior executive positions, including Divisional Vice President/GM Major Account Services.  In his final role, David led ADP’s mid-market business on Workforce Now through the Central US.  Prior to that role, Peters served fifteen years at Perdoceo Education.  He served in various capacities, from leading large and small businesses, building the company’s Shared Services function, and leading Mergers and Acquisitions.  

Jon Haas, a Partner with Clarion Capital Partners, commented, “We are excited to promote David Peters to CEO.  In his time at Harris & Harris, he has won the respect of our employees as a great communicator, a problem solver, and a leader.  We expect he will be terrific in working with our customers to help them manage their difficult revenue cycle challenges.  H&H has a lot of momentum right now, and we believe David is the right person to help us build for the future.” 

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“I am excited to take on this role at Harris & Harris and honored to work with a talented management team to take the Company forward to its next level of business success. H&H is poised to achieve the highest revenues in its history this year, and with significant recent client wins and new analytics and technology investments we are well positioned to continue our growth in the future,” said Peters.

About Harris & Harris

Harris & Harris is a leader in accounts receivable management and customer care solutions. The Company provides third party and first party debt collection, complex claims, customer care, and other complementary services through onshore call centers and employees distributed throughout the US working from home. Harris & Harris serves clients in healthcare, government, and utility end markets. For more information on Harris & Harris, visit www.harriscollect.com.   

About Clarion Capital Partners, LLC

Clarion Capital Partners is a New York based middle market private equity firm. Clarion is actively seeking investments in growing companies in a variety of industries including Business and Healthcare Services, Specialty Financial Services, Media, Entertainment and Technology, and Consumer. Additional information on Clarion can be found at www.clarion-capital.com

ROCHESTER, N.Y. — Continental Service Group, LLC d/b/a ConServe, in conjunction with the company’s “Matching Gift Program”, donated its September ConServe Cares proceeds to the Ibero-American Action League (IBERO).  The ConServe team supports and funds the efforts of numerous local non-profit agencies that strive to make a difference.  The kindness and generosity of ConServe’s employees have touched countless lives, enriching the community we all share.

ConServe is committed to doing the right thing, at the right time, in the right way.  George Huyler, Vice President of Human Resources, has said, “At ConServe, we are proud of our commitment to making a positive impact on the world around us.  We believe that doing good is not just important, but essential to our success as a company, and as individuals.” 

President and CEO, Angelica Perez-Delgado commented, “Ibero is inspired by the support of individuals and organizations committed to our mission and trusting our work.  We are grateful for the generosity of ConServe’s employees and the matched contribution received.”

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 us online at: www.conserve-arm.com 

About Ibero American Action League, Inc.

IBERO has evolved into an agency that serves individuals and families of all ethnic backgrounds. Our unique ability to target the Latino community remains unprecedented in this region. We are committed to social justice and to addressing systemic disparities in housing, education, health care, entrepreneurship, and employment. Ibero has now offices in Rochester, Buffalo, Albany, Amsterdam, and Geneva. We remove systemic barriers by increasing access to an array of services that are person-centered, community-rooted, bi-lingual, and culturally responsive, serving the underserved, the vulnerable, and those most at-risk without regard to race, ethnicity, gender identity and expression, or age. Visit them online:  https://www.ibero.org/

The Bona Fide Error (BFE) defense may be a strong shield when defending a Fair Debt Collection Practices Act (FDCPA) lawsuit, but that shield can be difficult to hold. To use the BFE defense and protect their organizations from FDCPA lawsuits, it’s crucial that debt collectors understand the defense’s nuance, intricacy, and application. Three recent cases highlight and provide insight into the important aspects, challenges, and alternative uses of the BFE defense.

The BFE defense, found here at 15 U.S.C. § 1692(k)(c), can protect debt collectors from liability if they can prove “that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.” Those attempting to avail themselves of a BFE defense must show all three of the following: 

1. The violation was unintentional. 
2. The error was bona fide (made in “good faith”); and
3. That the error was made despite procedures adapted and maintained to avoid the error that occurred.

Challenges in Successfully Defending FDCPA Suits:

While the bona fide error defense offers debt collectors a valuable tool in avoiding liability, successfully using it in FDCPA suits remains challenging. Debt collectors must be prepared to meet a stringent standard of proof, demonstrating that the violation was unintentional and made in good faith. 

In Kaszko v. RSH & Assocs., Civil Action 22-2316-KHV (D. Kan. Sep 01, 2023), a district court in Kansas denied a debt collector’s bona fide error defense based on a lack of evidence submitted to establish that the violations were unintentional and on the debt collector’s failure to reasonably investigate the error. Though the debt collector argued that they believed, in good faith, that the consumer was a guarantor on the debt owed, they admitted they never bothered to check the guaranty agreement itself. The Court held that this lack of thorough investigation created a question regarding whether the debt collector acted reasonably. Consequently, the debt collector’s bona fide error defense was unsuccessful. 

The Defense is in the Details:

To effectively utilize the bona fide error defense, debt collectors must establish and implement comprehensive policies and procedures to prevent common errors that lead to FDCPA violations. These policies and procedures must be rigorous enough to withstand scrutiny. 

This issue was highlighted in the case of Sprayberry v. Portfolio Recovery Assocs., 21-36000, 21-36001 (9th Cir. Aug 28, 2023), where the Ninth Circuit Court of Appeals stated that the debt collector fell short in showing that they maintained policies and procedures created to avoid errors regarding the statute of limitations. Specifically, the Court said that the debt collector “provided no evidence of [their] legal research nor any details of the procedures used for either reviewing or updating [their] research on state statutes of limitations.” Further, the debt collector did not provide evidence that it implemented any review procedure.

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If you’d like access to an always up-to-date Statute of Limitations Matrix, be sure to check out insideARM’s Research Assistant and sign up for a free trial by using the code “TRYRESEARCH”.

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Versatile Uses of the Bona Fide Error Defense

Though the BFE defense is most often used to avoid FDCPA violations, a debt collector in California recently used it to help vacate a default judgment. In Antich v. Capital Accounts, LLC, B313167 (Cal. App. Jul 26, 2023), a default judgment was entered against a debt collector on an FDCPA claim related to credit reporting. Unbeknownst to the debt collector, their in-house counsel abandoned their employment without filing a response in the case. Upon learning about the judgment, the debt collector sought to vacate it. However, to do so, the debt collector was required to show that had the case proceeded, it would have had a meritorious defense. 

The debt collector argued that had the case proceeded it would have been able to assert a bona fide error defense. In support of this argument, the debt collector provided evidence of its system and policies and procedures tailored to prevent credit reporting errors. In light of the procedures provided by the debt collector, the court agreed that the debt collector might have been able to avail himself of the BFE defense and agreed the default judgment against the debt collector should be vacated. Thus, providing the debt collector a chance to avoid a costly judgment.

Tying it all together

The bona fide error defense remains a critical protection for debt collectors, allowing them to defend against FDCPA suits arising from unintentional errors. However, as illustrated above, successfully utilizing this defense is no sure thing. The three requirements to successfully mount a BFE defense (unintentional, good faith, and that the error occurred despite policies and procedures) hinge on creating and maintaining robust policies and procedures adapted to prevent a wide variety of errors. 

It is equally important to be able to provide a court with the details necessary to show that these policies and procedures are being implemented. Companies must also be vigilant and thorough when investigating complaints and disputes. Only by taking these precautions can a bona fide error defense be a useful tool when debt collection doesn’t go as planned.

NEW YORK, N.Y. — Skit.ai, the leading provider of conversational Voice AI solutions, announced today its partnership with Southwest Recovery Services, a financial services company with over 20 years of experience in debt recovery and accounts receivable management. With the Voice AI solution, Southwest Recovery plans to automate outbound and inbound interactions with consumers, tapping into large volumes of untouched accounts while enabling the live agents to focus on high-priority and revenue-generating interactions.

Skit.ai’s conversational Voice AI solutions enables lenders and collection agencies of all sizes to accelerate revenue recovery and grow their operations by automating collection calls. The solution typically achieves 100% account penetration, as it initiates thousands of compliant calls within minutes and automates crucial steps of the recovery process such as right-party contact verification.

“Before implementing Skit.ai’s Voice AI solution, we were only penetrating a small percentage of our accounts each month. We wanted to dig deeper into our portfolio in a cost-effective manner, without straining our resources. We were drawn to Skit.ai’s industry-specific expertise,” said Sawyer Dietz, Vice President at Southwest Recovery Services. “I believe that this technology is going to be paramount and highly profitable in the future, as tightening regulations continue to make the recovery process more challenging.”

Headquartered in Dallas, Texas, and with additional locations in multiple states, Southwest Recovery Services operates in multiple industries and types of debt, including medical, subprime loans, property management, B2B , and B2C. The company plans to utilize Skit.ai’s fully compliant solution across different industries and types of debt. The company’s leadership has reported that, so far, both consumers and the live agents have welcomed the change.

“We are witnessing a notable change in the account receivables industry, and organizations like Southwest Recovery Services are leading the way by adopting Generative AI-powered solutions to scale their operations, improve their efficiency, and increase revenue. Market trends and consumer expectations indicate that many more organizations will seek to replicate the success of our early adopters,” said Sourabh Gupta, Founder and CEO of Skit.ai.

Skit.ai has had notable success in the account receivables industry across the U.S., with dozens of small, medium, and large collection agencies already using its technology to streamline and automate their recovery strategy.

Schedule a meeting to learn more about how Skit.ai can help you accelerate revenue recovery with higher efficiency and at an infinite scale.

About Southwest Recovery Services:

Southwest Recovery Services, LLC is a nationally recognized leader in financial business process outsourcing (BPO) headquartered in Dallas, Texas with additional locations throughout Texas as well as Georgia, Missouri, Florida, Oklahoma, and Ohio. Southwest Recovery Services has spent 20 years building its expertise across nearly every industry and business sector. Southwest Recovery Services is nationally recognized as an ethical, professional, and diplomatic service provider in receivables management.

About Skit.ai:

Skit.ai is the accounts and receivables industry’s leading conversational Voice AI company, enabling collection agencies to streamline and accelerate revenue recovery. Skit.ai’s compliant, configurable, and easy-to-deploy solution enables enterprises to automate nearly one million weekly consumer conversations. Skit.ai has been awarded several awards and recognitions, including Stevie Gold Winner 2023 for Most Innovative Company by The International Business Awards, Disruptive Technology of the Year 2022 by CCW, and Gold Globee CEO Awards 2022. Skit.ai is headquartered in New York City, NY. Visit https://skit.ai/

For media inquiries, please contact: media@skit.ai

MADISON, Wis. — State team members recently had the honor of presenting Gilda’s Club with a $21,000 donation. State’s leadership team, in collaboration with our partners, raised the funds at the 3rd Annual Great State Golf Tournament. The entire outing was filled with fun and laughter, ensuring the team had an opportunity to live the company’s core value of FUN while creating a positive outcome.

“Gilda’s Club offers a supportive community to those living with cancer. Not only has my mother been a long-time volunteer and donor, additionally our family experienced the benefits of this critical organization during my father’s courageous battle,” said Tim Haag, State’s president and chief executive officer. “I’m grateful to our team and partners for banding together to make this donation and make a difference in our community.”

Gilda’s Club is operated solely through donations and offers emotional and social support to those living with cancer, as well as their families and friends. The Madison chapter is celebrating its 15th anniversary of providing this deeply needed support.

“You and your team are amazing and very much appreciated,” said Lannia Stenz, executive director and chief executive of Gilda’s Club Madison.

About State

State improves the financial picture for healthcare providers by delivering increased financial results while ensuring a positive patient experience. Rooted in a tradition of ethics, integrity and innovation since 1949, State uses data analytics to drive performance and speech analytics with ongoing training to ensure patient satisfaction. A family-owned company now in its third generation of leadership, State assists healthcare organizations with services spanning the complete revenue cycle including Pre-Service Financial Clearance, Early Out Self-Pay Resolution, Insurance Follow-Up and Bad Debt Collection. To learn more visit: www.statecollectionservice.com.

About Gilda’s Club Madison

Gilda’s Club Madison provides free emotional support, cancer education, and hope to children and adults with any kind of cancer and those who care for them. To learn more visit: https://www.gildasclubmadison.org/.

The Utah court of appeals has recently affirmed the dismissal of a plaintiff’s suit against a debt buyer based on its alleged failure to register as a collection agency prior to filing collection lawsuits. The court’s decision in Meneses v. Salander Enterprises LLC, not only holds that a violation of the Utah Collection Agency Act (UCAA) is not a deceptive or unconscionable act under state law, but also calls into question whether the UCAA ever even applied to debt buyers. As discussed here, the UCAA was repealed by the state legislature earlier this year, but cases asserting this theory of liability remain pending before state and federal courts.

The UCCA provided that “[n]o person shall conduct a collection agency, collection bureau, or collection office in this state,” or engage in other collections-related solicitation, unless “that person or the person for whom he may be acting as agent, is registered with the Division of Corporations and Commercial Code and has on file a good and sufficient bond.” Utah Code § 12-1-1. The plaintiff alleged that the defendant, a debt buyer, was required to but failed to register as a debt collector under this provision, and that filing lawsuits to collect money owed to it without that registration constituted a deceptive or unconscionable act under the Utah Consumer Sales Practices Act (UCSPA).

The plaintiff’s argument relied heavily on Lawrence v. First Financial Investment Fund V, LLC, a 2020 decision from Utah’s federal district court holding that a debt buyer was subject to the requirements of the UCAA like a “traditional” debt collector who seeks to collect debts owed to others. The Utah court of appeals expressed significant skepticism that First Financial was correctly decided, noting that “the statute is open to multiple interpretations” and that “a reading of the wider statutory scheme of the UCAA suggests that its purpose was not to protect the interests of those who owed a debt but to protect the interests of those to whom the debt was owed, which supports the position that the registration requirement applied only to those who collect debt on behalf of others.” However, the court of appeals ultimately concluded it need not decide this issue, affirming on the alternative ground that a UCAA violation, standing alone, did not support the plaintiff’s claim for deceptive or unconscionable acts under the UCSPA.

Specifically, the court of appeals concluded that, even assuming a debt buyer was required to register under the UCAA, a plaintiff does not state a claim under the UCPSA by merely alleging a defendant “engaged in the ‘business of collecting debts acquired in default and filed collection lawsuits in Utah courts’ without first having obtained ‘the mandatory license required by Utah law’ pursuant to section 12-1-1.” Instead, a plaintiff must identify some additional “act of wrongdoing,” such as an “affirmative misrepresentation” concerning whether the debt buyer was registered under the UCAA. The court of appeals rejected the plaintiff’s argument that a debt buyer’s filing of a lawsuit constitutes an “implicit[ ]” misrepresentation that the filing party is entitled to collect the debt. Rather, “Salander’s representation that it had the right to collect on a debt it owned is not the same as Salander representing that it was a debt collector operating in full compliance with the laws of Utah. Indeed, Salander — not knowing (given the UCAA’s ambiguity on the point) that it was required to register and bond — could hardly be said to have withheld its registration status since there was no information for Salander to withhold from the [plaintiff].”

The court of appeals concluded that the plaintiff’s argument was “an improper attempt to ‘transform[] a violation of the UCAA’ into a cause of action” that the UCAA did not itself provide. Instead, a plaintiff must identify “some other affirmative misrepresentation or attempt to conceal its registration status on the part of [the defendant]” to establish an actionable claim under the UCSPA related to a failure to register under the UCAA.

Authors’ Take:

This decision should spell the end of most consumer litigation under the UCAA, particularly in light of the repeal of the statute effective as of May 3, 2023. However, several cases remain pending before the Utah court of appeals on issues related to the UCAA, and we will continue to monitor those matters for further developments.

CHICAGO, Ill. — October is a time when people around the world turn to pink to show support for those who have battled, are battling, or have been affected by breast cancer. This year, Markoff Law has stepped up its commitment to making a difference by contributing to the Susan G. Komen Foundation, an organization at the forefront of the fight against breast cancer.

The Susan G. Komen mission is to save lives by meeting the most critical needs in our communities and investing in breakthrough research to prevent and cure breast cancer. Markoff Law is proud to support an organization working tirelessly to help the nearly 4 million women affected by breast cancer in the United States. 

Why Breast Cancer Awareness Matters

October is Breast Cancer Awareness Month. This month holds immense importance in our society. It serves as a powerful reminder of the prevalence of breast cancer and the need for early detection and comprehensive support systems. 

By wearing the symbolic pink ribbon, communities worldwide express their solidarity with patients, survivors, and their families. Moreover, it emphasizes the significance of regular screenings and educates individuals about breast health, fostering a proactive approach towards the disease.

Markoff Law encourages everyone to join them in supporting Breast Cancer Awareness Month. Whether it’s wearing a pink ribbon, sharing informative resources, or participating in local events, every effort counts. By spreading awareness and encouraging open conversations about breast health, we can make a significant impact in our community. It’s a collective endeavor that amplifies our message of hope, resilience, and compassion.

A Cause Worth Fighting For

Markoff Law’s recent donation to the Susan G. Komen Foundation signifies its commitment to making a tangible difference in the lives of individuals and families affected by breast cancer. By providing financial assistance to this esteemed organization, they actively participate in funding critical research, treatment programs, and support services for breast cancer patients. Markoff encourages any and all who can to support causes like Susan G. Komen and continue to provide funding for the valuable research and support these organizations provide. 

About Markoff Law LLC

Markoff Law LLC is a forward-thinking firm with a history of experience and success representing creditors throughout the Midwest. Through the decades, Markoff Law has earned and maintained a reputation for excellence, honesty, and integrity. The firm’s thought leadership and adherence to industry best practices have established it as a leader within the accounts receivable management industry. Markoff Law is firmly committed to setting and achieving the highest standards of excellence.

The CFPB had a busy October. 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: New Report on NSF Fees at Banks and Credit Unions

On October 11, 2023, the CFPB issued a data spotlight on nonsufficient fund fees (“NSF fees”) showing that many NSF fee practices have been eliminated by banks and credit unions. NSF fees are charges that some financial institutions impose when they determine that accounts lack sufficient funds and therefore reject to pay funds from a consumer’s account for a check or electronic authorization. These are distinct from overdraft fees, which financial institutions charge when they pay a payment from an account that lacks sufficient funds, rather than reject the payment. 

According to the CFPB, over the last several years, nearly two-thirds of banks with over $10 billion in assets have eliminated NSF fees and nearly three-fourths of the banks that earned the most in overdraft and NSF fee revenue in 2021 have eliminated NSF fees. However, the CFPB claims that many large credit unions, including 16 of the 20 that have over $10 billion in assets, are still charging NSF fees. The CFPB’s data analysis indicates that as the result of the elimination of NSF fees at these banks, consumers will be saving almost $2 billion annually on a going forward basis. The CFPB says it will continue to monitor NSF fee practices in the market.

Bite 9: Consumer Advisory on Credit Repair Services

On September 22, 2023, the CFPB published a consumer advisory reminding consumers that they have the right to cancel credit repair services. This advisory followed a recent settlement involving several large credit repair companies. The CFPB says that these consumers have received notices that they can cancel their services with no penalties, at any time, and for any reason or no reason at all. The CFPB is also advising credit repair consumers who contracted for repair services through telemarketing that the credit repair service must achieve the promised results in the promised time frame, and that the consumer must receive a consumer report that shows the promised results, that was generated at least six monthsafter the promised results were achieved. The CFPB’s advisory says that only then can a credit repair company that used telemarketing charge any fees or accept payment. The CFPB further advised consumers that they don’t need to hire anyone to dispute mistakes in their credit reports; they can do so on their own using tools available for free online.

Bite 8: CFPB Launches Initiative on Immigrant Access to Fair Credit

On October 12, 2023, the CFPB launched an initiative on immigrant access to fair credit, and started investigating the financial experiences of immigrants. The CFPB noted that immigrant borrowers, including those protected under the Deferred Action for Childhood Arrivals Program have been denied credit based on their immigration status. These include denials for credit cards, vehicle financing, and student loans. 

According to the CFPB, it has received complaints from consumers who received positive feedback from lenders about their credit scores and income, but were ultimately denied because of their immigration status alone. The CFPB and the Department of Justice also issued a joint statement on fair lending and credit opportunities for immigrant borrowers under the Equal Credit Opportunity Act (ECOA). Under the ECOA, the CFPB noted that lenders are not prohibited from considering a borrower’s immigration status, but they are prohibited from using that status to discriminate based on national origin, race, and other protected characteristics. The CFPB’s statement seeks to remind lenders that they cannot use immigration status to justify unlawful discrimination.

Bite 7: CFPB Publishes Special Edition of Supervisory Highlights

On October 11, 2023, the CFPB published a special edition of its Supervisory Highlights, focused on fees the CFPB (and FTC) call “junk fees.” The CFPB took issue with organizations charging fees for: (1) multiple payment re-presentments returned unpaid; (2) authorized positive, settle negative overdraft; (3) printing and mailing undelivered statements; (4) depositing unpaid checks; and (5) add-on products in auto finance (including miscalculating add-on product refunds). This special edition also referenced program developments, a circular on overdraft fees, a bulletin on returned deposit fees, and an advisory opinion on pay-to-pay fees.

Bite 6: CFPB Issues Guidance on “Junk Fees” Charged by Banks

On October 11, 2023, the CFPB issued an advisory opinion regarding a statute prohibiting large banks and credit unions from imposing unreasonable obstacles on customers related to basic information about their own accounts. Specifically, Section 1034(c) of the Consumer Financial Protection Act requires large banks and credit unions to provide account information upon request to customers when the information is in their control or possession. This includes information about a consumer’s accounts for financial products or services, such as balances, interest rates, and transaction history. 

The CFPB says that large banks are shifting away from a relationship model of banking and are charging so-called “junk fees” on customers to respond to account information inquiries. The CFPB says this practice impedes customers from obtaining information that they are entitled to under federal law. The advisory opinion says that charging fees to respond to an information request violates the CFPA, but that as a matter of prosecutorial discretion, the CFPB does not intend to seek monetary relief for potential violations described in the opinion that occur prior to February 1, 2024.

Bite 5: CFPB and FTC File Amicus Brief on Credit Reports

On September 29, 2023, the CFPB and FTC together filed an amicus curiae brief in the U.S. Court of Appeals for the Second Circuit. The brief argued that companies reporting consumer data must delete data that the company cannot verify after someone identifies the information as wrong. According to the CFPB, some companies have argued that if they are unable to determine that the disputed information is false, then they may continue providing the disputed information on reports. According to estimates cited by the CFPB, one in five Americans has incorrect information on at least one of their credit reports. As a result, the CFPB claims the FCRA requires companies to respond appropriately when notified of errors.

Bite 4: CFPB Kicks off Medical Bill Rulemaking

On September 21, 2023 the CFPB announced that it is beginning a rulemaking process to remove medical bills from credit reports. The CFPB says these efforts will help families financially recover from medical crises, stop debt collectors from coercing people into paying bills they may not even owe, and ensure that creditors are not relying on data that is often plagued with inaccuracies and mistakes. The CFPB cites to a 2022 report indicating that approximately 20% of Americans have medical debt. The CFPB also noted its research indicating that medical billing data on a credit report is less predictive of future repayment than reporting on traditional credit obligations, and that inaccuracies in billing are common and often compounded by disputes over bills and complex billing practices. 

The CFPB outlined proposals under consideration, which include prohibitions on: (1) the inclusion of medical debt and collection information on consumer reports; (2) a creditor’s use of medical collections information when evaluating credit applications; and (3) “coercive” debt collection practices, including the use of the credit reporting system to leverage payments on medical debts. The CFPB is currently reviewing information public responses to recent hearings and inquiries as part of the rulemaking process.

Bite 3: CFPB Sues Another Alleged “Repeat Offender”

On October 4, 2023 the CFPB announced that it filed a lawsuit in federal court against a mortgage company. The CFPB claims that this company is a “repeat offender” as it sued the company earlier this year, and entered a 2019 consent order with this company. According to the CFPB, this company allegedly submitted erroneous mortgage data, which the CFPB says violates both the Home Mortgage Disclosure Act (“HMDA”) and a 2019 consent order. In its lawsuit against the company earlier this year, the CFPB sued the company for allegedly paying illegal kickbacks for referrals. The 2019 consent order concerned the company’s HMDA reporting, after the CFPB claimed that the company misreported data about applicant race and ethnicity.

Director Chopra said that this recent suit demonstrates the CFPB’s focus on “ending the cycle of misconduct by repeat offenders in the financial industry.” The current lawsuit alleges that the company’s 2020 HMDA submission contained widespread errors across multiple data fields; when the company resubmitted its data, it had found errors in 174,000 data fields, affecting nearly 20% of the company’s mortgage loan applications. According to the CFPB, the 2019 consent order included a requirement that the company fix its deficient data practices, and the 2020 submission allegedly showed that they failed to do so.

Bite 2: CFPB Takes Actions against International Money Transfer App

On October 17, 2023, the CFPB announced that it had taken action against an international money transfer app, claiming that it violated the Electronic Funds Transfer Act (“EFTA”) and Remittance Transfer Rule. The CFPB claimed that the operator of the mobile app allegedly deceived customers about the speed and costs of remittance transfers, forced consumers to waive legal rights, failed to provide required disclosures and receipts, and failed to properly investigate disputes. According to the CFPB, the company violated the EFTA when it required users to waive the company’s liability for losses incurred through the app, as the EFTA provides that the rights conferred by the EFTA cannot be waived. The CFPB’s Remittance Transfer Rule requires that consumers receive timely receipts, specific disclosures about funds availability and correctly calculated exchange rates- all of which the company allegedly failed to do. 

The CFPB also alleged that the company committed deceptive acts and practices by falsely claiming that transfers would be delivered instantly and that customers would not incur fees. The CFPB’s order requires the company to refund consumers who were charged fees on transactions that were marketed as “fee-free” or whose payments were not delivered on the date promised. The company will also have to pay a $1.5 million penalty to the victim relief fund.

Bite 1: CFPB and FTC Take Action Against Rental Screening Organization

On October 12, 2023, the CFPB and the FTC announced actions against a rental screening subsidiary of a large consumer reporting conglomerate, for violations of the Fair Credit Reporting Act. The CFPB and FTC have alleged that the subsidiary failed to take steps to ensure the rental background checks were accurate and withheld the names of third parties providing the inaccurate information from renters. Together, the agencies have requested that a federal court order the company to pay $15 million and make changes to how it reports evictions. The CFPB separately ordered the conglomerate to pay $8 million for allegedly lying to consumers about timely placing or removing security freezes and locks on the credit reports. 

According the CFPB, the conglomerate told consumers the requests were completed when they were actually placed into a years-long backlog. The joint action by the CFPB and the FTC against the rental screening subsidiary included allegations that the company failed to take steps to produce accurate reports, including failing to share updated information that evictions had been dismissed and permitting the inclusion of sealed records and multiple entries about the same case. The subsidiary also allegedly failed to identify who provided inaccurate information, leaving tenants unable to contact the provider to correct the inaccuracies. If entered by the court, the subsidiary will pay $11 million to harmed consumers along with a $4 million penalty into the CFPB victim relief fund.

Extra Bite: FTC Announces Proposed Rule on “Junk Fees”

On October 11, 2023, the FTC released a notice of proposed rulemaking that would prohibit junk fees, which it described as “hidden and bogus” fees that harm consumers. The FTC said that these fees can cost consumers tens of billions of dollars per year. The rulemaking comes after the agency requested public input (via an Advance Notice of Proposed Rulemaking) last year on whether a rule would help to eliminate these unfair and deceptive charges. After receiving more than 12,000 comments, the FTC is now requesting a new round of comments on a proposed junk fee rule. 

Under the proposed rule, businesses would have to include all mandatory fees when telling consumers a price, and the rule would contain enforcement provisions that would allow the FTC to seek refunds and monetary penalties for noncompliance. The rule would ban the practice of so-called “bait and switch” pricing tactics that hide mandatory fees by requiring advertised prices to include mandatory fees and would also ban what the FTC described as “bogus” fees, where the business either does not disclose or misrepresents what the nature or purpose of the fee is. The proposed rule would give the FTC more enforcement authority to seek refunds for harmed consumers and impose penalties of up to $51,200 per violation. The FTC is seeking public input on 37 questions, with comments due 60 days after the proposal is published in the Federal Register. Congresswoman Maxine Waters issued a press release today applauding the FTC’s (and CFPB’s) efforts crack down on junk fees and stated that “in the coming weeks, I look forward to further building on this effort by unveiling additional legislation to more expansively address junk fees in the financial services and housing industries.”

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.