The CFPB recently published a decision and order subjecting a nonbank consumer lender to its supervisory authority based on its determination that the lender may be “engaging, or has engaged, in conduct that poses risks to consumers.”

This marks the first time the agency has made such a determination after a contested administrative proceeding, the CFPB said in a press release. As the CFPB acknowledged, it will serve as an important precedent guiding the agency’s exercise of this authority.

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Here are five key takeaways:

1. The CFPB has unliteral authority to subject individual nonbank financial services companies to its supervisory authority.
2. The CFPB has set a low bar for what constitutes “reasonable cause” to believe a nonbank’s conduct poses risks to consumers.
3. Refusing to consent may delay CFPB supervision, but only for a matter of months.
4. The CFPB has only publicized risk to consumers determinations after a nonbank refused to consent to supervision.
5. Nonbank providers of consumer financial products or services that are not currently subject to supervision should prepare for it.

The CFPB has unilateral authority to subject individual nonbank financial services companies to its supervisory authority.

Congress expressly granted the CFPB supervisory authority over the thousands of nonbanks that offer residential mortgage loans, private education loans and payday loans. Congress also provided the CFPB two avenues to extend its supervisory authority over other nonbanks:

• The CFPB has authority to issue rules defining who is a “larger participant” in a market for a consumer financial product or service other than the markets for mortgage, private student and payday loans.

                 – In its first four years, the CFPB issued five “larger participant” rules, which extended the CFPB’s supervisory authority to larger participants in the consumer debt collection, consumer reporting, student loan servicing, international remittances and automobile financing markets.

                 – After nearly a decade, the CFPB recently proposed another larger participant rule for the “market for general-use digital consumer payment applications.”

• Congress authorized the CFPB to supervise any nonbank provider of consumer financial service products or services when “the Bureau has reasonable cause to determine … that [the nonbank] is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services.”

The CFPB issued a procedural rule in 2013 that governs Risks to Consumers Determinations. Under that rule, the process begins when the CFPB provides a notice to a nonbank setting forth the basis for a possible Risks to Consumers Determination. The recipient has the right to respond in writing and orally, and the CFPB Director makes the ultimate determination of whether reasonable cause exists to determine that the nonbank is engaging in conduct that poses risks to consumers.

Many nonbanks have “consented” to the CFPB’s supervisory authority pursuant to this rule, often as a term of a negotiated consent order resolving an enforcement action. Increasingly, however, nonbanks have “consented” pursuant to a procedure in which a company that receives a Risks to Consumers Notice can forgo its procedural rights and consent to supervision. In fact, last week’s press release stated that the CFPB has issued such Notices to nonbanks operating “across [the] consumer financial services” industry, and a recent edition of the CFPB’s Supervisory Highlights publication noted that “several entities have voluntarily consented to the CFPB’s supervisory authority” after receiving a Risks to Consumers Notice.

Last week’s order represents the first time a nonbank has refused to consent and chosen instead to insist on its procedural right to contest the Risks to Consumers Notice. Nonbanks that choose this route have a heavy burden. The statute provides that the CFPB will be both prosecutor and judge in these proceedings. Indeed, the proceeding that resulted in the recently published order was initiated by the Assistant Director for Supervision, a political appointee, and resolved by the CFPB’s Director, her immediate supervisor and the person who appointed her.

Nonbanks that receive a Risks to Consumers Notice may reasonably conclude they will be unlikely to persuade the Director to reach a different conclusion than Bureau staff, especially when such a determination does not commit the agency in any way. And while the CFPB concedes that the Director’s final determination is “final agency action” subject to judicial review under the Administrative Procedure Act, a district judge would not review the Director’s judgment de novo but would apply the APA’s deferential “arbitrary and capricious” standard. Accordingly, once the CFPB has decided a nonbank is engaging in conduct that “poses risks to consumers,” only a strong factual rebuttal is likely to persuade the Bureau otherwise.

The CFPB has set a low bar for what constitutes “reasonable cause” to believe a nonbank’s conduct poses risks to consumers.

Last week’s order makes clear that the CFPB interprets its authority broadly. According to the CFPB, the requirement that it have “reasonable cause” to determine that a company poses risks to consumers provides it with “considerable discretion.” For example, this order was based on unverified complaints focused on:

• Potentially misleading oral statements about aspects of the product that contradict contractual terms governing the loan product.
• Debt collection practices that do not necessarily violate the existing law.
• Inaccurate credit reporting, “even to the extent [the Company] disputes some of the facts alleged by consumers.”
• The mere possibility that consumers’ frequent refinancing of loan obligations reflects unlawful behavior.

The CFPB made clear that it had not determined – and did not have to determine – the company actually had engaged in unlawful conduct. In its view, the purpose of an examination is to assess an institution’s compliance with federal consumer financial law, and that it need not reach any judgment regarding the legality of conduct in advance of an examination.

Indeed, it is difficult to draw a meaningful distinction between the Bureau’s standard for when it can make a Risks to Consumers Determination and when it can issue a Civil Investigative Demand (CID) to a company. The CFPB has authority to issue a CID whenever it has “reason to believe” that a person may possess facts relevant to a violation of law. The agency has repeatedly emphasized that it “is not required to show that it has probable cause to believe there is a violation of federal law before opening an investigation,” and that it can issue a CID “merely on suspicion that the law is being violated, or even just because it wants assurance that it is not.”

Just as the recipients of CIDs have failed to persuade the Director that the Office of Enforcement did not meet this low bar when it issued a CID, recipients of Risks to Consumers Notices are likely to have a difficult time persuading the Director that the Office of Supervision was wrong to say it had “reasonable cause” to determine the nonbank “is engaging, or has engaged, in conduct that poses risks to consumers.”

Refusing to consent may delay CFPB supervision, but only for a matter of months.

Although it’s only a single data point, the order issued last week does provide some indication of how long the process takes when a nonbank refuses to consent to supervision. It reveals that the Office of Supervision’s “notice” was issued on March 10, 2023, and that the final determination from the Director came on November 30, 2023. But that eight-and-a-half-month process may not represent a typical process because it reflects an additional three months related to supplemental briefing not contemplated by the procedural rules. Accordingly, nonbanks considering whether to contest the Office of Supervision’s Notice should assume that doing so will delay the final determination by approximately six months or even less.

The CFPB has only publicized risk to consumers determinations after a nonbank refused to consent to supervision.

Under the original procedural rule issued in 2013, determinations that a nonbank should be subject to supervision because the company may be engaged in conduct posing risks to consumers were regarded as confidential supervisory information. This is consistent with the treatment of information regarding the CFPB’s determinations of who to examine, which are similarly “based on the assessment by the Bureau of the risks posed to consumers” by different entities subject to its supervisory authority. Under longstanding CFPB rules, and consistent with the practice of other financial regulatory agencies with supervisory authority, the CFPB does not release confidential supervisory information except in very narrow circumstances.

Under the CFPB’s 2022 amendments to the procedural rule, however, the Director can decide to publish any determination that a nonbank may be engaging in conduct that poses risks to consumers, including those reached after the nonbank has exercised its statutory right to contest the determination and those resulting from consent.

Although the Bureau has publicly acknowledged that many nonbanks have consented to supervision, it has not published any of the resulting orders. By contrast, the only company to insist on its procedural rights has been rewarded with a public order suggesting – but not actually proving or demonstrating – that it is engaged in unlawful conduct. Thus, the CFPB’s discretionary decision to publicize a determination that a nonbank may be engaging in conduct that poses risks to consumers correlates perfectly with whether the nonbank insisted on its procedural rights. As a result (and putting aside the propriety of this practice), unless the CFPB rescinds the 2022 amendment to its procedural rule, a company that receives a Risks to Consumers Notice should consider whether to risk the negative publicity that would accompany a public Risks to Consumers Determination.

Nonbank providers of consumer financial products or services that are not currently subject to supervision should prepare for it.

The CFPB has a powerful tool to quickly determine that a nonbank consumer financial services company should be subject to examination. Nonbanks that are not subject to CFPB supervisory authority, but who might reasonably expect to make it onto the CFPB’s examination schedule based on the agency’s general risk prioritization factors and its policy priorities, should anticipate the possibility that they could receive a Risks to Consumers Notice at any time, and that whether they decide to exercise their procedural rights or not, they could soon be welcoming CFPB examiners on site.

Debt collectors added digital communications to their omnichannel outreach strategies as soon as regulators gave the green light on emailing, texting and other forms of digital communication. While each channel has its pros and cons, testing can help you identify which channel may work best for different types of consumers. For example, some people may be more likely to open and respond to emails than a text or letter. Emailing can also be less expensive than sending texts, direct mail or making phone calls. To successfully incorporate email and ensure right-party contact, you need a verified and up-to-date email list.

What is email append?

Email append is the process of adding email addresses to contact information in an existing database. An email append service can do this by using a proprietary database of consumer contact information to match an email address to a contact’s name, phone number and physical address. Reverse email append can also be used to find a consumer’s physical address based on their email address.

Marketing companies and departments have used email append to build their contact lists for years, as emails provide inexpensive and direct access to consumers.

Around the world, 72 percent of business leaders say they rely on email when trying to reach or stay in touch with customers. And 59 percent said email data would be the most important type of contact data to have over the next year.¹

Now, debt collectors can benefit from email as well. For example, Experian has worked with a collector to conduct an A/B test by adding email to the collector’s current phone-based outreach. As a result, 25 percent of debtors on the test population paid by email.²  

Read: Tip sheet: Strengthening Your Debt Collection Strategy

Why add email to your digital contact strategy?

Email can help you reach consumers on their preferred channel at their convenience. You can convey a large amount of information in an easily scannable email, which consumers may be more likely to read than a text message. And if you’re using automated collections via self-service portals and chatbots, you need to consider how to get consumers to your website. 

Our previous analysis found digital outreach can work well when combined with an online recovery system:³  

• 52 percent of consumers who visited a collector’s website agreed to a payment schedule after receiving the right offer. 
• 21 percent of consumers visited the website before 8 a.m. or after 8 p.m. 
• 56 percent of consumers who committed to a payment plan did so on their first visit to the website.

Email can be one of the best ways to reach consumers who prefer interacting with your website or portal outside standard business hours. Additionally, as a low-cost channel, you can incorporate email into an optimized strategy based on your current objectives, such as minimizing monthly expenses or maximizing dollars collected. 

Watch the tech showcase to find out how Experian® Optimize and PowerCurve® Customer Management can help collectors increase profitability and improve operational efficiency.

Keeping your email list clean and updated

Sending emails to addresses that are undeliverable or unused can waste time and money. Verification can help to ensure your messages get to the intended recipients, avoiding potential third-party disclosures. Additionally, email service providers track your outreach. If your emails frequently bounce or get marked as spam, future emails could be automatically block-listed or sent to spam. 

• Email verification: Verification solutions can look for and correct mistakes in email addresses, such as an extra space or typo. They can also scrub your email list for addresses you don’t want to email, such as a consumer’s workplace email, and test email addresses for deliverability. 

Ideally, organizations can collect and verify emails in real-time during onboarding. However, this may be easier for creditors than collectors. For example, the Consumer Financial Protection Bureau’s Consumer Credit Card Market report from 2023 found:

• In 2022, 88 percent of cardholders had a valid email address and agreed to receive emails from card issuers. Only 59 percent were eligible for text message communications.
• 63 percent of the cardholders receive at least one email related to debt collection.
• 36 percent of delinquent cardholders who received an email opened the email in 2022 — an increase from 32 percent in 2020.⁴  

Collectors might not have the same initial access and ongoing communication with consumers, but they can still create a compliant email list with email append.

Experian can help build your email list

Our email append services can help debt collectors improve their digital contact strategy and increase right-party contact via email. Some of the benefits of our services include: 

• A collections-permissioned database: We’ve been collecting email data for over 20 years and created a database with approximately 2.1 billion email addresses, provided by consumers that have opted in for marketing, including over 275 million emails for U.S. adults. Some email databases are only permissioned for marketing or identity purposes. Our database is also permissioned for collections and we can help you stay in compliance. 
• Freshest data:  We update our database with 10M to 40M records monthly and verify every new email address. You can append several emails to each contact as many consumers have multiple active email addresses.
• Reverification before appending: Verified emails that are appended to your contact list are reverified again to ensure the address is valid and can receive your email. 
• Flexible delivery options: Use our real-time API with your online CRM or back-end systems to append and verify emails or use a batch service to append emails with a one-time or recurring engagement. The per-email pricing ensures you’ll only pay if there’s a matched and appended email. 

Connect with an expert to learn how you can leverage these email append services.

Sources:

1. Experian (2022). Global data management research
2. Experian. Return on investment for collectors using email
3. Experian (2017). Getting in front of the shift to omnichannel collections
4. Consumer Financial Protection Bureau (2023). The Consumer Credit Card Market

There is never a shortage of news in the world of debt collection. At insideARM, we try to help you stay on top of the most crucial news by bringing you one piece of relevant news each day. We publish articles covering topics our editorial team thinks are the most important for ARM industry professionals to stay compliant while increasing revenue. That said, even with a streamlined news source, it can be difficult for even the most organized person to stay on top of what is going on in an industry that is changing rapidly. So, starting today and continuing weekly on Mondays, we are going to bring you the insideARM Weekly Recap, a synopsis of everything we highlighted during the week and why our editorial team thinks you should know about it. 

Last week, we brought you news on CFPB complaints, a win on FDCPA standing in state court, a state push for further regulation on “abusive conduct,” and we learned the CFPB and FTC’s stance on “Pay-to-Pay” Fees. 

On Monday, we highlighted an article from Troutman Pepper about how credit reporting issues make up the vast majority (over 80%) of CFPB complaints from consumers. We also learned that the three main issues within the credit reporting complaints were: incorrect information, improper use of credit reports, and investigation of complaints. Credit reporting will likely continue to be a hot-button issue throughout 2024.

Tuesday’s news gave an update from The Sessions Firm on FDCPA standing in state court in Florida. In Scott v. Collectco, Inc. d/b/a EOS CCA, a consumer alleged FDCPA violations which only caused fear of future harm as the “injury.” The Court held that the consumer did not have standing to bring the suit as they had failed to plead an actual injury. This may be the beginning of a trend in Florida to dismiss cases with only speculative injuries, and it will be worth watching whether we see similar results regarding standing in other state courts.

On Wednesday, in an article by Ballard Spahr, we informed you that the CFPB is encouraging the state of New York to ban unfair or abusive practices in bills that have been pending in the New York legislature since early 2023. Specifically, the CFPB stressed the importance of an unfairness standard for combating fees and data security issues. They also want the bills to clarify that actions can be deceptive even if they are not aimed at a consumer. States are becoming increasingly active in the debt collection space. It’s important to keep track of these actions and watch the CFPB’s influence on state rules and regulations.

Our Thursday update focused on convenience fees and the lack of consensus on their legality. An article by Alston & Bird discussed the case of Glover and Booze v. Ocwen Loan Servicing, LLC¸ where the CFPB and FTC filed a joint amicus brief arguing that the convenience fees in the case violated the FDCPA. The two agencies argue that this type of fee is prohibited by the FDCPA as a collection and that a convenience fee is not legal simply because it is part of a valid contract. This 11th Circuit case is currently pending and has the potential to affect collections in Alabama, Florida, and Georgia.

Thanks for reading this weekly recap. You can expect recaps like this every Monday.

Questions or comments? Email editor@insideARM.com and let us know what your thoughts!

On February 27, the Consumer Finance Protection Bureau (CFPB) and the Federal Trade Commission (FTC) filed an amicus brief in the 11th Circuit case Glover and Booze v. Ocwen Loan Servicing, LLC arguing that certain convenience fees charged by mortgage servicer debt collectors are prohibited by the Fair Debt Collection Practices Act (FDCPA).  This brief comes on the heels of an amicus brief Alston & Bird LLP filed on behalf of the Mortgage Bankers Association (MBA).  In its brief, the MBA urged the 11th Circuit to uphold the legality of the fees at issue.

While litigation surrounding convenience fees has spiked in recent years, there is no consensus on whether convenience fees violate the FDCPA.  Federal courts split on the issue, as there is little guidance at the circuit court level, and the issue before the 11th Circuit is one of first impression.  Consequently, the 11th Circuit’s ruling could significantly impact what fees a debt collector is permitted to charge, both within that circuit and nationwide.

Why is it Important?

Convenience fees or what the agencies refer to as “pay-to-pay” fees are the fees charged by servicers to borrowers for the use of expedited payment methods like paying online or over the phone.  Borrowers have free alternative payment methods available (e.g., mailing a check) but choose to pay for the convenience of a faster payment method.

Section 1692f(1) of the FDCPA provides that a “debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt,” including the “collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.”  The CFPB and FTC argues that Section 1692f(1)’s prohibition extends to the collection of pay-to-pay fees by debt collectors unless such fees are expressly authorized by the agreement creating the debt or affirmatively authorized by law.

First, the agencies contend that pay-to-pay fees fit squarely with the provision’s prohibition on collecting “any amount” in connection with a debt and that charging this fee constitutes a “collection” under the FDCPA.  Specifically, the agencies attempt to counter Ocwen’s argument that the fees in question are not “amounts” covered by Section 1692f(1) because the provision is limited to amounts “incidental to” the underlying debt. They argue that fees need not be “incidental to” the debt in order to fall within the scope of Section 1692f(1). In making this point, the agencies claim the term “including” as used is the provision’s parenthetical suggests that the list of examples is not an exhaustive list of all the “amounts” covered by the provision.  Further, the agencies attempt to counter Ocwen’s argument that a “collection” under the FDCPA refers only to the demand for payment of an amount owed (i.e., a debt). They argue that Ocwen’s understanding of “collects” is contrary to the plain meaning of the word; rather, the scope of Section 1692f(1) is much broader and encompasses collection of any amount , not just those which are owed.

Next, focusing on the FDCPA’s exception for fees “permitted by law,” the agencies contend that a fee is not permitted by law if it is authorized by a valid contract (that implicitly authorizes the fee as a matter of state common law). The agencies suggest if such fees could be authorized by any valid agreement, the first category of collectable fees defined by Section 1692(f)(1)—those “expressly authorized by the agreement creating the debt”—would be superfluous. Lastly, the Agencies argue neither the Electronic Funds Transfer Act nor the Truth in Lending Act – the two federal laws Ocwen relies on in its argument – affirmatively authorizes pay-to-pay fees.

What Do You Need to Do?

Stay tuned. The 11th Circuit has jurisdiction over federal cases originating in Alabama, Florida, and Georgia. Its ruling is likely to have a significant impact on whether debt collectors may charge convenience fees to borrowers in those states, and it could be cited as persuasive precedent in courts nationwide.

On March 19, 2024, the Consumer Financial Protection Bureau (“CFPB”) published a blog touting letters it has sent to New York Governor Kathy Hochul, New York State Senate leaders, and New York State Assembly leaders to highlight the importance of a ban on abusive or unfair conduct that is being considered in pending New York legislation.

In the 2023 legislative session, State Senator Leroy Comrie and Assemblywoman Helene Weinstein introduced companion bills titled the “Consumer and Small Business Protection Act” in the Senate and Assembly that would expand Section 349 of the state’s general business law (which currently only prohibits deceptive acts) to prohibit unfair, deceptive, or abusive acts. The bills would allow any individual or non-profit organization entitled to bring an action under Section 349 “on behalf of himself or herself and such others to recover actual, statutory and/or punitive damages or obtain other relief as provided for in this article.” Currently, private actions can only be brought under Section 349 for injunctive relief. The bills would allow statutory damages of $1000 plus actual damages to be awarded in private actions and make the award of reasonable attorneys’ fees and costs to a prevailing plaintiff mandatory rather than discretionary. As we previously blogged, the New York legislature adjourned on June 10, 2023 without any action on two bills but the bills were automatically reintroduced when the legislature reconvened in January. We assume that the CFPB’s letters were directed at the bills since the letters failed to cite the bill numbers or identify the name of the proposed Act.

The CFPB letters, which are signed by Assistant Director Brian Shearer of the Office of Policy Planning and Strategy, urge the NY legislature to follow Congress’s “careful and deliberate multi-part prohibition” and include the “reasonable reliance” component in the proposed abusive conduct ban. Assistant Director Shearer also comments that the inclusion of an unfairness standard has been important to the CFPB and FTC in their efforts to combat junk fees and deficient data security and that the clarification in the bills that an act or practice may be deceptive even when the representation is not directed at a consumer would align with the CFPA’s deceptive conduct prohibition.

Section 1036 of the Consumer Financial Protection Act (CFPA) prohibits unfair, deceptive, or abusive acts or practices. An act or practice is unfair when: (1) it causes or is likely to cause substantial injury to consumers that is not reasonably avoidable by consumers; and (2) the injury is not outweighed by countervailing benefits to consumers or to competition. Section 1042(a) of the CFPA authorizes “the attorney general (or the equivalent thereof) of any State” to bring “a civil action…to enforce the provisions of [the CFPA] or regulations issued under [the CFPA] and to secure remedies under provisions of [the CFPA] or remedies otherwise provided under other law.” It also authorizes “[a] state regulator” to bring “a civil action or other appropriate proceeding to enforce the provisions of [the CFPA] or regulations issued under [the CFPA] with respect to any entity that is State-chartered, incorporated, licensed, or otherwise authorized to do business under State law…and to secure remedies under provisions of [the CFPA] or remedies otherwise provided under other provisions of law with respect to such an entity.” Section 1042(a) includes limits on such authority, including with respect to actions against national banks and federal savings associations, and establishes conditions that a State Official must satisfy to exercise such authority, including notifying the CFPB before filing a CFPA claim and providing a description of the action. It also gives the CFPB a right to intervene in the state’s lawsuit. Despite the existing authority to enforce Section 1036, the CFPB believe the State of New York needs its own state law prohibiting unfair, deceptive and abusive practices.

Acting Outside of CFPB’s Statutory Authority

A review of the CFPA does not reveal a clear source of authority for the CFPB to advocate for state legislation. The CFPA provides the following authority to the CFPB:

• Section 1021 (b) authorizes the CFPB to “exercise its authorities under Federal consumer financial law for the purposes of ensuring that, with respect to consumer financial products and services … consumers are protected from unfair, deceptive, or abusive acts and practices and from discrimination.”
• Section 1021 (c) sets forth the CFPB’s primary functions as the following; “(1) conducting financial education programs; (2) collecting, investigating, and responding to consumer complaints; (3) collecting, researching, monitoring, and publishing information relevant to the functioning of markets for consumer financial products and services to identify risks to consumers and the proper functioning of such markets; (4) subject to sections 1024 through 1026, supervising covered persons for compliance with Federal consumer financial law, and taking appropriate enforcement action to address violations of Federal consumer financial law; (5) issuing rules, orders, and guidance implementing Federal consumer financial law; and (6) performing such support activities as may be necessary or useful to facilitate the other functions of the Bureau.”
• Section 1031 of the CFPA gives the CFPB the authority to “prescribe rules applicable to a covered person or service provider identifying as unlawful unfair, deceptive, or abusive acts or practices in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service.”

This is not the first time the CFPB has sought to act outside of its statutory authority to influence actions taken by other regulatory bodies. In July 2023, Director Chopra issued a press release announced the start of an informal dialogue between the European Commission and the CFPB on a range of critical financial consumer protection issues. In August 2023, U.S. Representative Young Kim (CA-40) along with 18 members of Congress wrote a letter to CFPB Director Rohit Chopra expressing their concern with his “informal dialogue” with the European Commission without an explicit authorization from Congress and asked Director Chopra to terminate the dialogue.

New York’s Consumer Protection Agenda

Earlier this year, New York Governor Hochul announced “a sweeping consumer protection and affordability agenda”, including proposed actions to “strengthen consumer protections against unfair business practices” and “establish nation-leading regulations for the Buy Now Pay Later loan industry.” In December 2023, New York enacted two new consumer protection laws, which aim to protect consumers from (1) unwanted subscriptions by requiring notice to consumers for upcoming automatic renewals with clear instructions for canceling, and (2) confusion over prices by requiring merchants to post the highest price a consumer may pay for a product regardless of payment method.

DEERFIELD BEACH, Fla. — Starmark Financial is excited to announce the expansion of a new 80+ seat call center facility in Trevose, Pa. located just outside of Philadelphia. The new location will feature all new amenities and technology for employees allowing Starmark a greater footprint for its purchasing business and collection partners. 

“The decision to expand back into the Philadelphia area, and expand our presence was the next logical step in our growth strategy” said Founder and CEO Brett Silver. “The area has a vast pool of experienced and diverse talent, which will undoubtedly increase our productivity and results. We will have the opportunity to further expand our staff and capabilities in both our purchase and contingency business sectors. This strategic initiative will give our company the ability to penetrate new vertical markets and diversify our financial service offerings.”

Starmark expects to double its current staff in the next 6 to 8 months with the new expanded office space. Additionally, Starmark will begin hiring in the Philadelphia area for collection staff and supervision positions immediately. To apply confidentially please visit www.starmarkfin.com.

On February 26, 2024, a Florida state court, following federal law concepts, ruled under state law that a plaintiff’s alleged statutory violations, with the only “injury” being a fear of future harm, lacked the required standing to stay in state court.

In Scott v. Collectco, Inc. d/b/a EOS CCA, The Sessions Firm defended EOS when the plaintiff alleged violations of the FDCPA and state law negligence claims. Specifically, the plaintiff claimed a collection letter was sent utilizing a third-party letter vendor (Hunstein “violation”) and had misleading language regarding the deadline to dispute.

Relying on developing Florida law that analyzed standing based on 3 familiar principles: injury in fact, causation, and redressability, the court found no real injury. Said differently: no objective injury, no right to file in state court.

The court specifically ruled that the plaintiff failed to plead any “concrete, particularized, and actual or imminent” injury.

Florida courts are starting to trend towards only allowing cases with actual injuries and throwing out speculative injury cases.

MIAMI, Fla. — Pollack and Rosen has announced Sr. Vice President Robert Russo is retiring from the accounts receivables management industry after 40 years of devoted service. 

Bob began his career in 1983 with Citibank, NA in Rochester, NY, and went on to work with lenders/issuers, debt purchasers, law firms, and agencies and most recently held the position of Sr. Vice President with Pollack & Rosen, P.A. a Miami-based creditors rights law firm.

Bob is looking forward to traveling, spending time with grandchildren and boating with his family on the Connecticut Shoreline.

“I would like to thank my family, my colleagues and clients, along with all of the talented and hardworking people that I have met along the way.”

Joe Rosen said, “Working with my friend was an honor and a pleasure.  Bob will be missed by his colleagues.  His efforts and professionalism at Pollack & Rosen have been admired and appreciated.”

Consumer reporting dominates complaints to the Consumer Financial Protection Bureau (CFPB), according to a new report.The Congressional Research Service (CRS), a nonpartisan shared staff to congressional committees and Members of Congress, issued a report discussing the CFPB’s consumer complaint process and public database. Their review of the consumer complaints submitted to the CFPB in fiscal year 2023 revealed that the significant majority (over 80%) were related to credit reporting.

The Dodd-Frank Wall Street Reform and Consumer Protection Act required the CFPB to establish a consumer complaint system and to publish an annual report to Congress summarizing complaints received during the previous year. Consumer complaint information is publicly available on the CFPB’s website. The complaint database includes the submission date, information regarding the consumer financial product, the consumer’s issue with the product, and the company’s response to the consumer, among other things.

CRS’s report shows that in fiscal year 2023, credit reporting ranked as the most common product category about which consumers complained, comprising 80.5% of all complaints. That lead was followed far behind by complaints related to debt collection (5.5%), credit or prepaid cards (4.5%), checking or savings accounts (4.1%), and mortgages (1.9%).

The three most common issues reported to the CFPB related to credit reporting were incorrect information on credit reports (30.8% of complaints), improper use of credit reports (27.6%), and problems with a credit reporting agency’s investigation into a complaint (21.9%). These three types of complaints alone made up 80.3% of all complaints received by the CFPB during fiscal year 2023.

This CRS report confirms what is also apparent from increased litigation filings and the continued influx of direct consumer complaints sent to FCRA regulated businesses: consumer reporting continues to be a hotbed of activity for consumer complaints.

February 2024 was another busy month for the CFPB. In this month’s article, we share some of our top “bites” covered during the February 2024 webinar.

Bite 10: News Organization Sends FOI Request to CFPB

On February 19, 2024, an online newspaper sent a Freedom of Information Act (FOIA) request to the CFPB, asking for details about recipients of funds from the CFPB’s Civil Penalty Fund. When the CFPB collects funds as penalties for enforcement actions, it uses the money to compensate the victims of those alleged violations. However, if the CFPB determines that it cannot locate actual victims or if the amounts are too small to allocate, the CFPB may instead send the money to nonprofits and other organizations that foster consumer education and financial literacy. According to the news site, the CFPB’s financial reports only provide the names of the companies who paid into the fund, and do not list the specific groups that received funds. The group sent its FOIA request on February 16th, seeking the names of all organizations that have received payments from the fund since the CFPB’s formation in 2011.

Bite 9: Fintechs ask CFPB to Regulate Earned Wage Access

On February 7, 2024, a fintech trade association sent a letter to the CFPB asking the CFPB to establish rulemaking governing earned wage access transactions. The trade group’s letter to Director Chopra urged the CFPB to begin a rulemaking process to regulate the industry in a way that would be consistent across the states – a move that consumer advocates claim is designed to stall state efforts and head off revised advisory guidance from the CFPB. Various state legislatures are considering regulating earned wage access programs, some of them seeking to regulate the transactions as credit.

Bite 8: The CFPB’s Enforcement Work in 2023

On January 29, 2024, the CFPB published a summary of its 2023 enforcement actions, and noted its expanding capacity for enforcement going forward. The CFPB noted that in 2023, it filed 29 enforcement actions and resolved 6 previously filed lawsuits through final orders. Those orders led to agreements to pay $3.07 billion dollars to consumers, and approximately $498 million dollars in civil money penalties. The CFPB identified “key actions” from the past year, which included an order against an auto title lender that allegedly violated servicemember protections, an action against a large bank for alleged fee violations, an order against a different large bank for alleged discrimination practices, a lawsuit against a lender who the CFPB claims pushed consumers into refinances, an action against a credit reporting company, and a settlement with a credit repair firm. The CFPB noted that 2023 was the first time that a team of technologists dedicated to enforcement matters joined the CFPB, and that in 2024, the CFPB is significantly expanding its enforcement capabilities by hiring more attorneys, along with additional analysts, paralegals, e-litigation support specialists, economists, and more.

Bite 7: Report on Credit Card Rates by Institution Size

On February 16, 2024, the CFPB’s Office of Markets issued a report based on results from its Terms of Credit Card Plans survey. The survey has been running since 1990, but the CFPB recently enhanced the survey to collect more details on the types of credit card plans issuers offer. According to the CFPB, larger banks offer credit card products with worse terms and interest rates than smaller banks and credit unions, regardless of the borrower’s credit risk. The report found that the 25 largest credit card issuers charged customers interest rates of 8 to 10 points higher than small- and medium-sized banks and credit unions. The CFPB claimed that larger credit card issuers were also more likely to charge annual fees; 27% of these cards carried an annual fee, compared with 9.5% for cards offered by smaller issuers. The CFPB concluded that a lack of competition is likely responsible for the higher rates and charges at the largest issuers. The top 30 credit card companies represent about 95% of credit card debt, and, according to the CFPB, the top 10 dominate the market. The CFPB noted that these reports are a part of the CFPB’s larger push to jumpstart competition in the credit card market, which will include the development of rules on open banking and increased scrutiny on comparison websites.

Bite 6: Statement of Principles on Appraisal Bias

On February 12, 2024, the Federal Financial Institutions Examination Council (FFIEC) issued a statement of principles to its member entities, which include the CFPB along with the other prudential regulators like the Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, Federal Reserve Board, National Credit Union Administration, and the FFIEC’s State Liaison Committee. The FFIEC noted that these principles were being communicated to mitigate risks that may arise due to potential discrimination or bias in appraisal and evaluation practices and to promote credible valuations. The statement focused on consumer compliance and safety and soundness examination principles. The FFIEC noted that valuation discrimination and bias can cause consumer harm, lead to violations of law, have a detrimental impact on communities, undermine an institution’s credit decisions, and negatively impact its safety and soundness. According to the FFIEC, this statement of principles should not be interpreted as new guidance to supervised institutions or as evidence of an increased focus on appraisal practices. Rather, the statement is meant to offer transparency into the examination process and to support risk-focused examination work.

Bite 5: CFPB Issues Revised Supervisory Appeals Process

On February 16, 2024, the CFPB announced that it has issued a procedural rule, updating the process by which financial institutions can appeal supervisory findings. According to the CFPB, the new rule will broaden the group of CFPB officials who are eligible to evaluate appeals, will increase the options for resolving an appeal, and will make other clarifying changes. Under the revised appeals process, a Supervising Director will select an appeals committee of three CFPB managers with relevant expertise who did not work on the matter being appealed, instead of requiring managers from the Supervision department. There is now also a new option for resolving an appeal– institutions can now remand the matter to Supervision staff for consideration of a modified finding, in addition to the existing options of upholding or rescinding the finding. Additionally, institutions may now file an appeal of any compliance rating or finding, not only an adverse rating.

Bite 4: CFPB Proposes Another Rule on Bank Fees

On January 24, 2024, the CFPB announced that it has proposed a rule on banking fees, which will stop new “junk fees” on bank accounts. This proposed rule would block financial institutions from charging fees on transactions that are declined at the time of a “swipe, tap, or click.” According to the CFPB, these fees include those that are charged for declined debit card purchases and ATM withdrawals, as well as some declined peer-to-peer payments. The CFPB claims that fees that are declined at the time that the transaction is attempted are rare and that financial institutions almost never charge these fees, but this rule is a proactive step to make sure that financial institutions do not start imposing these fees as technology advances and real-time declinations are more feasible. Director Chopra said that they will “continue to rid the market of junk fees today and prevent new junk fees from emerging in the future.” If finalized, this rule will apply to banks and credit unions, and certain peer-to-peer payment companies. The application of the rule to peer-to-peer payment companies will depend on how the payments are processed, as real-time payments or as ACH debits, and on whether the company offers a stored value account or links to a deposit account. Comments on the proposed rule are due by March 25, 2024.

Bite 3: CFPB Announces Funds Distribution in Debt Relief Case

On February 15, 2024, the CFPB announced that 8,571 consumers who were allegedly harmed by a student loan debt relief business and a related general debt settlement company will receive checks totaling more than $10.9 million dollars. The CFPB sued the two companies and their shared CEO in 2020, alleging that consumers were charged illegal upfront fees in violation of the Telemarketing Sales Rule and that the companies used deceptive tactics in violation of the Consumer Financial Protection Act (CFPA). The alleged illegal conduct occurred from 2015 until 2022, when a district court entered an order that imposed civil penalties and required consumer redress, along with injunctions. The CEO is banned from debt-relief services for five years, and the two companies were permanently banned from debt-relief services and from obtaining referrals from companies purporting to make or arrange loans. The funds distribution will come from the Civil Penalty Fund as well as CFPB- administered redress.

Bite 2: CFPB Announces Resolution of Long-Running Suit

On February 8, 2024, the CFPB announced that it has entered into a settlement on an enforcement suit against a foreclosure relief firm that dates back to 2014. The case was originally brought by the CFPB, the FTC, and 15 states against a foreclosure relief operation and four individual attorneys, who allegedly charged millions of dollars in advance fees for legal representation that was never provided. The CFPB won a judgment in 2019, but due to multiple appeals by the defendants, had not come to a resolution until this settlement was reached. The settlement agreement will require the defendants to pay $10.9 million in consumer redress and a $1.1 million penalty into the CFPB’s Civil Penalty Fund. The individual defendants are covered by 8- or 5-year bans from the mortgage assistance industry, under the district court’s original order.

Bite 1: CFPB Announces Joint Action Against Debt Relief Company

On January 19, 2024, the CFPB, along with the attorneys general of 7 states, announcedthat that they filed a lawsuit against a debt relief company, two individuals, and “a web of affiliated shell companies.” Allegedly, the company advertised that it provided loans to help pay down debts, but when consumers called to inquire about the loans, they were told they didn’t qualify and were instead encouraged to enroll in debt relief services, which required immediate payment into an escrow account. The CFPB alleges that the companies provided little or no debt relief. The CFPB and the involved states alleged that the companies collected hundreds of millions of dollars in fees in advance of any settlement payments, in violation of the Telemarketing Sales Rule. The lawsuit also alleges that the company falsely led consumers to believe that attorneys were conducting the debt-relief negotiations, when those were actually done by the debt-relief firm and its employees. The CFPB claims that this is a violation of the CFPA’s prohibition on unfair, deceptive, and abusive acts or practices.

Extra Bite: FTC Charges Cash Advance Provider

On January 24, 2024, the FTC announced an action against an online cash advance provider and its founders. According to the FTC, the online cash advance company claimed it would charge consumers $1.99 per month to subscribe to services, and that consumers could access up to $50 instantly. But, the FTC claimed that consumers could only access $20 and were charged a $4 for instant cash. Allegedly the company told consumers requesting the larger advance that an algorithm could increase the advance amount over time, but the FTC claims the algorithm didn’t exist. The FTC also alleged that the company engaged in practices it calls “dark patterns” to make it difficult to cancel subscriptions. The FTC also alleges the company did not consider public assistance income, declining advances to public assistance recipients, but nevertheless charging them for a monthly subscription. In a settlement order, the parties agreed to (i) pay $3 million in consumer refunds; (ii) stop deceiving consumers about the use of an algorithm or artificial intelligence; (iii) get consumers’ express, informed consent for charges; (iv) provide an easy method for cancellation; (v) stop deploying discriminatory practices; (vi) enact a fair lending program; and (vii) create and maintain records of consumer testing.

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.