The Bulletin dated July 31, 2017 states the following practices may be classified as UDAAPs:

1. A recent action was noted, in which the CFPB alleged that a financial services provider deceptively identified a $14.95 pay-by-phone fee to consumers as a “processing” charge.  In actuality, the provider charged consumers this fee for the service of posting the consumers’ payment to his/her account the same day, when in fact many consumers did not need their payments to post to their accounts on the same day.  This could be misrepresentation of a fee or cost.
2. Under this action, no-cost payment alternatives existed, but the provider had failed to make consumers aware of these no-cost payment alternatives. The provider did not make the consumer aware of this option.
3. The Bulletin dated July 31, 2017, also noted that many providers rely on their telephone customer service employees to disclose all pay-by-phone fees and available options to consumers, and do not disclose upfront in writing their fees or pay-by-phone options. According to the CFPB, the failure by employees to inform consumers about substantial price differences between pay-by-phone options may “substantially harm” consumers. Consumers may utilize more expensive pay-by-phone options if not advised that other options are available.

The conclusions from this Bulletin are that a provider cannot misrepresent a fee or cost of a phone payment, fail to disclose a no-cost option and/or fail to make adequate consumer disclosures about these options.  We have advised our clients to review the disclosures given in connection with loan and credit card payment options, both written and given by the customer services representatives.

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The four primary provisions of the final rule are as follows:

Under the final rule, a “predispute arbitration agreement” is defined as: “an agreement between a covered person . . . and a consumer providing for arbitration of any future dispute concerning a consumer financial product or service described below.

1. The prohibition on class action waivers would apply to arbitration agreements with respect to:
   1. Most types of consumer “credit” governed by the Equal Credit Opportunity Act and Regulation B, including but not limited to consumer credit cards, lines of credit, small-dollar or payday loans, private student loans and certain auto loans;
   2. Checking and other deposit and share accounts subject to the Truth in Savings Act (TISA);
   3. Certain auto leases;
   4. Consumer debt relief services for all types of consumer debts (whether arising from secured or unsecured consumer credit transactions, or consumer debts that do not arise from credit transactions – such as medical or tax debts);
   5. Providing consumers with consumer reports and information specific to a consumer from consumer reports (such as by providing credit scores and credit monitoring);
   6. Remittance transfers subject to the Electronic Funds Transfer Act (EFTA);
   7. Transmitting or exchanging funds, including receiving currency, monetary value, or payment instruments from a consumer for purposes of exchanging or transmitting by any means, including, among other things, wire, facsimile, electronic transfer, the Internet, or through bill payment services or business that facilitate third-party transfers;
   8. Payment processing activities that involve accepting financial or banking data directly from the consumer for initiating a payment, credit card, or charge card transaction;
   9. Consumer check cashing, check guaranty, and check collection services; and
   10. Debt collection activities related to the types of consumer financial transactions listed above.  See Section 1040.3(a).
2. The rule also requires covered providers to include a specified plain-language provision in their arbitration agreements disclaiming the agreement’s applicability to class actions.

The CFPB’s final rule may be viewed at:  http://files.consumerfinance.gov/f/documents/201707_cfpb_Arbitration-Agreements-Rule.pdf

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Rep. Emanuel Cleaver II,  raised certain concerns  in a recent letter to the CFPB (the “Cleaver Letter”) , which can help us answer this question.  As we know, fintech lending is based upon the use of algorithms to determine whether to provide commercial credit to a small business.  Since the algorithms are created by individuals  looking at various factors, an argument arises  that these practices could create higher interest rates thus,  discriminatory lending practices.  The Cleaver Letter raised issues regarding collection of data which would  better help us to understand the issues.

Dodd Frank Section  1071, amended the Equal Credit  Opportunity Act (“ECOA”) to require financial institutions to collect and maintain certain data in connections with credit applications made by women or minority owned and small businesses.  Such data includes the race, sex and ethnicity of the principal owners of the business.  At this time, the rule-making by the CFPB to implement Section 1071 has not taken place.

Another question asked is whether the CFPB has engaged in supervisory activities over fintech small business lenders?  The CFPB has stated that it has authority regarding small business lending and would like information about data and models for collection of information in this area.  The CFPB has been accepting consumer complaints related to  loans obtained from marketplace lenders.

What is the difference between institutional commercial business loans and the fintech lender?

The institutional lender has a relationship with its borrower, meets the borrower in person, analyzes the credit, etc.  There is already a statute which addresses discrimination called the Community Reinvestment Act   (“CRA”).     CRA authorizes  the federal financial supervisory agencies to encourage regulated financial institutions to help meet the credit needs of the local communities in which they are chartered, consistent with safe and sound operation. To enforce the statute, federal regulatory agencies examine banking institutions for CRA compliance, and take this information into consideration when approving applications for new bank branches or mergers and acquisitions.

There has been a discussion in the marketplace about access to commercial credit so the CFPB may very well create rules to enforce Section 1071.

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The  January 2017 Memo  states in relevant part, “[S]end no regulation to the Office of the Federal Register (the ‘OFR’) until a department or agency head appointed or designated by the President after noon on January 20, 2017, reviews and approves the regulation.”  Withdraw final but unpublished regulations: “With respect to regulations that have been sent to the OFR but not published in the Federal Register, immediately withdraw them from the OFR for review and approval.”  Delay the effective date of published but not yet effective regulations: “With respect to regulations that have been published in the OFR but have not taken effect,  temporarily postpone their effective date for 60 days from the date of this memorandum”. Following the delay, regulations that “raise no substantial questions of law or policy” would be allowed to take effect.  For those regulations that do raise such questions, the agency or department “should notify the OMB Director and take further appropriate action in consultation with the OMB Director.” Rulemakings subject to statutory or judicial deadlines are exempt, and the OMB Director has the authority to grant further exemptions for “emergency situations or other urgent circumstances relating to health, safety, financial, or national security matters, or otherwise.”

What is the effect of the January 2017 Memo on the Consumer Financial Protection Bureau (“CFPB”)? 

It does not appear that the January 2017 Memo directly applies to the CFPB, which was established as an independent agency by the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”).   However, please note that in the fall, 2016,  a panel of the D.C. Circuit concluded, in part,  in  CFPB v. PHH Corporation,  (the “PHH Case”)  that the CFPB Director was subject to “at will” removal by the President.   This initial  decision is currently stayed while the CFPB seeks reconsideration by the full D.C. Circuit, a process that is expected to take months to resolve. The decision in the PHH Case gives a good overview of how the CFPB was set up under the Dodd-Frank Act, where it receives its funding, etc.   Our understanding  is that the CFPB has not yet reached a conclusion regarding the application of the January 2017 Memo.  Of course, the CFPB could choose to comply voluntarily with this new requirement.   There have been reports and speculation  that Mr. Cordray may step down and a new director will be appointed by the Trump Administration.

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