Consumer Finance Law Blog

Consumer Finance Law Blog

Developments and Analysis of Consumer Financial Services Laws, Rules, and Regulations

CFPB Proposes Rule on Prepaid Products to Extend Certain Credit Requirements and Mandate Disclosures

Posted in Consumer Financial Protection, Data Security, Regulatory Developments

The Consumer Financial Protection Bureau released last week a proposed rule that would impose an array of new requirements on prepaid accounts. The proposed new definition of “prepaid account” would include general purpose reloadable cards, electronic or mobile accounts that can store funds such as PayPal accounts, payroll cards, and certain government benefit cards, but not include closed-loop gift cards. Many of the new requirements are rooted in existing requirements for credit accounts under the Bureau’s Regulations E and Z. Additionally, the Bureau is proposing to require prepaid account issuers that offer overdraft services to consider the consumer’s ability to repay the debt before offering overdraft protection or other credit services.

Generally Applicable Requirements

The proposed rule would require all prepaid account issuers to comply with a multitude of new requirements, including:

  • Short form and long form disclosures. The Bureau proposes to require prepaid account issuers to provide both short form disclosures, which would highlight key fees that the Bureau believes to be the most important to consumers, and long form disclosures, which would list the entirety of fees and conditions related to a prepaid account. Both forms of disclosure would generally be required prior to the customer acquiring the account, with certain exceptions for sales over the phone or in retail stores. The Bureau also provided model forms for the disclosures that would provide a safe harbor for compliance with the disclosure requirements.
  • Provision of account and transaction information. The Bureau proposes to extend existing Regulation E requirements regarding the provision of transaction information to all prepaid accounts. The rule would require financial institutions to either provide periodic statements, or make available account balance and certain transaction history.
  • Error resolution and limited liability. The Bureau also proposes to extend requirements, with certain modifications for timing, that limit consumers’ liability for unauthorized transactions and require financial institutions to work with consumers to resolve account errors.

Requirements for Overdraft Services and Credit Features

The proposed rule would also extend certain requirements specifically to prepaid account issuers that offer overdraft services or credit features in connection with prepaid accounts. For example, an issuer offering overdraft services would be required to evaluate a consumer’s ability to repay a debt prior to offering overdraft protection or another credit feature in connection with a prepaid account. Additionally, issuers of these types of accounts would be required to give consumers at least 21 days to repay their debt before being charged a late fee, and would be subject to other limitations on interest and fees.


The proposed rule will be published in the Federal Register shortly. Comments are scheduled to be due 90 days after publication.

CFPB Director Cordray Testifies Before House Financial Services Committee

Posted in Consumer Financial Protection, Gift Cards, Privacy

CFPB Director Richard Cordray testified before the House Financial Services Committee today, fielding questions and comments on an array of issues from the CFPB’s data collection practices to the Qualified Mortgage Rule, which went into effect on January 10, 2014. The hearing was scheduled in response to the CFPB’s release of its fourth Semi-Annual Report on November 5, 2013. In his testimony, Director Cordray pointed to the approximately $3 billion collected by the CFPB for consumer restitution in recent enforcement actions as evidence of the CFPB’s producing tangible benefits for consumers.

Responding to questions regarding whether the Qualified Mortgage Rule will have a deterrent effect on mortgage lenders, Director Cordray reprised his position that the rule would not because lenders could rely on exceptions to continue lending to borrowers who do not meet the 43 percent debt-to-income ratio referenced in the rule. For instance, Cordray noted that the rule also permits loans to be considered qualified if they are purchased or guaranteed by a government-sponsored enterprise such as Fannie Mae or Freddie Mac . Committee members, on the other hand, argued that lenders would be unlikely to make certain loans that were not considered qualified under the Rule because such loans would no longer receive the same sort of legal protections as qualified mortgages.

Committee members also questioned certain CFPB data collection practices, including its collection of aggregate data from credit card companies, complaint data generally, and plans to create the National Mortgage Database in conjunction with the Federal Housing Finance Agency (FHFA). Cordray responded that much of the data collected by the CFPB cannot be linked to any particular consumer because of the lack of personally identifiable information (PII) collected. He also noted that the CFPB complies with all laws governing privacy and data security.

Committee members questioned Cordray on a variety of other topics, including regulation of auto lenders and manufactured housing, and expected forthcoming regulations governing debt collection and general purpose reloadable cards. We will continue to monitor CFPB developments and post updates here.

CFPB Director Addresses Enforcement Strategy for New Mortgage Rules before Senate Banking Committee

Posted in Consumer Financial Protection

On Tuesday November 12, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing on the fourth Semi-Annual Report of the Consumer Financial Protection Bureau (CFPB or Bureau). The hearing came amid growing concerns about enforcement of the CFPB’s mortgage lending and servicing rules taking effect on January 10, 2014. The rules implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act and will affect financial institutions and consumers. The Committee probed CFPB Director Richard Cordray on the Bureau’s enforcement strategy.

At the hearing, Director Cordray announced that the CFPB will not expect perfect compliance to the rules. Allaying fears that firms will be penalized for technical glitches or processing errors, Cordray affirmed that the Bureau will look for good faith efforts in the early months. Pressed to define “good faith efforts,” Cordray said, “We are looking for entities to have taken the responsibility seriously.” He continued, “They have compliance systems in place and this is something that has been brought to the leadership and the board.” Cordray noted that firms should establish rules and systems to self-monitor, but the CFPB will not “be playing a game of gotcha” in the early months.

Cordray would not define what the Bureau considered “early months.” Therefore, to avoid becoming a target for the CFPB, it is advised that firms implement and integrate compliance systems into their business operations by January 10, 2014. The Committee also addressed oversight of indirect automobile lending and the Bureau’s commitment to accountability and transparency. A webcast of the hearing is available here.

Associate Jalyce Mangum contributed to this post.  Ms. Mangum is practicing under the supervision of principals of the firm who are members of the D.C. Bar.


CFPB Releases Advanced Notice of Proposed Rulemaking on Debt Collection Practices

Posted in Consumer Financial Protection, Fair Debt Collection Practices Act (FDCPA), Regulatory Developments

On Wednesday November 6, the CFPB released an Advanced Notice of Proposed Rulemaking (ANPR) seeking comment on debt collection practices and noting that the Bureau is considering proposing rules regarding debt collection. The CFPB simultaneously announced that it was adding approximately 5,000 consumer debt collection complaints to its public Consumer Complaint Database. According to the announcement, debt collection complaints constituted approximately 30 percent of total complaints filed since July 10, 2013 when the CFPB began accepting debt collection complaints.

With regard to the ANPR, the CFPB seeks information regarding various aspects of the debt collection industry and current practices and comments on possible approaches to regulation. The ANPR cites to the CFPB’s authority under the Dodd-Frank Act to prescribe rules implementing the Fair Debt Collection Practices Act, along with its general authority to prescribe rules to prevent unfair, deceptive or abusive acts or practices.

Notable issues raised by the ANPR include:

  • whether the Bureau should harmonize regulation of third-party collectors with regulation of first-party collectors;
  • whether regulation should depend on the type of debt being collected;
  • whether the Bureau should develop requirements related to the transfer of specified information or documents as part of the sale of a debt or the placement of a debt with a third-party collector;
  • whether the Bureau should require notification to the consumer when a debt is sold or placed for collection;
  • the format and content of validation notices, including the approach to itemization;
  • how communications between consumers and industry should be regulated in light of technological advancements; and
  • the role of the CFPB in state debt collection litigation.

The ANPR is available here. The ANPR will be published in the Federal Register within the next few days and interested parties will then have 90 days to submit comments.


FTC Settles FCRA Charges Against Certegy for $3.5 Million

Posted in Fair Credit Reporting Act (FCRA)

The FTC announced today that Certegy Check Services, Inc. will pay $3.5 million to settle allegations that Certegy violated the Fair Credit Reporting Act (FCRA) by failing to follow proper dispute procedures and failing to use reasonable procedures to maximize the accuracy of consumer report information. Certegy is one of the nation’s largest check authorization service companies, and must comply with FCRA as a consumer reporting agency.

In the complaint, the FTC charged Certegy with failing to comply with FCRA section 611 by “attempt[ing] to shift the burden of conducting a reinvestigation to consumers rather than fulfilling its legal obligation to reinvestigate disputed information.” Additionally, the FTC alleged a violation of FCRA section 612(a)(2), which requires consumer reporting agencies to provide consumers with free annual file disclosures within 15 days of a request, and a violation of FCRA’s obligation to establish and implement reasonable written policies and procedures regarding the accuracy and integrity of consumer report information.

In addition to the $3.5 million penalty, the settlement also provides for broad injunctive relief that requires Certegy to undertake additional steps above and beyond FCRA requirements to ensure the accuracy of consumer reports.

Senate Confirms Cordray as CFPB Director

Posted in Consumer Financial Protection

The saga of Richard Cordray’s appointment as Director of the CFPB has finally ended: the Senate voted 66-34 today to confirm Cordray. Before the confirmation vote, the Senate voted 71-29 to end the filibuster of Cordray’s nomination, paving way for the confirmation vote.

President Obama appointed Cordray to the position as a recess appointment, but that appointment was set to expire in January. The recess appointment garnered additional attention when a three-judge panel of the D.C. Circuit Court of Appeals invalidated recess appointments to the National Labor Relations Board, arguably calling into question Cordray’s recess appointment as well.

Under the Dodd-Frank Act, Cordray will serve a five year term as Director.

FTC Issues Guidance to Clarify Scope and Requirements of Red Flags for Identity Theft Prevention Rule

Posted in Consumer Financial Protection, Fair and Accurate Credit Transactions Act (FACTA)

The FTC has released a guidance document that clarifies the scope of its Red Flags for Identity Theft Prevention Rule (“the Red Flags Rule”) and provides a practical four step guide for covered entities to assess compliance.

The Red Flags Rule requires certain businesses and organizations to have in place a written identity theft program designed to detect “red flags” indicative of identity theft and take appropriate steps to prevent it. While the Red Flags Rule has always applied to “financial institutions” and “creditors,” the scope of the term “creditors” has generated some confusion. The initial Red Flags Rule defined “creditor” broadly by reference to the definition in the Equal Credit Opportunity Act and arguably covered any company that extended credit by allowing a customer to defer payment. This would include most businesses and service providers, including retailers, doctors, and lawyers.

After allegations that such a broad definition exceeded the FTC’s authority under the Fair and Accurate Credit Transactions Act (“the FACT Act”), Congress reacted by passing the Red Flag Program Clarification Act of 2010. The Act clarifies that for the purposes of the FACT Act, creditor means only those creditors that regularly and in the ordinary course of business either: (1) obtain or use consumer reports in connection with a credit transaction, (2) furnish information to consumer reporting agencies in connection with a credit transaction, or (3) advance funds to or on behalf of a person, based on an obligation of the person to repay. The Act further clarifies that creditor does not include an entity that “advances funds on behalf of a person for expenses incidental to a service provided by the creditor to that person."

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Industry Stakeholders, Government Officials and Consumer Advocates Discuss Data Use in Debt Collection at CFPB-FTC Roundtable

Posted in Consumer Financial Protection, Fair Debt Collection Practices Act (FDCPA)

As initially reported, the CFPB and FTC held a public roundtable last week that brought together industry stakeholders, government officials and consumer advocates to discuss the use of consumer data throughout the debt collection process. Participants acknowledged that the transfer and sale of debt presents unique obstacles for the use of consumer data across the life of a debt, but that certain steps could be taken to move towards a more efficient system for all parties.

Providing welcoming remarks along with FTC Commissioner Julie Brill, Acting Deputy Director of the CFPB Steve Antonakes noted that the discussion could be broken down into three “areas of focus.” First, one must consider the initial accuracy of information that debt collectors use to pursue consumers. Second, one should consider the accuracy of the information over time, meaning whether the information “deteriorates as it ages or gets passed down the line to secondary or tertiary buyers.” Third, even accepting the accuracy of the information relied upon, safeguards should be taken to ensure that the consumer can dispute debts believed to be incorrect.

The daylong roundtable generally echoed these themes as various presenters and panels provided their thoughts on the present system and prospective channels for improvement. Most notably, participants from industry and consumer protection groups agreed that moving towards a more uniform system for data standards would facilitate a more efficient market, thus benefitting industry and consumers. While some details concerning potential data standards remained unclear, widespread agreement emerged that certain basic information should be included as part of any debt file, including the identity of the original creditor and the amount owed.

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FTC and CFPB Announce Public Roundtable on Data Integrity in Debt Collection

Posted in Consumer Financial Protection, Fair Debt Collection Practices Act (FDCPA)

The Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) will co-host a roundtable on June 6, 2013 to examine how consumer data is used and maintained in the debt collection process, according to an FTC news release issued yesterday. The roundtable will include a discussion of such topics as:

• the amount of documentation and other information currently available to different types of collectors and at different points in the debt collection process;
• the information needed to verify and substantiate debts;
• the costs and benefits of providing consumers with additional disclosures about their debts and debt-related rights; and
• information issues relating to pleading and judgment in debt collection litigation.

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CFPB Finds State Unclaimed Property Law Preempted by Federal Credit CARD Act

Posted in Gift Cards

Last week, the Consumer Financial Protection Bureau (CFPB) issued its final determination regarding whether Maine and Tennessee unclaimed property laws were preempted by the federal Credit Card Accountability and Responsibility and Disclosure Act of 2009 (“the Credit CARD Act”). Both state laws provided that certain gift cards would be deemed abandoned as early as two years after purchase and thus require the issuer to transfer the value of the card to the state as unclaimed property. The CFPB was tasked with deciding whether those laws conflicted with the requirement under the Credit CARD Act that gift card funds not expire for at least five years after issuance. Gift card issuers and sellers have been watching these matters with the hope that the inconsistency between federal and state gift card law requirements might be eliminated by the CFPB.

The CFPB distinguished the two states laws on the basis of whether the card issuer was required to continue to honor the gift card after the funds were deemed abandoned and turned over to the state. Under Maine law, as interpreted by the Office of the State Treasurer for Maine and communicated to the CFPB, the issuer was required to continue to honor the card even after the issuer had transferred the underlying funds to the state as abandoned property. The CFPB reasoned that “[b]ecause the Maine Act does not interfere with consumers’ ability to use their gift cards at the point-of-sale for at least as long as they are guaranteed that right” under federal law, the Maine law did not conflict with federal law and was not preempted.

While the CFPB acknowledged that the Maine law potentially subjects the card issuer to duplicative liability on the same card, it noted that this was the case notwithstanding the federal provision because “the Maine Act itself requires abandoned gift cards to be honored indefinitely.” The CFPB further explained that it expressed no view on potential constitutional due process issues of requiring an issuer to honor abandoned gift cards when those funds had already been transferred to the state. The CFPB explained that it could not opine on such concerns because its role was limited to a determination on federal preemption.

With regard to the Tennessee law, the CFPB explained that, unlike the Maine law, it did not require the issuer to continue to honor the card after the funds had been transferred to the state. To the contrary, Tennessee law expressly provided that Tennessee assumed custody and responsibility for the underlying funds after transfer and therefore permitted the issuer to decline to honor funds once transferred to the state. As such, the CFPB reasoned that consumers attempting to reclaim their property would be required to submit an unclaimed property claim form to Tennessee’s Department of Treasury. Because such a requirement requiring consumers to seek refund from the state conflicted with the Credit CARD Act’s mandate to permit use of funds for at least five years after card issuance, the Tennessee law was in direct conflict with, and thus preempted by, federal law.

We will continue to monitor the case, as the CFPB’s determinations may be destined for appeal. More information on developments in gift card laws is available at