Welcome to Wiley’s update on recent developments and what’s next in consumer protection at the Consumer Financial Protection Bureau (CFPB) and Federal Trade Commission (FTC). In this newsletter, we analyze recent regulatory announcements, recap key enforcement actions, and preview upcoming deadlines and events. We also include links to our articles, blogs, and webinars with more analysis in these areas. We understand that keeping on top of the rapidly evolving regulatory landscape is more important than ever for businesses seeking to offer new and ground-breaking technologies.
Second Circuit Rules Against Challenge to OCC’s Proposed Issuance of Federal Charters to Non-Depository Financial Institutions. On June 3, the U.S. Court of Appeals for the Second Circuit vacated the lower court’s decision in Lacewell v. Office of the Comptroller of the Currency. The case involves whether the Office of the Comptroller of the Currency (OCC) can issue federal bank charters to non-depository financial institutions, such as financial technology companies. The opinion concludes that the plaintiff New York Department of Financial Services (DFS) lacks Article III standing because it failed to allege that the OCC’s decision caused it to suffer an actual or imminent injury in fact, and that DFS’s claims are constitutionally unripe for substantially the same reason. The court’s decision reverses a 2019 decision by the U.S. District Court for the Southern District of New York, finding that the OCC exceeded its authority under the National Bank Act in accepting applications for federal bank charters from financial technology companies and ordering that the DFS complaint be dismissed without prejudice.
FTC Submits 2020 Financial Acts Enforcement Report to the CFPB. On June 1, FTC staff submitted the 2020 Financial Acts Enforcement Report to the CFPB on its enforcement and related activities regarding the Truth in Lending Act, Consumer Leasing Act, and Electronic Fund Transfer Act. Among other things, the report highlights the FTC’s enforcement actions related to automobile purchases and financing, payday lending, credit repair and debt relief, and electronic funds transfers. The report also discusses the agency’s relief and policy efforts pertaining to truth in lending, including the release of two staff reports on a study of auto buyers and the car buying and financing process. One of those reports, issued by the Bureau of Consumer Protection staff, concluded that consumers were sometimes unaware of key terms of sales and financing practices in the auto buying process.
FTC Submits FY 2022 Budget Request, Performance Plan and Report to Congress. On May 28, the FTC submitted its annual budget request, and performance plan and report to Congress for fiscal year (FY) 2022. In support of President Biden’s budget plan for the agency, the FTC is requesting $389,800,000, which would represent an increase of $38,800,000 over FY 2021. The FTC’s vote to submit the documents to Congress was 4-0.
CFPB Report Finds That Manufactured Housing Loan Borrowers Have Higher Interest Rates, Risks, and Barriers to Credit. On May 27, the CFPB released a report finding that manufactured housing borrowers face higher interest rates and limited refinancing opportunities. Manufactured housing comprises a small segment – approximately 13% – of the overall U.S. housing market. However, it is one of the most affordable types of housing options available to low-income and rural consumers. The report also found that consumers that do not own the underlying land for manufactured homes are more likely to see their homes depreciate in value, and have fewer options if they fall behind on loan payments. The CFPB report uses new information collected under the Home Mortgage Disclosure Act in 2018.
Significant Enforcement Actions
FTC Approves Final Administrative Consent Orders Against Three Companies That Allegedly Made Deceptive Claims About Fish Oil Supplements. On June 1, the FTC approved final administrative consent orders against BASF SE, its subsidiary, BASF Corp., and DIEM Labs, which the agency claims deceptively marketed two dietary fish oil supplements as clinically proven to reduce liver fat in adults and children with non-alcoholic fatty liver disease. As we noted in our April 12 Newsletter, the companies settled charges with the FTC on April 1. The FTC alleges that the companies marketed the two drugs – Hepaxa and Hepaxa PD – until mid-2020. The final administrative consent orders, which were approved 4-0, note that the companies have agreed to pay a collective $416,000.
CFPB Proposes Settlement with Company for Allegedly Deceptive Deposit and Loan Products. On May 27, the CFPB filed a settlement proposal against Driver Loan, LLC (Driver Loan) in the U.S. District Court for the Southern District of Florida. If entered by the court, the settlement proposal would require Driver Loan to refund approximately $1 million in deposits to consumers and pay a $100,000 civil penalty. As we noted in our November 9, 2020 Newsletter, the CFPB filed a complaint against Driver Loan, alleging that the company misrepresented the risks associated with its short-term, high-interest loan product it offered consumers and the annual percentage rate for extensions of credit in violation of the Consumer Financial Protection Act of 2010 (CFPA).
FDA and FTC Send Warning Letters to Five Companies Allegedly Selling Dietary Supplements Claiming to Treat Infertility. On May 26, the Food and Drug Administration (FDA) and FTC sent warning letters to LeRoche Benicoeur/ConceiveEasy; EU Natural Inc.; Fertility Nutraceuticals LLC; SAL NATURE LLC/FertilHerb; and NS Products, Inc. The warning letters allege that the companies were making false or unproven claims that their products can cure, treat, mitigate, or prevent infertility, potentially in violation of the FTC Act. Additionally, the FDA letters discuss the Food, Drug, & Cosmetic Act (FD&C Act), under which products that are intended to “cure, treat, mitigate, or prevent disease are drugs and are subject to the requirements that apply to drugs, even if they are labeled as dietary supplements.” The letters indicate that, unlike drugs that are approved by the FDA, the agency has not evaluated whether the products that are the subject of the warning letters are effective for their advertised use.
Upcoming Comment Deadlines and Events
FTC Hosts Virtual Green Lights & Red Flags Public Workshop. On June 24, the FTC will host a “Green Lights & Red Flags: Rules of the Road for Business” public workshop. This workshop is focused on truth-in-advertising law and data security basic practices. The public workshop will provide insights from Texas business leaders and experts in consumer protection law. Acting FTC Chairwoman Rebecca Kelly Slaughter will present remarks to open the workshop. An agenda of the event is available here. Interested parties may register here.
CFPB Seeks Input on Financial Institutions’ Use of AI. Comments are due July 1 (extended from June 1) on a Request for Information released by the CFPB; the Board of Governors of the Federal Reserve System’s Bureau of Consumer Financial Protection; the Federal Deposit Insurance Corporation; the National Credit Union Administration; and the Office of the Comptroller of the Currency. The five agencies are gathering information on financial institutions’ use of artificial intelligence (AI) for fraud prevention, the personalization of services, credit underwriting, and a number of other operations. Among other things, the Request for Information seeks comment to understand the use of AI; appropriate governance and risk management controls over AI; and challenges in developing and managing AI.
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Ask Gareth Shaw: ‘I’m scared I’ll get rejected for credit card because of mistakes I made in the past’
Answer: Well done to you for getting back on your financial feet. Climbing your way out of debt is a marathon – it takes sacrifices and planning, so you’ve taken some really important steps in your financial journey.
The good news is that the negative information – the records of missed payments, defaults and even county court judgments – won’t stay on your credit report forever. Details of your late payments can be viewed for six years after they were settled. Searches and rejections of credit typically disappear after 12 months. So this dark cloud won’t hang over you forever.
Before we talk about applying for credit again, there are steps you can take to improve your credit health. Firstly, you should review your credit reports and make sure there are no errors that could be holding your score back. You can get your credit report for free from each of the three credit reference agencies – TransUnion, Equifax and Experian – and can ask them to investigate errors. Lenders and credit reference agencies have 28 days to respond to disputes.
Registering to vote by getting on the electoral roll can boost your credit score, while you may even be able to add the record of your monthly rent payments to your credit score by asking your landlord to report rental payments to firms like The Rental Exchange, CreditLadder or Canopy.
Experian has launched a new tool that allows you to share information about your banking habits and subscriptions – information which is not traditionally factored into your credit score – in order to increase your score. That means paying your council tax or even paying for Netflix and Amazon Prime could give your score a boost.
If you still want a credit card, your choice is likely to be limited to a particular set of cards designed for people with poor or ‘thin’ credit histories. These are known as ‘credit-builder’ cards, or sometimes ‘bad credit’ cards.
These cards have higher interest rates compared to the most competitive products in the market, to reflect the risk that a lender is taking in by providing credit to someone with a history of repayment problems. You can expect to find an APR of around 29 per cent. They also have lower limits, so when you apply, don’t be surprised to find that the lender will initially only give you £250 to £500.
However, these cards can be used to demonstrate that you are a responsible borrower, can repay on time and stay within your credit limit.
Here’s the golden rule – avoid borrowing money on these credit cards. Purchases tend to be interest-free for 55 days, after which you’ll be charged a considerable amount of interest. So limit the use of these cards, and when you do use them, try to pay them off in full. If you don’t pay on time, you will lose any promotional offer, be hit with a fee and your provider will report your missed payment to the credit reference agencies, reversing any good work you might have done. Set up a direct debit to ensure that your minimum payments are met in advance of the credit card payment date.
When you apply, use an eligibility checker first. This will ask for some basic information and carry out a ‘soft search’ on your credit file, returning a list of cards and the probability of your application being successful. That would be a helpful guide to find a card that is likely to accept you.
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