Troutman Pepper Weekly Consumer Financial Services Newsletter - September 2024

To keep you informed of recent activities, below are several of the most significant federal and state events that have influenced the Consumer Financial Services industry over the past week:

Federal Activities

State Activities

Federal Activities:

• On August 29, the Consumer Financial Protection Bureau (CFPB) announced it had entered into a consent order with NewDay USA, a Florida-based non-bank direct mortgage lender, over allegations that the lender misled veterans and military families about the costs associated with cash-out refinance loans. According to the CFPB, NewDay USA gave misleading and incomplete cost comparisons to borrowers refinancing in North Carolina, Maine, and Minnesota, which made the company’s loans appear less expensive relative to the borrowers’ existing mortgages. The consent order requires NewDay USA to pay at $2.25 million fine and cease misrepresentations about its mortgage loan products. For more information, click here.
• On August 29, the Office of the Attorney General for the District of Columbia announced that it has secured over $3.2 million from four title companies following an investigation into illegal kickback schemes. The companies were found to have offered real estate agents lucrative profit-sharing and discounted ownership interests in exchange for client referrals, violating the District’s Consumer Protection Procedures Act. The settlement will provide restitution for affected consumers and require the companies to cease such practices and divest real estate agents from ownership interests. For more information, click here.
• On August 28, CFPB Director Rohit Chopra published a blog discussing recent developments in the “tap-to-pay” market and the impact of “Big Tech” on consumer payments. Chopra highlighted certain restrictive regulations that have purportedly limited competition and innovation in payment apps. The CFPB is examining these changes to assess their impact on competition and will finalize rules this October to promote “open banking” and enhance consumer choice in payments. For more information, click here.
• On August 28, the Federal Reserve Board (the Board) announced the final individual capital requirements for all large banks, effective October 1, 2024. These requirements, informed by the Board’s recent stress test results, include a minimum capital requirement of 4.5%, a stress capital buffer of at least 2.5%, and, if applicable, a capital surcharge for the largest and most complex banks, which is updated in the first quarter of each year to account for the overall systemic risk of each of these banks. If a bank’s capital dips below the total requirement, the bank is subject to automatic restrictions on both capital distributions and discretionary bonus payments. For more information, click here.
• On August 28, Fannie Mae and Freddie Mac announced new tenant protections for multifamily properties with GSE-backed mortgages, effective February 28, 2025. The new policy mandates a 30-day notice for rent increases and lease expirations, and a five-day grace period for late rent payments. For more information, click here and here.
• On August 28, Board Governor Christopher J. Waller delivered remarks at the Global Fintech Fest in Mumbai, India, discussing the potential of interlinking fast payment systems to enhance cross-border payments. He emphasized the importance of public-private partnerships in advancing payment technologies and highlighted the challenges of achieving interoperability, including legal, compliance, and governance issues. While recognizing the value of public sector coordination, Waller noted that the Board’s immediate focus remains on expanding the FedNow network domestically and improving existing cross-border payment systems. For more information, click here.
• On August 27, the Federal Trade Commission (FTC) announced an update to the fees telemarketers must pay to access phone numbers on the National Do Not Call (DNC) Registry for the fiscal year 2025. The revised fees will take effect on October 1, 2024. These changes are pursuant to the Do-Not-Call Registry Fee Extension Act of 2007, which mandates periodic adjustments based on the Consumer Price Index. For more information, click here.
• On August 26, the U.S. Securities and Exchange Commission (SEC) filed settled charges against a virtual currency lender for failing to register the offers and sales of its retail crypto asset lending product. The SEC also charged the company with operating as an unregistered investment company. The SEC’s complaint alleges that the crypto lending product was marketed as a means for investors to earn interest on their crypto assets, which were used by the lender at its discretion to generate income and fund interest payments. The crypto lender consented to an injunction prohibiting it from violating the registration provisions of the Securities Act and the Investment Company Act and will pay civil penalties, with amounts to be determined by the court. For more information, click here.
• On August 26, the CFPB published an Issue Spotlight on cash-back fees, for example fees imposed for getting “cash back” at a store when making a purchase with a debit or prepaid card. The CFPB is concerned that these fees disproportionately affect economically vulnerable populations and reduce access to cash. The Bureau reported it will continue to monitor and address the impact of these fees on consumers. For more information, click here.
• On August 26, the U.S. District Court for the Southern District of Texas granted the CFPB’s motion for summary judgment on all Administrative Procedure Act challenges brought by several trade associations to the CFPB’s Final Rule under § 1071 of the Dodd-Frank Act, the “Small Business Lending Data Collection Rule.” This ruling does not end the litigation in the district court. The court must still rule on whether some of the plaintiffs can amend their complaint to add a claim that, under the U.S. Supreme Court’s ruling in the Community Financial Services Association v CFPB case, the Federal Reserve has had no constitutional “combined earnings” with which to fund the CFPB since September 2022, when the Federal Reserve began to run a deficit. The CFPB published its Final Rule in May 2023 and amended it in July 2024. For more information, click here.
• On August 26, the CFPB unveiled its beta platform that will be used by lenders to file small business lending data pursuant to its Final Rule under § 1071 of the Dodd-Frank Act, the “Small Business Lending Data Collection Rule.” Under the Final Rule, the compliance date for the largest lenders will be July 18, 2025. The beta platform is for testing purposes only. For more information, click here.
• On August 26, the FTC announced a settlement with Care.com for allegedly misleading caregivers about job availability and wages, and for complicating the cancellation process for paid memberships. The FTC’s complaint alleges that Care.com inflated job numbers and made unsubstantiated earnings claims to lure users into subscriptions. As part of the settlement, Care.com will pay $8.5 million to refund affected consumers and must substantiate any future earnings claims and simplify its cancellation process. For more information, click here.
• On August 23, the CFPB released its Filing Instructions Guide for Nonbank Registration under the Registry of Nonbank Covered Persons Subject to Certain Agency and Court Orders Final Rule. The Final Rule requires certain covered persons to register and report final public orders issued in federal, state, or local agency proceedings with an effective date on or after January 1, 2017. The guide provides technical requirements and practical implementation considerations for covered nonbanks to comply with the registration and reporting mandates. The Nonbank Registry Portal will go live on October 16, 2024, with staggered registration periods based on the type of nonbank entity. For more information, click here.
• On August 22, the Federal Housing Finance Agency (FHFA) proposed new housing goals for Fannie Mae and Freddie Mac for the years 2025-2027 with the aim to ensure that the Enterprises promote equitable access to affordable housing for low- and moderate-income families, minority communities, and other underserved populations. The proposed rule would establish a new process for evaluating compliance with the housing goals. Under the current regulation, if an Enterprise fails to meet a feasible housing goal, FHFA may require a housing plan to be submitted describing the steps that it will take to improve its performance. The proposed rule would provide that FHFA will not require a housing plan if the Enterprise’s performance met the level required by newly-defined enforcement factors addressing, in part, the uncertainty in forecasting the market several years in advance as well as the time lag in determining the actual market level retrospectively. The FHFA is seeking public comments on the proposed rule during a 60-day comment period. For more information, click here.
• On August 21, the U.S. Attorney’s Office for the Southern District of Florida announced that the founder of a cryptocurrency project pled guilty to wire fraud. The cryptocurrency founder admitted to transferring $1.14 million of investor funds to his personal account, which he subsequently lost at online casinos. Sentencing is scheduled for October 31, where a maximum sentence of 20 years in prison could be imposed. For more information, click here.
• On August 19, the Office of Inspector General (OIG) for the Federal Housing Finance Agency (FHFA) released a report evaluating FHFA’s supervision of four Federal Home Loan Banks (FHLBank) between January 1, 2021, and September 30, 2023. The report concluded that FHFA: has not issued written guidance on FHLBank practices with respect to subordinating their security interests in members’ collateral when necessary to allow the members to access the Federal Reserve System’s discount window; did not have internal written guidance to inform coordination with other regulators during member failures; has not revised relevant examination guidance since 2014, and the current guidance does not address the risks that resulted in the members’ failure; and management acknowledged that the FHFA lacks a practical approach for ensuring all topics covered by examination guidance are reviewed by examiners. The OIG issued four recommendations, including updating examination guidance and protocols for handling member distress, all of which FHFA has agreed to implement. For more information, click here.
• On August 19, the CFPB filed its reply brief in the U.S. District Court for the Northern District of Texas in support of its motion to dismiss the credit card late fee rule case for lack of standing and to transfer the case to the U.S. District Court for the District of Columbia. The CFPB argued that the primary plaintiff, the Fort Worth Chamber of Commerce, has not demonstrated that the litigation is germane to its mission of promoting the local economy, as the challenged regulation primarily affects large credit card issuers based outside of Fort Worth. The CFPB also contended that maintaining the case in Fort Worth would encourage improper forum-shopping and undermine statutory venue requirements. For more information, click here.
• On August 16, U.S. Senator Tina Smith, chair of the Senate Housing Subcommittee wrote a letter to U.S. Assistant Attorney General for Civil Rights Kristen Clarke expressing concern over the rise of corporate landlords using artificial intelligence (AI) in eviction filings. Specifically, Smith noted that corporate landlords appear to be engaging in serial eviction filings enabled by automated services or “one-click-eviction” software. Smith emphasized that these practices may violate federal civil rights laws and disproportionately impact vulnerable populations and exacerbate housing insecurity. She urged the Civil Rights Division to investigate these automated eviction practices. For more information, click here.
• On August 16, 15 Delaware student loan trusts filed a petition for writ of certiorari with the U.S. Supreme Court, seeking to overturn a Third Circuit decision that allowed the CFPB to pursue enforcement actions against them. The trusts argue that they are passive entities not engaged in loan servicing and thus fall outside the CFPB’s enforcement jurisdiction. They also contend that the enforcement action, initiated under a CFPB director unconstitutionally insulated from presidential removal, should be dismissed. For more information, click here.
• On August 15, the Board announced the execution of an enforcement action against a bank holding company and its parent over governance concerns. The action mandates steps to ensure financial and managerial resources are utilized to support the affiliated bank, including compliance with a previously issued consent order. The agreement also requires the submission of a capital plan, cash flow projections, and adherence to restrictions on dividends and debt. The Federal Reserve Bank of Minneapolis will oversee the implementation of these measures. For more information, click here.
• On August 12, the SEC announced charges against a New York-based broker-dealer for failing to file Suspicious Activity Reports (SARs) over a period of more than three years. The SEC found that the firm did not adopt or implement reasonably designed anti-money laundering (AML) procedures to monitor transactions on its alternative trading system platforms, depriving regulators of critical information about suspicious activities. The broker-dealer agreed to pay $1.19 million to settle the charges, agreed to a censure and cease-and-desist order, and will continue to engage a compliance consultant to review its AML policies. For more information, click here.

State Activities:

• On August 23, New Hampshire Governor Chris Sununu signed HB 1241 into law, significantly revising the state’s money transmission regulations. The new law, which incorporates many aspects of the Conference of State Bank Supervisors’ Model Money Transmission Modernization Act, establishes updated licensing requirements and renewal procedures for money transmitters. Key provisions include background checks, audited financial statements, procedures for handling consumer complaints, and mandated timely transmission and refunds. Sections 1 through 5 will become effective October 22, 2024, section 9 will be effective December 30, 2030, and all other sections were effective upon enactment. For more information, click here.
• On August 2, Sununu signed HB 1243 into law, significantly revising RSA chapter 361-A, the Motor Vehicle Retail Installment Sales Act. The new law introduces comprehensive changes to the licensing and regulation of sales finance companies and retail sellers in the state. For example, HB 1243 expands: the definition of “sales finance company” to include any person acting as a lender, holder, assignee, or servicer under retail installment contracts, not just motor vehicle retail installment sellers and sales finance companies; and licensing obligations to now encompass “lenders” — a defined term that includes retail installment sellers and finance companies — as well as assignees, servicers, and legal successors to lenders’ rights. Importantly, the law is immediately effective, although a process to seek case-by-case deferral is available. For more information, click here.