The CARLAWYER - December Legal Developments

FEDERAL DEVELOPMENTS
On October 1, the Consumer Financial Protection Bureau issued an advisory opinion to remind debt collectors of their obligation to comply with the Fair Debt Collection Practices Act and Regulation F's prohibitions on false, deceptive, or misleading representations or means in connection with the collection of any medical debt and unfair or unconscionable means to collect or attempt to collect any medical debt. The advisory opinion explains that debt collectors are strictly liable under the FDCPA and Reg. F for engaging in the following unlawful practices when collecting medical bills: (1) collecting an amount not owed because it was already paid; (2) collecting amounts not owed due to federal or state law; (3) collecting amounts above what can be charged under federal or state law; (4) collecting amounts for services not received; (5) misrepresenting the nature of legal obligations, including collecting on uncertain payment obligations that are presented to consumers as amounts that are certain, fully settled, or determined; and (6) collecting unsubstantiated medical bills.

On October 3, the Consumer Financial Protection Bureau released a chart that summarizes how an entity may determine if it is required to register an order under the Bureau's nonbank registration final rule, which was issued on June 3, 2024. Generally, according to the CFPB, an entity that is subject to an order must register the order with the nonbank registry if the order is a "covered order" and the entity is a "covered nonbank," as those terms are defined in the final rule. The CFPB's nonbank registration final rule - the "Registry of Nonbank Covered Persons Subject to Certain Agency and Court Orders Final Rule" - provides for the creation of a nonbank registry that will collect information about nonbank companies subject to certain publicly available agency and court orders that impose obligations on them based on alleged violations of specified consumer protection laws. Covered nonbank companies also generally must provide an annual attestation from a senior executive regarding the company's compliance with the order. The final rule provides covered nonbank companies certain timeframes to comply with its requirements, including submission of registrations. The webpage provides additional resources for covered nonbank companies when registering with the nonbank registry and complying with the nonbank registration final rule.

On October 7, the Consumer Financial Protection Bureau published a special edition of Supervisory Highlights that focuses on auto financing. The report highlights CFPB examiner findings of unfair, deceptive, and abusive acts or practices in the auto financing market for examinations completed between November 1, 2023, and August 30, 2024. According to the report, examiners found that "loan originators engaged in deceptive acts or practices through service providers when the service providers mailed prescreened advertisements marketing rates 'as low as' specified APR rates to consumers who in fact had no reasonable chance of qualifying for or being offered rates at or near that level." Examiners also found that "auto-loan originators violated ... Regulation Z because their disclosures did not accurately reflect the terms of the prepayment penalty. ... The TILA disclosure states 'Prepayment - if you pay early, you may have to pay a penalty.' In contrast, the associated retail installment sales contract stated that there was no finance charge if the loan is paid early." Next, the report details examiners' findings with respect to vehicle repossession activities. Examiners found that "servicers engaged in unfair acts or practices when they erroneously repossessed consumers' vehicles (a) when their representatives or service providers failed to cancel orders to repossess vehicles, or act on those cancellations, when consumers had made payments or obtained extensions that should have prevented repossessions; and (b) when consumers had requested, or the servicer had approved, a COVID-19 related loan deferment or loan modification, consumers had otherwise made timely payments, or consumers made arrangements to pay an amount sufficient to cancel the repossession." Examiners also found that "servicers engaged in unfair acts or practices when they failed to record liens and then repossessed vehicles without a valid lien. When assigning vehicles for repossession, servicers did not verify that they had a valid lien. As a result, they repossessed vehicles from consumers who did not have any prior affiliation with the servicers." The report goes on to address other general issues related to servicing practices, including "applying borrowers' auto-loan payments to post-maturity loans in a different order than that disclosed to consumers on their websites, which resulted in borrowers having to pay late fees," and failing to timely provide consumers with the title to a vehicle after a payoff or when consumers requested the title in connection with transferring vehicle registrations to a different state. CFPB examiners also found multiple law violations in connection with add-on products. Examiners found that auto finance companies, among other things, charged consumers for optional addon products that consumers did not agree to purchase, failed to provide refunds of unearned premiums after early termination of a contract, financed certain add-on products for vehicles that were not eligible because they had salvage titles, imposed onerous requirements on consumers to cancel contracts for add-on products, and failed to honor consumers' cancellation requests. Finally, CFPB examiners found that auto finance companies and servicers furnished inaccurate information to credit reporting agencies.

On October 10, the Consumer Financial Protection Bureau announced that it issued a consent order against a private dispute resolution company, resolving allegations that the company engaged in deceptive and unfair acts and practices in violation of the Consumer Financial Protection Act of 2010 and permanently banning the company from arbitrating disputes that concern a consumer financial product or service. The dispute resolution company provided an online dispute resolution platform. This platform was used by a vocational training company that operated an online vocational training program and provided "income share" loans to students in that program. In 2023, the vocational training company was shut down by the CFPB and state attorneys general for its alleged illegal lending practices. The current consent order alleges that the dispute resolution company had commenced arbitrations with consumers who had allegedly defaulted on income share loans from the vocational training company. Specifically, the CFPB alleged that the dispute resolution company did not have the ability to arbitrate the vocational training company's claims against consumers because none of the income share loan agreements contained an arbitration clause permitting arbitration on its platform. The CFPB also alleged that the dispute resolution company misrepresented itself as a neutral and impartial arbitrator for consumer debt arbitrations and failed to disclose that it had a financial interest in consumers settling with the vocational training company where the vocational training company promised to pay the dispute resolution company contingency fees for each claim that it settled. Finally, the CFPB alleged that the dispute resolution company required consumers to agree to its terms of service, which purported to bind consumers to the dispute resolution process, before they could view or respond to the vocational training company's claims that they defaulted on income share loans, thereby infringing on consumers' ability to "obtain information," "engage in live testimony," and "contest jurisdiction."

The Consumer Financial Protection Bureau and the Federal Reserve Board recently announced that they are increasing the dollar thresholds in Regulation Z (Truth in Lending) and Regulation M (Consumer Leasing) for exempt consumer credit and lease transactions. The Dodd-Frank Act provides that the dollar amount thresholds for TILA and the CLA must be adjusted annually by any annual percentage increase in the Consumer Price Index. Based on the annual percentage increase in the CPI as of June 1, 2024, the protections of TILA and the CLA generally will apply to consumer credit transactions and consumer leases of $71,900 or less in 2025. However, private education loans and loans secured by real property (such as mortgages) are subject to TILA regardless of the loan amount.

On October 16, the Federal Trade Commission finalized amendments to its Negative Option Rule, now titled the "Rule Concerning Recurring Subscriptions and Other Negative Option Programs." The Negative Option Rule now applies to all negative option programs in any media. The final rule provides that the following acts and practices are unfair or deceptive within the meaning of Section 5 of the FTC Act: (1) misrepresenting any material fact made while marketing goods or services with a negative option feature; (2) failing to clearly and conspicuously disclose material terms prior to obtaining a consumer's billing information in connection with a negative option feature; (3) failing to obtain a consumer's express informed consent to the negative option feature before charging the consumer; and (4) failing to provide a simple mechanism to cancel the negative option feature and immediately halt charges. According to the FTC's news release, the final rule differs from the proposed rule in two significant ways. First, the proposed rule would have required sellers to provide annual reminders to consumers of the negative option feature. Second, the proposed rule would have prohibited sellers from forcing consumers to receive saves without first obtaining consumers' unambiguously affirmative consent. (A "save" was defined in the proposed rule to mean an attempt by a seller to present any additional offers, modifications to the existing agreement, reasons to retain the existing offer, or similar information when a consumer attempts to cancel a negative option feature.) The FTC is not adopting these provisions of the proposed rule at this time but plans to seek further comment on these provisions through a supplemental notice of proposed rulemaking. Most of the final rule's provisions will go into effect 180 days after it is published in the Federal Register.

On October 22, the Consumer Financial Protection Bureau finalized the Personal Financial Data Rights Rule to implement Section 1033 of the Dodd-Frank Act. The Bureau proposed the rule in October 2023 to move toward an "open banking" system. Section 1033 of the Dodd-Frank Act provides that covered data providers must make available to a consumer, upon request, data in the control or possession of the data provider concerning the consumer financial product or service that the consumer obtained. The final rule implements this provision, providing specificity to the scope of data providers subject to the rule, the data that must be provided to consumers upon request, the interfaces through which data is to be made available, and how third parties may access such information through the consumer's access right. The final rule keeps the proposed rule largely intact, but it does make notable changes, including: (1) exempting from the rule depository institutions that hold total assets equal to or less than the Small Business Administration size standard according to the applicable NAICS code; (2) clarifying that products and services that merely facilitate first party payments from a Regulation E account or Regulation Z credit card, which are initiated by the payee or a payee's agent like a loan servicer, are not subject to the rule; (3) providing that guardians, trustees, custodians, or similar natural persons may effectuate consumer rights; (4) adding a prohibition against evasion for data providers with respect to the obligation to make covered data available; (5) adding a requirement to make available to consumers a truncated account number or other account identifier; (6) specifying that covered data includes payment initiation information directly or indirectly held by the data provider, such as an account and routing number that could be used to initiate an Automated Clearing House transaction; (7) permitting use of tokenized account numbers for payment initiation information; (8) adding detail to the content required to be included in third-party authorization disclosures; and (9) allowing authorized third parties to retain and use previously collected data as reasonably necessary to improve the consumer-requested product or service despite any revocation request. The rule will be effective 60 days after publication in the Federal Register. The rule provides for compliance deadlines for data providers beginning April 1, 2026, and extending to April 1, 2030, depending on the institution's size.

CASE(S) OF THE MONTH
Debtor's Claims Against Vehicle-Secured Creditor Based on Allegedly Unlawful Repossession Were Subject to Arbitration Provision in Finance Contract, Despite Fact that Creditor Repossessed Debtor's Vehicle Three Months After He Paid Remaining Balance on Contract: In January 2018, an individual financed the purchase of a vehicle. In May 2023, the individual paid off the remaining balance on the finance contract. In August 2023, the finance company hired a third-party repossession company to repossess the individual's vehicle. The finance company contended that the repossession was in response to the individual's prior failure to make all required monthly payments under the contract in a timely manner. The individual sued the finance company, alleging several claims in connection with the repossession. The finance company moved to compel arbitration pursuant to the arbitration provision in the finance contract. The U.S. District Court for the Northern District of Mississippi granted the motion. The individual argued that the arbitration provision was not enforceable because the finance contract containing that provision expired three months before the finance company repossessed his vehicle, when he paid off the remaining balance on the contract. The court disagreed, noting that the termination of an agreement containing an arbitration provision does not automatically extinguish the parties' duty to arbitrate disputes. The court found that the individual's claims - based on the allegedly unlawful repossession - arose under the finance contract because they involved facts that occurred prior to the expiration of the contract, i.e., the individual's default on monthly payments under the contract prior to his payment of the entire outstanding balance. See Mitchell v. Mercedes-Benz Financial Services USA LLC, 2024 U.S. Dist. LEXIS 185330 (N.D. Miss. October 9, 2024).

COMPLIANCE TIP
The case above illustrates the importance of two items: (i) ensuring that your contract(s) with the buyer contains an arbitration provision that you can use to compel arbitration of claims raised by your buyer; and (ii) reviewing your arbitration provision to ensure that it may apply to claims raised under the financing contract and/or whether the terms of the arbitration provision may survive the termination or cancellation of the financing contract in the event of payoff. In either situation, it is vitally important that you have an arbitration provision as a sensible protection against class actions and possible reduction of costs. Maybe it’s time to have a conversation with your counsel on these points.

So, there’s this month’s roundup! Stay legal, and we’ll see you next month.