Troutman Pepper Weekly Consumer Financial Services Newsletter

By Ethan G. Ostroff, Alan D. Wingfield, Elizabeth Briones, Jed Komisin, Addison Morgan, Trey Smith & Thailer Buari on November 26, 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 November 21, the Consumer Financial Protection Bureau (CFPB) finalized its rule aimed at supervising larger technology companies offering digital wallets and payment apps. The final rule is set to take effect 30 days after its publication in the Federal Register and targets nonbank companies that facilitate more than 50 million consumer payment transactions annually. These companies, which include some of the largest technology firms, will now be subject to the CFPB’s supervisory authority, similar to large banks and credit unions. For more information, click here.
On November 21, the Federal Trade Commission (FTC) announced that it is sending nearly $1.9 million in refunds to consumers harmed by Credit Bureau Center LLC’s purportedly fake rental property ads and deceptive promises of free credit reports. The FTC’s 2017 lawsuit alleged that Credit Bureau Center, formerly MyScore LLC, impersonated property owners and required consumers to obtain credit reports from their websites to tour properties they did not have the authority to rent. These sites allegedly falsely advertised free credit reports, while actually enrolling consumers in a $29.94 monthly credit monitoring service without their knowledge. The FTC is now distributing checks to 42,849 affected consumers. For more information, click here.
On November 21, the Commodity Futures Trading Commission’s Global Markets Advisory Committee (GMAC) advanced a recommendation to expand the use of noncash collateral through distributed ledger technology. The GMAC’s Digital Asset Markets Subcommittee also reported on the progress of its Utility Tokens workstream. This initiative aims to enhance market efficiency by leveraging blockchain technology to address operational challenges associated with non-cash collateral, without altering existing collateral eligibility rules. For more information, click here.
On November 21, the CFPB issued a final rule amending an appendix for Regulation V, which implements the Fair Credit Reporting Act. This rule establishes the maximum allowable charge for disclosures by a consumer reporting agency to a consumer for the 2025 calendar year. Effective January 1, 2025, the maximum allowable charge will remain at $15.50, unchanged from 2024. This adjustment is based on the Consumer Price Index for All Urban Consumers and reflects the proportional increase since the baseline year of 1997. For more information, click here.
On November 21, a “joint status report” was filed in the lawsuit filed by ACA International, LLC and Collection Bureau Services, Inc. in the U.S. District Court for the District of Columbia against the CFPB and Director Rohit Chopra. The lawsuit challenges the CFPB’s October 1 advisory opinion on medical debt collection practices. In the joint status report, the CFPB maintained its position that the advisory opinion does not create any binding legal obligations or new obligations that plaintiffs or their members will need to comply with. However, the CFPB conceded that the extension from the original date of December 3, 2024, to January 2, 2025, allows additional time for the court to rule on the pending motions for a temporary restraining order and preliminary injunction. For more information, click here.
On November 20, the CFPB released its “Making Ends Meet in 2024” report, revealing a decline in overall financial stability and well-being from 2023 to 2024. The survey, conducted by the CFPB’s Office of Research, highlighted that financial well-being, as measured by the CFPB’s scale, fell, and the share of consumers with the lowest financial well-being increased. More households struggled to pay bills or expenses, and fewer could cover a month of expenses if they lost their main source of income. These changes have placed overall financial health around the levels seen in 2019, slightly worse by some measures, after a sharp improvement starting in 2020. The report also noted persistent disparities in financial stability across income, racial, and ethnic groups, with access to credit remaining difficult for many consumers. For more information, click here.
On November 20, the U.S. Attorney’s Office for the Central District of California announced that criminal charges were unsealed against five defendants accused of running a phishing scheme targeting employees of companies nationwide. The defendants allegedly sent phishing text messages to harvest employee credentials, which they then used to steal nonpublic company data and hack into virtual currency accounts, resulting in the theft of millions of dollars in cryptocurrency. The charges include conspiracy to commit wire fraud, conspiracy, and aggravated identity theft. If convicted, the defendants face significant prison sentences. For more information, click here.
On November 19, the Federal Communication Commission (FCC) “confirmed” the effective date for its new rule aimed at closing the “lead generator” loophole by requiring telemarketers to obtain one-to-one consent from consumers for robocalls and robotexts. This rule mandates that consent must be provided for each individual seller or brand, rather than allowing a single consent to apply to multiple telemarketers. The rule also includes requirements for clear and conspicuous disclosures and ensures that robocalls and robotexts are logically and topically related to the interaction that prompted the consent. The new rule also permits blocking “red flagged” robotexting numbers, codifies do-not-call rules for texting, and encourages an opt-in approach for delivering email-to-text messages. The effective date is set for January 27, 2025, which is 12 months after the rule was published in the Federal Register. For more information, click here.
On November 18, the Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac will be allowed to expand their support for rental housing by raising the multifamily loan purchase cap for each enterprise to $73 billion in 2025, totaling $146 billion in market support. This represents a more than 4% increase from 2024. The FHFA will continue to exempt workforce housing loans from these caps, promoting affordable rent preservation. The FHFA will also maintain the requirement that at least 50% of the enterprises’ multifamily businesses be mission-driven. The agency will monitor the market and may adjust the caps if necessary to support liquidity, but will not lower them if the market size is smaller than projected. For more information, click here and here.
On November 18, a federal court ordered Harris Jewelry to restore its website and claims portal, allowing servicemembers to request refunds for a limited time. The court found that Harris Jewelry violated a prior settlement with the FTC and a multistate group led by the New York attorney general (AG) by prematurely closing the claims portal. The new claims process is open until December 21. The FTC urges eligible consumers, particularly those who purchased a lifetime jewelry and watch protection plan, to file their claims as soon as possible. This action follows a July 2022 settlement of allegations that Harris Jewelry violated the Truth in Lending Act, the FTC’s Holder Rule, and the Electronic Fund Transfer Act by making unsubstantiated claims that financing jewelry purchases through the company would result in higher credit scores; misrepresenting that the protection plan was required to finance purchases; and failing to provide clear written disclosures. For more information, click here.
On November 18, the plaintiff trade groups in Community Financial Services Association of America, Ltd. (CFSA) CFPB filed an Opposed Motion for Clarification of Stay Pending Appeal asking the U.S. Court of Appeals for the Fifth Circuit to clarify that its stay of the compliance date for the CFPB’s payday loan rule extends until the time for filing a new petition for certiorari with the Supreme Court has expired or, if the petition is filed, until the Supreme Court finally disposes of the case. At a minimum, the trade groups ask the Fifth Circuit to clarify that its existing stay expires 286 days after the court’s recent issuance of its mandate (that is, August 25, 2025) and not on March 30, 2025, as the CFPB maintains. For more information, click here.
On November 18, the Federal Deposit Insurance Corporation (FDIC) announced a 45-day extension to the comment period on its notice of proposed rulemaking aimed at enhancing recordkeeping for bank deposits received from fintech and other third-party, nonbank companies. Stakeholders now have until January 16, 2025, to submit their feedback. The proposed rule targets “custodial accounts with transactional features” held by FDIC-insured banks, excluding those specifically exempted under the rule. These accounts often involve funds from end users or other third parties that are originated through fintech companies, fintech intermediaries, and nonbank companies, and are held in a single custodial account at a bank. The bank partner is responsible for maintaining the ledger of the amounts owned or held for the benefit of those third parties. Under the proposed rule, FDIC-insured banks holding such accounts would be required to take specific steps to ensure accurate account records are maintained. This includes having “direct, continuous, and unrestricted access to the records of the beneficial owners, including, but not limited to, in the event of the business interruption, insolvency, or bankruptcy of the third party.” Additionally, banks would need to reconcile the account for each individual owner on a daily basis and ensure compliance through oversight by the banks’ primary federal supervisor. For more information, click here.
On November 15, the CFPB released its Annual Report of the Student Loan Ombudsman, detailing significant challenges and systemic issues faced by student loan borrowers during the 2023-2024 award year. The report highlighted the return of 28 million federal student loan borrowers to repayment after a payment pause, and noted persistent servicing errors, communication failures, and systemic disruptions that have harmed millions of borrowers. Key issues included payment processing errors, incorrect repayment information, and customer service “doom loops” that left borrowers unable to resolve their loan issues. The report also emphasized the financial and emotional toll on borrowers, with many experiencing unauthorized withdrawals, overpayments, and delays in loan cancellation. The CFPB called for policymakers to hold servicers accountable, protect borrowers from servicing errors, and consider broader reforms to reduce the prevalence of student loan debt. For more information, click here.
On November 14, the U.S. District Court for the Southern District of Texas, issued an order denying the plaintiffs’/intervenors’ motion to stay and toll the CFPB’s deadlines pending appeal in the case of Texas Bankers Association, et al. v. CFPB. The suit brought by several trade associations challenges the CFPB’s final rule under § 1071 of the Dodd-Frank Act, the “Small Business Lending Data Collection Rule.” The court emphasized that although compliance with a potentially invalid regulation can constitute irreparable harm, it had previously found the final rule to be valid. Additionally, the Fifth Circuit had already granted an expedited appeal and carried the motion for stay pending appeal, making a stay unnecessary as the appeal is likely to be resolved before the first compliance date. For more information, click here.
On November 13, the Federal Reserve Board (FRB) released two significant orders addressing deficiencies in the operations and risk management practices of Industry Bancshares, Inc., and Small Business Bank. The first order, issued jointly by the FRB and the Texas Department of Banking, mandates Industry Bancshares, Inc. to cease and desist from unsafe and unsound banking practices. The order requires the company to enhance board oversight, improve risk management, strengthen interest rate risk management, diversify funding sources, and submit strategic and capital plans, among other measures. The second order addresses Small Business Bank’s ongoing deficiencies in risk management and compliance with Bank Secrecy Act (BSA) and anti-money laundering (AML) laws, as identified in a recent examination. Among other things, Small Business Bank is ordered to engage an independent third party to review and assess its BSA/AML transaction monitoring system and provide a report with findings and recommendations. For more information, click here and here.
On November 13, the CFPB released insights from the 2023-2024 Student Loan Borrower Survey, highlighting significant challenges faced by borrowers as they resumed payments following the end of the federal student loan payment pause. The survey, conducted between October 2023 and January 2024, revealed that 63% of borrowers have experienced difficulty making payments, and 37% have missed at least one payment, with higher rates among Black and Hispanic borrowers, Pell Grant recipients, and those without a four-year degree. Despite the relief provided by the COVID-19 payment pause, many borrowers lacked confidence in their ability to afford payments post-pause. Additionally, 42% of borrowers reported only ever being on the standard repayment plan, with many unaware of or struggling to access income-driven repayment options. Nearly 10% of surveyed borrowers had received loan forgiveness, with a median household income of $50,000 to $65,000 in 2022. Importantly, 61% of those who received debt relief reported it enabled them to make positive life changes sooner than expected. For more information, click here.
On November 12, Governor Christopher J. Waller addressed The Clearing House Annual Conference in New York, discussing the roles of the private sector and the FRB in the payments ecosystem. Emphasizing his belief in the efficiency of the private sector, Waller argued that government intervention should be limited to addressing fundamental market inefficiencies that cannot be resolved privately. He highlighted historical instances, such as the Panic of 1907, where private efforts fell short, necessitating the creation of the FRB to ensure a resilient and efficient payment system. Waller underscored the importance of the FRB’s role in providing core clearing and settlement infrastructure while allowing the private sector to drive innovation. He concluded by advocating for a collaborative approach between the public and private sectors to navigate the evolving landscape of payment technologies, ensuring stability and fostering innovation for the benefit of the economy. For more information, click here.

State Activities:

On November 21, the California Department of Financial Protection and Innovation’s (DFPI) released additional updates regarding its newly approved regulations for direct-to-consumer earned wage access (EWA) products. These regulations marked a significant shift in the regulatory landscape for EWA providers, classifying these products as loans under the California Financing Law and imposing new registration requirements. The regulations are set to become effective on February 15, 2025. However, if you are a financial service provider operating in California in one of the four covered industry categories, you must complete an application and register with DFPI before 15, 2025, to continue operating legally in the state. For more information, click here.
On November 13, the National Association of AGs sent a letter on behalf of a bipartisan coalition of 47 state AGs urging the FCC to enhance their Robocall Mitigation Database. The coalition highlighted that since its inception in 2021, the database has been ineffective in preventing bad actors from exploiting the U.S. telephone network to send illegal robocalls. The AGs called for stricter submission guidelines, data validation, and penalties for noncompliance to close this loophole. These measures aim to reduce the volume of illegal robocalls and protect American consumers from ongoing harassment. For more information, click here.