CFSC Meeting – May 18, 2022

The Consumer Financial Services Committee met on May 18, by Zoom, and discussed consumer law developments.  We plan to send updates about our meetings that ALSO communicate new consumer regulations, policies and issues.  See “Recent Developments” below!  Also, feel free to attend our next CFSC Zoom meeting.  See “Get Involved” below or contact one of our two Co-Chairs, Michael R. Guerrero (guerrerom@ballardspahr.com) or John A. Kimble (jkimble@manatt.com).  

We meet monthly, on the third Wednesday of the month, at 11:00 a.m., and Zoom links are circulated in advance.  Next meeting up is June 15th!

·       Report on Past Activities

o   Co-Chair Michael Guerrero started the meeting with an overview of committee restructuring and the role of our new Vice Chairs Bella Guerrero, Joy Tsai and Tricia Engelhardt.  New format of meetings will focus on having a dialogue and discussing recent developments.  The goal going forward is to track updates on a federal and state level and to discuss how updates may impact practices.

·       Committee Business

o   Mark Moore announced that there will be a CLA annual meeting September 13 and suggested that CFSC be involved in programming.  We have since asked to be included and are awaiting a response.

o   We encourage all to reach out to prospective new Committee members. We have 7 open seats. 

·       Recent Developments – Committee members then reported on the following legal developments and topics:

o   The Department of Financial Protection and Innovation (DFPI) “True Lender” Litigation.  True lender issues continue to impact bank partnership programs.  Some regulators take the position that a non-bank entity is actually the “true” lender when the non-bank has partnered with a bank to market and provide loan services for the bank.   We discussed the program elements the courts and regulators use to determine when loans might be considered “made” by a bank (and thus able to preempt out-of-state interest caps) versus when the “true” lender is the non-bank service provider. We will continue to monitor the issue, but additional summaries about the litigation are available at the Ballard Spahr website (thanks Michael!) here.

o   DFPI Issues First Action Against Rent-to-Own (RTO) Company under CCFPL.  Under newly expanded authority provided by the California Consumer Financial Protection Law, the DFPI took action against an RTO company for violations of the Karnette Rental-Purchase Act (RTO Law). Specifically, the DFPI asserted that the company’s failure to comply with the RTO law was a violation of the CCFPL. Before the CCFPL was passed in 2020, the DFPI did not have direct oversight of RTO companies. Additional information is available at the DFPI website here.

o   Consumer Financial Protection Bureau (“CFPB”) Revises Examination Manual for Evaluation Unfair, Deceptive, or Abusive Acts or Practices (“UDAAP”) to Include Discriminatory Practices.  CFPB examiners are instructed to consider discriminatory conduct that could constitute an “unfair” act or practice.    Although the CFPB already has authority to enforce Equal Credit Opportunity Act (“ECOA”) violations, ECOA only prohibits discrimination in the credit context and on the basis of a protected class.  It is unclear whether the CFPB will apply the same tests as it does for ECOA.  Additional information on the topic available at the Mayer Brown website (thanks Joy!) here.

o   CFPB Policy on Contractual “Gag” Clauses and Fake Reviews.  The CFPB issued a policy indicating that contractual “gag” clauses that attempt to prevent consumers from posting an online review, as well as fake online reviews, are considered unlawful practices under the Consumer Financial Protection Act.  The CFPB noted that such practices can undermine fair competition—an issue that the FTC has focused on in the past. 

o   CFPB Outlines Options to Prevent Algorithmic Bias in Home Valuations.  The CFPB appears to be in a fact-gathering stage as it seeks feedback from stakeholders on algorithmic models used in estimating home values.  Other regulators have expressed concerns about appraisal disparities, and the CFPB is concerned that artificially low valuations driven by algorithms without proper safeguards could exacerbate existing inequalities in the housing market.  Over the next few months, the CFPB may issue a notice of rulemaking on the topic, and we will continue to monitor.  Additional information on the topic available at the Mayer Brown website here.