Congress Passes Repeal of CFPB Guidance on Indirect Auto Lender Liability for Discriminatory Lending

The U.S. House of Representatives voted last Tuesday to reject a 2013 Consumer Financial Protection Bureau (CFPB) bulletin that provided guidance regarding liability for discrimination in indirect auto lending. The same measure passed the Senate three weeks earlier and is now expected to be signed by the president.

The 2013 guidance was aimed at indirect auto lenders – lenders that work with auto dealers to provide loans for consumers seeking financing through the dealership where the car is purchased. Some indirect lending arrangements permit the dealer to charge the consumer an interest rate higher than that which the lender would accept, and provide compensation to the dealer tied to the amount of the markup achieved. According to the CFPB guidance, under some indirect lending arrangements, there is a “significant risk” that the incentive and discretion afforded to dealers will lead to pricing disparities based on race or other prohibited factors.

Continue Reading

Eleventh Circuit Sides with Wells Fargo on Post-Class Certification Motion to Compel Arbitration

Wells Fargo achieved a significant victory on Thursday in decade-old litigation over allegedly unlawful overdraft fees when the Eleventh Circuit held that Wells Fargo had not waived its right to compel arbitration as to the unnamed plaintiffs in the recently certified classes.

In Gutierrez v. Wells Fargo Bank, NA, No. 16-16820 (11th Cir., May 10, 2018), the Eleventh Circuit vacated the district court’s order denying Wells Fargo’s motion to compel arbitration of the unnamed plaintiffs’ claims and remanded for further proceedings. In the vacated order, the district court held that Wells Fargo waived its right to compel arbitration by acting “inconsistently with its arbitration rights during its pre-certification litigation efforts” and that the plaintiffs would suffer “significant prejudice” if Wells Fargo were allowed to invoke arbitration after nearly 10 years of litigation.

Continue Reading

CFPB Auto Lending Rule May Be on the Way Out

An Obama-era regulation intended to restrain discriminatory lending practices by automobile lenders appears to be on its way out.

On April 18, under the Congressional Review Act (CRA), the Senate voted to repeal the Consumer Financial Protection Bureau’s (CFPB’s) 2013 guidance on dealer markups in the automobile lending process. The CFPB’s guidance was in response to discriminatory lending allegations arising out of auto dealers’ use of third-party lenders to secure financing for consumer automobile purchases. When consumers purchase through dealerships, dealers will often coordinate indirect financing through a third-party lender. In some cases, dealers could charge consumers a higher interest rate than the rate quoted by the lender, also known as a “dealer markup.”

Continue Reading

Mulvaney Issues Report Outlining Proposals to Reform CFPB

Earlier this month, the Consumer Financial Protection Bureau (CFPB) issued its semiannual report (the “Report”) to the President and Congress. In the Report, Acting CFPB Director Mick Mulvaney proposes to significantly reform the CFPB’s structure and oversight. He claims that the structure of the CFPB “ignore[s] due process and abandon[s] the rule of law in favor of bureaucratic fiat and administrative absolutism.” (Report 2.) He offers four specific proposals to reform the agency.

Continue Reading

Tax Reform’s Impact on Financing Strategies

As more of the dust settles after the December 2017 passage of the Tax Cuts and Jobs Act, P.L. 115-97, borrowers and lenders alike are reconsidering their future financing strategies. One of the more significant changes in the tax law is the new limit imposed on interest expense deductions.

Prior to the passage of the tax reform bill, corporations could usually deduct the full amount of their business debt interest payments. The tax reform bill changed this for many taxpayers, including corporations, by imposing a limitation of the amount of the deduction based upon a formula.[1] The new formula generally caps the business interest deduction at the sum of “(A) the business interest income of such taxpayer for such taxable year, (B) 30 percent of the adjusted taxable income of such taxpayer for such taxable year, plus (C) the floor plan financing interest of such taxpayer for such taxable year.”[2] For most corporations, the practical result of the new tax provisions is that they can no longer deduct net interest expenses exceeding 30 percent of their earnings before interest, taxes, depreciation and amortization (EBITDA). This new challenge for heavily leveraged businesses will only increase in 2022, when the deduction must be calculated after computing depreciation and amortization expenses.

Continue Reading

Banks, Broker-Dealers and Other Financial Institutions Face May 11 Deadline To Comply with FinCEN’s Customer Due Diligence Rule

Six years after the Financial Crimes Enforcement Network (FinCEN) originally proposed its Customer Due Diligence (CDD) Rule, the deadline for financial institutions to comply draws near. Banks, broker-dealers, mutual funds and futures commission merchants and introducing brokers in commodities (“covered financial institutions”)[1] will have to start complying with the CDD Rule by May 11, 2018.[2] To comply with the primary change under the CDD Rule, covered financial institutions will now have to identify and verify the identity of beneficial owners of “legal entity customers” such as corporations, limited liability corporations, limited partnerships and general partnerships.[3]

Background: FinCEN initially proposed the CDD Rule in 2012,[4] arguing that requiring financial institutions to identify beneficial owners of accounts would help protect the U.S. financial system from criminal abuse and guard against terrorist financing, money laundering and other financial crimes. The proposal sparked significant response from the industry, with FinCEN receiving a total of 231 comments, many raising concerns about the costs and challenges of obtaining and verifying beneficial ownership information, and of implementing necessary system changes and training within FinCEN’s initially proposed one-year deadline. In response, FinCEN modified its original proposal somewhat. For instance, while FinCEN had proposed requiring firms to use a standard certification form to obtain beneficial ownership information, the revised rule permits, but does not require, use of the standard form. FinCEN also extended the original one-year compliance deadline to two years. FinCEN issued the revised rule as final in May 2016.[5]

Continue Reading

D.C. Circuit Overturns Parts of the FCC’s Expansive Interpretation of the TCPA

On March 16, a panel of the United States Court of Appeals for the D.C. Circuit issued a long-anticipated decision that vacated in part, and affirmed in part, portions of the Federal Communication Commission’s (FCC’s) July 10, 2015, Omnibus Declaratory Ruling and Order (the Order) that gave controversial interpretations of key provisions of the Telephone Consumer Protection Act of 1991, as amended (TCPA). In ACA International v. Federal Communications Commission, the court reviewed four main aspects of the FCC’s Order, upholding two provisions and setting aside two.

Continue Reading

Florida Passes Bill to Stop Bankruptcy Debtors From “Having Their Cake and Eating It Too”

On March 20, Florida Governor Rick Scott signed Senate Bill 220 into law. The bill is designed to limit the ability of defendants in foreclosure proceedings to keep contesting the foreclosure after agreeing, in bankruptcy, to surrender the property to their lenders.

By way of background, when an individual debtor files for bankruptcy, whether under Chapter 7 (liquidation) or Chapter 13 (reorganization), the debtor is required to make a statement under penalty of perjury as to how the debtor proposes to handle property that secures a debt, such as a home or a car. Broadly speaking, the debtor can choose to surrender the property, to redeem the property (by paying off the debt), or to retain the property and make payments on the debt going forward.

Continue Reading

A Guide to U.S. Regulation of Cryptocurrencies and Cryptocurrency Exchanges

The proliferation of Bitcoin and other cryptocurrencies has raised many questions about the legal status of these technologies and financial instruments and how their exchange should be regulated under federal and state money transmitter laws. Regulation of cryptocurrencies and exchanges is evolving quickly, and navigating the regulatory guidance requires careful consideration of both the guidance and the underlying business models. As new cryptocurrencies and exchanges launch,  understanding the regulatory landscape and adapting quickly adapt to changing rules will be imperative for companies eager to benefit from the massive growth of the cryptocurrency industry. Institutions must analyze the complex regulatory requirements put forth by Financial Crimes Enforcement Network (FinCEN), the Securities and Exchange Commission (SEC), state regulators, and others, as well as enforcement actions taken by the SEC and the U.S. Department of Justice. We have published in Bloomberg Law a Guide to address these important topics, and hope our readers find it helpful as they navigate the rapidly evolving legal landscape in this space.

CFPB Publishes Five-Year Strategic Plan

On Feb. 12, the Consumer Financial Protection Bureau (Bureau) published a revised version of its five-year Strategic Plan covering FY 2018 – 2022 (Plan). The Bureau is required to publish a five-year Strategic Plan in accordance with federal law. The Plan sets forth strategic expectations for the Bureau and differs significantly from the draft version issued in October 2017 under former Bureau Director Richard Cordray. From the length of the Plan and the tone of the mission statement to the re-branding of the agency as the “Bureau of Consumer Financial Protection,” the Plan lays the groundwork for a divergent course.

Continue Reading