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Federal Deception Law: 3.4.1 General

The CFPB has issued a limited number of guidance bulletins dealing with UDAAP.236 Guidance bulletins tend to be less specific than rules and address concerns about problematic practices without specifically identifying those practices as violations of the Act. Guidance documents are also generally addressed only to institutions that the CFPB supervises.

Federal Deception Law: 3.9 State Enforcement of CFPB Standards

State attorneys general and regulators309 may enforce CFPB rules against any actor in their state, including national banks and federal savings associations.310 Even absent a specific rule, states can also enforce the general UDAAP prohibition against nonbanks or state-chartered entities.311

Federal Deception Law: 3.10 CFPB Rules’ Relationship to State Law

CFPB rules do not preempt state law, except to the extent that the state law is inconsistent with the CFPB rule and then only to the extent of the inconsistency.325 The Consumer Financial Protection Act specifies that state law is not inconsistent with a CFPB rule if it provides greater consumer protection than the CFPB rule.326

Federal Deception Law: 3.4.2 Collection of Consumer Debts

In 2013, the CFPB issued a bulletin on collection of consumer debts.238 After describing general standards as to unfair, deceptive or abusive practices, the bulletin provides a non-exhaustive list of ten examples of conduct related to the collection of consumer debts that could constitute an unfair, deceptive, or abusive practice:

Federal Deception Law: 3.4.3 Mortgage Servicing for Military Homeowners Ordered to Relocate

The CFPB, together with the banking agencies, has issued guidance on mortgage servicing practices arising when dealing with military homeowners who have received Permanent Change of Station orders.240 The guidance directs servicers to ensure that employees are adequately trained to avoid misleading or harmful practices. The guidance raises concerns about practices including:

Federal Deception Law: 3.4.4 Marketing and Sales of Credit Card Add-On Products

The CFPB has addressed troubling practices in connection with products like debt protection, identity theft protection, credit score tracking, and other products that are supplementary to the credit provided by a credit card.241 The guidance is primarily addressed under the CFPB’s authority to prevent deceptive practices, but it also cites the CFPB’s Truth in Lending Act (TILA) and Equal Credit Opportunity Act (ECOA) authority.

Federal Deception Law: 3.4.5 Marketing of Credit Card Promotional Offers

The CFPB has issued a bulletin informing credit card issuers of the risk of engaging in deceptive or abusive practices in connection with certain offers of promotional APRs on particular transactions.242 These offers provide zero or low interest rates for balance transfers or other advances without clearly disclosing to consumers that acceptance of the offer may lead to the consumer losing the grace period to make payments on new purchases.

Federal Deception Law: 3.6.1 Consumer Financial Products and Services

The CFPB UDAAP rulemaking and enforcement authority is limited to “consumer financial products and services.” A consumer financial product or service is a financial product or service offered or provided for use by consumers primarily for personal, family, or household purposes.261 A financial product or service means one of a number of listed activities (with certain exceptions):

Federal Deception Law: 3.6.2 Limits on Covered Persons and Exemptions

The CFPB’s UDAAP rulemaking and enforcement authority related to consumer financial products and services is further limited to “covered persons.” A covered person is anyone offering or providing a financial product or service, and anyone controlling, controlled by, or under common control with such a person who acts as a service provider for such a person.264

Federal Deception Law: 3.7 No Direct Private Enforcement of UDAAP Standards

There is no direct private right under the Act to take action for a UDAAP violation or for a violation of a UDAAP rule.292 There are, however, private rights of action for violations of many of the CFPB regulations enacted under the “enumerated statutes”—which are examined in other NCLC treatises—such as regulations interpreting the TILA, RESPA, and the Fair Credit Reporting Act.

Truth in Lending: 3.6.3.3 Charges Incurred by Settlement Agents

Typically, lenders (especially mortgage lenders) delegate the role of conducting their own loan closings to third parties. To the extent that the resultant costs are passed on to the consumer, the costs—all of them—should logically be considered part of the finance charge. Farming out closings is, after all, nothing more than outsourcing production costs, which otherwise would be internal overhead.

Truth in Lending: 3.6.3.4.1 General

In dealer-financed car sales,185 the dealer (who is also the creditor) will often focus the purchase discussion on the monthly payment amount instead of the purchase price. This negotiation of the payment amount allows the dealer to pre-load the transaction with extras, like credit insurance and a service contract,186 by including these options in the “negotiated” payment amount.

Truth in Lending: 3.6.3.4.2 Practice pointers

Discovery of the business practices, profit sharing, commissions, and duties of each person who handled any part of the credit sale is helpful to proving that the payment packing is related to the extension of credit, and hence a misdisclosed finance charge.

Truth in Lending: 3.6.3.4.3 Remedies

For TILA purposes, a major issue is whether the violation triggers actual damages or statutory damages.197 If the cost of any particular back-end product is related to the extension of credit, or if the charge should have been included in the finance charge but was placed in the amount financed, then the violation can lead to statutory damages. If, on the other hand, the claim relates to a misdisclosure in the itemization of the amount financed,198 only actual damages are available.

Truth in Lending: 3.6.4.1 Introduction

The statute uses only the phrase “incident to,”200 while Regulation Z uses the disjunctive “incident to or a condition of” the extension of credit.201 In theory, these are two separate phrases, with each to be given meaning.202 “Incident to” suggests any fee that the borrower pays in connection with the credit extension, whether required by the creditor or not.

Truth in Lending: 3.6.4.3 Condition of the Extension of Credit

In determining whether a charge is “a condition of the extension of credit,” one question is whether the credit would have been granted if the borrower did not agree to pay it.213 For example, where a bank required car loan customers to pay for a bank-approved attorney’s services in preparing chattel mortgage papers, the fees were “incident to or a condition of the extension of credit” and were a finance charge.214 Similarly, where a creditor required a borrower to pay off a third party’s de

Truth in Lending: 3.6.4.4 The Role of Voluntariness

Two circuit court decisions have used the presumed voluntariness of a fee to exclude it from the finance charge. In Veale v. Citibank, F.S.B.,225 the Eleventh Circuit held that a Federal Express fee was not a finance charge because the service appeared to be voluntary. There was no evidence that the creditor required the borrower’s express mail delivery of pay-off checks.

Truth in Lending: 3.6.4.5 Example of Fees Imposed “Incident to” the Extension of Credit

A fee for preparing a TILA disclosure statement is a classic example of a charge “incident” to an extension of credit and is always a finance charge.235 Both the amounts charged a pawnbroker’s customer to exercise a repurchase option and the monthly service fees to extend the repurchase period were incident to what the court found was a loan from the pawnbroker, not a sale by the customer.236 A storage fee paid at the outset of a pawnbroker arrangement may be a condition of the extension of

Truth in Lending: 3.6.4.6 Prepayment Charges

Prepayment penalties are charged by a creditor when the borrower pays off the loan early. Prepayment penalties are clearly charges that are incurred incident to an extension of credit. But they are not finance charges on the underlying loan. If the prepayment penalties are paid as part of a refinancing, they may be included in the finance charge in the refinancing.