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Federal Deception Law: 3.2.4.4.2 Analysis from Payday Lending Rule’s Supplemental Information

The Federal Register notice accompanying the CFPB’s final payday lending rule explains how consumers fail to understand the material risks and costs of payday, auto title, and similar loans.153 While consumers certainly understand that they are taking out a loan that must be repaid by a certain date, and that there are consequences for non-payment, they do not understand how severe the impact of non-payment is or that non-payment is very likely for these loans.

Federal Deception Law: 3.2.4.4.4 Lack of Understanding Based on Complexity of Product or Service

The CFPB has accepted a consent order from a lead generator that sold leads to small loan lenders. According to the consent order, the company conveyed information to lenders where it knew that the loan product in the consumer’s state of residence would be void in whole or in part. This took unreasonable advantage of the consumer’s lack of understanding of material risks, costs, and conditions of a consumer financial product or service.161

Federal Deception Law: 3.2.4.4.5 Lack of Understanding Based on Creditor’s Failure to Disclose

The CFPB also agreed to a consent order where a company charged surprise fees to military service members while the company processed military payroll deductions to send to creditors. The practice took unreasonable advantage of the consumers’ lack of understanding because servicemembers did not know that they would be charged the fees and the creditor did not disclose the fees or notify the servicemember when the fees were assessed.166

Federal Deception Law: 3.2.4.4.6 Lack of Understanding Based on Special Characteristics of a Group of Consumers

Similarly, the CFPB has alleged that a structured-settlement factoring company (one that exchanges a portion of a consumer’s future payment streams in exchange for a discounted immediate sum) took unreasonable advantage of consumers’ lack of understanding of the material risks, costs, or conditions of such advance loans.169 Many of the consumers were victims of lead-poisoning who had cognitive impairments.

Federal Deception Law: 3.2.4.5.3 Consumers Unable to Protect Their Own Interests When They Have No Choice

Consumers cannot protect their own interests when the consumer has no choice as to a transaction. The CFPB has obtained an administrative consent order where prison or jail authorities required recently incarcerated individuals to receive funds on release on one company’s prepaid card and consumers could not close the card without paying a fee. The prepaid card included various other fees.189

Federal Deception Law: 3.2.4.5.4 Consumers Unable to Protect Their Own Interests When Coercion Prevents Choice

Consumers cannot protect their own interests where their financial circumstances or other factors are so coercive as to leave the consumer with little choice. A federal court has found that ITT, a for-profit school, engaged in such abusive conduct. It took unreasonable advantage of students in the school’s lending practices by giving students little choice after enrollment but to take out new high-priced private loans with ITT.

Federal Deception Law: 3.2.4.5.5 Consumers Unable to Protect Their Own Interests When Important Information Is Withheld

The CFPB has issued a complaint where it alleged that a tax preparer took unreasonable advantage of consumers’ inability to protect their own interests where it did not disclose that it was already holding the consumer’s tax refund, and instead convinced the consumer to take out a loan in lieu of receiving the refund. The tax preparer also did not disclose that it had a financial interest in the loans that it encouraged the consumers to take out.200

Federal Deception Law: 3.4.7 Servicing of the Public Service Loan Forgiveness Program for Federal Student Loans

The CFPB has issued a bulletin concerning the practices of private entities in their servicing of the Public Service Loan Forgiveness (PSLF) Program for federal student loans.244 Under the PSLF Program, borrowers with federal Direct Loans who make 120 qualifying monthly payments while working full-time in public service employment are eligible for loan forgiveness.245 The Department of Education hires pri

Federal Deception Law: 3.4.8 Motor Vehicle Repossessions

The CFPB has issued a bulletin on mitigating harm from repossession of automobiles.247 As the bulletin sets out, it is unfair to offer a delinquent borrower an option to avoid repossession and then to repossess the vehicle even though the borrower has completed the option—unless the completion of the option is too close in time for the creditor to stop the repossession.

Federal Deception Law: 3.4.9 Impeding Consumer Reviews of Products or Services

The CFPB has issued a bulletin concerning unfair or deceptive practices that impede consumer reviews of products or services.254 It is unfair and deceptive to utilize unenforceable contractual restrictions that appear to limit consumers’ ability to leave reviews. It is also unfair and deceptive to use unenforceable contractual restrictions to pressure consumers to remove their reviews.

Federal Deception Law: 3.1.1a.1 General

On October 21, 2022, a three-judge panel of the Fifth Circuit ruled that the Consumer Financial Protection Bureau’s (CFPB) funding mechanism is unconstitutional because it violates the Appropriations Clause.6 In addition, the Fifth Circuit held that the CFPB’s Payday Lending Rule is invalid because it was promulgated using the unconstitutional funding mechanism.

Federal Deception Law: 3.1.1a.2 The Fifth Circuit’s Ruling That the CFPB’s Funding Mechanism Is Unconstitutional—Community Financial Services Ass’n of America v. Consumer Financial Protection Bureau

In Community Financial Services Ass’n of America v. Consumer Financial Protection Bureau,10 the Fifth Circuit vacated the payment provisions of the CFPB’s Payday Lending Rule. Those provisions limit the number of times bounced payments can be resubmitted; the rule’s ability-to-repay provisions were previously repealed under former CFPB Director Kraninger.

Federal Deception Law: 3.1.1a.5 The Fifth Circuit Is in the Minority

Community Financial Services Ass’n of America v. Consumer Financial Protection Bureau does not bind courts in other circuits. The Fifth Circuit is the only court that has found the CFPB’s funding mechanism to be unconstitutional. The Second Circuit and the en banc D.C.

Federal Deception Law: 3.1.1a.8 Warning Courts of the Economy-Wide Impact If Eleven Years of CFPB Rulemaking Actions Are Subject to Challenge

If a court finds the CFPB’s funding structure to be unconstitutional, practitioners should push for a narrow remedy and explain that CFPB rules do not just protect consumers. CFPB rules offer clear standards for financial service providers, explain how these providers must comply with the law, shed light on ambiguous statutory provisions, provide model disclosures to use, exempt small entities from statutory requirements, offer safe harbors, or otherwise clarify that certain practices are allowed.

Federal Deception Law: 3.1.1a.9 Most CFPB Regulations Still Apply Even in the Fifth Circuit

Even if a court in the Fifth Circuit or elsewhere were to strike down CFPB rules, most consumer protection regulations should still survive such a ruling. With a few exceptions, the CFPB’s current rules were transferred wholesale from other agencies (most commonly the Federal Reserve) to the CFPB when the CFPB opened its doors in 2011. While changes to those rules since 2011 were promulgated using CFPB funding, the CFPB’s funding structure had nothing to do with rules that were adopted before that time.