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As the Consumer Financial Protection Bureau prepares to collect comments on its proposal to ban class action waivers, House lawmakers at a hearing yesterday discussed whether the court system or arbitration best serves aggrieved customers, the National Law Journal reported today. Rep. Randy Neugebauer (R-Texas) said that the CFPB’s controversial proposal is inconsistent with its arbitration study and would effectively eliminate an alternative resolution process that “lowers the barrier to bring disputes.” Neugebauer, the chairman of the House Financial Services Financial Institutions and Consumer Credit Subcommittee, said that arbitration provides “efficient, expedited” relief to consumers. But Rep. Lacy Clay (D-Mo.), argued that arbitration can be costly for consumers — and often result in little to no relief. Among the four panelists testifying at the hearing were F. Paul Bland, executive director of Public Justice, and Mayer Brown partner Andrew Pincus, who represented AT&T Mobility LLC in the landmark U.S. Supreme Court case that established a right for businesses to enforce class action waivers and force consumers into arbitration. Since the court’s 5-4 decision in AT&T Mobility v. Concepcion, forced-arbitration clauses have become commonplace in contracts for loans, credit cards and other financial products. Read more. 

To read the prepared witness testimony from yesterday’s hearing, please click here. 

In related news, the Consumer Financial Protection Bureau highlighted the perils of vehicle title loans in a new report, as it gears up to propose a sweeping new rule to rein in small-dollar loans carrying hefty interest rates, the Wall Street Journal reported yesterday. One in five borrowers of vehicle title loans end up having their cars and trucks seized while many others fall into cycles of debt as they repeatedly roll over their loans, unable to make repayments, according to the analysis released yesterday. Vehicle title loans typically are an expensive form of credit, backed by a stake in the consumer’s vehicle. The typical title loan is about $700, with an annual loan rate running around 300 percent, the CFPB said. Read more. (Subscription required.) 

Google announced yesterday that it would ban all advertisements for payday loans and related products on its website because they often lead to unaffordable repayment terms and financial harm to consumers, the New York Times reported today. David Graff, the director of global product policy at Google, announced in a blog post that the global ban would take effect July 13 and would apply to loans for which repayment was due in 60 days and for loans that carry an annual percentage rate of 36 percent or higher. “This change is designed to protect our users from deceptive or harmful financial products,” Graff wrote. “Ads for financial services are a particular area of vigilance given how core they are to people’s livelihood and well-being.” It is the first time that the company has banned such a broad range of financial advertisements on its site, but the move was welcome by advocates seeking stricter controls on an industry long accused of targeting low-income and minority communities with loans that carry egregiously high interest rates. But the Community Financial Services Association of America, which says it works to preserve “access to short-term credit for millions of Americans,” criticized the move, calling it “discriminatory and a form of censorship.”

The Consumer Financial Protection Bureau (CFPB) has fined a New Jersey law firm and the debt collection company it worked with and ordered them to stop filing abusive debt-collection lawsuits, NJ.com reported today.  The CFPB yesterday announced the actions against the law firm of Pressler & Pressler and New Century Financial Services. The bureau said that the firms were involved in more than 500,000 of debt-collection actions, many of which were unfair and deceptive and based on flimsy or non-existent evidence. According to the terms of the consent orders, Pressler & Pressler — which bills itself as the largest and oldest law firm specializing in retail debt collection in New Jersey — was ordered to pay a fine of $1 million and New Century, $1.5 million to the bureau's Civil Penalty Fund. By signing off on the consent orders, neither firm admits liability in the case.

The Consumer Financial Protection Bureau filed complaints in federal court Thursday against two co-founders of a company that resold loan applications containing personal data to lenders and data brokers without reviewing the sources of those leads or the purchasers, CollectionsCreditRisk.com reported yesterday. Dmitry Fomichev and Davit Gasparyan (also known as David Gasparyan) co-founded and operated T3Leads, a lead aggregator that bought and sold payday and installment loan applications without properly vetting buyers and sellers, according to the CFPB. The CFPB filed a separate lawsuit against T3Leads and two other individuals in December 2015. The CFPB alleges that T3Leads bought leads and sold them to payday or installment lenders and others with no regard for the promises lead generators made to consumers, or for how the consumers’ information would be used. Buyers of leads from T3Leads include lenders tied to Indian tribes or based in foreign jurisdictions.

The Consumer Financial Protection Bureau (CFPB) released an analysis saying that consumers who turn to online lenders for payday loans face hidden risks of costly banking fees and account closures, USA Today reported today. Half of the borrowers who got the high-interest loans online later were hit with an average of $185 in bank penalties for overdraft and non-sufficient funds fees when the lenders submitted one or more repayment requests, according to the CFPB. One third of the borrowers who racked up a bank penalty ultimately faced involuntary account closures, the report also found. Online lenders made repeated debit attempts on borrowers' accounts, running up additional bank fees for the consumers, even though the efforts typically failed to collect payments, the study said.

A federal appeals panel in Washington, D.C., yesterday appeared ready to disrupt the organizational structure of the Consumer Financial Protection Bureau, the National Law Journal reported today. During arguments in the U.S. Court of Appeals for the D.C. Circuit in a challenge to the constitutionality of the consumer agency, the question appeared to be not whether the judges would alter the bureau’s structure, but rather how much. The judges pressed the bureau’s lawyer to defend the novelty of the CFPB’s structure and why it didn’t violate separation of powers. A single director heads the bureau, and the president’s ability to remove the director is limited. It is “very dangerous in our system” to vest so much power in one person, Judge Brett Kavanaugh said during arguments. The three-judge panel could declare the bureau’s structure unconstitutional in its entirety, or the judges could chip away at a smaller piece — by expanding the president’s authority to remove the director, for instance. The judges and the lawyers arguing yesterday — Gibson, Dunn & Crutcher partner Ted Olson for the challengers, and bureau senior litigation counsel Lawrence DeMille-Wagman — did not address how a decision declaring the bureau unconstitutional would affect its previous actions. Olson argued that a ruling that only addressed future actions by the bureau would not be sufficient. Read more. 

What aspects of the CFPB should you be concerned about for your practice? Attend the “What is the CFPB, and Why Do I Care?” session at ABI’s Annual Spring Meeting on Friday. Register here. 

Consumer Financial Protection Bureau Director Richard Cordray will testify on Wednesday before the House Financial Services Committee for “The Semi-Annual Report of the Bureau of Consumer Financial Protection.” Click here for more details. 

For more on the CFPB, do not miss the “What Is the CFPB, and Why Do I Care?” at ABI’s Annual Spring Meeting. Click here to register. 

Read a March ABI Journal article about a recent case that demonstrates the CFPB over activities of debt-collection lawyers.

Citibank was ordered by the Consumer Financial Protection Bureau (CFPB) to pay a $3 million penalty and provide nearly $11 million in consumer relief or refunds in a settlement over illegal debt sales and debt collection practices, <em>USA Today</em> reported today. The New York-based bank broke the law by selling credit card debt with inflated interest rates and failing to forward consumer payments promptly to debt buyers, the CFPB said in a consent order. Additionally, Citibank and two debt collection law firms that worked with the bank falsified court records filed in debt collection cases in New Jersey state courts, the CFPB said.

Republicans on the House Financial Services Committee voiced criticism at a hearing yesterday examining the Consumer Financial Protection Bureau’s upcoming rules governing payday lenders, MorningConsult.com reported. The vast majority of questions from both Republicans and Democrats at the well-attended hearing were directed at the sole CFPB official on the panel, Acting Deputy Director David Silberman. The CFPB’s proposed rule, which will be final soon, creates an “ability to repay” standard for people seeking unsecured, short-term cash. The rule would mandate that lenders “verify the consumer’s income, major financial obligations, and borrowing history to determine whether there is enough money left to repay the loan after covering other major financial obligations and living expenses.” Silberman defended the bureau’s rule-making process, saying that CFPB officials had done due diligence to ensure that all perspectives, including those of the payday lending industry and their customers, had informed their decision. The payday lending rules, which could be finalized in the next several weeks, will focus on preventing “abusive and predatory practices,” Silberman said.

Federal prosecutors charged a businessman-turned-race-car driver and his attorney yesterday with overcharging customers hundred of millions of dollars in undisclosed fees in one of the largest federal criminal payday-lending cases ever, the Wall Street Journal reported today. Prosecutors said Scott Tucker used $100 million of proceeds from the fraudulent loans to finance his professional racing team and purchase race cars and other luxury items. The Manhattan U.S. attorney’s office unsealed an indictment against the two men charging them with violations of the Truth in Lending Act and the Racketeer Influenced Corrupt Organizations Act and running an illegal loan business that generated more than $2 billion in revenue between 2003 and 2012.