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FTC and CFPB – Watching Add On Products in Auto Financing and Other Contexts

December 13, 2018


The holidays are a time for deals — rebates, discounts and special financing offers. Especially prevalent are automobile advertisements with images of big red bows atop shiny new cars and exhilarated families dashing out into the snow to unpack presents out of the back. Well, the regulators are watching those advertisements too. For the fourth time in a month, the CFPB is warning consumers, especially servicemembers, about the potential pitfalls of the car buying process and understanding exactly what they are buying and what they are financing. The FTC is joining in to help, with its own resources as well.

Add-On Products are an area of special concern and focus for the CFPB. The CFPB recommends that buyers “be prepared to say ‘No, thank you’ if [they’re] offered add-ons [they] don’t want or need.” But the CFPB also adds a warning that customers should be sure to review their contracts carefully to make sure the items declined are not included. Dealer sales practices vary on these types of products, and the CFPB appears to be suggesting not so subtly that buyer had better beware.

Value & Actual Costs/ Financing. Products and services the regulators highlight include: (a) guaranteed auto protection (GAP), (b) tire, dent, paint and fabric protection packages, (c) extended warranties, and (d) service contracts. These additional products and services can be valuable to consumers depending on how long they intend to keep the car, how they want to maintain it, and their own economic circumstances and budget cashflow. The CFPB and FTC focus signals that in marketing these products and services, institutions and their business partners must be direct and forthright about the product, its features, its limitations, and the price. High pressure sales tactics or aggressive marketing may result in customer complaints, regulatory inquiries, and litigation and reputation risk.

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FTC Targets Banks under FDCPA

FTC Targets Banks under FDCPA

September 28, 2015

Authored by: Douglas Thompson

Who Is An FDCPA Excluded “Creditor”?

The FTC Seeks to Overturn An 11th Circuit Ruling That A Bank Is.

Banking lawyers whose institutions acquire loans or card accounts may want to watch how this 11th Circuit putative class action case issue plays out. The FTC’s brief supports the plaintiffs’ class action bar, and the outcome of the appeal if reversed could further spur both regulatory enforcement activity and consumer class actions.

The FTC recently filed an amicus brief in a consumer’s appeal pending in the US Court of Appeals for the 11th Circuit, Davidson v. Capital One Bank, NA, Case No 14-14200. In the appeal, the 11th Circuit affirmed the Northern District of Georgia’s dismissal of Davidson’s claims (and those of a putative class) under the Fair Debt Collection Practices Act, 15 USC § 1692.   The FTC now seeks en banc review to overturn the ruling. The FTC argues that the 11th Circuit misread the statute, decided contrary to several other circuits (the 3rd, 5th, 6th and 7th Circuits), and is placing consumers at risk. The FTC contends that the defendant bank clearly was a “debt collector” as defined by the statute.

The conundrum essentially turns on two issues: (a) the FDCPA’s exclusion of the “creditors” from the coverage of the statute and (b) whether the defendant bank was principally in the business of collecting debts owed to another. In the case, the defendant bank had acquired Davidson’s credit card account from another banking institution. The credit card debt was in default at the time of the acquisition. Some, including the FTC, would argue that this falls squarely within the definition of debt collector under the statute. However, the defendant Bank argued successfully that in the Davidson matter, the institution’s collection efforts only applied to debt it owned, not to another’s.

The statute uses the key phrase “to whom the debt is owed” in the exclusionary language regarding creditors. 15 USC § 1692a(6). Arguably in this case, once the bank acquired the credit card account, the debt is/was owed to that institution. This is precisely the basis on which both the Northern District of Georgia and 11th Circuit dismissed the claims. The rulings also note that the defendant bank is not principally in the business of collecting the debts of others.

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Financial Services Update – February 18, 2011

House to Pass Funding Cuts

This week the House debated an extension of the current fiscal year’s funding resolution that expires on March 4th. While the measure is not expected to pass until tonight, among the largest funding cuts passed so far are a $336 million cut to the School Turnaround Grant program, a $22.5 million cut to the National Endowment for the Arts, a $131 million cut to the Securities and Exchange Commission, as well as defunding of the Federal Communications Commission’s implementation of the so-called “Net Neutrality” rules and defunding portions of the Equal Access to Justice Act. The House plans to vote on over 100 more amendments today ranging from funding cuts to the healthcare law, the IRS, and the CFPB among others. While the Senate has already recessed for the President’s Day District Work Period, after the House passes the pending funding resolution, it will also recess until the week of February 28. When both bodies return, the will attempt to resolve differences between their respective funding bills before the March 4th deadline.

Issa Issues Subpoenas to Bank of America for Countrywide Documents

On Tuesday, House Oversight and Government Reform Committee Chairman Darrell Issa (R-CA) issued subpoenas regarding Countrywide Financial’s VIP program. The subpoenas ask for Bank of American to turnover all communications and documents relating to government officials in the VIP loan program by March 7th.

OCC Pushes for Mortgage Probe Settlement

On Wednesday, Federal Housing Administration Commissioner David Stevens announced that the Office of the Comptroller of the Currency (OCC), the federal bank regulator which oversees the nation’s banks, is pushing for a settlement to the months-long federal and state probes into abusive mortgage practices to take place in the next month. The federal review involves the OCC and other bank regulators, as well as the Departments of Justice, Housing and Urban Development and the newly formed Bureau of Consumer Financial Protection. The 50-state probe involves state attorneys general and state bank regulators.  According to sources, the OCC is negotiating an agreement that would cost the industry less than $5 billion in fines and mortgage modifications for troubled homeowners.

Corporations Campaign For Foreign Revenue Repatriation Deal

A group of multinational corporations is planning a campaign for a tax holiday that would allow them to repatriate their estimated $1 trillion in current foreign revenue. Specifically, the companies’ aim is to win a one-year tax amnesty on their foreign earnings, allowing them to repatriate that money at a tax rate of 5%, instead of the current 35% rate. In 2004, multinationals were successful in convincing Congress to approve a similar one-year foreign revenue tax holiday.

Corporations Weigh in On New SEC Whistleblower Program

In 2010, the Dodd-Frank Wall Street Reform Act created a new corporate whistleblower program within the Securities and Exchange Commission (SEC). With the SEC set to release the final rules in April, more than two dozen companies Fortune 500 companies have written letters asking the agency to revise its proposed rules for awarding workers who report information about corporate fraud or wrongdoing. The letters express concern that employees will bypass hot lines and other internal reporting mechanisms and thus hurt the companies’ internal efforts to encourage employees’ compliance with the law. Under the current law, the SEC offers awards of at least $100,000 and as much as 30% of the penalties and recovered funds to people who report knowledge of a fraud. To qualify for an award, the information must lead to a successful enforcement action with sanctions of at least $1 million. Under the SEC’s draft rules proposed in November, whistleblowers would not be required to report suspected wrongdoing to their employers in order to win a reward. In an effort to address the companies’ concerns, the SEC proposed to encourage internal reporting by giving credit to informants for first reporting the wrongdoing through company channels in setting the size of the award.

Obama Budget Includes New CFTC User Fees

On Monday, President Obama released his FY 2012 Budget which included proposed user fees as an option to help the Commodity Futures Trading Commission (CFTC) carry out its derivatives oversight. The user fees, which require congressional approval, would raise $117 million in the 2012 fiscal year and $588 million through 2016. The CFTC would assess the fees on “the regulated community” to pay for the CFTC’s non-enforcement activities. The user fees represent an alternative source of funds for the CFTC, which is now funded through annual funding legislation.

More Information

If you have any questions regarding any of these issues, please contact:
Matt Jessee, Policy Advisor
1 314 259 2463


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