Last Week, This Morning

March 18, 2024

Below you will find several key developments in the financial services industry, including related developments in information privacy and data security, from the past week. We add an “Amicus Brief(ly)¹” comment to each item, where we briefly (see what we did there?) note for friends (and again?) of CounselorLibrary the important takeaways from the developments outlined in the email. Our legal reporters – CARLAW®, HouseLaw®, InstallmentLaw™, PrivacyLaw®, and BizFinLaw™ – provide more comprehensive, real-time updates of federal and state laws, regulations, litigation, and other industry items of interest. For a personal guided tour and free trial of any of these legal reporters, please contact Michael Willer at 614-855-0505 or mwiller@counselorlibrary.com.

On March 15, the Consumer Financial Protection Bureau’s rule to limit penalty fees on credit cards issued by so-called “Larger Card Issuers” (issuers that, together with their affiliates, have one million or more open credit card accounts) was published in the Federal Register and established an effective date of May 14, 2024. As we mentioned in the March 11 issue of “Last Week, This Morning,” the final rule repeals the current late fee safe harbor dollar amount for Larger Card Issuers, adopts a late fee safe harbor amount of $8, and eliminates a Larger Card Issuer's ability to charge a higher late fee safe harbor amount for subsequent violations of the same type that occur during the same billing cycle or in one of the next six billing cycles. The final rule does not affect "Smaller Card Issuers" (issuers that, together with their affiliates, had fewer than one million open credit card accounts for the entire preceding calendar year), but the safe harbor amounts for violations are increased to $32 and to $43 for subsequent violations.

Amicus brief(ly): The 60-day clock on the effective date for this rule and the corresponding limit on the late payment fees “Larger Card Issuers” can charge is officially running. As we noted last week, within two days after the CFPB announced that it had finalized its rule, the U.S. Chamber of Commerce, in collaboration with several bank trade groups, sued the CFPB in Texas to challenge the rule. The CFPB complained that the plaintiffs engaged in forum shopping by filing where they did in Texas (taking apparent advantage of a non-random case assignment procedure in the district where they filed), a practice that just last week was the subject of a policy issued by the U.S. Judicial Conference over which Chief Justice Roberts presides. The policy aims to curtail the so-called “forum-shopping” practice and require random assignment of cases. But we digress – one of the central issues in the plaintiffs’ complaint is that the $8 safe harbor late fee does not actually cover the card issuers’ costs to process a late payment. While the case is getting awfully political, the court has not stayed enforcement of the rule yet, so Larger Card Issuers should be taking steps to limit those fees in accordance with the rule.

On March 8, the Consumer Financial Protection Bureau issued a blog post on the closing costs associated with mortgage loans, labeling those costs as “junk fees.” Some of the closing costs that the CFPB notes have risen over the last few years are title insurance fees, credit report and appraisal fees, loan origination fees, and discount points. The CFPB states that the increase in mortgage loan closing costs, resulting in part from lack of competition, requires greater scrutiny from the agency. According to the blog post, “[i]n the coming months, the CFPB will continue working to analyze mortgage closing costs, seek public input and, as necessary, issue rules and guidance to improve competition, choice, and affordability. We will also continue using our supervision and enforcement tools to make it safer for people to purchase homes and to hold companies accountable when they violate the law.” The Mortgage Bankers Association responded to the blog post with a press release objecting to the CFPB’s use of the term “junk fees,” noting that the fees the CFPB complains about are disclosed to borrowers and that “‘the services covered by these fees are integral to the efficient operation of the mortgage market.’” The MBA, however, expressed its concern about the rising cost of credit report products.

Amicus brief(ly): It is no secret that the consumer credit industry bristles at the characterization of fees imposed in a credit transaction as “junk fees,” especially when the law does not prohibit the fees that appear to trouble the CFPB, the fees are disclosed to the consumer (who agrees to pay them as part of the transaction) as required, and the fees represent the cost of actual services. The CFPB went a little long in this case by calling third-party closing costs “junk fees.” We’ll see how this issue unfolds with the public input component and any rulemakings, but figure this is more than just a headline – the CFPB is likely to turn its concerns into some form of restriction that will have longer-term implications in the mortgage loan market (e.g., restrictions on closing costs will lead to higher interest rates to allow lenders to pay for necessary services).

On March 7, Wyoming’s governor signed into law House Bill 86 relating to vehicle liens, effective immediately. The law adds a new paragraph (iv) to W.S. 29-7-102(e) to require that, except as otherwise provided in W.S. 31-13-104(g) relating to abandoned vehicles, a towing and recovery service must request a title search report upon a form prescribed by the Department of Transportation within five business days after a towed vehicle has remained in a recovery lot for more than five business days. Upon receipt of the request, the department must make reasonable efforts to identify the owner and any lienholders of record. The department must forward the information obtained to the towing and recovery service within five business days of receipt of the request for any vehicle registered in Wyoming or within seven business days of receipt of the request for any vehicle registered in another jurisdiction. Upon receipt of the information, the towing and recovery service must notify the lienholders of record of the location of the vehicle within one business day of receipt of the information.

Amicus brief(ly): There is reason to believe that this change to Wyoming law will speed up the process of getting information to lienholders about abandoned cars that have been sitting at the lot for a few days after the initial required title search (already in the statute) comes through and notice goes out to the owner and lienholders identified in the title search. This “rerun” title search and notice provision requires the towing company to act within one day after getting the owner and lienholder information from the department again, a quicker turn than the three-business-day rule for the first run. The state appears motivated to get those cars off the lots holding them, which should, in theory, lead to lower recovery and storage costs, saving both lienholders and consumers responsible for those costs some money when there is still a lien on that abandoned car.

On March 8, Virginia’s governor signed into law House Bill 880 relating to foreclosure of assessment liens by common interest communities. The new law provides that a common interest community association may not conduct a judicial or nonjudicial foreclosure sale to enforce an assessment lien unless the total sums secured, excluding attorneys’ fees and costs, exceed $5,000. The new law further provides that foreclosure of an assessment lien, either by filing a civil action to enforce the lien through judicial means or issuance of a notice of nonjudicial foreclosure, may not be initiated after 120 months from the time when the memorandum of lien was recorded. Previously, the period was three years. Finally, the new law requires the association to maintain individual assessment account records and to maintain a record of any recorded lien at least as long as the lien remains effective.

Amicus brief(ly): These changes to Virginia’s foreclosure laws will allow homeowners associations and other common interest communities to conduct foreclosures based on lower dollar thresholds (the general threshold for execution on judgment is $25,000; this bill creates a limited exception) and for significantly longer than the original three-year window from the time when the association records its assessment lien. In Virginia, HOA or condo liens are subject to tax liens and prior consensual liens (like a mortgage), but mortgage servicers should note this development and update procedures for Virginia properties to reflect the lower dollar threshold for a lien and execution as well as the longer term for enforcement.

On March 13, Utah revised its Credit Services Organizations Act to require a new disclosure when a credit services organization provides a credit report to a buyer. Specifically, House Bill 99, effective May 1, 2024, provides that when a CSO provides the credit report, it must also provide the buyer a written disclosure that identifies the consumer reporting agency providing the information in the report, the name of the credit score model used to calculate the credit score, and the minimum and maximum possible scores under that credit score model.

Amicus brief(ly): Debt relief companies registered in Utah as CSOs are pretty well regulated already, but this statute adds a consumer protection requirement. Loan brokers and lenders (that do not promise to improve a buyer’s credit record, history, or rating for compensation) are not subject to Utah’s law. But this change requires those CSOs to provide specific information to buyers about the source when they provide consumer reports to the buyers. This development will only apply to registered CSOs, but investors and creditors may want to understand the requirement for due diligence purposes.

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¹ For the unfamiliar, an “Amicus Brief” is a legal brief submitted by an amicus curiae (friend of the court) in a case where the person or organization (the “friend”) submitting the brief is not a party to the case, but is allowed by the court to file the brief to share information or expertise that bears on the issues in the case.