Earned Wage Access. Mortgage Servicing. Small Business Lending. Chatbots. Land Contracts. These are but a few of the topics on which a zealous CFPB has an opinion.
The Consumer Financial Protection Bureau has maintained its aggressive posture since the Supreme Court upheld the constitutionality of its funding mechanism in CFPB v. Community Financial Services Association of America, Ltd. The CFPB is not going anywhere, and it’s thumping its chest in aggressive action this year.
One example is its proposal regarding earned wage advances. My bank offers access to my paycheck a couple days before payday. That’s becoming more common as earned wage advances spread across various financial platforms. I’m lucky–there is no fee involved. But for those who do pay a fee to get their money early, the CFPB wants in on it.
For earned wage advances that cost money, the CFPB wants to make them subject to the Truth in Lending Act (TILA) and Reg Z. This proposal would apply consumer-loan protections, together with required disclosures, to these advances and related products.
Another example is its proposal to amend existing mortgage servicing rules in Reg X. The mortgage servicing industry fears this would completely overhaul default servicing and require significant additional disclosures. A comment letter has already projected certain legal challenges to any final rule, arguing that rules affecting RESPA (the Real Estate Settlement Procedures Act) exceed the CFPB’s authority and violate the Administrative Procedures Act.
A federal judge has recently rejected banking industry objections to implementation of the Small Business Lending Rule, which we wrote about earlier this year, in another win for the CFPB. The case was stayed pending the Supreme Court’s decision on its funding mechanism, and the CFPB pushed back the original deadlines for compliance. Now that it remains on track, the first reporting for the largest institutions is required in July 2025.
The industry maintains that the Small Business Lending Rule adds onerous and burdensome requirements on financial institutions that will in effect increase loan costs for small businesses. The goal of Section 1071 of Dodd-Frank was to promote loans to small businesses, especially those owned by women and minorities. The CFPB has revealed its platform for data collection, albeit for testing purposes only at the moment.
And then there’s chatbots. Many banks and credit unions have chatbots that will engage with customers on their sites. The CFPB has announced plans to begin the rulemaking process to regulate their use. Any proposed rule would likely require financial institutions to provide a human being for customer interaction at the simple press of a button.
The CFPB has also issued an advisory opinion stating that land contracts constitute “credit” and are therefore subject to TILA and Reg Z. A land contract is really a mortgage, or so claims the Bureau. The protections and required disclosures should apply, or their absence is more likely to invite CFPB enforcement. This is consistent with its attempt to reign in earned wage access products, buy now / pay later contracts, and lease-to-own agreements.
If you have any questions about the CFPB’s authority, enforcement, or compliance, contact the attorneys at Dalton & Tomich for assistance.
