Saturday, May 25, 2024

June 2017 Legal Briefs

  • Consumer loan dollar amounts adjust July 1
  • TCPA compliance for certain alerts
  • ‘New and improved’ credit reports coming soon
  • Amendments to Reg CC – Finally!

Consumer loan dollar amounts adjust July 1

By Pauli D. Loeffler

Sec. 1-106 of the Oklahoma Uniform Consumer Credit Code (the “U3C”) makes certain dollar limits subject to change when there are changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers, compiled by the Bureau of Labor Statistics, U.S. Department of Labor.  For the first time since July 1, 2014, amounts subject to adjustment under § 1-106 have changed. You can download and print the notification using this link: https://www.ok.gov/okdocc/documents/2017%20dollar%20changes.pdf. It is also available on the Legal and Compliance Resources page under the “Oklahoma law-related links” by clicking the Legal tab on the OBA’s website.

Increased Late Fee

The maximum late fee that may be assessed on a consumer loan is the greater of (a) five percent of the unpaid amount of the installment or (b) the dollar amount provided by rule of the Administrator for this section pursuant to § 1-106. As of July 1, 2017, the amount provided under (b) will increase by $.50 to $25.00, the first increase in the late fee in 3 years.
Before a bank can charge any late fee, the consumer must agree to it in writing. Any time a loan is originated, deferred or renewed, the bank is given the opportunity to obtain the borrower’s consent in writing to the new $25.00 portion of the late-fee formula.  However, if a loan is already outstanding and is not being modified or renewed, a bank has no way to increase the amount of late fee that the consumer has previously agreed to pay if the loan agreement states a set dollar amount.
On the other hand, if the late-fee provision worded like this:
“A late fee on any installment not paid in full within ten (10) days after its scheduled due date in an amount which is the greater of five percent (5%) of the unpaid amount of the payment or the maximum dollar amount established by rule of the Consumer Credit Administrator from time to time…”
is disclosed, then the late fee may be increased whenever there is an increase made by the Administrator of the OKDOCC.

§ 3-508B Loans

Many banks make small consumer loans based on a special finance-charge method that combines an initial “acquisition charge” with monthly “installment account handling charges,” and rather than being subject to the provisions of § 3-508A regarding  maximum annual percentage rate, the requirements for such loans are outlined in § 3-508B of the U3C. The permitted principal amounts for these small loans was $1,470.00 but is adjusting to $1500.00 – $5,000.00 for loans consummated on and after July 1, 2017.
Section 3-508B provides an alternative method of imposing a finance charge than that provided for Sec. 3-508A loans, and, unlike § 3-508A, the loan amount, one time acquisition charge and monthly handling charges under this section are subject to annual adjustment. NOTE: The section prohibits additional fees: no insurance charges, application fee, documentation fee, processing fee, returned check fee, credit bureau fee, or any other kind of fee that might otherwise be permitted on other types of consumer loans (other than late or deferral fees).  Also, no credit insurance can be sold in connection with in § 3-508B loans.  If a lender wants or needs to sell credit insurance or to impose other normal loan charges in connection with a loan, it will have to use the § 3-508A procedures. Additionally, loans made under § 3-508B cannot be refinanced as or consolidated with § 3-508A loans, nor vice versa.
As indicated above, § 3-508B can be utilized only for loans not exceeding a certain dollar amount which will be $1,500 on July 1. Further, substantially equal monthly payments are required. The first scheduled payment cannot be due less than one (1) calendar month after the loan is made, and subsequent installments due at not less than 30 day intervals thereafter. The minimum term for any loan $149.96 and up to and including $750.00 is 60 days. The maximum number of installments allowed is 18 months calculated based on the loan amount as 1 month for each $10.00 for loan amounts between 149.96 and$750.00 and $20 for loan amounts between $750.01 – $1,500.
For a loan up to $149.95, a lender may impose a one-time flat-rate charge of $5.00 for each $25.00 of principal balance. For any loan of $146.96 and up, the lender may impose a one-time acquisition charge up to 1/10 of the principal balance.  Additionally, the lender may impose a monthly handling fee as follows:
1.    For a loan $149.96 up to $175.00, a monthly fee up to $15.00;
2.    For a loan $175.01 up to $350.00, a monthly fee up to $17.50;
3.    For a loan $350.01 up to $500.00, a monthly fee up to $20.00;
4.    For a loan $500.01 up to $750.00, a monthly fee up to $22.50;
5.    For a loan $750.01 up to $1,500.00, a monthly fee up to $25.00.
The acquisition charge is earned when received, and only the future installment handling fees can be avoided by prepayment—except that, if one of these loans is prepaid during the first sixty days, a prorated portion of the acquisition charge must be refunded, in an amount to be determined by multiplying 1/60 of the acquisition charge times the number of days remaining from the date of prepayment to the sixtieth day of the loan. (Yes, § 3-508B loans are math intensive!)
Lenders making “508B” loans should be careful to promptly change to the new dollar amount brackets, and the new permissible fees within each bracket on July 1st. Because of peculiarities in how the bracket amounts are adjusted, using a chart with the old rates after June 30 (without shifting to a revised chart) might result in excess charges for certain small loans and violations of the U3C provisions. The Department of Consumer Credit has provided a 3-508B Loan Chart including Refunds in prior years, and there will be a link on the OBA’s “Oklahoma law-related links” page when it is provided.
American Bank Systems annually updates its 3-508B pricing calculator. On its webpage, you will also find a link to American Bank Systems’ 3-508A “Maximum Annual Percentage Rate Chart” and 3-508B “Loan Pricing Matrix.” 3-508A is the section containing provisions for “blended” rate on small loans which is NOT subject to annual adjustment.

§ 3-511 Loans

I get calls when lenders get a warning from their loan origination systems that a loan may exceed the maximum interest rate, but invariably the banker says the interest rate does not exceed the alternative non-blended 25% rate allowed under 3-508A according to their calculations. Usually, the cause for the red flag on the system is § 3-511, for which loan amounts also adjust annually. Here is the section with the amounts as effective for loans made on and after July 1, 2017. The italicized portion of the statute is nearly always the reason for the notification:
Supervised loans, not made pursuant to a revolving loan account, in which the principal loan amount is $5,000.00 or less and the rate of the loan finance charge calculated according to the actuarial method exceeds eighteen percent (18%) on the unpaid balances of the principal, shall be scheduled to be payable in substantially equal installments at equal periodic intervals except to the extent that the schedule of payments is adjusted to the seasonal or irregular income of the debtor; and
(a) over a period of not more than forty-nine (49) months if the principal is more $1,500.00, or
(b) over a period of not more than thirty-seven (37) months if the principal is $1500.00 or less.

Dealer Paper “No Deficiency” Amount

If dealer paper is consumer-purpose and is secured by goods having an original cash price less than a certain dollar amount, and those goods are later repossessed or surrendered, the creditor cannot obtain a deficiency judgment if the collateral sells for less than the balance outstanding. This is covered in Section 5-103(2) of the U3C. This dollar amount was previously $4,900, and increases to $5,000 on July 1.

TCPA compliance for certain alerts

By Pauli Loeffler
This article was engendered by the requirement that banks certify consent of consumer customers to receive fraud alerts sent by service providers using autodialers or prerecorded/artificial voice (i.e., “robocalls”) and text messages or the service provider will impose a charge to manually dial the number and personally speak to the customer. There would be no problem if ALL consumer cell phone plans had unlimited calls and texts, but there are still some that do not provide these features. Both the bank and the service provider could be liable for TCPA violations. The service provider’s protection from liability is limited to whatever protections the bank itself had (either consent or on an exemption) if the bank made the calls or sent the text itself.

The TCPA

Congress enacted the Telephone Consumer Protection Act (TCPA) codified in Title 47 U.S.C. § 227 (https://www.law.cornell.edu/uscode/text/47/227) in 1991 to address certain practices thought to be an invasion of consumer privacy and a risk to public safety. The Federal Communications Commission (“FCC”) is the federal agency empowered to issue rules and regulations implementing the TCPA. The TCPA and the FCC implementing rules require that, if a caller uses an autodialer or prerecorded message (“robocall”) to make a non-emergency call to a wireless phone, the caller must have obtained the consumer’s prior express consent, or face liability for violating the TCPA. Prior express consent for these calls must be in writing if the message is telemarketing, but can be either oral or written if the call is informational.  In 2003, the Do-Not-Call Implementation Act was signed into law requiring the FCC to issue a final rule in its ongoing TCPA proceeding and to consult and coordinate with the Federal Trade Commission (“FTC”), which maintains the National Do-Not-Call List.
Oklahoma has its own statutes regulating telemarketing calls found in Title 15. These include the Commercial Telephone Solicitation Act (§§ 775A.1 – 775A.5), enacted in 1994 and the Telemarketer Restriction Act (§§ 775B.1 – 775B.7), enacted in 2002. Section 775B.3 required the Oklahoma Attorney General (“OAG”) to establish a No-Telemarketing-Sales-Call-Registry.
Personal observation/rant:  I have registered my home and business landlines as well as my cell phone on both these lists, but I still get calls from Rachel at Card Services advising me “There is nothing wrong with your account,” and promising me that I can lower my monthly payments;  weekly calls telling me that “Every 3 minutes there is a break-in” and wanting to “give” me a free home alarm system (I already have one); and finally, offers for a totally free vacation in Orlando because I stayed at an unnamed resort of the robocaller or one of its partners. None of these ever state who the organization making these offers are, many state that it is my “final” opportunity to avail myself of the offer (would that this were actually true), and most do not give me the option to press a number to opt out of further contact. To say that I am less than impressed with the efficacy of enforcement actions in curtailing violations of calls to phone numbers on the registries is an understatement.
Of course, consumers may file complaints online with the FTC and the OAG, but 1) this is time consuming, and 2) as stated, rarely will I have more than the phone number and the time of the call to put in the complaint.  Even call blocking provides only limited protection because the numbers change, and with the prevalence of “spoofing” a local number makes me more apt to answer the call.
Regardless of my anger with robocalls, having had my purse stolen three years ago and having had a couple of debit cards compromised, I was happy to receive the automated text and voice message alerts.

FCC Declaratory Ruling and Order 15-72

The general rule is that prior consent is required for auto-dialed/artificial voice calls to cell phones as well as text messages. The FCC Declaratory Ruling and Order 15-72 (the “Order”) was adopted June 18, 2015, and released on July 10, 2015, and involved 21 separate requests for clarification including that of the American Bankers Association which I am covering in detail. Feel free to read the Order together with the petitions in its entirety some night when you’re having insomnia:https://apps.fcc.gov/edocs_public/attachmatch/FCC-15-72A1_Rcd.pdf.

Exempted categories of messages

The Order exempts four categories of calls and texts for banks and their agents to cell phones where no prior consent has been given, provided the consumer incurs no cost for receiving the robocalls and texts:
1. Transactions and events that suggest fraud or identity theft.
2. Possible breaches of customers’ personal information.
3. Steps consumers can take to prevent or remedy harm due to data security breaches.
4. Actions to arrange receipt of money transfers (wires).
Fraud or identity theft. This category includes alerts based on experience-based algorithms that identify such things as unusual purchases, goods that can be readily converted to cash, or changes of address followed by a request for a new debit (or credit) card. One incident I personally experienced did NOT involve a consumer debit card. Our Sisterhood (I am the treasurer) had a charge hit the card from a laboratory supplier which is not the type of supplier we would buy from for our gift shop. I got a call alerting me. Another example was when I had used my debit card legitimately for lunch in Edmond, OK and within an hour or so of that transaction, there was another transaction at a Walmart in a suburb of Dallas, Texas. I received a call to my landline and a text to my cell phone.  As stated in the Order, “[s]econds count in these situations and immediate notifications can help contain any potential damage that might result from a fraudulent transaction.”  The calls and texts I received prevented (temporary) losses to these accounts as well as limited loss to the bank.
Breaches of customers’ personal information. The second category involves data security breaches. These calls are intended to alert consumers to data breaches at retailers and other businesses which pose a security threat to the customer’s financial account information. Remember the Target and Home Depot breaches (among a plethora of others)? This exemption allows the bank to notify customers “of the breach and any remedial action to be taken.”
Steps to prevent or remedy harm after security breaches. The third category covers providing information following a data breach of the bank (or its agents) which may affect the customer. Communications provided to mitigate the effects of the breach such as placing fraud alerts on a credit report, subscribing to a credit monitoring service, notice of a new card, information on activation of the new card, etc. are subject to this exemption BUT the messages CANNOT contain any marketing or cross-selling of products.
Receipt of money transfers.  The fourth and final category involves an exemption for calls regarding money transfers such as messages notifying the recipient (who may often be a noncustomer and have no business relationship with the bank) of the steps required to be taken in order to receive the transferred funds. It also includes any message to the transferring party that is a receipt for the funds transferred to the recipient.

Conditions for exemption

In addition to the requirement that the calls and texts be free of charge for the bank and its agent to utilize an exemption to prior consent for messages and texts to cell phones, there are seven additional requirements.
1. Each exempted voice call and text message must be sent, if at all, only to the wireless telephone number provided by the customer of the financial institution (see discussion of regarding the issue of liability in using reassigned cell phone numbers no longer owned by the customer, below).
2. Voice calls and text messages must state the name and contact information of the financial institution, and for voice calls, these disclosures must be made at the beginning of the call.
3. Voice calls and text messages are strictly limited to purposes stated above, and the messages must not include any telemarketing, cross-marketing, solicitation, debt collection, or advertising content.
4. The voice calls and text messages must be concise, generally one minute or less in length for voice calls (unless more time is needed to obtain customer responses or answer customer questions) and 160 characters or less in length for text messages.
5. No more than three messages (whether by voice call or text message) per event over a three-day period for an affected account.
6. A financial institution must offer recipients within each message an easy means to opt out of future such messages: Voice calls that could be answered by a live person must include an automated, interactive voice- and/or key press-activated opt-out mechanism that enables the call recipient to make an opt-out request prior to terminating the call, Voice calls that could be answered by an answering machine or voice mail service must include a toll-free number that the consumer can call to opt out of future calls. Text messages must inform recipients of the ability to opt out by replying “STOP,” which will be the exclusive means by which consumers may opt out of such messages.
7. A financial institution must honor opt-out requests immediately.
With regard to the last two requirements, the Order contains the following:
ABA requests, however, that “a consumer’s opt-out request apply only to the account and to the category of message in response to which the request was made.” It states, by way of example, that a consumer’s request to opt out of future security breach notifications should not foreclose a financial institution from sending future exempted messages concerning out-of-pattern activity alerts on the same account.
137. Consistent with ABA’s opt-out proposal and our precedent, we require financial institutions to include in their messages a mechanism for recipients to easily opt out of future calls. We agree with ABA that a consumer’s opt-out request should not be construed so broadly that opting out of one category of financial calls effectively opts that consumer out of all financial calls for that account. Consequently, financial institutions may tailor the opt-out notice so that a consumer is aware that a choice to opt out of future calls is specific to one of the four categories of financial calls we address.

Reassigned cell phone numbers and liability

The Order states that “the TCPA requires the consent not of the intended recipient of the call, but of the current subscriber.” The upshot of this is that even if the caller has valid, express consent from the intended recipient agreeing to calls or texts at the number provided, the bank or its servicer could be liable for a TCPA violation if the number has been reassigned.  Reassignment of numbers is common. There is no national database of reassigned numbers, and it would be impractical (and imperfect) to expect customers to voluntarily provide updated contact information every time they get new phone numbers.
The FCC’s Order only gives one chance to get it right – the equivalent of the “one bite rule” for dogs. The majority of the FCC’s Commission determined that “callers who make calls without knowledge of reassignment and with a reasonable basis to believe that they have valid consent to make the call should be able to initiate one call after reassignment as an additional opportunity to gain actual or constructive knowledge of the reassignment and cease future calls to the new subscriber…  If this one additional call does not yield actual knowledge of reassignment, we deem the caller to have constructive knowledge of such.” The Order suggests various ways the caller could learn about the reassignment including receiving information from the new subscriber, hearing a voicemail from the new subscriber (provided he bothered with personalization), a disconnected tone, etc. Unfortunately there is no guarantee these methods will always work, and this leaves the door wide open to potential liability.

‘New and improved’ credit reports coming soon

By John S. Burnett
As with most changes, “new and improved” depends greatly upon one’s point of view. Such is the case with “improvements” you should start seeing in credit reports from the giants of the credit reporting industry – Equifax, Experian and TransUnion – beginning July 1.
In May 2015, the three national consumer reporting agencies, or “bureaus,” as they are more commonly known, reached a settlement with 31 states’ attorneys general over allegations that the bureaus were often attaching reports of tax liens and civil judgments to the wrong individuals, adversely affecting those individuals’ credit scores, which limited their access to credit or increased the cost of credit they were able to obtain. The three bureaus paid a total of about $6 million in penalties to settle those claims, and agreed to improve their “matching” processes to mitigate the problem of “misfiling” negative reports.
Starting in July, we will start seeing the results of their improvements. Beginning July 1, if a lien or judgment doesn’t match three of the four criteria of name, address, Social Security number and date of birth, it won’t appear in a consumer’s credit record. Court files on judgments have been found to create inaccuracies, because in many states the court record doesn’t include a Social Security number or date of birth (or both), or records are forwarded to the credit bureaus with redacted information (ironically in the name of security). Tax liens are also often filed with bureaus with inaccurate or missing information.
The bureaus are attempting to work with tax and court authorities to standardize and improve the records they file, but it could be a long time before that effort bears fruit. In the meantime, consumer advocates are touting the bureaus’ improved vetting of such information as a “win” for consumers. An estimated 200 million American consumers have credit scores, and about 12 million of them will see their credit scores increase when judgments or liens are dropped from their credit records, according to Fair Isaac (FICO). A projected 11 million of those scores will go up by less than 20 points.
Creditors, not surprisingly, are concerned about the change. Those that focus on consumers’ credit scores will likely see more applicants qualifying for credit. These creditors aren’t likely to adjust their qualifying scores thresholds because it’s expected that only six percent of consumers will see their scores increase. Creditors that read credit reports to evaluate the information behind credit scores are concerned that missing significant judgments or liens could mean an eventual uptick in loan delinquencies and charge-offs as credit is extended to consumers who have unreported judgments or liens that affect their ability to make their loan payments.
The bureaus have set a higher identity-matching standard for the files of judgments and liens they receive. As that standard is gradually adopted by reporters, judgments and liens will begin to reappear in consumers’ credit records and will again affect their credit scores. Until that happens, however, creditors need to be aware of the uptick in credit risk that they are likely to face.

Amendments to Reg CC – Finally!

By John S. Burnett

Fewer changes than hoped for

The Federal Reserve Board has finally issued amendments to Regulation CC! Bankers who have been waiting for the Fed to remove all the outdated verbiage about “local” and “nonlocal” checks and update the rule’s model disclosures will be disappointed, however. Nothing in subpart B of the regulation, which includes the rules on funds availability and disclosures has been touched. In fact, even the definitions for local and nonlocal checks and local and nonlocal paying banks have been left intact. That’s because the Dodd-Frank Act split the rulemaking responsibility for subpart B between the Fed and the CFPB. We will have to wait for any progress toward cleaning out the deadwood and updating the requirements of subpart B.
So what DID get changed? For starters, the trigger amount for the large return item notice will double, to $5,000. The timing requirement for that notice remains unchanged – it will have to be received by the depositary bank by 4 p.m. on the second banking day after presentment of the check being returned. There’s also added pressure on depositary banks to receive – and paying banks to send – return items electronically, rather than in paper form. Depositary banks will have to accept electronic returns in order to make claims for damages due to a late return.
Speaking of late returns, of course the 2-day, 4-day rule has been eliminated (since there have been no nonlocal checks since 2010), and the “forward collection” alternative deadline will be gone. All returns, whether paper or electronic, will have to be available to the depositary bank by 2 p.m. on the second business day.
Electronic images of checks, including images not derived from a paper check (i.e., electronically-created items) will become subject to the return requirements. And the rule adds a new indemnification provision – a bank that accepts a check image for deposit via remote deposit capture (including mobile deposits) will indemnify a bank that accepts the actual paper check for deposit and sustains a loss when the paper check is returned as a duplicate presentment, unless the paper check when deposited carried an indorsement inappropriate for the deposit (such as “for mobile deposit only”). That indemnity will pressure banks that accept remote deposit capture to enforce a requirement that mobile-deposited check images carry restrictive indorsements including wording such as “for mobile deposit only.”
Here’s a bit of trivia for you – The amendments add two new definitions – in paragraphs (ggg) and (hhh) — to section 229.2. Including the definitions that are no longer relevant but nonetheless remain, that brings the count of defined words and phrases in section 229.2 to 60!

Effective date and waiting for the other shoe

The Fed’s amendments will be effective July 1, 2018. The thirteen-months to the effective date for the partial update we have received from the Fed should be enough time for any remaining “paper returns” banks to set themselves up for receiving electronic returns, and for all banks to roll out new policies for their mobile check depositors and otherwise get themselves into compliance with the amended regulation. Later, there will be more effort required to change availability schedules and revise customer disclosures when Fed and CFPB get together to finally complete the rest of the needed Reg CC update. Given the impetus that the Fed’s amendments provide, there may be reason to believe that the Bureau/Fed amendments to subpart B might have some chance of showing up before year’s end. Bankers may decide that having to wait a while longer for whatever changes those amendments make in the availability and disclosure rules will be a good thing.