Regulatory Developments
California Finalizes Commercial Financing Disclosure Regulations
On June 9, the California Office of Administrative Law approved the California Department of Financial Protection and Innovation’s final regulations requiring providers of commercial financing, including non-loan commercial financing, such as merchant cash advances and factoring transactions, to provide recipients with consumer-style “cost of credit” disclosures. The regulations will go into effect on December 9, 2022.
Read the client alert to learn more.
CFPB Issues Request for Information on Employer-Driven Debt
On June 9, the CFPB issued a Request for Information and accompanying video asking members of the public to provide information about their understanding of and experiences with employer-driven debt, whether taken on in pursuit of employment or while employed, including prevalence, pricing, disclosures, dispute resolution, other terms or conditions and servicing and collection of the debt. This Request for Information demonstrates the CFPB’s continued interest in employer-driven debt, following a March 9 CFPB blog post on workers’ financial experiences.
Employer-driven debt can take many forms but includes, for example, an employee’s up-front purchase of equipment or supplies required by the employer or agreeing to debt that must be repaid if the employee leaves the employer before a certain date. As the CFPB is charged with monitoring markets for consumer financial products and services to ensure that they are fair, transparent and competitive, the CFPB seeks to better understand employer-driven debt and its potential to limit competition in both the labor and consumer financial products and services markets by impacting an employee’s continued employment, future employment or decision to seek alternative or better paying employment or to comparison shop for credit in the market.
Comments must be received by September 7, 2022. The CFPB also reminds consumers they can always submit a complaint.
“The labor market operates at its best when workers are able to move freely within it. Our inquiry is about studying the effects of an emerging form of debt that may have the potential to trap employees in place.”
- CFPB Director Rohit Chopra
CFPB Issues Request for Information to Improve Customer Service at Big Banks
On June 14, CFPB Director Rohit Chopra announced at a public town hall the issuance of a new Request for Information, seeking public input on what customer service obstacles consumers face in the banking market and what information would be helpful for consumers to obtain from depository institutions. This Request for Information flows from Section 1034(c) of the 2010 Consumer Financial Protection Act, which gives consumers the right to get information about their account in a timely manner from banks or credit unions with over $10 billion in assets; a movement in the financial industry toward algorithmic banking and away from relationship banking; and reports of poor customer service creating barriers to obtain basic information from depository institutions. In seeking to foster a fair, transparent and competitive marketplace, the CFPB seeks the public’s input to inform future policy guidance and other initiatives by the CFPB regarding consumer rights outlined in Section 1034(c). The deadline for submitting comments is 30 days after publication of the Request for Information in the Federal Register.
CFPB Recommends Industry Action on Credit Reporting for Buy Now, Pay Later Products
On June 15, the CFPB published a blog post communicating its position on credit reporting as it relates to BNPL services. In the post, the CFPB cautions that a lack of credit reporting by BNPL firms could have negative downstream effects on both consumers seeking to build credit and the larger credit reporting system, hindering lenders and non-BNPL lenders ability to ascertain the true amount of debt a prospective borrower may be carrying. Accordingly, the CFPB makes the following recommendations:
- Lenders should furnish both positive and negative data;
- Consumer reporting companies should incorporate BNPL data into core credit files as soon as possible and ensure that BNPL data is accurately reflected on consumer reports;
- The nationwide consumer reporting companies (NCRCs) should adopt standardized BNPL furnishing codes and formats appropriate to the unique characteristics of the product to facilitate consistent and accurate furnishing of BNPL payment information;
- NCRCs should incorporate feedback from BNPL lenders (to reduce operational risk) and the credit scoring companies (to ensure that the unique characteristics of BNPL data can be considered appropriately by scoring models); and
- Scoring companies and lenders should build and calibrate models that account for BNPL loans’ unique characteristics.
The CFPB concluded that it will monitor the progress of BNPL lenders, NCRCs and credit scoring companies and revisit this issue in the coming months as part of a broader report on the industry.
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