b'For more information, please visit www.lenderlawwatch.com or www.enforcementwatch.comfunctions are now standard in card issuers mobile andAvant from making false representations regarding itsagencies cautioned, however, that companies shouldto settle the lawsuit, permitting New York merchants to online platforms, and consumers are using those plat- methods of payment, fees, and payoff balances, andthoroughly analyze any uses of alternative data forimpose a surcharge provided they disclose the total forms with increasing frequency.requires the company to pay $3.85 million in equitablecompliance with relevant consumer protection laws andprice for credit card purchases in dollars and cents, relief. regulations. rather than as a percentage of the transaction. In April, 2019 HIGHLIGHTS PayPal Sues CFPB Over Prepaid Card Rule ShortlyOklahoma implemented its own surcharge ban (effec-After Rule Took Effect. In April, the CFPBs changes toLOOKING AHEAD TO 2020 tive November 2019). Expect litigation concerning such CFPB and NY AG Settle with Sterling Jewelers for $11its Prepaid Rule (announced in January 2018) went intobans to continue in 2020.Million. In January, the CFPB and NY AG entered into aeffect. The amendments modify existing requirements2019 saw a significant increase in private litigation andPayPals lawsuit against the CFPBs Prepaid Rule will consent order with Sterling Jewelers Inc. (Sterling), re- under EFTA and TILA to limit the scope of the Rules er- legislation concerning credit card surcharge fees, andalso be winding its way through the courts during 2020. solving allegations that Sterling had violated the CFPA,ror resolution and limited liability provisions by requiringthat activity is likely to continue into 2020. One suchHowever, it is unlikely that PayPals lawsuit will inspire TILA, Regulation Z, and New York law by misrepre- that financial institutions resolve errors or limit a con- New York law prohibiting imposition of credit cardother less mature FinTech companies to file suit against senting financing terms for Sterlings products, omittingsumers liability on unverified prepaid accounts; createsurcharge fees spawned the 2017 Supreme Court casethe Prepaid Rule, as such companies may adopt a wait-information necessary for consumers to understand thea limited exception to the credit-related provisions ofExpressions Hair Design v. Schneiderman, 137 S. Ct.and-see approach before filing their own challenges.financing being offered, failing to inform consumers thatthe Rule for certain business arrangements between1144 (2017). In January, the NY AG agreed on remand they were applying for credit in the first place, inducingprepaid account issuers and credit card issuers that consumers to provide personal information under falseoffer traditional credit card products; and expand the pretenses, and enrolling customers in Payment Pro- circumstances under which issuers are permitted to tection Plan (PPP) insurance without their consent. Thehold negative balances on prepaid accounts. EFTAWHAT TO WATCHBureau alleged that from 2013 to 2017, over one million(Regulation E) requirements now apply to many types ofPotential increase in credit card-related litigation as balances climb and credit tightensconsumers opened Sterling credit-card accounts basedprepaid accounts, and TILA (Regulation Z) now applies on applications completed and submitted in Sterlingsto certain prepaid products involving credit elements.Continued reluctance by the CFPB to bring enforcement actionsstores but the cards were never used by the consum- In December, only eight months after the Rule took ef-ers. To resolve these allegations, Sterling agreed to payfect, PayPal filed a lawsuit against the CFPB in the U.S. a $10 million civil money penalty to the CFPB and $1District Court for the District of Columbia, challenging million civil money penalty to the State of New York. the recently-amended Prepaid Card Rules application FTC Settles with Online Lender for $3.85 Million. Into digital wallets. PayPal alleges the Rule is arbitrary April, the FTC reached a settlement with online lendingand capricious and exceeds the scope of the Bureaus company Avant, LLC (Avant), under which Avant agreedauthority under the EFTA because the Bureau sub-to provide $3.85 million in equitable relief for consumerject[ed] both offerings to the same regulatory disclo-redress. The FTC alleged that since 2013, Avant hadsures regime even though a prepaid card is materi-advertised, marketed, and offered loans to consumersally different from a digital wallet.PayPal alleges, for through a pattern of deceptive and unfair conduct inexample, that the rule mandates PayPal make disclo-alleged violation of the FTC Act, the TSR, and the EFTAsures concerning fees that PayPal does not charge and and Regulation E. Specifically, although Avant informedmisrepresent the actual fees paid by most customers, customers they could make their loan paymentswhich is likely to mislead or confuse consumers.through any number of methods, Avant routinely re- Interagency Statement on the Use of Alternative Data fused to accept payments made by credit or debit card.in Credit Underwriting. In December, several agen-The FTC further alleged that Avant assessed additionalcies, including the CFPB, OCC, and FDIC, issued a joint fees and charges that were not owed by customers, in- statement on the consumer protection implications of cluding by failing to apply payments made through mailthe use of alternative data in credit underwriting. The to monthly payment amounts, and failing to honor itsstatement acknowledged that use of alternative data payoff quotes when consumers remitted full payment.may benefit consumers by expediting the speed and Avant also allegedly withdrew money from consumersincreasing the accuracy of the credit decision. The accounts or charged their credit cards without consum- statement commented favorably on use of cash flow ers authorization, or in amounts in excess of what wasdata to better evaluate consumers ability to repay. The authorized. The stipulated order permanently enjoins 18 19'