Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10 Page 11 Page 12 Page 13 Page 14 Page 15 Page 16 Page 17 Page 18 Page 19 Page 20 Page 21 Page 22 Page 23 Page 24 Page 25 Page 26 Page 27 Page 28 Page 29 Page 30 Page 31 Page 32 Page 33 Page 34 Page 35 Page 36For more information, please visit www.lenderlawwatch.com or www.enforcementwatch.com 13 12 Credit/Prepaid Cards In 2016, Goodwin tracked seven enforcement actions against credit card providers, vendors, and national banks. The CFPB and the Office of the Comptroller of the Currency (OCC) brought the majority of the enforcement actions, but the Federal Deposit Insurance Corporation (FDIC), the Federal Trade Commission, state attorneys general, and a city attorney’s office also were active. The enforcement agencies advanced matters using the Unfair, Deceptive, Abusive Acts or Practices (UDAAP) provision of the CFPA, the Unfair and Deceptive Acts or Practices provision of the FTCA, and state consumer protection laws, yielding civil monetary penalties and consumer relief in excess of $265 million. The enforcement actions focused mostly on deceptive marketing practices. Goodwin also covered multiple regulatory developments and identified a number of litigation risks for credit card providers, including the CFPB’s new prepaid card rules, the CFPB’s proposed rule limiting pre-dispute arbitration clauses that prohibit consumers from participating in class actions, and borrower lawsuits related to undisclosed or excessive fees. key Trends In 2016, the CFPB and OCC brought the majority of credit card enforcement actions. Alleged deceptive marketing practices by credit card providers, vendors, and national banks were enforcers’ prime targets. This year, the CFPB continued to scrutinize credit card add-on products and services, particularly credit moni- toring services, for deceptive marketing and for failure to comport with what companies promised in advertis- ing. Companies have and will face scrutiny for failure to conspicuously disclose any add-on products, and confirm that marketing materials in general are consis- tent with the products and services actually offered. 2016 Highlights CFPB Proposes Rule Banning Class-Action Waivers in Arbitration Agreements. In May, the CFPB issued a proposed rule prohibiting pre-dispute arbitration agree- ments that purport to ban consumers from filing or participating in a class action. The proposed rule would also require financial services companies who use the arbitration process to submit data, such as claim types and award amounts, to the CFPB. Wells Fargo Agrees to Pay $185 Million Under Con- sent Order with CFPB, OCC, and Los Angeles City Attorney. In September, Wells Fargo Bank entered into a consent order with the CFPB, OCC, and the Los An- geles City Attorney to pay a civil money penalty totaling CREDIT CARDS What to Watch Investigation of unauthorized accounts and employee compensation issues | Continued focus on deceptive marketing practices | Enforcement actions related to the CFPB’s prepaid card rules | CFPB’s proposed rule limiting class action waivers in arbitration agreements $185 million arising from the bank’s alleged practice of encouraging employees to open unauthorized deposit and credit card accounts to obtain financial compensa- tion for meeting sales targets. The CFPB’s $100 million civil money penalty is the largest in the CFPB’s history. The bank terminated approximately 5,300 em- ployees in connection with the alleged improper sales practices, and also agreed to pay restitution to con- sumers who were charged fees on the unauthorized accounts. CFPB Announces New Prepaid Card Rules. In October, the CFPB announced that it finalized new regulations governing prepaid accounts, which includes prepaid debit or credit cards. Under the new rule, financial institutions must make prepaid account information, such as account balances, transaction histories, and fees, available to consumers either online or by telephone. In addition, prepaid card issuers must provide a mechanism for consumers to dispute unau- thorized charges, protections for lost cards or unautho- rized transactions, and a variety of upfront disclosures regarding fees and other key terms. If the prepaid card issuer offers add-on credit products (such as overdraft protection), the prepaid cards will be treated like credit cards, and financial institutions must confirm consum- ers’ ability to repay, provide at least 21-day repayment schedules, and agree to limitations on late fees and interest charges. CFPB and OCC Settle with First National Bank of Omaha for $35 million over Alleged Deceptive Mar- keting. In August, the First National Bank of Omaha entered into consent orders with the CFPB and OCC to provide roughly $28 million in consumer relief arising from the bank’s allegedly deceptive marketing of add-on products, including identity theft protection and credit monitoring services. The agencies also alleged that the bank sold consumers credit monitor- ing services that consumers did not receive, failed to adequately disclose fees associated with the programs, and engaged in other unfair billing practices. The consent orders required the bank to pay a total of $7 million in civil penalties. OCC Enters $35 Million Settlement with HSBC over Alleged Unfair Billing Practices. In April, HSBC Bank entered into a consent order with the OCC to pay resti- tution and a $35 million civil money penalty arising from the bank’s alleged unfair billing practices in connection with its add-on credit monitoring product. The OCC al- leged that the bank charged consumers for credit moni- toring services before consumers provided sufficient personal verification to be enrolled in the program. According to the OCC, some consumers were charged for credit monitoring services for months before they were even eligible to receive the service. Looking Ahead to 2017 In 2017, the CFPB’s proposed rule limiting the use of pre-dispute class action waivers in arbitration agree- ments will be the subject of extensive debate as the regulatory process moves forward. In addition, in the wake of enforcement actions involving the opening of unauthorized bank and credit card accounts, we expect federal and state enforcement agencies to focus on this issue throughout the industry, and particularly to scrutinize how banks and financial institutions compen- sate their employees and whether that compensation creates incentives for unlawful practices. We also anticipate that the CFPB will pursue new enforcement actions focused on the prepaid card rules, particu- larly the new rules requiring prepaid card providers to assess consumers’ ability to repay extensions of credit. Credit card add-on products, especially credit monitoring or credit protection services, are also likely to remain a focus of the CFPB’s and other agencies’ enforcement efforts. Further, we anticipate continued litigation and enforcement actions against banks and credit card companies concerning undisclosed or excessive fees.