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 or 21 20 payday/small dollar lending In 2016, Goodwin monitored about 30 federal and state enforcement actions related to payday loans (compared with only 10 such actions in 2015), as well as significant regulatory developments affecting the small dollar lending industry. Federal and state agencies initiated investigations, lawsuits, and settlements concerning allegedly more broadly illegal or usurious interest rates, deceptive lending and debt collection practices, and tribal affiliations – resulting in a total cost to financial entities of over $1.45 billion, including the largest litigated judgment in the history of the FTC. 2016 Trends Throughout the past year, federal and state agencies, particularly the FTC and CFPB, have focused their regulatory enforcement efforts on payday lenders that charge allegedly usurious or illegal interest rates and fees. Enforcement agencies also continued to crack down on deceptive lending and unlawful debt collection practices, including the automatic withdrawal of funds from consumer bank accounts. Online payday lenders were heavily targeted in 2016. Specifically, agencies targeted online lenders claiming to have tribal or out-of-state bank affiliations in order to conduct business in states in which they were otherwise unlicensed. Several state attorneys general alleged that this practice was an unlawful attempt to avoid their state usury and licensing laws. As a result, multiple lawsuits were filed by regulators across the country against corporate defendants in an attempt to curtail this practice and the violation of their respective state laws. 2016 Highlights FTC Obtains $1.3 Billion Judgment. In September, the FTC obtained a $1.3 billion judgment against a racecar driver, Scott Tucker, and several corporate defendants, including AMG Capital Management, LLC, in connection with an alleged payday lending scheme based in Kansas – the largest litigated judgment in FTC history. The FTC alleged that defendants violated the Federal Trade Commission Act’s prohibitions on “unfair or deceptive acts or practices in or affecting commerce,” by illegally charging consumers excessive and undisclosed rates and fees, engaging in improper debt collection practices, and making improper withdrawals from consumer accounts. The court calculated a $1.3 billion judgment as the difference between what consumers were told they would pay on their loans and what they actually were contractually bound to pay. What to Watch Finalization of the CFPB’s proposed payday lending rule | Payday lenders’ case against prudential regulators over Operation Choke Point | Increased borrower litigation and enforcement actions over usurious loans under state law CFPB Proposes Rule on Small Dollar Lending. In 2016, the CFPB proposed a new rule to regulate the practices of payday and other small-dollar lenders. The proposed rule would cover payday loans, auto title loans, deposit advance products, and certain high-cost installment and open-ended loans. The proposed rule would require that lenders verify consumers’ ability to repay before offering them a loan, obtain and report information on certain loans through credit reporting systems, and limit the amount of debit account withdrawals a lender is permitted to make. The CFPB is reported to have received the largest number of public comments on the proposed rule – roughly one million – in the agency’s history. California Federal Court Holds that Payday Lender Violated State Usury Laws and Consumer Financial Protection Act. On August 31, 2016, the Central District of California found that CashCall, Inc. and WS Funding, LLC violated state usury laws because they originated loans with interest rates that exceeded state law caps. The court held that those entities, not their tribal lending affiliates, were the “true lender,” and therefore choice-of-law provisions in the loans’ contracts requiring the application of tribal law were unenforceable. The court also found that these lenders violated the CFPA by charging illegal up-front fees. However, on January 3, 2017, the court certified to the Ninth Circuit four questions of law, including whether the CFPB’s structure is unconstitutional, and whether a CFPA violation can be predicated on violations of state law. The Georgia Supreme Court Rules Against Payday Lenders. On October 31, 2016, in a loss for payday lenders CashCall, Inc. and Western Sky Financial, LLC, the Georgia Supreme Court held that Georgia’s Payday Lending Act covered loans made through interstate commerce and out-of-state contracts, and that defendant’s claim of tribal sovereignty did not abrogate the state’s police power or preclude the state from enforcing the law for activities occurring off of a Native American reservation. Vermont Federal Court Permits Putative Class Action to Proceed Against Tribal Payday Lenders. On May 18, 2016, the District of Vermont allowed a class action to go forward against Chippewa Cree payday lender Plain Green LLC, rejecting the argument that tribal immunity was a complete bar to claims against the tribal lender under the Racketeer Influenced and Corrupt Organizations Act (RICO) and the Electronic Funds Transfer Act (EFTA). An interlocutory appeal is currently pending in the Second Circuit. Looking Ahead to 2017 With the comment period on the CFPB’s proposed payday lending rule closing in October 2016, in 2017 Goodwin will monitor the CFPB’s release of the final rule, whether it will be challenged in court, and whether it may be curtailed under the new Trump Administration. While the CFPB views this proposed rule as a way to help consumers, other industry participants, including some consumer groups, have expressed concern that the rule may actually limit consumers’ financial options and stifle their access to credit. 2017 also may see further attempts by payday lenders to push back against enforcement agencies, and, in particular, the DOJ’s Operation Choke Point. In November 2016, payday lender Advance America, Inc. and Community Financial Services Association of America, a trade organization representing payday lenders, moved for a preliminary injunction against the FDIC, OCC, and FRB’s pressuring of national banks to sever ties with payday lenders by threatening severe consequences and reputational harm, thereby cutting off the payday lenders’ access to national banks’ financial services. The case implicates important constitutional questions, including concerns of violations of due process, as well as the enforcement authority of regulators. PAYDAY LENDING MORTGAGE CREDIT CARDS AUTO LOANS TELEPHONE CONSUMER PROTECTION ACT FEDERAL COURTS OF APPEALS CONSUMER FINANCIAL & PROTECTION BUREAU STUDENT LENDING DEBT COLLECTION DATA SECURITY