Blog LenderLaw Watch May 18, 2015

CFPB Files Amicus Brief Regarding TILA’s Definition of “Consumer Credit”

In its most recent amicus brief, filed with the Fifth Circuit on April 9, 2015 in Billings v. Propel Financial Services, LLC, the Consumer Financial Protection Bureau (CFPB) argues that entities who lend consumers money to pay property tax delinquencies are subject to the Truth In Lending Act (TILA) because they are extending “consumer credit.”  15 U.S.C. § 1602(g).

The borrowers had filed a class action against Propel Financial Services, LLC (“Propel”), a property-tax lender, alleging various TILA violations concerning the borrowers’ Property Tax Payment Agreement and Tax Lien Contract with Propel.  Under the parties’ arrangement and Texas tax law, the borrowers voluntarily took a property-tax loan and payment plan from Propel, Propel provided the loan by paying off the borrowers’ tax delinquency, and the local tax authority then transferred its superpriority lien on the property to Propel.

The Texas district court dismissed the action, holding that Propel was not subject to TILA because (a) “property taxes are not considered debt” under TILA; (b) “transferring the tax lien to a private party does not change the nature of the tax obligation such that it becomes debt;” and (c) property-tax loans are not “consumer credit” under TILA, since property taxes are “for the benefit of the public” rather than for “personal, family, or household purposes.” 15 U.S.C. § 1602(i).

On appeal, the CFPB’s amicus brief argues that property-tax loans meet TILA’s definition of “credit” – “the right granted by a creditor to a debtor to defer payment of debt or to incur debt and defer its payment” (15 U.S.C. § 1602(f)) – for three main reasons.  First, the Texas Finance Code states that a property-tax loan involves an “advance of money” to be repaid.  Tex. Fin. Code § 351.002(2).  Second, the official interpretation to Regulation Z (12 C.F.R. part 226), a TILA implementing regulation, states that “third-party financing of such obligations (for example, a bank loan obtained to pay off a tax lien) is credit for purposes of the regulation.”  12 C.F.R. § 1026, Supp. I, Sub. A, cmt. 2(a)(14)(1)(ii) (2014).  Third, borrowers voluntarily shopping for property-tax loans among various competing property-tax-lenders is different from when a tax authority decides on its own to sell its right to collect a tax delinquency directly to a private entity.  Further, the CFPB argues that property-tax loans are “consumer credit” because avoiding foreclosure on one’s home is “primarily for personal, family, or household purposes.”

The CFPB asserts that it has a “substantial interest” in this case because it is the federal agency responsible for interpreting and enforcing compliance with TILA, which was created to assure meaningful disclosure of credit terms to consumers, and the lower court’s ruling would exempt a class of lenders from TILA’s requirements.  The CFPB observed that property-tax lenders in Texas made 10,854 residential property-tax loans in 2011 with an average amount of $8,809.77, average closing costs of $865.52, and an average interest rate of 14.37%.  That said, the CFPB notes that this property-tax lender issue is fairly unique to Texas, which unlike many states and localities, is heavily reliant on property taxes for revenue and has a voluntary system whereby consumers shop for third-party property-tax loans.

So, this is an interesting case study on where the CFPB’s focus lies.  Of the 22 amicus briefs that the CFPB has filed to date, 6 address TILA, 8 address the Fair Debt Collection Practices Act (FDCPA), 3 address the Real Estate Settlement Procedures Act (RESPA), and the remaining 5 are a mix.  So, Billings is consistent with the CFPB’s focus on TILA.  But, it is ironic that the CFPB’s interests here are aligned with those of first-lien holders, who do not want their liens extinguished by property-tax lenders foreclosing on superpriority property-tax liens.

Additionally, the CFPB’s reliance on Texas state law as a tool for interpreting federal TILA language is worth noting.  That approach could lead to different rulings in different states on the same federal statutory language.  These will be the kinds of issues to watch for in the CFPB’s next amicus briefs.