REGular Blog: Weekly Roundup April 4th

Happy Thursday everyone! As we head into the weekend with the Final Four and Monday's eclipse, let's take a look back at some of this week's developments in our wild world of regulatory compliance!

Overdraft: CFPB Receives Comments on Proposed Rule

Monday was the CFPB's deadline for comment submission on their proposed overdraft rule, which would establish a "benchmark" fee amount for overdraft fees. The restriction would at first apply only to financial institutions with over $10 billion in total assets. However, the Bureau will monitor market effects and evaluate whether to lower that threshold in the future. Covered financial institutions could still charge more than the benchmark fee, but they would have to be able to assess their costs to justify the higher fee. 

The League submitted a comment letter to the Bureau opposing the proposed rule. We also worked with America's Credit Union's team on their comment letter. The proposed rule received over 740 comments from trade groups and individuals, both supportive of the rule and in opposition to it. Now we wait - the CFPB will review the comments and eventually issue a Final Rule later this year. Once issued, we expect the Final Rule to have an effective date of October 2025. That being said, this rule, like other Final Rules issued by the Bureau, will likely face legal challenges, which could delay implementation of the rule even further. Stay tuned for more - we will post updates here as they develop.

NCUA Call Report: Updated Fee Income Reporting for Q1 for $1 billion+ Credit Unions

As we enter Q2, credit unions are working on their Call Report submissions, which are due later this month. For credit unions with $1 billion or more in total assets, this quarter's Call Report will require the disclosure of income earned from overdraft fees and income earned from NSF fees. This change has brought a fair amount of questions and discussion in the industry, as the NCUA declined to give any definitions or guidance on how credit unions should be calculating and reporting this number. Do they include fees that are returned/refunded to members? Do they include costs? With the lack of guidance from NCUA, it seems they are leaving it up to credit unions to choose their own definitions of NSF fees and what to include or not include in their calculations. The League, as well as other trade groups, have raised this concern with NCUA, who are moving forward with the change this quarter. 

What's Happening with the Credit Card Late Fee Rule?

When we last covered the litigation surrounding the CFPB's credit card late fee rule, which would lower the safe harbor for credit card late fees to $8, we wrote about how Judge Mark Pittman of the Northern District of Texas, where the case was filed, noted his skepticism of the case's connection to Texas. The case had been filed in Texas by the Plaintiffs, which include the American Bankers Association, the U.S. Chamber of Commerce, and other trade groups. Some have viewed the decision to file in Texas as motivated by that Court's record of business-friendly decisions. Last week, Judge Pittman granted the CFPB's motion to transfer the case to the U.S. District Court for the District of Columbia, which was immediately challenged by the Plaintiffs. 

We are monitoring the litigation as this process continues to play out. You can read a summary of where the litigation stands here. 

NCUA to Open 2024 Community Development Revolving Loan Fund Grants on May 1.

Low-income designated credit unions can apply for CDRLF grants starting May 1st. This year the agency will administer more than $3.4 million in grants. This grant funding is available only to low-income designated credit unions, which here in Virginia includes approximately 60% of credit unions. If you are interested in applying, the NCUA will be hosting a webinar in May with more information, and you can also contact NCUA's CURE Office for more information. Applications will be accepted from May 1 - July 1. You can learn more about this year's CDRLF grants here.

One More Thing: Monitoring Court Case on Pay-to-Pay Fees

Late last week, a West Virginia judge denied PenFed's Motion to Dismiss in a case they are involved in dealing with "pay to pay" fees. In the class action suit, the plaintiff was charged a $5 fee by PenFed to make a car payment over the phone. The plaintiff alleges that this transaction only cost PenFed $0.30 to perform, so they were profiting off the pay-to-pay fees. The plaintiff also alleges that PenFed is considered a debt collector and that "neither the promissory note nor a statute authorizes PenFed to impose the $5 fee."

A key question at the heart of the case is whether PenFed is considered a debt collector under the West Virginia Credit and Protection Act. PenFed has argued in this case that it is not a debt collector and did not engage in debt collection practices in this case. We know at the federal level that the Fair Debt Collection Practices Act (FDCPA) distinguishes between first-party debt collectors (creditors accepting payments on their own loans) and third-party debt collectors (law firms collecting charged-off debts, as an example), and applies "debt collector" rules to third party debt collectors. However, courts in West Virginia have found the state's debt collection statutes "must be applied alike to all who engage in debt collection, be they professional debt collectors or creditors collecting their own debts."

This case is still ongoing - the Court has denied PenFed's motion to dismiss, which means they have ruled that the Plaintiffs have sufficiently pled a case if the Court accepts all of their factual allegations as true. We'll be monitoring this case as it continues and will be assessing the impact on credit unions that charge similar pay-by-phone fees. We're also keeping an eye on the CFPB, which recently issued an advisory opinion that pay-to-pay fees are unlawful under the FDCPA, which only applies to third-party debt collectors.

You can read the court's ruling here.

That's all for this week - I hope everyone has a great weekend. If you need some last-minute eclipse glasses, I heard a tip recently that Wal-Mart is selling them in the optometry section. If there are any topics you'd like to see us do a deep dive on here, please reach out to me at jblau@vacul.org.