Bank of America "Double-Dipping" on NSF Fees, CFPB Says

Missouri Passes EWA License Law, EasyPay Settles with DC, CFPB Sues Bankrupt Bootcamp Over ISA & Job "Guarantee" Claims

Jul 16, 2023

Hey all, Jason here.

Today is the deadline for applying for the CFPB’s Consumer Advisory Board.

Although, as an independent consultant and author, I’m a non-traditional candidate, I had hoped to throw my hat in the ring — but, at least this cycle, the Bureau is only accepting candidates nominated by regional Federal Reserve presidents, ostensibly to “ensure regional diversity.”

While Dodd-Frank 1014(b) does specify at least six CAB members shall be appointed upon recommendation of Fed presidents, the CAB must have at least ten members.

Restricting nominees to those referred by Fed presidents seems likely to provide an unrepresentative set of board members who, collectively, may lack experience or knowledge in key areas shaping consumer financial services today.

If there are any regional Fed Presidents reading this that want to get to know me before the next CAB cycle… I’m always available for a coffee Zoom 😉

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Bank of America To Pay $250 Million For “Double Dipping” on NSF Fees, Fake Accounts, Deceptive Rewards Marketing

Last week, Bank of America entered into two consent orders with the CFPB.

One order focused on alleged deceptive practices in how Bank of America marketed and granted credit card sign up bonuses and that bank employees applied for and opened credit card accounts for customers without their permission.

The second order alleges that Bank of America illegally charged multiple $35 non-sufficient funds fees (NSFs) for the same transactions.

Between the two consent orders, Bank of America will pay about $100 million in consumer redress, a $90 million penalty to the CFPB, and a $60 million penalty to the OCC.

Image: Bank of America homepage as of 7/14/2023

Order 1: Deceptive Rewards Promises, Fake Accounts

The CFPB alleges that Bank of America marketed promotional sign up bonuses for credit cards on its website in a way that “created the deceptive net impression that bonuses linked to rewards credit cards were available to all consumers when those bonuses were only available to consumers who applied online.”

The order further alleges that the bank targeted certain consumers with promotional credit card offers when they visited a branch or via phone, but that, due to employees’ errors, promised bonuses were not always granted.

The CFPB argues these actions violate the CFPA’s prohibition on unfair, deceptive, and abusive practices (UDAAPs.)

The second piece, which is quite reminiscent of a similar issue at Wells Fargo, alleges that Bank of America employees applied for and opened credit card accounts for customers without their permission. In the course of opening such accounts, the bank obtained consumers’ credit reports, without their permission to do so.

The CFPB notes that — like Wells Fargo — Bank of America historically linked product sales targets to employees’ performance reviews and incentive compensation. Bank of America has ceased using sales targets in these ways.

Opening such accounts may have negatively impacted consumers by incurring fees and/or negatively impacting their credit profiles.

The CFPB argues these practices violated TILA Reg Z, which states “no credit card shall be issued except in response to a request or application therefor”; violated FCRA, which prohibits accessing a consumer’s credit report without “permissible purpose”; and violated the CFPA.

Order 2: “Double Dipping” on NSF Fees

The second order addresses Bank of America’s NSF fee practices. Specifically, that the bank would assess multiple NSF fees for the same transaction — charging accountholders $35 each time.

Consumers would incur multiple NSF fees as a result of merchants re-presenting previously failed transactions, in some cases as soon as the next day. This practice can be particularly harmful, as the multiple NSF fees are often accompanied by overdraft fees and/or additional fees assessed by the biller that initiated the payment — leading to a cascade of fees being charged for the same failed transaction.

Bank of America ceased assessing re-presentment NSF fees on ACH transactions in November 2021 and ceased charging any NSF fees in February 2022.

Perhaps more notable than the content of the order is the language and positioning in the Bureau’s accompanying statement, which continues the Bureau’s and wider administration’s war on “junk fees” while introducing the new concept of “double-dipping” —

Deployed a double-dipping scheme to harvest junk fees: Bank of America had a policy of charging customers $35 after the bank declined a transaction because the customer did not have enough funds in their account. The CFPB’s investigation found that Bank of America double-dipped by allowing fees to be repeatedly charged for the same transaction. Over a period of multiple years, Bank of America generated substantial additional revenue by illegally charging multiple $35 fees.

The statement also reinforces that Bank of America is a “repeat offender,” stating:

This is not the first enforcement action Bank of America has faced for illegal activity in its consumer business. In 2014, the CFPB ordered Bank of America to pay $727 million in redress to its victims for illegal credit card practices. In May 2022, the CFPB ordered Bank of America to pay a $10 million civil penalty over unlawful garnishments and, later in 2022, the CFPB and OCC fined Bank of America $225 million and required it to pay hundreds of millions of dollars in redress to consumers for botched disbursement of state unemployment benefits at the height of the COVID-19 pandemic.

Missouri Becomes Second State To Require EWA Licensure

Missouri followed in Nevada’s footsteps to become the second state in the country to enact a licensing requirement for earned wage access providers.

The law, which goes into effect on August 28, 2023, does not apply to banks, savings and loan associations, credit unions, or persons authorized to make loans under the laws of Missouri or the United States and who are already subject to supervision by Missouri or the United States.

The law’s requirements are quite similar to Nevada’s:

providers may not use credit reports or credit scores to determine eligibility
providers must clearly disclose all terms and fees associated with taking an advance
providers may disburse funds by any means mutually agreed to by consumers
providers must comply with other applicable local, state, and federal laws, including the Electronic Funds Transfer Act and its implementing rules, Reg E
providers that solicit, charge, or receive tips must make clear that such tips are voluntary and that the provision of services, including the size of any advance, is not contingent on users tipping; providers must refrain from misleading or deceiving consumers about the voluntary nature of tips; providers must refrain from making representations tips will benefit a specific person
providers may not charge interest on a consumer’s nonpayment
providers may not accept repayment of an advance via credit or charge card
providers may not share fees or tips with employers
providers, in certain circumstances, may be required to reimburse users if provider’s attempt to debit users’ accounts causes overdraft or NSF fees
providers may not report consumers’ nonpayment to credit or collections agencies or use third-party collectors or debt buyers

The law further clarifies that EWA services in Missouri in compliance with the requirements do not constitute loans nor money transmission in the state.

DC Becomes Third AG To Go After EasyPay For High-APR Point-of-Sale Loans

EasyPay, a point-of-sale lender that originates loans through bank partner TAB, has reached a settlement with the attorney general of Washington, DC, over allegations EasyPay’s loans, which carried an average APR of 163%, violated the District’s usury cap of 24%.

It’s not the first jurisdiction to take action against the lender.

At the start of the year, Iowa sued the company, which ultimately settled and ceased making loans in the state. More recently, Colorado’s attorney general pursued a similar case, which led to the same outcome.

Iowa, along with Puerto Rico, are the only jurisdictions that have opted out of a provision of 1980’s DIDMCA around interest rate exportation — though shortly after EasyPay settled with Colorado, the state passed a bill opting out of those provisions as well.

DC’s argument is straightforward: EasyPay, not TAB, is the “true lender,” and thus the loans do not enjoy interest rate preemption and are in violation of DC’s usury cap.

The settlement lays out DC’s logic as follows:

The District alleges that Respondent, and not TAB Bank, is the true lender providing these Loans. Specifically, the District alleges that Respondent:
a. has a 90% participation interest in the Loans,
b. takes most of the risk of non-performance of the Loans,
c. protects TAB Bank against the risk of non-performance of the Loans,
d. does the marketing and provides customer service for the Loans,
e. provides the underwriting model for the Loans,
f. takes responsibility for monitoring risk, including fraud and credit risk for the provision of the Loans, and
g. owns the trademark for EasyPay Finance.

The case and DC’s logic in it are fairly similar to the District’s 2021 case against OppFi, which argued that OppFi, not bank partner FinWise, was the “true lender,” and thus in violation of DC’s usury cap. While OppFi settled with DC and stop operating in the state, it has taken a different tact in California, where the company has been engaged in a protracted legal dispute with the state regulator.

The heightened uncertainty stems, at least in part, from the repeal of the OCC’s “true lender” rule, passed in the waning days of the Trump administration (though this would have only covered OCC-supervised national banks.) Paired with the “valid when made” doctrine, the two policies sought to provide improved clarity about interest rate exportation in bank/fintech partnerships.

The handful of cases against fintech lenders, coupled with Colorado’s decision to opt-out of DIDMCA, increase uncertainty for lending fintechs that partner with state-chartered banks and create an increasingly complex environment that lending fintechs and their partner banks will need to navigate carefully.

CFPB Sues Bankrupt Bootcamp Over ISAs

The CFPB, together with several state attorneys general and a state regulator, filed suit against online bootcamp Prehired and its associated entities. Prehired is currently engaged in a chapter 7 bankruptcy proceeding to liquidate the company and its assets.

Image: Prehired’s website as of 7/14/2023

Prehired purported to offer online courses that provided training for users interested in becoming sales development representatives (SDRs). SDR roles are typically entry level and require little or no prior sales experience.

Prehired made dubious and potentially misleading claims about employment and income results for students of its courses, including a “guarantee” that students would land a job paying at least $60,000 a year.

The set “cash” price of the course varied over time, from around $2,500 in 2018 to as high as $15,000 in 2019 and 2020. Prehired encouraged prospective students to finance this cost through an income share agreement (ISA), suggesting that they wouldn’t be responsible for making payments until they had secured a job paying $60,000 or more per year.

The terms of Prehired’s ISAs required borrowers to make minimum payments equal to 12.5% or 16% of their gross incomes for a period of four to eight years or until they had paid a total of $30,000, whichever came first. Prehired’s ISA agreement stated that an ISA “is not a loan, and does not create any debt.”

But the CFPB alleges that Prehired included terms in the ISA that required borrowers to repay, even if they never got a job or met the income threshold.

The CFPB further alleges that Prehired’s affiliates, Prehired Recruiting and Prehired Accelerator, which functioned as debt collectors for the ISAs, misled borrowers into converting their ISAs into a revised “settlement agreement” that contained more burdensome terms and dispute resolution mechanisms.

With the company already in bankruptcy, what’s the point of the Bureau’s case?

The Bureau is “seeking to void the income share loans, obtain redress for affected consumers, and obtain a penalty which would be deposited into the CFPB’s victims relief fund.” The company is unlikely to contest the case, given it seems to lack the resources to do so.

But beyond this relatively narrow case — Prehired only originated about 1,000 ISAs — the CFPB is setting a precedent that it considers income share agreements to be “loans” to which student lending regulation and TILA Reg Z apply. Per the CFPB’s filing:

Prehired’s ISAs are, in fact, loans that create debt, as they grant students the right to purchase services and pay for those services later.

While the case doesn’t carry the weight of a notice-and-comment rulemaking, it does put other ISA originators (and VCs who may invest in them) on notice that the CFPB, at least under the current administration, intends to treat income share agreements as loans and credit covered by relevant consumer protection laws.

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