CURRENT MONTH (July 2022)
Recent No-Poach Developments: Federal Enforcement Agencies Ally to Promote Labor and McDonald’s Latest Judicial Win
Antitrust in labor markets remains a “hot topic” for government, business, and labor. The antitrust enforcement agencies, consistent with the Biden administration’s “Executive Order on Promoting Competition in the American Economy,” continue to push the use of the antitrust laws to enhance the mobility and bargaining power of employees. On July 26, the U.S. Department of Justice, Antitrust Division, and the National Labor Relations Board (NLRB) entered into a memorandum of understanding (MOU) to strengthen the agencies’ partnership through greater coordination in information sharing, coordinated investigations and enforcement activity, training, education, and outreach. Similarly, on July 19, the U.S. Federal Trade Commission entered into a separate MOU with the NLRB “outlin[ing] ways in which the Commission and the [NLRB] will work together moving forward on key issues such as labor market concentration, one-sided contract terms, and labor developments in the ‘gig economy.’”
State and federal courts continue to work through the recent spate of filed cases that challenge no-hire provisions. Last month, McDonald’s obtained a judgment on the pleadings, ending the antitrust litigation challenging the legality of the no-hire restraint in its franchise agreements. McDonald’s convinced the court that its previous inclusion of no-hire clauses within its franchise agreements did not violate Section 1 of the Sherman Act. Ultimately, the court’s decision turned on the application of the rule of reason, as opposed to per se treatment or quick-look, which the plaintiffs argued were the proper standard to apply to the no-hire clauses. The court also rejected the plaintiffs’ argument that the relevant geographic market for analyzing McDonald’s market power was limited to only McDonald’s-branded restaurants nationally. The decision reaffirms the application of traditional antitrust principles in buy-side labor markets, despite the considerable pressure from politicians, government enforcement agencies, and the U.S. Plaintiffs’ Class Action Bar to apply heightened antitrust scrutiny to these restraints.
See Business Law Today’s forthcoming full-length article on this topic for more information.
Federal Reserve Board Updates Regulation O FAQs
On July 8, 2022, the Federal Reserve Board (“Board”) updated “Question 3” of its frequently asked questions (FAQs) regarding Regulation O, “Loans to Executive Officers, Directors, and Principal Shareholders of Member Banks.” In the update, the Board clarified that a bank’s payment of premiums as part of a split-dollar life insurance arrangement is not an improper extension of credit to an insider if certain conditions are met.
The update explains a split-dollar life insurance arrangement as an arrangement under which the bank is entitled to receive a prenegotiated amount from the proceeds of the insurance policy upon the death of the insured or when the insured surrenders the policy. The FAQ notes that the arrangement can take many forms—the insurance policy can be owned by the bank, the employee, or a third party.
Certain conditions must be met in order for the split-dollar life insurance arrangement not to constitute an improper extension of credit. Specifically, the arrangement is not an extension of credit when “(i) the bank is not entitled to payment in an amount greater than the premiums paid by the bank (for example, the bank is not entitled to payment of the premiums plus some assessed interest), and (ii) the insider has no independent obligation to repay the premiums to the bank, other than out of the proceeds of the insurance policy.”
HUD Publishes Proposed Rule Amending the HUD Code, Comments Due by September 19, 2022
By Devin P. Leary-Hanebrink, McGlinchey Stafford, PLLC
The U.S. Department of Housing and Urban Development (HUD) Code, the federal building code regulating the manufacture, installation, and overall safety standards of manufactured homes, is about to undergo another major update. On July 19, 2022, HUD published its proposed rule amending the HUD Code. The comment deadline is September 19, 2022.
In total, HUD is proposing over sixty updates. Most of the changes focus on the Construction and Safety Standards. However, HUD is also considering changes to the Model Manufactured Home Installation Standards and the Manufactured Home Installation Program. In addition, HUD is proposing nearly one hundred new and updated standards that are or will be incorporated by reference (e.g., American National Standards Institute (ANSI) testing standards, National Fire Protection Association (NFPA) fire protection standards, etc.).
As background, last summer HUD finalized its most recent updates to the HUD Code with a final rule that took effect on July 12, 2021. Last year’s final rule adopted and implemented the third set of recommendations proposed by the Manufactured Housing Consensus Committee (MHCC). With this month’s proposed rule, HUD is moving forward with implementing the MHCC’s fourth and fifth sets of recommendations simultaneously.
Of note, this proposed rule follows closely behind the Department of Energy (DOE) final rule updating the energy conservation standards for manufactured housing, which was published earlier this year. The DOE’s final rule, published May 31, 2022, establishes updated standards for manufactured housing pursuant to the Energy Independence and Security Act of 2007. Compliance with the updated energy conservation standards is required on and after May 31, 2023.
Going forward, industry participants should anticipate HUD’s final rule sometime next year. Subsequent to that, state and local jurisdictions likely will amend their respective building code requirements to incorporate (or at least accommodate) changes at the federal level.
Senators Send Letter to CFPB Director Chopra on Instant Payment Services
On July 20, 2022, U.S. Senators Jack Reed (D-R.I.), Elizabeth Warren (D-Mass.), Catherine Cortez Masto (D-Nev.), Robert Menendez (D-N.J.), Sherrod Brown (D-Ohio), and Raphael G. Warnock (D-Ga.) sent a letter to Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra urging the Bureau to consider additional protections for consumers who transfer funds using an instant payment service. Under the Electronic Fund Transfer Act (“EFTA”) and Regulation E, consumers may be entitled to reimbursement for certain unauthorized transfers, such as when a third party uses a consumer’s account information to initiate an unauthorized withdrawal of funds.
The Senators’ letter encourages the Bureau to expand the protections under the EFTA and Regulation E to protect consumers who are persuaded by a third party to use an instant payment service under false pretenses. For example, the Senators suggest that the Bureau could treat such transfers as payments made in “error” under the EFTA, which could require financial institutions to bear the costs of correcting such payments. Alternatively, the Senators suggest that the Bureau could issue guidance that such transfers are “unauthorized” under the EFTA, which could also shift liability to financial institutions for such transfers. CFPB Director Chopra has not issued a public response to the letter.
CFPB Ordered to Issue Small Business Lending Data Rule by March 2023
On July 11, 2022, a federal court agreed to a settlement deadline that gives the Bureau until March 31, 2023, to finalize regulations creating a new data collection regime covering the $1.4 trillion small business lending market.
The March 31 deadline is part of the resolution of a 2019 lawsuit brought by the California Reinvestment Coalition that accused the Bureau of unlawfully delaying action to carry out Section 1071 of the Dodd-Frank Act, which directed the Bureau to start collecting and publishing lender data on credit applications by small businesses and women- and minority-owned businesses.
CFPB Issues Advisory Opinion on Permissible Purpose Provisions
On July 7, 2022, the Bureau issued an advisory opinion addressing the “permissible purpose” provisions of the Fair Credit Reporting Act (the “FCRA”), which require a permissible purpose to furnish, use, or obtain a consumer report. The advisory opinion concludes that:
- insufficient matching procedures (e.g., name-only matching procedures) can cause credit reporting companies to furnish consumer reports without a permissible purpose, as the FCRA requires a permissible purpose with respect to the particular consumer “who is the subject of the request”;
- credit reporting companies may not furnish credit reports on multiple individuals based on “possible matches”;
- adding a disclaimer that a consumer report may not pertain to the particular consumer who is the subject of the request does not cure a credit reporting company’s failure to ensure that there is a permissible purpose with respect to the credit report being furnished; and
- the FCRA prohibits third parties from using a consumer report without a permissible purpose.
The advisory opinion also notes the possibility that violating the “permissible purpose” provisions could lead to criminal liability under various provisions of the FCRA, such as section 620, which imposes felony criminal liability on “[a]ny officer or employee of a consumer reporting agency who knowingly and willfully provides information concerning an individual from the agency’s files to a person not authorized to receive that information.”
CFPB Releases Advisory Opinion on “Pay-to-Pay” Fees
On June 29, 2022, the CFPB released an advisory opinion indicating that federal law generally prohibits debt collectors from charging “pay-to-pay” or “convenience” fees, which are imposed for making payments in particular ways (e.g., by phone or online). The advisory opinion interprets section 808 of the Fair Debt Collection Practices Act (“FDCPA”), which prohibits debt collectors from collecting amounts not expressly authorized by the underlying agreement or permitted by law, to:
- identify the scope of permissible fees as those that (i) are in the consumer’s contract; or (ii) affirmatively permitted by law;
- “[a]ffirm that silence in the law is not an authorization”; and
- “[c]larif[y] the role of payment processors” by making clear that debt collectors violate the FDCPA when they use payment processors that “charge unauthorized fees at a minimum if the debt collector receives a kickback from the payment processor.”
In the press release accompanying the advisory opinion, CFPB Director Rohit Chopra stated, “Federal law generally forbids debt collectors from imposing extra fees not authorized by the original loan . . . . Today’s advisory opinion shows that these fees are often illegal, and provides a roadmap on the fees that a debt collector can lawfully collect.” The Bureau also noted that “most” debt collectors do not charge convenience fees, and characterized the advisory opinion as ensuring that law-abiding debt collectors are not placed at a competitive disadvantage. The press release also notes that the advisory opinion is part of the Bureau’s continued focus “on addressing junk fees in consumer finance.”
Bureau Affirms States’ Ability to Regulate Credit Reporting Markets Through State Laws
On June 28, 2022, the CFPB announced an interpretive rule affirming the ability of states to protect consumers through state fair credit reporting laws that are stricter than the Fair Credit Reporting Act (“FCRA”). The interpretive rule indicates the following:
- “States retain broad authority to protect people from harm due to credit reporting issues.” As an example, the Bureau indicates that a state could prohibit the reporting of medical debt for certain periods of time.
- “State laws are not preempted unless they conflict with the Fair Credit Reporting Act or fall within narrow preemption categories enumerated within the statute.” According to the CFPB, preemption under the FCRA is “narrow and targeted,” and there is “[n]othing in the statute generally preempt[ing] state laws relating to the content or information contained in credit reports.” The Bureau provides as an example of an action that would not be preempted “state laws governing whether eviction information or rental arrears appears in the content of credit reports.”
In the press release accompanying the interpretive rule, Director Rohit Chopra states, “Given the intrusive surveillance that Americans face every day, it is critical that states can protect their citizens from abuse and misuse of data,” and that “[t]he legal interpretation issued today makes clear that federal law does not automatically hit delete on state data protections.” The press release also highlights tenant screening reports as potentially containing “questionable or incorrect information that impedes renters’ access to housing.”
This new interpretive rule “is part of the CFPB’s work to support the role of states to protect consumers and honest businesses,” including through its May 19 interpretive rule describing state authority to pursue liability under the Consumer Financial Protection Act, and its State Official Notification Rule.
California Privacy Protection Agency Proposes Revisions to CCPA Regulations
By Webb McArthur, Hudson Cook, LLP
On July 8, 2022, the California Privacy Protection Agency released a Notice of Proposed Rulemaking to propose revisions to the California Consumer Privacy Act (the “CCPA”) regulations. The proposed rulemaking is intended to update and revise the regulations to account for changes to the CCPA that will become effective on January 1, 2023, by way of the California Privacy Rights Act (the “CPRA”).
The CPRA amends the CCPA and adds new consumer rights for California residents, including the right to correct personal information, the right to opt out of the sharing of personal information for cross-contextual advertising, and the right to limit the use of sensitive personal information. The CPRA also will require businesses to provide new disclosures, impose new restrictions on collecting personal information, and impose new restrictions on recipients of personal information, among other new obligations. The proposed rulemaking is intended to amend existing CCPA regulations and add requirements related to these and other new obligations added to the CCPA by the CPRA.
The revisions are significant and include changes to existing regulatory requirements. Below are selected highlights of the proposed revisions. Affected businesses, service providers, and third parties should review the proposed revisions and current version of the regulations alongside qualified counsel. Significant exemptions exist for financial services businesses.
- Processing New Consumer Rights. The proposed regulations would establish rules around how businesses should process requests to correct and requests to limit the use and disclosure of sensitive personal information.
- Providing New Consumer Notices. The proposed regulations would specify how businesses must provide notice of expanded opt-out rights and the right to limit the use of sensitive personal information.
- Obtaining Consumer Consent. The proposed regulations would impose requirements related to obtaining consumer consent.
- Consumer Request Procedures. The proposed regulations would establish rules and procedures to facilitate and govern the submission of new consumer rights, including requests to opt out of sharing for purposes of cross-contextual advertising, requests to limit use of sensitive personal information, and requests to correct.
- Processing Consumer Access Requests. The proposed regulations would extend the existing twelve-month lookback limitation for access requests.
- Passing on Consumer Requests to Third Parties. The proposed regulations would impose requirements around how businesses would be required to pass on opt-out and sensitive personal information use limitation requests to third parties to whom they have sold or disclosed personal information. Third parties would be expected by the regulations to comply with consumer requests.
- Third Party Contract Requirements. The proposed regulations would establish contractual requirements for businesses selling personal information to third parties.
- Service Provider and Contractor Agreements. The proposed regulations would establish new contractual requirements for service provider and contractor relationships.
- Governing Businesses’ Usage of Personal Information. The proposed regulations would define and add to the business purposes for which businesses, service providers, and contractors may use personal information consistent with consumer expectations, and further define the business purposes for which service providers and contractors may combine personal information. Further, the proposed regulations would identify the business purposes for which service providers and contractors may use consumers’ personal information pursuant to a written contract with a business, for the service provider or contractor’s own business purpose.
- Identifying Agency’s Authority and Enforcement Procedures. The proposed regulations would establish procedures for filing complaints with the agency and procedures necessary for the agency’s administrative enforcement of the law.
The agency is accepting written comments regarding these proposed changes through 5 p.m. Pacific Time on August 23, 2022, by email to [email protected] (with “CPPA Public Comment” in the subject line) or by mail to the following address:
California Privacy Protection Agency
Attn: Brian Soublet
2101 Arena Blvd.
Sacramento, CA 95834
Maryland Commissioner of Financial Regulation Adopts Model Standards for Mortgage Lenders and Servicers
By Wingrove Lynton, Hudson Cook, LLP
Effective June 27, 2022, the Maryland Office of the Commissioner of Financial Regulation (the “Commissioner”) revised and expanded the regulations that apply to licensed mortgage lenders, servicers, and brokers. In an Industry Advisory on the changes, the Commissioner explained:
The purpose of this action is to increase consumer protections by aligning Maryland regulations with nationwide model standards and creating uniform standards regarding safety and soundness, financial responsibility, and corporate governance for certain mortgage service providers. Adopting uniform standards provides a consistent and certain framework and holds mortgage brokers, lenders, and servicers operating in Maryland to a baseline expectation of safe and sound operations when furnishing mortgage services to Marylanders.
The Commissioner revised certain defined terms and added new terms. For example, the definition of “mortgage servicer” was expanded to include a person who:
- performs the routine administration of mortgage loans as agent of a servicer or mortgage servicing rights investor under the terms of a subservicing contract; and
- invests in and owns mortgage servicing rights and relies on subservicers to administer the mortgage loans on its behalf.
The Commissioner also created new standards for corporate governance, financial responsibility, and safety and soundness. A licensee’s corporate governance must at a minimum include:
- clearly defined responsibilities and accountability;
- internal controls, policies, processes, and practices for monitoring, testing, and ensuring compliance with the corporate governance framework;
- internal controls, policies, processes, and practices for training of employees on corporate governance requirements; and
- internal controls, policies, processes, and practices addressing internal audits, external audits, and risk management.
At least annually, each licensee must conduct a review of its corporate governance to determine its overall effectiveness.
Covered institutions (certain mortgage servicers) are subject to enhanced prudential standards. These covered institutions must maintain mandated capital and liquidity. In addition to being responsible for oversight of the covered institution, each covered institution’s board of directors is responsible for:
- establishing a written corporate governance framework;
- monitoring and ensuring institution compliance with the corporate governance framework and the new regulations; and
- accurate and timely regulatory reporting, including the requirements for filing the mortgage call report.
Pennsylvania Amends RTO Statute to Address Virtual Hang Tags
By Dailey Wilson, Hudson Cook, LLP
On July 11, 2022, Pennsylvania Governor Tom Wolf signed House Bill 2709 into law, amending the state’s rent-to-own (“RTO”) statute to address disclosure requirements when consumers enter transactions electronically or when a third-party merchant offers the rental property.
House Bill 2709 requires lessors to disclose certain information to consumers when rental-purchase property is displayed or offered online. Specifically, lessors must disclose: (1) the amount of the rental payment; (2) the cash price of the property; and (3) the total number and amount of rental payments necessary to acquire ownership of the property that is the subject of the rental-purchase agreement. This information must be disclosed clearly and conspicuously, using Arabic numerals that are readable and understandable by visual inspection, prior to providing the consumer with the rental-purchase agreement.
In the case of third-party inventory offered for rental-purchase, a lessor must separately disclose the information above, in multiple languages, to the consumer before providing the consumer with the rental-purchase agreement. The lessor must confirm that the consumer has viewed and affirmatively acknowledged the required disclosures before presenting the rental-purchase agreement for execution. The lessor also must provide the consumer with an electronic copy of these disclosures.
House Bill 2709 will be effective September 8, 2022.
11th Cir Reiterates That TILA Periodic Statements May Violate FDCPA
By Jenna Tersteegen, Maurice Wutscher LLP
On July 1, 2022, in Lamirand v. Fay Servicing, LLC, the Eleventh Circuit held that a periodic statement pursuant to the Truth in Lending Act (“TILA”) must be truthful and fair as required under the Fair Debt Collection Practices Act (“FDCPA”).
The underlying case involved periodic statements sent to Plaintiff by Defendant. The district court dismissed the complaint, finding that Plaintiffs failed to state an FDCPA claim because the periodic statements were unrelated to debt collection as Defendant was required under TILA to send monthly updates. Plaintiffs appealed.
While the appeal was pending, the Court decided Daniels v. Select Portfolio Servicing, holding that courts “must try to give meaning to both” the FDCPA and TILA. 34 F.4th 1260, 1269 (11th Cir. 2022).
The Court found that the periodic statements sent by servicer had the necessary nexus to debt collection: (1) they “convey[ed] information about a debt” and (2) their “aim [wa]s at least in part to induce the debtor to pay.” Caceres v. McCalla Raymer, LLC, 755 F.3d 1299, 1302 (11th Cir. 2014).
The Court found both the FDCPA and TILA applied, as there was nothing in TILA that said periodic statements could not serve as a means of debt collection. The Court found the statutes reinforced each other in that TILA requires the sending of periodic statements by a servicer and the FDCPA requires those statements be fair and accurate when containing language that would induce payment by a debtor.
The Court found that the information which TILA encourages lenders to give about their loan is only useful if it is accurate and fair, as required by the FDCPA. If a servicer uses the periodic statements to collect a debt, they can be held liable if they make unconscionable or misleading representations in the statements.