Banking and Finance Law Daily Wrap Up, UNFAIR DECEPTIVE ABUSIVE ACTS OR PRACTICES—Associations file friends-of-the-court brief supporting auto lender in CFPB UDAAP case, (Aug 27, 2024)

By Colleen M. Svelnis, J.D.

Three industry associations urged the court to grant the motion to dismiss the complaint filed by the CFPB and the New York AG.

Following a renewed motion to dismiss, three industry associations have filed a revised amici curiae brief with the New York federal district court in support of an auto finance lender’s requested dismissal of the Consumer Financial Protection Bureau and New York’s case against it. Credit Acceptance Corporation (CAC), a Michigan-based auto finance lender requested dismissal of the CFPB and New York AG’s case alleging unfair, deceptive, or abusive acts or practices (UDAAP), claiming that the complaint not only fails to state a claim for unfair or deceptive practices or fraud, but also fails to adequately allege abusive acts or practices. CAC participates in the subprime market (CFPB v. Credit Acceptance Corp., No. 23 Civ. 0038-JHR (S.D.N.Y. Aug. 21, 2024)).

The CFPB/NYAG’s complaint alleged that CAC made predatory loans carrying “exorbitant” interest rates and expensive add products to millions of borrowers who could not afford to repay in full; hid the true cost of credit on the loans by pushing its used car dealers to manipulate vehicle prices based on borrowers’ projected performance; provided loans without regard to whether borrowers could afford them; and then used aggressive debt-collection methods and created financial incentives for dealers to add extra products to loans in ways that made borrowers think the add-on products were required (see Banking and Finance Law Daily, Jan. 5, 2023).

The amici brief was filed by American Financial Services Association, Consumer Bankers Association, and the Chamber of Commerce of the United States of America, who assert that they and their members have a strong interest in the issues raised in this litigation. The brief expresses deep concern about the CFPB and New York’s theories and urges the court to grant CAC’s motion to dismiss. First, the associations argue that theories are unfair reversals of settled law, or efforts to override clear mandates from Congress, the Federal Reserve, and the CFPB itself, which would unravel the basis for commercial relationships devised in reliance on black-letter law.

The associations also argue that, if allowed, the government’s theories would make retail sales financing less available across the economy, because of the breadth of their potential applicability, as well the resulting uncertainty that would be created.

Earlier this month CAC submitted a renewed motion to dismiss and an accompanying memorandum, asking the court to dismiss the complaint brought against it by the Consumer Financial Protection Bureau and the Attorney General of the State of New York (see Banking and Finance Law Daily, Aug. 19, 2024). The two agencies had brought the enforcement action against CAC for allegedly engaging in deceptive and abusive acts or practices.

Argument. The Associations allege that the CFPB and the NYAG are attempting to rewrite settled law that the financial services industry has been operating under for decades, and doing so outside of the formal notice-and-comment rulemaking process. According to the amici brief, many of the Associations’ members extend credit to consumers through business models that were “carefully constructed to comply with the long-standing definition of the term ‘finance charge’” as defined in the Truth in Lending Act (TILA) and the Bureau’s Official Staff Commentary to TILA’s implementing regulation, Regulation Z.

The brief cites the Supreme Court's recent decision in Loper Bright Enters. v. Raimondo, 144 S. Ct. 2244 (2024), which warned administrative agencies and courts that agency actions must be limited to the authority granted to them by Congress (see Banking and Finance Law Daily, June 28, 2024).

They further argue that the Bureau and NYAG’s attempt to promulgate through litigation would have a substantial negative impact on the retail sales finance industry, as well as the consumers that these government actors are tasked with protecting. The brief states that these assertions would create uncertainty not only for other vehicle finance companies, but also the broader retail sales finance industry, because the allegations “attack commercial practices (like the use of retailer/dealer discounts)” and could be used against a variety of entities that provide credit for consumers to purchase goods and services from retailers or dealers. The brief specifically lists vehicle finance companies, banks, credit unions, buy-now pay-later companies, and home improvement finance providers.

In short, the brief states that the CFPB and the NYAG’s legal theories contradict TILA and Regulation Z, and “will lead to regulatory uncertainty, threaten the long-settled business practices of amici’s members, and significantly impair consumers’ access to credit.”

Attorneys: Vanessa Buchko for the Consumer Financial Protection Bureau. Anand Subram Raman (Skadden Arps Slate Meagher & Flom LLP) for Credit Acceptance Corp. James Kim, Christopher Willis, Jeremy Rosenblum, and Addison J. Morgan (Troutman Pepper Hamilton Sanders LLP) as amici curiae for American Financial Services Association, Consumers Banking Association, and U.S. Chamber of Commerce.

Companies: American Financial Services Association; Credit Acceptance Corporation; Consumer Bankers Association; Chamber of Commerce of the United States of America

LitigationEnforcement: CFPB ConsumerCredit DoddFrankAct EnforcementActions GCNNews InterestUsury Loans MichiganNews NewYorkNews SecuritiesDerivatives StateBankingLaws TruthInLending UDAAP