Antitrust Financials Friday: Realtors Hope DOJ Won’t Intervene in Settlement; House Financial Services to Mark Up EWA Bill; Republicans Challenge CFPB Credit Card Late Fee Rule; Chamber of Commerce v. CFPB

Published on Apr 12, 2024

Focus on DOJ in NAR broker fee litigation. All eyes in the real estate industry are on the DOJ and whether it will bless or object to the massive National Association of Realtors (NAR) settlement that would permanently reshape broker compensation. DOJ is now freer to intervene in the settlement because the agency recently won in court on its ability to reopen an investigation into the National Association of Realtors’ conduct related to broker fee compensation.

If a judge approves the NAR settlement, it would prevent seller agents from advertising kickbacks from to buyer agents on the MLS, and ban NAR from requiring such kickbacks as a condition of membership. But it would not ban those types of payments altogether. Buyer agent compensation could be privately negotiated—which critics of the deal argue is a loophole that could preserve the status quo.

Last month the DOJ intervened to object to a separate proposed settlement between plaintiffs and an NAR affiliate, and DOJ criticized the deal for not banning kickbacks. “The problem with the proposal here is that it makes cosmetic changes while authorizing the seller to continue to set compensation for the buyer’s broker. Instead, the parties could propose an injunction that would prohibit sellers from making commission offers to buyer brokers at all. That injunction would promote competition by empowering buyers to negotiate directly with their own brokers,” the DOJ wrote in its brief.

DOJ’s intervention strongly implies that the antitrust division will raise the same objections to the NAR settlement, and DOJ’s willingness to go to court to reopen its investigation further suggests that DOJ wants to have a role in crafting a market solution.

Realtors, however, are holding out hope that DOJ will hold off. Their hope is at least in part based on the DOJ not wanting to muddy the path for the settlement because the settlement has led to press that assumes there will be market effects this year that lower costs for homeowners.

The DOJ did not respond to a request for comment on the industry speculation.

Meanwhile, the attorneys who negotiated the settlement argue that, should DOJ intervene, it would be unlikely that a judge would sign off on a complete prohibition. Benjamin Brown of Cohen Milstein, one of the negotiators, said that because the settlement only applies to NAR members, brokers could easily evade a blanket prohibition by simply leaving NAR.

“Moreover it is highly atypical, if not unheard of, for an injunction to be entered in an antitrust case that goes further than eliminating the anticompetitive behavior at issue in the case and instead ties the hands of hundreds of thousands of entities in their private contracting,” said Brown.

Courts reject bid to centralize all NAR class action suits in one jurisdiction. Plaintiff lawyers opposed to the groundbreaking National Association of Realtors settlement won a victory today when the judicial body in charge of centralizing cases declined to centralize about two-dozen class-action lawsuits involving broker commissions. The decision is a potential blow to NAR and the large brokerages that had been trying to bring all of their legal fights under the umbrella of one case.

Many of the lawsuits were launched after the $1.8 billion judgement by a Missouri court against NAR and large brokerages, which rocked the real estate industry last fall. NAR agreed to a $418 million settlement last month that would, if approved by the courts, release all NAR members and brokerages with less than $2 billion in annual business from liability.

The plaintiff attorneys behind the settlement, led by Ketchmark & McCreight PC, sought to centralize all litigation in Missouri. They were opposed by a coalition of lawyers across the country who have been loosely collaborating to keep their respective lawsuits alive.

The US Judicial Panel on Multidistrict Litigation rejected centralizing the case, allowing the various class-action lawsuits to proceed while the Missouri settlement progresses. “We cannot speculate on the number of parties and claims that will remain once this and any other settlements are approved,” the panel wrote. The ruling leaves open the possibility of centralization in the future.

While all of the lawsuits center on payments from seller agents to buyer agents, the lawyers opposed to the settlement had argued their suits raise distinct legal arguments not addressed in the Missouri settlement. Some of these lawyers plan to file objections to the NAR settlement, arguing that it does not extract enough money for homebuyers who paid inflated broker fees.

House to mark up bill protecting EWA companies. Next week, the House Financial Services Committee will mark up the Earned Wage Access Consumer Protection Act, a bill that will legally distinguish controversial fast-cash services from loans.

According to the fintech industry, EWA companies give workers early access to their earned wages to make ends meet. Some partner with employers, whereas others market directly to consumers.  While both charge fees, the latter are specifically repaid by debiting bank accounts and collecting “tips.” According to a National Consumer Law Center (NCLC) analysis of California data, the average annual percentage rate for these early payments is more than 330%.

The Financial Technology Association, a trade group, applauded the EWA Consumer Protection Act, saying it would regulate EWA businesses by requiring them to inform consumers of their rights and any associated fees. The NCLC and 141 other groups, however, have come out against the bill. “In the guise of offering protections, the bill obscures its true effect: to exempt fintech cash advances from the Truth in Lending Act, to endorse a form of loan that makes workers pay to be paid, and to facilitate new evasions by payday lenders,” they wrote in a February letter to Rep. Steil.

The EWA Consumer Protection Act is weighing in on EWA services just as some states have begun to regulate them to varying degrees. Among the stricter crackdowns, the California Department of Financial Protection and Innovation has proposed a rule that would deem EWA as loans, subjecting them to interest rate caps and other credit laws. Those sponsored by employers would be exempt, however.

In 2020, the Consumer Financial Protection Bureau (CFPB) issued an advisory opinion, similarly indicating that those EWA products sponsored by employers are not credit under the Truth in Lending Act. In response to a Government Accountability Office report recommending that the CFPB clarify whether other EWA products qualify as credit under this law, the Bureau indicated it intends to issue further guidance on this front. A CFPB spokesperson declined to provide an update on the timeline for any new regulations last week.

Meanwhile, some EWA companies have faced intense scrutiny. The Capitol Forum reported last month, for example, that consumers have complained about being “stuck in a borrowing loop with MoneyLion” and having to parse through multiple tip request screens with unclear opt-out options. The company also settled allegations from the Colorado Attorney General in November that it was debiting “illegal membership fees.”

EWA consumers complain of Brigit subscription cancellation challenges months after FTC order. In November, the Federal Trade Commission (FTC) acted against Brigit, another EWA company. It ordered the company to end marketing practices that deceived customers by telling them they could receive “instant” case advances of up to $250, as well as to cease locking customers into their $9.99 monthly subscriptions that they couldn’t cancel. The FTC also ordered Brigit to issue $18 million in consumer refunds.

A review of complaints to the Better Business Bureau, however, shows users continue to complain that they are being locked into memberships.

For example, on March 4, one customer reported: “I use the service years ago and I’m pretty sure I canceled the account about 2 years ago. They have not tried to charge me at all and now all the sudden about 5 days ago they tried to charge me so I contacted them to let them know and to make sure my account was canceled. I advise them I had not used the service in years and they were not to charge me again and they still did.”

Multiple others complained that Brigit makes it difficult to cancel their subscriptions as well, reporting they had to go through “hoop after hoop” to stop Brigit from charging them or that the company “keep[s] taking money from my account.”

These continuing complaints may raise concerns that Brigit is not complying with the FTC order.

“The consumer complaints listed on the Better Business Bureau’s website mirror the problems that were supposed to be stopped by settlement between the FTC and Brigit,” Adam Rust, director of financial services at the Consumer Federation of America, told The Capitol Forum. “The FTC said it was unfair and deceptive when Brigit designed its app to make it difficult for users to cancel their monthly $9.99 subscription.”

Rust also noted that the FTC’s proposed click-to-cancel rule will also add protections for customers trying to navigate difficult cancellation processes, but that “not accepting a request to cancel is against the law already.” The agency proposed the rule in March 2023 and held a hearing in January to hear the public’s feedback.

“If Brigit is ignoring the order, the FTC will hold them accountable,” Rust noted.

Brigit referred The Capitol Forum to a blog it posted about cancelling subscriptions. The FTC declined to comment.

CFPB and Chamber of Commerce submit letters on judge recusal in credit card late fee rule litigation. In their legal dispute over the Consumer Financial Protection Bureau’s (CFPB) credit card late fee rule, the CFPB and Chamber of Commerce submitted briefs to the U.S. Court of Appeals for the Fifth Circuit on Thursday regarding whether a judge’s ownership interest in a large credit card issuer merits recusal from the case.

The briefs stem from Judge Don Willett’s ownership of stock in Citigroup, which is not a plaintiff in the litigation but is the second largest U.S. credit card issuer and a member of the Chamber of Commerce. The CFPB argued in its letter that there is a recusal obligation because the outcome of the litigation could “substantially affect an ownership interest in a nonparty large credit card issuer.”

The Bureau pointed to industry analysts reporting that if the rule is finalized, banks may see their earnings fall, with Citigroup specifically being “hit hardest.” Further, the CFPB’s analysis has found that the rule may affect the large card issuers’ profits, given late fees are “a significant source of revenue.” It noted that multiple federal court decisions have made “clear that stock ownership of a party creates a per se bar on participation by the stock-owning judge” and that a financial interest in the “subject matter in controversy” should not be treated differently, especially given “the non-party is akin to a party,” as it would benefit if the Chamber succeeds.

Meanwhile, a Paul Hastings attorney, serving as counsel for the Chamber, argued that recusal is not required because the effect on the judge’s ownership interest is merely “remote or speculative.” The letter pointed to the 1982 ruling in Department of Energy v. Brimmer over oil price control regulation, in which the court denied the Energy Department’s request for recusal of the judge, who owned stock in oil companies not party to the case, finding any possible effect on the value of his shares would not be substantial.

The letter went so far as to say that “[t]he same result will be appropriate in the vast majority of, if not all, regulatory challenges.”

The Chamber and other banking groups filed their lawsuit in March, just after the CFPB finalized its credit card late fee rule. If it goes into effect, as planned in May, the rule is expected to cut the typical late fee from $32 to $8.

“For over a decade, credit card giants have been exploiting a loophole to harvest billions of dollars in junk fees from American consumers,” CFPB Director Rohit Chopra said in March. “Today’s rule ends the era of big credit card companies hiding behind the excuse of inflation when they hike fees on borrowers and boost their own bottom lines.”

Republicans target CFPB credit card late fee cap. Senate Banking Committee Ranking Member Tim Scott (R-SC) introduced a joint resolution this week expressing disapproval over the CFPB’s credit card late fee rule.

He said the rule “will decrease the availability of credit card products and important financial services, particularly for Americans who need them most. Lawful and contractually agreed upon payment incentives promote financial discipline and responsibility, and this rule shows that the CFPB is more focused on scoring political talking points than policies that protect consumers.”

Sen. Scott has the support of multiple Republicans on the Senate Banking Committee and across the GOP conference, as well as the Chamber of Commerce, Bank Policy institute, and other leading trade groups.

OCC abandons board diversity push. Two and a half years ago, Comptroller of the Currency Michael Hsu promised to publicly push for diversity on bank boards. He vowed in October 2021 to seek “transparency about the diversity of large bank boards of directors and executive leadership” and he said he might go as far as “requiring institutions to either diversify their boards or explain why they have not.”

Since that speech, said OCC insiders, Hsu has quietly dropped his pledge. A diversity working group within the OCC has not met in over a year while a draft rulemaking to promote diversity has been shelved, said the sources. Hsu was discouraged by the Federal Court decision to snuff out a California mandate for corporate diversity, said sources, and the public calls for diversity have waned.

In a statement, an OCC spokesperson said Hsu was committed to promoting diversity within the OCC and among examiners.

Adam Rust of the Consumer Federation of America said Hsu can do more. “Hsu can use the OCC’s levers to move the needle forward,” he said and pointed to a diversity push from the Securities and Exchange Commission as a model. “The SEC was able to defend its decision successfully. I believe the SEC’s ability to implement board diversity disclosures is a step in the right direction.”