On July 20, the CFPB released a report on private student loans, prepared in conjunction with the Department of Education. Pursuant to Section 1077 of the Dodd-Frank Act, the report covers (i) the evolution and current state of the private lending market, (ii) the characteristics of consumers of private student loans, (iii) consumer protections, including recent changes and possible gaps, (iv) fair lending compliance information currently available and its implications, and (v) statutory or legislative recommendations to improve consumer protections. The report includes a series of recommendations from the CFPB and the Department of Education. The CFPB recommends that Congress require lenders to obtain a certification of the student’s financial need from the educational institution before disbursing private student loan funds. The CFPB also recommends that Congress examine the impact that the 2005 amendments to the bankruptcy code that made private student loans non-dischargeable in bankruptcy absent a showing of undue hardship, have had on young borrowers. On July 24, the CFPB’s Student Loan Ombudsman appeared before the Senate Banking Committee’s Subcommittee on Financial Institutions and Consumer Protection to discuss the report and the CFPB’s recommendations. The hearing also included testimony from consumer groups and one private student lender.
The SEC whistleblower program, implemented under Section 922 of the Dodd-Frank Act, is primarily intended to reward individuals who act early to expose violations and who provide significant evidence that helps the SEC bring successful cases. The whistleblower rules contain three key provisions that can be integrated into a company’s existing compliance infrastructure to encourage internal reporting, thereby affording the company time to further investigate the claim, provide a solution, or self-report potential violations. The three key provisions are:
- 120-day rule: Whistleblowers who report internally are considered to have reported the same information to the SEC as of the date of the internal report so long as the whistleblower, or the company on the whistleblower’s behalf, provides the same information to the SEC within 120 days.
- Tacking: If an entity conducts an internal investigation based on a whistleblower’s internal report, and thereafter provides that information to the SEC, for purposes of determining whether an award is due and how much, the whistleblower will receive credit for the submission of the same information.
- Bump Up: Making use of a company’s internal compliance and reporting system to report wrongful conduct is a positive factor that will potentially increase the amount of a whistleblower award.
On July 18, Representatives Luetkemeyer (R-MO) and Baca (D-CA) introduced H.R. 6139, a bill that would create a national charter for qualified non-depository creditors, to be known as National Consumer Credit Corporations (NCCCs). The bill would task the OCC with assessing applications with a focus on the applicant institution’s ability to offer products that provide credit to underserved consumers, and developing a process for approving financial products to be offered by NCCCs. The OCC would be able to establish an annual fee for a charter, but it would not be permitted to restrict the method by which an NCCC offers its products, or to establish usury limits. NCCCs would be subject to certain restrictions, including a prohibition on consumer loans with terms of 30 days or less. The House Financial Services Committee’s Subcommittee on Financial Institutions and Consumer Credit held a hearing to consider H.R. 6139 on July 24, 2012.
On July 24, Senators Merkley (D-OR), Udall (D-NM), and Durbin (D-IL) introduced a bill, first revealed by Senator Merkley in March 2012, and now formalized as S. 3426, the Stopping Abuse and Fraud in Electronic Lending Act. According to a press release, the bill seeks to (i) ensure that a third party doesn’t gain control of a consumer’s account through remotely created checks, (ii) allow consumers to cancel a debit in connection with a small-dollar loan, (iii) require all lenders, including banks, to abide by a state’s rules for small-dollar, payday-like loans they offer customers in the state, (iv) ban lead generators and anonymously registered payday lending websites, and (v) give the CFPB authority to shut down payment processing for lenders that are violating state and other consumer lending laws through the Internet.
On July 26, the OCC and the DOJ announced resolution of actions brought against a national bank for alleged violations of the Servicemembers Civil Relief Act (SCRA). The DOJ filed a complaint and consent order in the U.S. District Court for the Eastern District of Virginia, simultaneously bringing and resolving allegations that over a roughly five year period the bank failed to provide sufficient protections to servicemembers (i) denying valid requests for interest rate reductions because the servicemembers’ military orders did not include specific end dates for the period of military service, (ii) foreclosing without a court order, (iii) repossessing motor vehicles without a court order, and (iv) obtaining default judgments without first filing accurate affidavits. Under the DOJ settlement, the bank must pay $12 million in damages to servicemembers. Concurrently, the OCC released consent orders resolving similar allegations. Under both the DOJ and OCC orders, the bank must take specific actions to enhance compliance with SCRA, including with regard to vendor management, training, and internal reporting. The OCC also is requiring that the bank report periodically to the OCC, and conduct a look-back review of its servicemember accounts. The DOJ notes that the bank already has adopted enhanced SCRA policies on its own initiative, including extending a four percent interest rate to qualifying servicemembers and giving an additional one-year grace period before de-enrolling servicemembers from the reduced interest rate program.
This week, the Financial Stability Oversight Council (FSOC) and the Office of Financial Research (OFR) each published annual reports to Congress, as mandated by the Dodd-Frank Act. This is the first such report the OFR has prepared. The FSOC annual report surveys the macroeconomic environment within which the U.S. economy exists, identifies risks to U.S. financial stability, reports on implementation of the Dodd-Frank Act and activities of FSOC, and provides a series of recommendations for policymakers. The FSOC’s recommendations fall into four categories: (i) reforms to address structural vulnerabilities, (ii) heightened risk management and supervisory attention, (iii) housing finance reforms, and (iv) implementation and coordination of financial reform. Within the housing finance category, the FSOC notes recent efforts to encourage private capital to re-enter the market in the near term but stresses the continued need for long-term housing finance reform. This section also reviews federal efforts to alter mortgage servicing standards and recommends that federal agencies finalize comprehensive servicing standards. The OFR report summarizes the OFR’s efforts to (i) analyze threats to financial stability, (ii) conduct research on financial stability, (iii) address data gaps, and (iv) promote data standards. According to the report, over the next year, the OFR will focus on the migration of financial activities into the so-called shadow banking system, and will continue to build on research related to threats to financial stability, stress tests, and risk management.