On November 19, the CFPB issued a press release highlighting the publication of its compliance bulletin, “Social Security Disability Income Verification.” The compliance bulletin reminds lenders that requiring consumers receiving social security disability income to provide burdensome or unnecessary documentation may raise fair lending issues. The Equal Credit Opportunity Act (ECOA) prohibits lenders from discrimination against “an applicant because some or all of the applicant’s income is from a public assistance program, which includes Social Security disability income,” and the Bureau’s bulletin highlights standards and guidelines intended to help lenders comply with the requirements of ECOA and its implementing regulation, Regulation B.
On November 20, the CFPB announced the issuance of a proposed rule to amend RESPA (Reg. X) and TILA (Reg.Z). The proposed rule changes primarily focus on clarifying, revising or amending (i) Regulation X’s servicing provisions regarding force-placed insurance, early intervention, and loss mitigation requirements; and (ii) periodic statement requirements under Regulation Z’s servicing provisions. In addition, the proposed amendments also revise certain servicing requirements that apply when a consumer is a potential or confirmed successor in interest, is in bankruptcy, or sends a cease communication request under the Fair Debt Collection Practices Act. Further, the proposed rule makes technical corrections to several provisions of Regulations X and Z. The public comment period will be open for 90 days upon publication in the Federal Register.
On November 19, the DOJ issued a press release announcing charges against six employees of a Georgia-based debt collection company for allegedly running a $4.1 million dollar debt collection scam. According to the press release, from approximately 2009 to May 2014, the accused employees allegedly falsely represented themselves as affiliated with various law enforcement agencies, and made a variety of false statements to consumers in an attempt to coerce them into making payments to the debt collection company. The action appears to be the first case in which multiple federal agencies – U.S. Attorneys’ Office, CFPB, FBI, and the FTC – have taken a coordinated action against a debt collector. The complaint was filed in the Southern District of New York.
Special Alert: CFPB Takes Enforcement Action Against “Buy-Here, Pay-Here” Auto Dealer for Alleged Unfair Collection and Credit Reporting Tactics
On November 19, the CFPB announced an enforcement action against a ‘buy-here, pay-here’ auto dealer alleging unfair debt collection practices and the furnishing of inaccurate information about customers to credit reporting agencies. ‘Buy-here, pay-here’ auto dealers typically do not assign their retail installment sale contracts (RISCs) to unaffiliated finance companies or banks, and therefore are subject to the CFPB’s enforcement authority. Consistent with the position it staked out in CFPB Bulletin 2013-07, in this enforcement action the CFPB appears to have applied specific requirements of the Fair Debt Collection Practices Act (FDCPA) to the dealer in its capacity as a creditor based on the CFPB’s broader authority over unfair, deceptive, or abusive acts practices.
The CFPB charges that the auto dealer violated the Consumer Financial Protection Act, 12 U.S.C. §§ 5531, 5536, which prohibits unfair, deceptive, or abusive acts or practices, by (i) repeatedly calling customers at work, despite being asked to stop; (ii) repeatedly calling the references of customers, despite being asked to stop; and (iii) making excessive, repeated calls to wrong numbers in efforts to reach customers who fell behind on their auto loan payments. Specifically, the CFPB alleges that the auto dealer used a third-party database to “skip trace” for new phone numbers of its customers. As a result, numerous wrong parties were contacted who asked to stop receiving calls. Despite their requests, the auto dealer allegedly failed to prevent calls to these wrong parties or did not remove their contact information from its system.
In addition, the CFPB alleges that the auto dealer violated the Fair Credit Reporting Act by (i) providing inaccurate information to credit reporting agencies; (ii) improperly handling consumer disputes regarding furnished information; and (iii) not establishing and implementing “reasonable written policies and procedures regarding the accuracy and integrity of the information relating to [customers] that it furnishes to a consumer reporting agency.” Specifically, the CFPB alleges that, since 2010, the auto dealer did not review or update its written furnishing policies, despite knowing that conversion to its third-party servicing platform had led to widespread inaccuracies in furnished information. Also, the consent order alleges that the auto dealer received more than 22,000 credit disputes per year, including disputes regarding the timing of repossessions and dates of first delinquency for charged-off accounts, but nevertheless furnished inaccurate information. Read more…
On November 13, the CFPB held a field hearing in Delaware to discuss its proposed rule regarding prepaid products. The proposal, which would amend Regulation E and Regulation Z, requires prepaid companies to provide certain protections under federal law.
In his opening remarks, Director Cordray noted that the many prepaid card consumers are some of the most economically vulnerable among us and that such cards have few, if any, protections under federal consumer financial law. Cordray outlined the reasons the Bureau’s proposed rule would “fill key gaps” for consumers. First, the proposed rule would provide consumers free and easy access to account information. Second, the proposed rule would mandate that financial institutions work with consumers to investigate any errors on registered cards. Third, the proposed rule would protect consumers against fraud and theft. Fourth, the rule includes “Know Before You Owe” prepaid disclosures, which would highlight key costs associated with the cards. Fifth, where prepaid card providers also extend credit to consumers such offers would be treated the same as credit cards under the law.
On November 13, the CFPB ordered a residential mortgage lender to pay $730,000 for violating the Loan Originator Compensation Rule. According to the complaint filed by the CFPB, from June 2011 to October 2013, the mortgage lender paid quarterly bonus payments totaling $730,000 to 32 loan officers based in part on the interest rates of the originated loan. The rule, which has been enforced by the CFPB since July 2011, prohibits mortgage lenders from paying loan officers based on loan terms such as interest rates. As part of the consent order, the mortgage lender agreed to end its current compensation practice and pay $730,000 to affected consumers. The CFPB did not seek a civil penalty.
On November 10, the NCUA announced the filing of a complaint against a large national bank for its alleged failure to fulfill its duties as a trustee for 121 residential mortgage-backed securities trusts. The NCUA claimed that the bank failed to comply with state and federal laws – Trust Indenture Act of 1939, and the Streit Act – establishing the trustee’s duties to trust beneficiaries. Specifically, NCUA accused the bank of not notifying corporate credit unions of defects in their mortgage loans, which prevented the repurchase, substitution, or cure of defective mortgage loans. NCUA further alleged that the bank’s lack of action contributed to the failure of the credit unions.
On November 19, the Senate Banking Committee will hold an oversight hearing, “The Federal Housing Finance Agency: Balancing Stability, Growth, and Affordability in the Mortgage Market.” FHFA Director Melvin Watt is a scheduled witness and will give the opening remarks.
On November 13, Governor Cuomo announced that four additional financial institutions have agreed to use a database created by the State’s Department of Financial Services to “help identify and stop illegal, online payday lending in New York.” The database includes a list of companies that the DFS has identified and taken action against for making illegal internet payday loans to people in New York. The total number of institutions using the database now stands at five.
On November 5, the CFPB announced the release of a report highlighting debt collection issues among older Americans. The report analyzed nearly 8,700 complaints made by older consumers from July 2013 to September 2014. The most common debt collection complaints noted in the report relate to medical debt, debts of deceased family members, and threats to garnish older American’s federal benefits. Notably, of the complaints submitted, 17 percent were related to credit cards and 5 percent to payday loans.
On October 28, 2014, BuckleySandler presented the webinar “Discussing The New CFPB Mortgage Origination Rules Deskbook.” Author Joe Reilly and contributors Joseph Kolar and Ben Olson discussed the need for the book and highlighted information from specific chapters. The webinar was moderated by Jeffrey Naimon. This webinar recap covers the highlights from their discussion. For more information about the CFPB Deskbook, including information on obtaining hard copies, email [email protected].
The purpose of the CFPB Deskbook is simple – consolidate in a clear, organized format, material from all of the many sources of regulatory guidance on the Consumer Financial Protection Bureau’s (CFPB) mortgage origination rules. Reilly described the CFPB rulemaking, done in such a short period of time, as “herculean.” However, this short time frame created a major need for clarifications, leading to the development of numerous non-rule sources.
“The number of sources [actual rules, preamble language, CFPB webinars, CFPB Small Entity Compliance Guides and more] cried out for a one-stop shop and that’s what I tried to create,” said Reilly.
Olson, former Deputy Assistant Director for the Office of Regulations at the CFPB, helped write many of the rules discussed in the CFPB Deskbook and finds a great deal of valuable in the book.
“You always wish after you publish a rule that you had said more,” said Olson. “The Bureau has tried to answer some of those questions, but answers can be hard to find. If the Bureau says something about it, it’s in the Deskbook.” Read more…
On October 28, the CFPB released the fifth edition of its Supervisory Highlights report. The report highlighted the CFPB’s recent supervisory findings of regulatory violations and UDAAP violations relating to consumer reporting, debt collection, deposits, mortgage servicing and student loan servicing. The report also provided updated supervisory guidance regarding HMDA reporting relating to HMDA data resubmission standards. With respect to consumer reporting, the report identified a variety of violations of FCRA Section 611 regarding dispute resolution. The report noted findings of several FDCPA and UDAAP violations in connection with debt collection, including: (i) unlawful imposition of convenience fees; (ii) false threats of litigation; (iii) improper disclosures to third parties; and (iv) unfair practices with respect to debt sales. For deposits, the report identified several Regulation E violations found, including: (i) error resolution violations; (ii) liability for unauthorized transfers; and (iii) notice deficiencies. The report outlines four main compliance issues identified in the mortgage servicing industry: (i) new mortgage servicing rules regarding oversight of service providers; (ii) delays in finalizing permanent loan modifications; (iii) misleading borrowers about the status of permanent loan modifications; and (iv) inaccurate communications regarding short sales. Finally, the report outlines six practices at student loan servicers that could constitute UDAAP violations: (i) allocating the payments borrowers make to each loan, which results in minimum late fees on all loans and inevitable delinquent statuses; (ii) inflating the minimum payment due on periodic and online account statements; (iii) charging late fees when payments were received during the grace period; (iv) failing to give borrowers accurate information needed to deduct loan interest payments on tax filings; (v) providing false information regarding the “dischargeable” status of a loan in bankruptcy; and (vi) making debt collection calls to borrowers outside appropriate hours.
Third Circuit Reverses Lower Court Decision, Rules Envelope Revealing Consumer’s Account Number Violates the FDCPA
Recently, the U.S. Court of Appeals for the Third Circuit reversed a lower court’s holding that the disclosure of a consumer’s account is not a “benign” disclosure and, therefore, violates the FDCPA. Douglass v. Convergent Outsourcing, No. 13-3588, 2014 WL 4235570 (3d Cir. Aug. 28, 2014). In this case, a debt collector sent a consumer a dunning letter in a window envelope, and the consumer’s account number was visible through the window. The consumer brought a claim under § 1692f(8) of the FDCPA, which bars debt collectors from using any language or symbol other than the collector’s address on any envelope sent to the consumer. The debt collector contended that the claim must fail because the account number was “benign language” that was not prohibited by § 1692f(8) of the FDCPA. The Third Circuit held that even if “benign language” was exempt from § 1692f(8)’s prohibition (a question that the court declined to decide), the consumer’s account number was not benign. In particular, the court noted that the disclosure of the account number threatened the consumer’s privacy because it was a “core piece of information pertaining to the status as a debtor and the debt collection effort.”
On October 1, 2014, BuckleySandler hosted a webinar, The CFPB’s Expanding Oversight of Auto Finance, Part One. Through an examination of the Consumer Financial Protection Bureau’s (CFPB) authority, recent enforcement activities, and discussion of the exam process, Kirk Jensen, John Redding, Michelle Rogers, Marshall Bell and Lori Sommerfield explored the different areas of the auto finance industry coming into the CFPB’s focus.
BuckleySandler will present The CFPB’s Expanding Oversight of Auto Finance, Part Two on October 30, 2014.
Explaining the Larger Participant Rule
Since its creation, the CFPB has held statutory authority to supervise nonbank institutions who are “a larger participant of a market for other consumer financial products or services.” On September 17, 2014, the CFPB proposed a rule defining a market for “automobile financing” and “larger participants” within that market. Under this proposed rule:
- A nonbank institution is a larger participant in the auto finance market if it “has at least 10,000 aggregate annual originations,” which includes:
- Credit granted for the purpose of purchasing an automobile
- Automobile leases
- Purchases of extensions of credit and leases
- An “automobile” includes any self-propelled vehicle used primarily for a consumer purpose for on-road transportation, except for certain identified vehicle types, including recreational vehicles, motor scooters and limited others
- Affiliates are included in calculations but dealers are excluded
On October 10, the CFPB issued a proposal to modify and make technical amendments to the TILA-RESPA Integrated Disclosure Rule, issued in November of 2013. Specifically, the CFPB proposes to (i) relax the timing requirements associated with the redisclosure of interest rate dependent charges and loan terms after consumers lock in a floating interest rate, such that creditors would have until the next business day after a consumer locks in a floating interest rate to provide a revised disclosure; and (ii) add language to the Loan Estimate form that creditors could use to inform a consumer that the consumer may receive a revised Loan Estimate for a construction loan that is expected to take more than 60 days to settle. In addition, the Bureau proposes non-substantive changes such as technical corrections and corrected or updated citations and cross-references in the regulatory text and commentary, minor word changes throughout the regulatory text and commentary, and an amendment to the 2013 Loan Originator Rule, to provide for placement of the NMSR ID on the integrated disclosures. The CFPB is accepting comments on the proposed changes through November 10, 2014. The CFPB noted its intention to finalize the proposed amendments quickly in order to provide the industry adequate time to implement any resulting changes by August 1, 2015, the effective date of the TILA-RESPA Integrated Disclosure Rule.