CFPB and DOJ Announce Joint Settlement with Indirect Auto Lender over Alleged ECOA Violations

On February 2, the CFPB and the DOJ announced a joint enforcement action against an indirect auto lender for alleged violations of the Equal Credit Opportunity Act (ECOA) and implementing Regulation B. In April 2013, the CFPB and the DOJ began an investigation into the indirect auto lender’s compliance with the ECOA and found that its policies allowed for dealers to mark up a consumer’s interest rate on the retail installment contract above the established risk-based buy rate, known as “dealer markup.” The dealers received greater compensation from the indirect auto lender on loans with a higher interest rate. The DOJ and the CFPB determined that the respondent’s practice of allowing pricing discretion resulted in qualified African-American/Pacific Islander borrowers paying more than qualified white borrowers. To resolve the DOJ and the CFPB’s allegations, the respondent agreed to (i) reduce the amount by which loans can be marked up to only 1.25% above the established buy rate for auto loans with terms of five years or less, and 1% for loans with longer terms; (ii) pay at least $19.9 million in redress to borrowers affected by its finance practices from January 2011 to February 2, 2016, and up to $2 million more from the date of the action until it implements a new pricing and compensation structure, which must be in place by August 2016; and (iii) hire a settlement administrator to ensure that affected borrowers receive compensation.

These enforcement actions are the fourth in a series of joint CFPB and DOJ actions addressing fair lending risks in the indirect auto lending industry.

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CFPB Releases Compliance Bulletin, Letter to Financial Institutions, and Consumer Resources in an Effort to Address Access to Checking Accounts Concerns

On February 3, the CFPB held a field hearing to address concerns relating to consumers’ access to checking accounts. In Director Cordray’s opening remarks at the field hearing, he announced steps the CFPB is taking to alleviate concern that (i) consumers lack options that fit their financial need and situation; and (ii) inaccurate information is used to screen potential customers. To address the first issue, the CFPB sent a letter to the 25 largest retail banks urging them to make lower-risk account offerings that promise no authorized overdrafts available to consumers. The CFPB’s letter, which the agency describes as “simply a suggestion,” further recommends that banks already offering lower-risk products more prominently “feature them among their standard account offerings both in their branches and online.” Regarding the second concern, the CFPB issued Compliance Bulletin 2016-01, warning banks and credit unions (collectively, furnishers) of their obligation under Regulation V “to establish and implement reasonable written policies and procedures regarding the accuracy and integrity of information relating to consumers that they furnish to consumer reporting agencies (CRAs).” The bulletin notes that a furnisher’s failure to comply with such obligations under Regulation V could “potentially cause adverse consequences for consumers when included in a credit report, such as being denied a loan at a more favorable interest rate or being unable to open a transaction account.” Read more…

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CFPB Monthly Complaint Snapshot Highlights Financial Services Markets

On January 28, the CFPB released its monthly complaint report focusing on a number of financial services markets, including debt settlement, check cashing, tax refund anticipation checks, money order providers, and credit repair. The report states that, since July 19, 2014, the CFPB has handled approximately 2,700 complaints relating to these other types of financial services. According to the report, debt settlement and credit repair complaints are among the more common complaints, and over a quarter of these complaints mention student loans, with borrowers selecting fraud or scam as their primary issue. Additional findings highlighted in the snapshot include: (i) consumers being charged excessive fees, including upfront fees that are generally prohibited by law, for debt settlement and credit repair services; (ii) consumers encountering problems redeeming money orders, taking issue with the amount of time it took to resolve errors with customer service representatives; and (iii) consumers complaining they were victims of fraud when using money orders and travelers checks. The CFPB identified New York State and the New York metro area as its geographic spotlight in this issue, noting that, as of January 1, 2016, the CFPB has received 50,400 complaints from New York State consumers alone. Similar to past reports, mortgages remain the most complained-about product.

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CFPB Provides Consumers with Information on Obtaining Credit Reports

On January 27, the CFPB announced that it published its 2016 list of consumer reporting companies. The list includes contact information for the three largest nationwide reporting companies and various specialty reporting companies concentrating on specific geographic market areas and consumer segments. In addition, the list provides consumers with (i) tips on determining which specialty credit reports may be important to review depending upon the particular circumstances, such as applying for a job or a new bank account; (ii) information regarding how companies confirm the identity of the consumer requesting a copy of his or her credit report; and (iii) information on which companies also provide free credit scores. The CFPB also reminds consumers of their legal rights to (i) obtain the information in their credit reports, per the FCRA; and (ii) dispute inaccuracies contained in the report.

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New York AG Schneiderman Takes Action Against Auto Dealers for Deceptive Practices

On January 20, New York AG Schneiderman announced a lawsuit against several auto dealerships located in Queens, New York, alleging that the dealerships used deceptive sales tactics to sell add-on products and services, including credit repair and identity theft protection services. According to the lawsuit, the dealerships charged “consumers for services while concealing such charges from the consumers, or [misrepresented] that the services were free,” collecting more than $1 million from consumers between January 2013 and November 2014 for the identity theft and credit repair services alone. The lawsuit further alleges that consumers did not receive the services for which they were charged, including VIN etching and key replacement services. AG Schneiderman alleges these products and services were “bundled into the vehicle sales price and not separately itemized,” ultimately inflating the stated price of the car on the purchase and lease documents. The lawsuit seeks a court order that would (i) prohibit the dealerships from engaging in deceptive practices; and (ii) order the dealerships to refund “all illegally obtained overcharges” back to consumers. Read more…

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New York Governor Andrew Cuomo Nominates Maria Vullo as NYDFS’s Superintendent

On January 21, New York Governor Andrew Cuomo nominated Maria Vullo to serve as the NYDFS’s superintendent. If approved by the New York State Senate, Vullo would replace former superintendent Benjamin Lawsky, who left the Department in June 2015. Governor Cuomo noted that Vullo is a “tough and fair litigator” who “has shown an immovable commitment to upholding the law and protecting consumers.” Vullo has worked in the private and public sectors, and has over 25 years of practice in business litigation and investigations. In 2010, Vullo also served under then AG Cuomo as Executive Deputy Attorney General for Economic Justice, handling various consumer protection, investor protection, and antitrust matters.

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POSTED IN: Banking, Consumer Finance, State Issues

House Financial Services Committee: CFPB Removed Safeguards to Achieve Political Goals

On January 20, Republicans on the House Committee on Financial Services issued a report alleging that the CFPB removed a number of safeguards from the claims process after it secured its first settlement with an auto finance company and the company’s subsidiary bank in 2013. The Committee’s most recent report follows a November 2015 report in which the Republican staff (i) criticized the CFPB’s approach for determining discrimination in the auto lending industry; and (ii) questioned the CFPB’s authority to bring claims against banks involved in indirect auto lending under ECOA on a disparate impact theory. According to the more recently published report, the CFPB failed to confirm that funds from the 2013 settlement would be distributed to eligible recipients. Read more…

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CFPB Takes Action Against Colorado-Based “Buy-Here Pay-Here” Auto Dealer

On January 21, the CFPB filed a consent order to resolve allegations that a Colorado-based subprime auto dealer violated the TILA and the CFPA by engaging in abusive financing and marketing schemes. Specifically, the CFPB alleged that, from January 2012 through May 2014, the auto dealer (i) failed to make purchase prices available to credit consumers until the very end of the transaction; (ii) hid finance charges and improperly disclosed the resulting APRs; (iii) refused to negotiate car prices with credit consumers; and (iv) used abusive marketing tactics by failing to disclose to purchasers the “complete and accurate credit terms” of the automobile financing. Read more…

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Supreme Court: Settlement Offers Do Not Moot Class Actions, But…

The United States Supreme Court on Wednesday resolved the long-standing circuit split on whether an offer to satisfy the named plaintiff’s individual claims is sufficient to render a case moot when the complaint seeks relief on behalf of the plaintiff and a class of similarly situated individuals. In a 6-3 decision authored by Justice Ginsburg, the Supreme Court held that an unaccepted settlement or Rule 68 offer cannot moot a class action. However, the Court refused to address and explicitly left open the question of whether its ruling would be different if a defendant deposited the full amount of the plaintiff’s individual claim in an account payable to the plaintiff, and the court then entered judgment for the plaintiff in that amount. By leaving this question open, defendants in a position to unilaterally provide complete relief may still be able to “pick off” putative class representatives and avoid class action suits. Read more…

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POSTED IN: Consumer Finance, Courts

CFPB Seeks Applications for Advisory Board and Advisory Councils

On January 15, the CFPB announced that it is accepting applications for membership on its Consumer Advisory Board (Board) and two other advisory groups, the Community Bank Advisory Council, and the Credit Union Advisory Council (collectively, Advisory Councils). The Board and Advisory Councils are intended to give small financial institutions the opportunity to provide the CFPB with information regarding emerging trends and practices in the consumer financial products and services industries. In the fall of 2016, seven seats on the Board will become vacant, and eight seats on each of the Advisory Councils will become vacant. Applications are due February 29, 2016, according to the CFPB’s publication in the Federal Register.

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FTC Issues Report on Big Data

On January 6, the FTC published a report titled, “Big Data: A Tool for Inclusion or Exclusion? Understanding the Issues.” The report, which draws from information from a September 2014 FTC workshop, as well as public comments and research, primarily focuses on the final stage in the life cycle of big data use by addressing the commercial use of consumer data and its effect on low-income and underserved populations. According to the report, participants in the 2014 workshop expressed concern that potential inaccuracies and biases from big data may lead companies to “exclude low-income and underserved communities from credit and employment opportunities.” For example, the report states that, “if big data analytics incorrectly predicts that particular consumers are not good candidates for prime credit offers, educational opportunities, or certain lucrative jobs, such educational opportunities, employment, and credit may never be offered to these consumers.” In order to minimize legal and ethical risks, and to avoid possible exclusion and/or discrimination, the report suggests that companies should obtain an understanding of various laws that may apply to their big data practices, including the FCRA, equal opportunity laws, and the FTC Act. Read more…

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FTC and Florida AG Take Action Against Payment Processing Operation

On January 8, the FTC and Florida Attorney General Pam Bondi announced an amended complaint against a California-based processing sales organization, its three executives, and three telemarketing company owners (collectively “the defendants”) for alleged violations of the (i) Telemarketing and Consumer Fraud and Abuse Protection Act; (ii) the FTC Act; (iii) the FTC’s Telemarking Sales Rule; and (iv) the Florida Deceptive and Unfair Trade Practices Act. According to the complaint, the defendants operated a nation-wide debt relief scam by cold calling consumers and making false promises that they could “reduce consumers’ interest rates on their credit cards, save consumers thousands of dollars in a short time period, and refund consumers’ money if the promised savings were not realized.” The FTC and AG Bondi allege that, from at least November 2012 to October 2014, the defendants solicited at least 26 “‘straw men’” to act as signatories on “shell businesses and dummy merchant accounts” that were used to process consumer credit card payments. The FTC is seeking injunctive relief, rescission or reformation of contracts, restitution, the refund of monies paid, the disgorgement or ill-gotten monies, and other equitable relief; Florida AG Bondi is seeking injunctive relief, restitution, costs and attorneys’ fees, as well as other equitable relief.

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CFPB Names David Silberman Acting Deputy Director

On January 7, the CFPB named David Silberman as the agency’s interim Acting Deputy Director, replacing Meredith Fuchs, while the CFPB searches for a permanent replacement. Since 2011, Silberman has served as the CFPB’s Associate Director for Research, Markets, and Regulations, a role he will retain while he serves as Acting Deputy Director. Fuchs, who served as the CFPB’s General Counsel and Acting Deputy Director, announced her departure in 2015; Mary McLeod will replace Fuchs as the Bureau’s General Counsel.

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Senator Brown Requests Funding for Dodd-Frank Small Dollar Loan Programs

On January 6, U.S. Senator Sherrod Brown, who serves on the Senate Committee on Banking, Housing, and Urban Affairs, sent a letter to President Obama requesting that the FY 2017 budget proposal prioritize funding for programs outlined in Title XII – Improving Access to Mainstream Financial Institutions of the Dodd-Frank Act, which has yet to be implemented. According to Senator Brown, resources are needed in order to implement Title XII, which would, among other things, (i) allow the Treasury to establish partnerships with certain eligible entities to help low and moderate income individuals access accounts at banks and credit unions; and (ii) foster partnerships with non-profits, federally insured depository institutions, community development financial institutions (CDFIs), or State, local, or tribal governments to provide low-cost, small dollar loans to traditionally unbanked or underbanked Americans as a more affordable option to the more costly alternative financial services (AFS), such as payday loans, money orders, cash checking, remittances, and auto title loans.

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CFPB Issues Report Summarizing Fiscal Year 2015

On December 31, the CFPB issued a report to the Senate and House Committees on Appropriations to fulfill its statutory responsibility under Section 1017(e)(4) of the Dodd-Frank Act. The report covers the CFPB’s 2015 fiscal year (FY), spanning from October 1, 2014 through September 30, 2015, and provides an overview of the Bureau’s operations and finances. In its report, the Bureau highlights that, during FY 2015, among other things, the CFPB (i) began to publish consumer complaint narratives in the Consumer Complaint Database and launched monthly reports to highlight trends in the complaints submitted to the Bureau; (ii) brought supervisory actions and announced orders through enforcement efforts for $209 million and $5.819 billion in consumer redress, respectively; (iii) released three editions of Supervisory Highlights Report; (iv) published new examination procedures, supervisory guidance documents and studies; and (v) published several proposed rules, final rules, and requests for information, as well as plain-language compliance guides and video presentations summarizing certain Bureau rules. During FY 2015, the Bureau collected more than $183 million in civil money penalties, and more than $108 million in Bureau Administered Redress funds. Looking ahead, the report identifies potential rulemaking initiatives, as reflected in its Fall 2014 and Spring 2015 regulatory agendas.

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