On October 8, the CFPB will host a forum to discuss checking account screening policies and practices and how they will affect consumers. Specifically, the event will focus on how the screening system works and its potential to “improve the availability of information and products for consumers.” Director Cordray will speak at the event, in addition to consumer groups, federal and local government officials, and industry representatives.
On October 1, the CFPB and the Federal Reserve will co-host a webinar on the TILA-RESPA Integrated Disclosures rule. By consolidating the existing mortgage disclosures required under TILA and RESPA, the integrated rule is intended to “make it easier for consumers to understand and locate key information,” while also integrating “the substantive and procedural requirements for providing these disclosures to consumers.” The webinar will address (i) questions regarding rule interpretation and implementation challenges that creditors, mortgage brokers, and others have raised to the Bureau; (ii) issues regarding how to complete the Loan Estimate; and (iii) portions of the Closing Disclosure. BuckleySandler provided a transcript of the second TILA-RESPA Disclosure webinar, which the CFPB hosted on August 26.
On September 18, the Senate passedby voice vote H.R. 5062, a bipartisan bill that will amend the Consumer Financial Protection Act with respect to the supervision of nondepository institutions to require the CFPB to coordinate its supervisory activities with state regulatory agencies that license, supervise, or examine the offering of consumer financial products or services. The bill declares that the sharing of information with such state entities does not waive any privilege claimed by nondepository institutions under federal or state law regarding such information as to any person or entity other than the CFPB or the state agency. The bill was passed by the U.S. Housein late July, and will take effect on the same day it is signed by President Obama and becomes law.
On September 16, the CFPB filed a civil action against a for-profit college for allegedly engaging in an “illegal predatory lending scheme.” Specifically, the CFPB alleges that the school engaged in unfair and deceptive practices by: (i) inducing enrollment through false and misleading representations about job placement and career opportunities; (ii) inflating tuition to require students to obtain private loans in addition to Title IV aid; (iii) persuading students to incur significant debt through private loans that had substantially high interest rates (as compared to federal loans) and required repayment while students attended school; (iv) misleading students to believe that the school did not have an interest in the private loans offered; and (v) knowing its students were likely to default on the private loans made. In addition, the CFPB alleges that the school violated the FDCPA by taking aggressive and unfair action, including pulling students out of class, blocking computer access, preventing class registration, and withholding participation in graduation, to collect payments on the private loans as soon as they became past due. The CFPB is seeking to permanently enjoin the school from engaging in the alleged activity, restitution and damages to consumers, disgorgement, rescission of all private loans originated since July 21, 2011, civil money penalties, and costs and other monetary relief. Read more…
On September 12, the CFPB finalized a rule that allows it to supervise larger participants in the international money transfer market. In particular, this rule, which finalizes the proposed rule the CFPB issued in January 2014, allows the CFPB to supervise nonbank international money transfer providers that provide more than $1 million in international transfers annually, for compliance with the Remittance Rule under the Electronic Fund Transfer Act. The final rule will be effective December 1, 2014.
The CFPB will seek to ensure that these providers comply with a number of specific consumer-protection provisions, including the following:
- Disclosures: The CFPB will examine providers to determine that consumers receive the Remittance Rule-required disclosures in English as well as in any other language the provider uses to advertise, solicit, or market its services, or in any language in which the transaction was conducted. These disclosures inform consumers of the exchange rate, fees, the amount of money that will be delivered abroad, and the date the funds will be available.
- Option to Cancel: The CFPB will examine transfer providers to ensure that consumers receive at least thirty minutes to cancel the transfer if it has not yet been received, and that consumers receive a refund regardless of the reason for the cancellation.
- Correction of Errors: The CFPB will insist that remittance transfer providers properly investigate certain errors, and, if a consumer reports an error within 180 days, the CFPB will examine providers to determine that they have investigated and corrected certain types of errors. The CFPB will also examine providers to ensure that they are held accountable for the actions of any agents they use.
The CFPB used the authority granted to it in the Dodd-Frank Act to supervise “larger participants” in consumer financial markets, and this is the Bureau’s fourth larger participant rule. The CFPB indicates that it will use the same examination procedures for nonbank providers as it does for bank remittance providers, and the CFPB intends to coordinate with state examiners in its supervision.
The CFPB estimates that nonbank international money transfer providers transfer $50 billion each year, and 150 million individual international money transactions occur each year through these institutions, with seven million U.S. households transferring funds abroad each year through a nonbank.
On September 17, the CFPB released new information about its plans to supervise and enforce auto finance companies’ compliance with consumer financial laws, including fair lending laws. As it indicated it would earlier this year, the CFPB released a proposed rule that would allow it to supervise certain nonbank auto finance companies. Also as previously promised, the CFPB published a white paper on its method to proxy for race and national origin in auto finance transactions. Finally, the CFPB published its most recent Supervisory Highlights report, which is dedicated to its supervisory findings at depository institutions with auto finance operations.
The CFPB released the materials in connection with its September 18th field hearing on auto finance issues. These actions come roughly 18 months after the CFPB first provided guidance to auto finance companies regarding its expectations related to dealer “reserve” (or “participation”) and fair lending. Read more…
On September 8, the CFPB released an updated Small Entity Compliance Guide for its TILA-RESPA Integrated Disclosure Rule, which becomes effective next August. The updates include information on where to find additional resources on the rule, additional clarification on questions relating to the Loan Estimate and 7 day waiting period, and additional clarification on questions relating to the timing for revisions to the Loan Estimate. The new guides follow a recent webinar hosted by the CFPB and the Federal Reserve Board to address rule implementation.
On September 10, the Missouri General Assembly voted to override Governor Jay Nixon’s veto of SB 866, which defines traditional installment loans as “fixed rate, fully amortized, closed-end extensions of direct consumer loans” and preempts certain local government actions that would affect lenders who only make such installment loans and who operate under a consumer installment loan license or a consumer credit loan license. The preemption provisions do not apply to ordinances in a home rule city with more than four hundred thousand residents and located in more than one county, i.e., Kansas City, or to a charter provision or valid ordinance as of August 28, 2014, that expressly applies to traditional installment loan lenders.
Department of Education Publishes Intent to Establish a Negotiated Rulemaking Committee to Develop Pay as You Earn Expansion Regulations
On September 3, the Department of Education (the “Department”) announced its intent to establish a negotiated rulemaking committee to help develop regulations to allow more student borrowers of Federal Direct Loans to use the Pay as You Earn Repayment Plan (“PAYE Plan”). President Obama expanded the eligibility for the PAYE Plan, which caps payments at 10% of annual income, in a Presidential Memorandum issued on June 9, 2014 in which he charged the Department to establish new regulations to implement this expansion. The Department intends to select participants for the committee from nominees of the organizations and groups that represent the interests significantly affected by the proposed regulations. The Department will hold two public hearings, on October 23 and November 4, to discuss the rulemaking agenda and plans to thereafter establish a committee. The Department expects that the committee will begin negotiations in February 2015 and will meet in the Washington, DC area.
On September 3, the CFPB published Bulletin 2014-02 warning credit card issuers of the risk of engaging in deceptive or abusive acts and practices in connection with solicitations offering a promotional annual percentage rate (APR). In particular, the bulletin discusses the risk associated with balance transfer solicitations that fail to clearly disclose all material costs of the promotional APR offer, including the failure to disclose that consumers will lose their interest-free grace periods on new purchases if the entire statement balance—including the transferred balance—is not paid in full. The bulletin warns that, depending on the facts and circumstances, card issuers’ solicitations may be considered deceptive and/or abusive if they do not disclose that transferring an outstanding balance may result in additional interest charges for new purchases until a consumer’s grace period is restored by paying in in full. Furthermore, the bulletin notes that while Regulation Z does not require marketing materials to include additional disclosures alerting consumers to the potential effect of accepting a promotional APR offer, some offers may risk being deceptive or abusive even if Regulation Z is not violated. In a press release regarding the bulletin, Director Cordray stated, “[W]e are putting credit card companies on notice that we expect them to clearly disclose how these promotional offers apply to consumers so that they can make informed choices about their credit card use.” Finally, the bulletin states that the CFPB expects card issuers to incorporate adequate measures into their compliance management systems in order to prevent violation of Federal consumer financial laws, including the prohibition on deceptive, unfair, or abusive practices. These measures should include steps to ensure that all marketing materials clearly, prominently, and accurately describe the effect of promotional APR offers on the grace period for new purchases.
The American Arbitration Association (AAA) launched new Consumer Arbitration Rules that became effective on September 1. The new Consumer Arbitration Rules, comprised of 55 rules, replace the eight rules in the Consumer-Related Disputes Supplementary Procedures and apply to cases filed on or after September 1, 2014. Most notably under the new rules, the AAA will not administer consumer arbitration for a company unless and until the company submits its arbitration agreement to the AAA for review and the AAA determines that such agreement substantially complies with the AAA’s Consumer Due Process Protocol guidelines. Once reviewed and approved, the name of the business, the address, and the consumer arbitration clause, along with any related documents deemed necessary by the AAA will appear on the newly established and publicly-available Consumer Clause Registry (Registry). There is a non-refundable $500 annual fee to conduct the review and maintain the Registry. However, at least initially, a $650 fee paid in 2014 will be sufficient to maintain the business in the Registry through 2015. If a business does not submit its arbitration agreement for review and a consumer arbitration is filed with the AAA, the AAA will conduct an expedited review of the business’ arbitration agreement at that time, which would require an additional $250 in expediting fees.
CFPB Enforcement Action Targets Debt-Settlement Payment Processor For Aiding Collection Of Upfront Fees
On August 25, the CFPB announced a consent order with an Oklahoma-based debt-settlement payment processor for allegedly helping other companies collect unlawful upfront fees from consumers. The CFPB specifically alleged that the company violated the Telemarketing Sales Rule by making it possible for debt-settlement companies to charge consumers advance fees before settling any of their debts. The CFPB believes the company processed tens of millions of dollars in illegal advance fees from tens of thousands of customers on behalf of hundreds of debt relief companies across the country. The consent order requires the company to pay $6,099,000 in consumer relief and a civil money penalty of $1 million. In addition, the company is subject to monitoring by the CFPB and a third-party monitor, and must submit compliance reports.
On August 28, the CFPB announced that it will hold a field hearing on vehicle finance on September 18, 2014 in Indianapolis. Consistent with its past field hearing announcements, the CFPB did not reveal the specific topics to be addressed. The hearing may relate to the CFPB’s planned larger participant rule for nonbank auto finance companies. In addition, earlier this year, Director Cordray stated in an appearance before the House Financial Services Committee that a white paper on the proxy methodology the CFPB uses to identify alleged discrimination in indirect auto finance was forthcoming.
On August 28, the CFPB announced several new hires, as well as the appointments of new consumer finance experts to its Advisory Board, Community Bank Advisory Council, and Credit Union Advisory Council. Director Cordray indicated that the new personnel “provide valuable input to help [the CFPB] better understand the consumer financial marketplace.” The positions announced include Patricia McClung as Assistant Director for Mortgage Markets, Janneke Ratcliffe as Assistant Director for Financial Education, and Will Wade-Gery as Assistant Director for Card and Payments Markets. Persons named to the Advisory Board, Community Bank Advisory Council and the Credit Union Advisory Council are “experts in consumer protection, financial services, community development, fair lending, civil rights, and consumer financial products or services.”
On August 22, the CFPB announced that it is amending Regulation E in order to extend a temporary exception that allows federally insured institutions to provide estimates rather than exact amounts when disclosing third-party fees and exchange rates that apply to remittance transfers sent abroad by U.S. consumers. The original rule went into effect on October 28, 2013 and the exception was set to expire on July 21, 2015. In amending Regulation E, the CFPB deferred the expiration date until July 21, 2020. The CFPB believes the extension will give financial institutions the additional time necessary to develop reasonable methods to provide consumers sending money abroad with exact fees and exchange rates, even in cases where the institution does not have control over all of the participants in the remittance transfer. The amendment also clarifies certain provisions related to error resolution procedures and disclosure delivery methods, as well as the application of the rule to U.S. military bases in foreign countries and non-consumer accounts. Simultaneously, the CFPB amended its official interpretation to Regulation E and released a revised version of its industry compliance guide that reflects modifications made by the final rule.