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.
On November 19, the FDIC announced its first in a series of three videos developed to assist bank employees in ensuring their mortgage lending practices comply with the Bureau Mortgage Rules. As noted in its press release, the first video covers the ATR/QM Rule. Additional videos regarding CFPB mortgage rules are expected to be released at a later time. Those videos will cover mortgage servicing and loan originator compensation. Also available from FDIC as part of its Technical Assistance Video Program are videos addressing (i) issues for new bank directors and (ii) specific technical subjects to help train bankers.
On November 19, the SEC announced that the agency voted to adopt new rules intended to improve the technology infrastructure of the U.S. securities markets. The new rules, titled Regulation Systems Compliance and Integrity (Regulation SCI), will require comprehensive new controls for the technology systems employed by certain market participants. According to the press release, the rules will (i) provide a “corrective action” framework for entities to take when encountering issues with their systems; (ii) provide “notifications and reports to the SEC regarding systems problems and systems changes;” (iii) provide information on systems issues to participants and members; (iv) conduct business continuity testing; and (v) conduct reviews of automated systems annually. Regulation SCI will be effective 60 days after publication in the Federal Register.
On November 20, the SEC announced that a California based broker dealer agreed to settle alleged market access violations by paying a $2.44 million penalty. The SEC alleged that the broker-dealer failed to implement adequate risk controls before providing customers with access to the market. In addition to the penalty, two former senior employees agreed to settle allegations, without admitting or denying wrongdoing, against them for their alleged roles in causing the violations for a combined total of more than $85,000. Notably, the two employees were the first individuals the SEC had charged with violations of the market access rule.
On November 18, Representative Elijah Cummings (D-MD) and Senator Elizabeth Warren (D-MA) sent letters to 16 financial service institutions regarding recent data breaches. The letters requested that the institutions provide information about the data breaches, including “detailed briefings from corporate IT security officers.” The letters were tailored to the specific institutions, with requests to two companies that they provide information on how the “potential data breaches may have affected their administration of government purchase and charge cards under contracts with the General Services Administration.” The letters also remind the institutions of their responsibility to protect and safeguard consumers’ personal information.
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, FinCEN released a statement to reiterate that banking organizations can serve Money Services Businesses (MSB) while meeting obligations under the Bank Secrecy Act. FinCEN noted that there is concern that banks may be terminating the accounts of MSBs on a wholesale basis because of potential regulatory scrutiny and that as a result MSBs are losing access to banking services. FinCEN stated that they do “not support the wholesale termination of MSB accounts without regard to the risks presented or the bank’s ability to manage the risk.” Rather, the risks presented by a given MSB can vary and, therefore, financial institutions should assess the risks on a case-by-case basis. FinCEN expects that banking organizations will manage the risks associated with MSB accounts and are committed to addressing the “wholesale de-banking of an important part of the financial system.”
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 12, the Obama administration nominated Antonio Weiss as Under Secretary for Domestic Finance at the Department of Treasury. If confirmed as Under Secretary, Weiss would be responsible for coordinating policies on banking, debt financing, capital markets, and financial regulation – specifically overseeing implementation of the Dodd-Frank Act. Currently, Weiss serves as the global head of investment banking at a financial advisory and asset management firm.
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 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.