On March 6, the CFPB issued a notice that it intends to conduct a mail survey of consumers “to learn about their experiences interacting with the debt collection industry.” The notice states that the Bureau, as part of its information gathering related to its debt collection rulemaking, will ask consumers about (i) whether they have been contacted by debt collectors in the past; (ii) whether they recognized the debt that was being collected; (iii) interactions with the debt collectors; (iv) preferences for how they would like to be contacted by debt collectors; (v) opinions about potential regulatory interventions in debt collection markets; and (vi) knowledge of legal rights regarding debt collections. Comments on the proposed survey are due by May 6, 2014.
House Financial Services Committee Chairman Jeb Hensarling (R-TX) sent a letter today to CFPB Director Richard Cordray once again pressing the CFPB for information about its March 2013 auto finance guidance and its actions since that time to pursue allegedly discriminatory practices by auto finance companies. That guidance, which the CFPB has characterized as a restatement of existing law, sought to establish publicly the CFPB’s grounds for asserting violations of ECOA against bank and nonbank auto finance companies for the alleged effects of facially neutral pricing policies.
The letter recounts numerous exchanges between members of Congress—including both Democratic and Republican members of the Committee—and the CFPB on this issue to demonstrate what the Chairman characterizes as “a pattern of obfuscation” by the Bureau. Mr. Hensarling explains that through a series of written requests—see, e.g. here, here, and here—as well as in-person exchanges, lawmakers have sought detailed information about the CFPB’s application of the so-called disparate impact theory of discrimination to impose liability on auto finance companies. The letter states that the CFPB has repeatedly refused to provide certain key information used in applying that theory through compliance examinations and enforcement actions, including information about regression analyses, analytical controls, and numerical thresholds employed by the Bureau. Read more…
On March 6, the FTC released a memorandum of understanding (MOU) it signed with the UK’s Information Commissioner’s Office (ICO), which is designed to strengthen the agencies’ privacy enforcement partnership. The FTC stated that over the last several years it has worked with the ICO on numerous investigations and international initiatives to increase global privacy cooperation. The MOU establishes a formal framework for the agencies to provide mutual assistance and exchange of information for the purpose of investigating, enforcing, and/or securing compliance with certain privacy violations. The FTC also announced a joint project with the European Union (EU) and Asia-Pacific Economic Cooperation (APEC) economies to map together the requirements for APEC Cross Border Privacy Rules and EU Binding Corporate Rules, which is designed to provide a practical reference tool for companies that seek “double certification” under the APEC and EU systems, and shows the substantial overlap between the two.
On March 5, the Senate voted 47-52 on a procedural motion that would have advanced President Obama’s nomination of Debo Adegbile to serve as Assistant Attorney General, Civil Rights Division. Seven Democrats joined all voting Republicans to defeat the nomination. Mr. Adegbile’s participation in the legal representation of Mumia Abu-Jamal, who was convicted in 1981 of killing a Philadelphia police officer, reportedly played a factor in the voting.
On March 5, the Federal Reserve Board, the OCC, and the FDIC issued final guidance for stress tests conducted by banking institutions with more than $10 billion but less than $50 billion in total consolidated assets. Under Dodd-Frank Act-mandated regulations adopted in October 2012, such firms are required to conduct annual stress tests. The guidance discusses (i) supervisory expectations for stress test practices, (ii) provides examples of practices that would be consistent with those expectations, and (iii) offers additional details about stress test methodologies. Covered institutions are required to perform their first stress tests under the Dodd-Frank Act by March 31, 2014.
On March 5, the FTC released a summary of its 2013 debt collection activities, which it submitted to the CFPB on February 21, 2014. The report highlights that one of the FTC’s highest priorities is to continue targeting debt collectors that engage in deceptive, unfair, or abusive conduct. In particular, the FTC is actively pursuing debt collectors that secure payments from consumers by falsely threatening litigation or otherwise falsely implying that they are involved in law enforcement. In 2013, the FTC filed or resolved seven actions alleging deceptive, unfair, or abusive debt collection conduct. The FTC also took action against the continuing rise of so-called “phantom debt collectors.” The report also summarizes the FTC’s amicus program, and education, public outreach, research, and policy activities, including its Life of a Debt Roundtable Event, which examined data integrity in debt collection and the flow of consumer data throughout the debt collection process.
On March 5, a group of 16 Democratic U.S. House members sent letters to the leaders of the Federal Reserve Board, the OCC, the FDIC, and the NCUA requesting that the agencies issue guidance that would provide legitimate marijuana businesses access to the federal banking system. Last November, those agencies declined to provide such guidance, stating that the DOJ and FinCEN first needed to agree on a framework to apply BSA/AML provisions to banks seeking to serve marijuana businesses. With FinCEN and DOJ having recently issued such guidance, the lawmakers renewed their push for legitimate marijuana businesses—now operating in 20 states and the District of Columbia—to have “equal access to banking services as other licensed businesses.”
State Banking Associations Object To Senators’ Request For Increased Bank Payment System Security Oversight
On March 5, 53 state bankers associations sent a letter to Federal Reserve Board Chair Janet Yellen defending banks’ efforts to secure consumer financial data and highlighting the responsibilities of other parties, in particular merchants, to do the same. The banking associations, representing bankers in every state and Puerto Rico, took issue with a letter Democratic Senators Dick Durbin (D-IL) and Al Franken (D-MN) sent last month to the Federal Reserve Board Chair seeking information about the Board’s oversight of card issuers’ fraud prevention policies and recommending that the Board do more to verify the effectiveness of such policies. The banking associations contend that the Senators’ letter is a “thinly veiled effort to once again advance the regulation of interchange under the guise of current concerns over data security,” and criticize the Senators for converting a discussion about security responsibilities into one about interchange fees.
On March 4, Comptroller of the Currency Thomas Curry addressed the annual meeting of the Independent Community Bankers Association where he stressed the need for banks to effectively manage risk presented by the outsourcing of data security and information technology. The Comptroller explained that “[t]hird parties can be the weak link in [a bank’s] information systems security and resiliency; and especially where that third party is providing security services.” Referencing guidance the OCC issued last year, the Comptroller described the OCC’s due diligence expectations for banks’ third-party relationships as “substantial” and stressed that a bank’s due diligence needs to cover not only the vendor, but the vendor’s own third-party relationships. Mr. Curry also focused on other concerns he has about third-party relationships, including: (i) consolidation of service providers, which can increase the number of banks impacted when deficiencies occur at a single vendor; (ii) increased reliance by banks on foreign-based service providers; and (iii) third parties’ access to “large amounts of sensitive bank or customer data.”
On March 6, the CFPB released a “snapshot” of servicemember complaints prepared by the Office of Servicemember Affairs (OSA), which analyzes the military consumer complaints received since July 2011. According to the report, servicemembers, veterans, and their families have submitted 14,100 complaints to the Bureau since its opening and have recovered more than $1 million. The volume of servicemember complaints has continued to increase over time, rising 148% from 2012 to 2013.
Notably, although “debt collection” was not added as a complaint category until July 2013, approximately 3,800 complaints received relate to collection practices. Nearly half of these complaints concern attempts to collect non-existent debts, with the remainder concerning improper collection tactics and procedural issues related to collection. The category that received the most complaints—approximately 4,700—was mortgage. Concerns raised relate primarily to practices undertaken when a borrower defaults, but also to loan origination and making payments. The remainder of the complaints received relate to consumer loans, private student loans, payday loans, credit cards, credit reporting, banking services, and money transfers. Along with debt collection practices, the report identifies payday loans—and specifically, compliance with the Military Lending Act’s interest-rate restrictions—as a point of focus for OSA.
On February 27, the U.S. House of Representatives passed H.R. 3193, a bill that would convert the CFPB into an independent Financial Product Safety Commission led by a five-member board and subject to annual appropriations. The bill aggregates five bills the House Financial Services Committee approved last November. The bill also would, among other things, establish new rulemaking procedures for the Commission and amend its data collection authority and processes. Rep. Gary Peters (D-MI) led the effort on behalf of the House Financial Services Committee minority to unify Democrats in opposition to the bill. His “dear colleague” letter urged fellow Democrats to “stand with consumers and oppose this flawed, unnecessary legislation to undo progress we’ve made since reforming Wall Street.” Ten Democrats joined 222 Republicans in the 232-182 vote that advanced the legislation. The Democratic-controlled Senate is unlikely to take up the measure, however.
On February 27, Federal Reserve Board Chairman Janet Yellen made her first appearance as Chair before the Senate Banking Committee. During the course of the question and answer session, Ms. Yellen responded to a recent letter from Senator Elizabeth Warren (D-MA) and Representative Elijah Cummings (D-MD) that encouraged the Federal Reserve Board to play a larger role in major supervisory and enforcement decisions, as opposed to delegating most examination and settlement responsibilities to staff. Chairman Yellen generally agreed that the Board itself should play a larger part in supervision and enforcement and stated that she “fully expects” the Board to make changes to its policies. She added that with regard to legislation recently introduced by Senators Elizabeth Warren and Tom Coburn (R-OK) that would require greater transparency in federal settlements, the Federal Reserve Board intends to look carefully at what it discloses about enforcement actions and settlements and will try to provide more disclosure. Among the numerous other topics covered during the hearing, Chairman Yellen also addressed virtual currency issues, stating the Federal Reserve Board currently has no authority to oversee virtual currency. Her comments followed a letter sent on February 26, 2014 by Banking Committee member Joe Manchin (D-WV) to federal financial and enforcement authorities asking for a complete ban on Bitcoin in the United States. Ms. Yellen stated that while Congress should consider the appropriate legal framework for virtual currency, “there’s no intersection at all in any way between Bitcoin and banks that the Federal Reserve has the ability to supervise and regulate. So the Federal Reserve simply does not have authority to supervise or regulate Bitcoin in any way.”
On February 26, Senators Jeff Merkley (D-OR), Elizabeth Warren (D-MA), and other Democratic Senators, together with Representatives Elijah Cummings (D-MD), Maxine Waters (D-CA), and other Democratic House members, sent a letter to Attorney General Eric Holder encouraging the DOJ to “continue a vigorous review of potential payment fraud, anti-money-laundering violations, and other illegal conduct involving payments by banks and third-party payment processors.” The lawmakers highlighted a number of specific issues on which the DOJ should focus: (i) know-your-customer obligations, which they believe should include a review of whether a lender holds all required state licenses and follows state lending laws; (ii) use of lead generators, including those that auction consumer data; (iii) high rates of returned, contested, or otherwise failed debits or the regular use of remotely created checks, which they state may indicate payment fraud; and (iv) lenders’ failure to incorporate or maintain a business presence in the U.S., which they assert can be indicative of fraud and other payment system violations, including money-laundering.
On February 27, the Senate Permanent Subcommittee on Investigations (PSI) issued a report and held a hearing related to its multi-year investigation of offshore tax evasion and the DOJ’s efforts to pursue Swiss banks who allegedly aid U.S. citizens in evading taxes. The hearing and report focused on one Swiss bank alleged to have facilitated tax evasion and criticized the DOJ for its supposedly “lax enforcement” approach towards numerous Swiss banks. The report states that U.S. law enforcement authorities have failed to prosecute more than a dozen Swiss banks the PSI staff believes facilitated U.S. tax evasion, and failed to take action against the thousands of U.S. citizens who have been revealed as tax evaders. The report also criticizes Swiss officials who the PSI alleges have worked to preserve Swiss bank secrecy by intervening in U.S. criminal investigations and hampering progress. The PSI report urges the DOJ to “use all available U.S. legal means” to obtain the names of alleged tax evaders, and to hold accountable “tax haven banks that aided and abetted” in the alleged evasion. The report also states that U.S. banking regulators should “institute a probationary period of increased reporting requirements for, or to limit the opening of new accounts by, tax haven banks that enter into deferred prosecution agreements, non-prosecution agreements, settlements, or other concluding actions with law enforcement for facilitating U.S. tax evasion, taking into consideration repetitive or cumulative misconduct.” Finally, the subcommittee recommended that the Senate promptly ratify a pending U.S.-Switzerland tax treaty that would allow for increased sharing of information by the Swiss.
On February 25, the FDIC issued FIL-9-2014 to notify supervised institutions of new consumer compliance examination procedures for the mortgage rules issued pursuant to the Dodd-Frank Act, that took effect nearly two months ago. FDIC examiners will use the revised interagency procedures to evaluate institutions’ compliance with the new mortgage rules. The FDIC states that during initial compliance examinations, FDIC examiners will expect institutions to be familiar with the mortgage rules’ requirements and have a plan for implementing the requirements. Those plans should contain “clear timeframes and benchmarks” for updating compliance management systems and relevant compliance programs. “FDIC examiners will consider the overall compliance efforts of an institution and take into account progress the institution has made in implementing its plan.”