Debt Collection and Beyond in 2015

Aaron-Mahler Walt-Zalenski John Redding captionIn 2015, the CFPB further expanded its reach into debt collection through a number of enforcement actions. The CFPB also continues to conduct research on a potential rulemaking regarding debt collection activities, which may address information accuracy concerns involving debt sales and other collection activity, as well as many other issues regarding how creditors collect their own debts and oversee collectors working on their behalf. In addition to CFPB activity, this year’s Madden v. Midland Funding, LLC decision has important implications beyond the debt collection industry. Finally, developments regarding the Telephone Consumer Protection Act (TCPA) and collections will likely be of interest to regulatory agencies in the new year.

Debt Sale Consent Orders and Regulatory Guidance

Among the CFPB enforcement actions relevant to debt collection in 2015 were two consent orders with large debt buyers. These orders resolved allegations that the debt buyers, among other things, engaged in robo-signing, sued (or threatened to sue) on stale debt, made inaccurate statements to consumers, and engaged in other allegedly illegal collection practices. In particular, the CFPB criticized the practice of purchasing debts without obtaining supporting documentation or information, or taking sufficient steps to verify the accuracy of the amounts claimed due before commencing collection activities. Under the consent orders, one company agreed to provide up to $42 million in consumer refunds, pay a $10 million civil money penalty, and cease collecting on a portfolio of consumer debt with a face value of over $125 million. The second company agreed to provide $19 million in restitution, pay an $8 million civil money penalty, and cease collecting on a consumer debt portfolio with a face value of more than $3 million. In addition, both companies agreed to refrain from reselling consumer debt more generally. Read more…

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Year in Review: Auto Finance and the CFPB in 2015

Amanda Raines Lawrence caption John Redding captionThe auto finance industry gained a new regulator in 2015 with the publication of the CFPB’s larger participant rule, which, for the first time, allows the Bureau to supervise larger non-bank auto finance companies. In this new compliance environment, larger participants would be prudent to examine past bulletins and consent orders executed by the CFPB to proactively prepare for examinations and enforcements in the coming year.

Regulation by Bulletins and Consent Orders

CPFB Bulletin 2013-02, which set forth the CFPB’s initial views regarding the risk under the Equal Credit Opportunity Act associated with “allowing” dealers the discretion to “mark up” the rates of customers’ retail installment sale contracts, provided a basis for two 2015 consent orders. Broadly speaking, the Bulletin noted two possible ways auto finance creditors could mitigate their risk – eliminating dealer discretion or monitoring for disparities in dealer discretion and then providing customer remediation for such disparities. Read more…

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The CFPB’s Mortgage Originations Agenda in 2016

John Kromer captionMichelle Rogers captionBen-Olson-captionNow more than ever, financial services firms need to proactively focus on issues of concern identified by the CFPB and ensure that they are engaged in industry best practices that are clearly identified and carefully monitored. In the mortgage originations sphere, the new TRID/ KBYO rule, MSAs, LO compensation, UDAAP, and fair lending are all issues for companies to focus on in the coming year.

TRID/KBYO

Compliance with the new TILA-RESPA Integrated Disclosure/Know Before You Owe (TRID/KBYO) rule will likely be an area of Bureau concern in 2016. The rule took effect on October 3, 2015 and does not include a “hold harmless” period for errors as lenders implement the new disclosure requirements, although letters from the OCC, FDIC, and CFPB have clarified that regulators will focus in the beginning on institutions’ implementation plans, training, and handling of early technical problems. It is likely that the CFPB will require remediation back to the rule’s compliance date when it identifies tangible consumer harm, but it is unlikely that the Bureau will bring enforcement actions initially based on technical issues where there is no tangible consumer harm.

GSEs have also issued letters stating they will not perform TRID/KBYO compliance file reviews at the beginning of the implementation period. The GSEs further stated that it will not exercise its repurchase and other remedies unless (1) a required form is not used or (2) a practice would impair its enforcement of its rights against borrowers.  In contrast, the FHA has stated that it expects lenders to comply with “all federal, state, and local laws, rules, and requirements applicable to the mortgage transaction as outlined in [the] FHA Handbook….” Read more…

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Spotlight on the Military Lending Act, Part 3: Falling in Line with MLA Compliance

Sasha-LeonhardtWith recent changes in the regulations implementing the Military Lending Act (“MLA”), creditors are now reevaluating their compliance plans to ensure they are prepared for the new regulations.  Although there is no formal guidance on what federal regulators will look for in reviewing MLA compliance, the commentary that accompanied both the proposed and final rule gives some insight as to where regulators will focus examination and enforcement resources.  Below, we discuss some of these likely areas of focus, and offer suggestions for how institutions can prepare for regulatory scrutiny.

Determining military service and MLA safe harbor provisions

The MLA only applies to a “covered borrower,” which is either a servicemember (as defined under the MLA) or a servicemember’s dependent.  The MLA provides two safe harbors to determine if a consumer is a covered borrower:  (1) a set of results from the DoD’s MLA database, or (2) a military status indicator in a consumer report.

Although both of these approaches are optional—and a creditor may use a different method to determine if an individual is eligible for MLA protection—they provide several benefits.  They are both determinative, so even if the borrower is in fact a servicemember a safe harbor check that shows otherwise will govern.  Both checks can also be done without
inconveniencing the consumer or requiring them to attest to their military status.

However, these safe harbor approaches are only effective if the results are actually retained by the creditor.  Since military status checks must be performed at origination, we recommend that the results of these checks be retained with the origination documents.  Not only does the outcome of the military status check determine the substantive terms of the actual credit obligation, but by keeping all of these documents together, a creditor can ensure that they have all of the governing origination documents are in a single, secure location. Read more…

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Spotlight on the Military Lending Act, Part 2: Planning for Compliance

Andrew-Grant-captionManley-Williams-caption Ben-Olson-captionCompliance with the revised Department of Defense (“DoD”) regulations under the Military Lending Act (“MLA”) is not mandatory until October 3, 2016 or, for most credit cards, until October 3, 2017.  However, as the recent implementation of the Dodd-Frank Act mortgage regulations shows, a year or even two can pass quickly.  Therefore, institutions should begin planning now.  The following are answers to three key questions that can help you start the planning process.

  1. Which products will be covered by the revised MLA regulations?

The revised MLA regulations apply far beyond the narrow range of small dollar loan products covered today.  Instead, reflecting the DoD’s desire to match to the definition of consumer credit under the Truth in Lending Act’s Regulation Z, the MLA regulations will apply to credit offered or extended to a covered borrower that is:

  • Primarily for personal, family, or household purposes; and
  • Either subject to a finance charge or payable by a written agreement in more than four installments.

However, the following types of credit are excluded:

  • Residential mortgages: Transactions secured by an interest in a dwelling, including a transaction to finance the purchase or initial construction of the dwelling.
  • Secured motor vehicle purchase loans: Transactions that are expressly intended to finance the purchase of a motor vehicle and are secured by that vehicle.
  • Secured personal property purchase loans: Transactions that are expressly intended to finance the purchase of personal property and are secured by that property.
  • TILA-exempt transactions: Transactions that are exempt from Regulation Z (other than pursuant to a State exemption under 12 CFR § 1026.29) or otherwise not subject to disclosure requirements under Regulation Z.

Accordingly, the revised MLA regulations should not affect most mortgage, auto, or commercial lending.  The new regulations will, however, apply to most credit card accounts, overdraft or personal lines of credit, unsecured closed-end loans, and deposit advance products.  Therefore, institutions should focus on preparing the lines of business responsible for these products for compliance with the revised MLA regulations. Read more…

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