On September 21, the CFPB announced that it had filed five separate administrative actions against online auto title lenders formed in and operating out of Arizona. In the Notice of Charges to each company, the CFPB alleges that the lender violated the Truth in Lending Act by advertising periodic interest rates on their websites without including a corresponding annual percentage rate (APR). In one case, the lender had provided a monthly rate, and instructed consumers to multiply it by 12, but failed to inform consumers that the sum would be the APR. The CFPB is seeking monetary penalties and administrative orders to correct the alleged practices.
On September 20, the CEO of a major national bank faced questions from the House Financial Services Committee over consumer account practices uncovered during a recent enforcement action by the CFPB. The CEO will return to Capitol Hill on September 29 for additional testimony in front of the Committee. In addition, the Director of the CFPB and the Comptroller of the Currency faced scrutiny from the Senate Committee on Banking, Housing & Urban Affairs on their agencies awareness of, and failure to prohibit, the bank’s alleged actions for more than two years. In prepared testimony, Director Cordray indicated that the civil penalty levied against the bank was the “largest fine by far that the Consumer Bureau has imposed on any financial company to date” calling it a “dramatic amount as compared to the actual financial harm to consumers” but also “justified here by the outrageous and abusive nature of these fraudulent practices on such an enormous scale.” Director Cordray further stated that this enforcement action should help clarify how the CFPB will continue to analyze and enforce the prohibition on “abusive” practices under its mandate. Meanwhile Comptroller Curry explained how this enforcement action demonstrates the complimentary roles played by the OCC and the CFPB in supervising bank practices.
CFPB Imposes $8 Million Civil Penalty on For-Profit Company over Allegedly Deceptive Student Lending Practices
On September 12, the CFPB entered into a consent order with a San Diego-based for-profit education company to resolve allegations that its student lending practices were deceptive in violation of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Starting in 2009, the company, which owns two for-profit colleges, has operated an in-house institutional-lending program (Program). The CFPB alleged that under the Program thousands of students borrowed in the aggregate approximately $23,544,184, of which the company collected more than $4,900,000 in principle and interest, with more than $18,000,000 in debt remaining outstanding. The company claimed that, through the Program, students could repay their loans with a minimum monthly payment of $25; the CFPB contends, however, that the company’s marketing practices were deceptive because the typical loan payments under the Program exceeded $25. Pursuant to the consent order, the company must (i) provide cancellation of $18.5 million in existing student debt and pay $5 million in redress directly to affected students; (ii) ensure that students utilize the CFPB’s newly released Electronic Financial Impact Platform, which ultimately generates a customized disclosure for students regarding, among other things, finance offerings available and estimated post-graduate expenses; (iii) stop making allegedly misleading statements regarding students’ monthly payment obligations; (iv) remove any negative information that was reported to consumer-reporting agencies; and (v) pay an $8 million civil penalty.
On September 13, the House Financial Services Committee approved by a 30-26 vote the Financial CHOICE Act, Congressman Jeb Hensarling’s (R-TX) legislative replacement to the Dodd-Frank Act. In his opening remarks, Hensarling claimed that the bill aims to end bailouts, support economic growth, and provide regulatory relief to community banks. House Democrats did not offer amendments to the bill, although many expressed adamant disapproval. Congresswoman Carolyn Maloney (D-NY) claimed that the “deeply disturbing” legislation “would take us back to the regulatory stone age.” Various Democrats referenced the CFPB’s recent enforcement action against a national bank to argue that the Financial CHOICE Act’s attempt to remove the CFPB’s authority over abusive practices was one of many reasons to oppose the bill. Democrats unanimously voted against the legislation, while all but one Republican, Congressman Bruce Poliquin (R-ME), voted in favor of moving the legislation forward.
On September 9, the Credit Union National Association (CUNA) sent a letter to the CFPB regarding the CFPB’s initial outline of the proposed rule for third party debt collectors. The letter asserts that, since the Fair Debt Collection Practices Act (FDCPA) was enacted, credit unions have been exempt from the statute’s rules and that to extend any rulemaking pursuant to the statute to include credit unions would be “unlawful.” The CUNA distinguishes credit unions from for-profit debt collectors subject to the FDCPA, claiming that credit unions’ collection approach is more holistic: “They are not just interested in short-term efforts of collecting a debt; instead, they try to find out the specific cause of their member’s financial challenge.” The CUNA is concerned that certain aspects of the CFPB’s proposal as outlined, including the “highlight technical substantiation and oversight requirements,” would negatively impact credit unions. The CUNA reminded the CFPB that pursuant to the Small Business Regulatory Enforcement Fairness Act (SBREFA), it is required to consider the recommendations in its letter before finalizing any rule.