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.

Alleged Violations

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…

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CFPB Holds Field Hearing On Prepaid Products, Proposes New Rule

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.

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CFPB Fines Mortgage Lender for Violating Loan Originator Compensation Rule

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.

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CFPB Releases Report Highlighting Debt Collection Complaints Among Older Americans

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.

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Webinar Recap: Discussing “The New CFPB Mortgage Origination Rules Deskbook”

On October 28, 2014, BuckleySandler presented the webinar “Discussing The New CFPB Mortgage Origination Rules Deskbook.” Author Joe Reilly and contributors Joseph Kolar and Ben Olson discussed the need for the book and highlighted information from specific chapters. The webinar was moderated by Jeffrey Naimon. This webinar recap covers the highlights from their discussion. For more information about the CFPB Deskbook, including information on obtaining hard copies, email [email protected].

The purpose of the CFPB Deskbook is simple – consolidate in a clear, organized format, material from all of the many sources of regulatory guidance on the Consumer Financial Protection Bureau’s (CFPB) mortgage origination rules. Reilly described the CFPB rulemaking, done in such a short period of time, as “herculean.” However, this short time frame created a major need for clarifications, leading to the development of numerous non-rule sources.

“The number of sources [actual rules, preamble language, CFPB webinars, CFPB Small Entity Compliance Guides and more] cried out for a one-stop shop and that’s what I tried to create,” said Reilly.

Olson, former Deputy Assistant Director for the Office of Regulations at the CFPB, helped write many of the rules discussed in the CFPB Deskbook and finds a great deal of valuable in the book.

“You always wish after you publish a rule that you had said more,” said Olson. “The Bureau has tried to answer some of those questions, but answers can be hard to find. If the Bureau says something about it, it’s in the Deskbook.” Read more…

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CFPB Report Highlights Errors In Mortgage And Student Loan Servicing

On October 28, the CFPB released the fifth edition of its Supervisory Highlights report. The report highlighted the CFPB’s recent supervisory findings of regulatory violations and UDAAP violations relating to consumer reporting, debt collection, deposits, mortgage servicing and student loan servicing. The report also provided updated supervisory guidance regarding HMDA reporting relating to HMDA data resubmission standards.  With respect to consumer reporting, the report identified a variety of violations of FCRA Section 611 regarding dispute resolution.  The report noted findings of several FDCPA and UDAAP violations in connection with debt collection, including: (i) unlawful imposition of convenience fees; (ii) false threats of litigation; (iii) improper disclosures to third parties; and (iv) unfair practices with respect to debt sales.  For deposits, the report identified several Regulation E violations found, including: (i) error resolution violations; (ii) liability for unauthorized transfers; and (iii) notice deficiencies.   The report outlines four main compliance issues identified in the mortgage servicing industry: (i) new mortgage servicing rules regarding oversight of service providers; (ii) delays in finalizing permanent loan modifications;  (iii)  misleading borrowers about the status of permanent loan modifications; and (iv) inaccurate communications regarding short sales. Finally, the report outlines six practices at student loan servicers that could constitute UDAAP violations: (i) allocating the payments borrowers make to each loan, which results in minimum late fees on all loans and inevitable delinquent statuses; (ii) inflating the minimum payment due on periodic and online account statements; (iii) charging late fees when payments were received during the grace period; (iv) failing to give borrowers accurate information needed to deduct loan interest payments on tax filings; (v) providing false information regarding the “dischargeable” status of a loan in bankruptcy; and (vi) making  debt collection calls to borrowers outside appropriate hours.

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Special Alert: CFPB Finalizes Points-and-Fees Cure and Other Mortgage Rule Amendments

Last week, the CFPB finalized an important amendment to its ATR/QM Rule that provides a mechanism for curing points-and-fees overages on qualified mortgage (“QM”) loans, as well as more minor amendments to its mortgage origination and servicing rules.  The new rules, which were proposed in April, are detailed below.  The discussion below regarding the new origination rules, including the points-and-fees cure, will also appear with the American Bankers Association/BuckleySandler publication, The New CFPB Mortgage Origination Rules Deskbook.  (Click here for information about obtaining copies of the Deskbook.)

Click here to view the full special alert.

Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

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CFPB Finalizes Qualified Mortgage Points & Fees Cure

On October 22, the CFPB finalized targeted amendments to the Dodd-Frank Act mortgage rules that took effect in January 2014.  The amendments include:

  • Points and fees cure.  Under the Ability-to-Repay/Qualified Mortgage Rule, loans must meet certain requirements to receive “qualified mortgage” or “QM” status.  In particular, the points and fees charged to a consumer on a QM generally cannot exceed 3 percent of the loan amount.  The amendments permit a lender or secondary market purchaser that discovers, after the loan has closed, that the 3 percent cap was exceeded to retain QM status by refunding the excess amount to the consumer with interest. However, the refund must occur within 210 days after consummation and before the consumer files suit, provides written notice to the lender that the cap has been exceeded, or becomes 60 days past due.  In addition, the creditor must maintain and follow policies and procedures for reviewing points and fees and providing refunds to consumers. Although the CFPB stated that this amendment is intended to encourage lenders to provide access to credit to consumers seeking loans that are at or near the points and fees limit, the provision will expire on January 10, 2021.

Read more…

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CFPB Finalizes Rule To Limit Relief From Annual Privacy Notice Delivery Requirements

On October 20, the CFPB finalized its amendment to Regulation P, which requires that financial institutions meet specific consumer data-sharing requirements, including the delivery of annual privacy notices. Under the new rule, bank and nonbank institutions under the CFPB’s jurisdiction will now be allowed to post privacy notices online, rather than deliver an annual paper copy. Institutions that choose to post notices online must meet certain conditions, including (i) providing notice to consumers if the institution shares any data to third parties, in addition to providing an opportunity to opt out of such sharing; and, (ii) using the 2009 model disclosure form developed by federal regulatory agencies. The institutions that choose to rely on the new delivery method must (i) ensure that customers are aware of the notices posted online; (ii) provide paper copies within ten days of a customer’s request; and, (iii) make customers aware that the privacy notice(s) are available online—and that a paper copy will be provided at the customer’s request—by inserting a “clear and conspicuous statement at least once per year on an account statement, coupon book, or a notice or disclosure.” As outlined when the proposed rule was issued in May, the CFPB anticipates that the rule will: (i) provide consumers with constant access to privacy notices; (ii) limit the amount of an institution’s data sharing with third parties; (iii) educate consumers on the various types of privacy policies available to them; and, (iv) reduce the cost for companies to provide privacy notices.

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CFPB Proposes Language Access Plan To Provide Services In Non-English Languages

On October 23, the CFPB announced its proposal for a Language Access Plan, continuing its efforts to provide non-English speaking persons access to its programs and services. The Language Access Plan “describes the Bureau’s policy and how the Bureau’s current language access activities are implemented across all of the Bureau’s operations, programs and services.” Comments on the proposed plan are due by January 6, 2015.

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BuckleySandler & PLI Release 2015 Edition of “Consumer Financial Services Answer Book”

BuckleySandler LLP is pleased to announce the availability of the 2015 edition of the “Consumer Financial Services Answer Book,” published by the Practising Law Institute. Twenty-one BuckleySandler attorneys contributed to 12 chapters in this leading desk reference, which uses an easy question and answer format to address matters involving consumer financial services law. BuckleySandler Partner Richard Gottlieb also served as lead editor, a role he has held since publication of the first annual edition in 2011.

The 2015 edition of this publication continues to provide practitioners with a core understanding of the laws governing consumer financial services, addressing the latest developments in Consumer Financial Services Bureau (CFPB) enforcement activities, regulations and guidelines, fair lending, auto lending, the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA), among others.

New chapters in the 2015 edition address:

  • Credit Cards
  • Electronic Records and eSignatures
  • Short-Term Lending
  • Unfair and Deceptive Acts and Practices (UDAAP)
  • Servicemembers Civil Relief Act (SCRA)
  • Telemarketing and the Telephone Consumer Protection Act (TCPA)

From compliance counseling to enforcement, BuckleySandler has been handling precedent-setting CFPB matters since the Bureau was established in 2011 — experiences which enabled its attorneys to contribute the added insight and advice on current and emerging CFPB developments, trends, and expectations for the Answer Book.

The Consumer Financial Services Answer Book is for sale in hard copy format by the Practising Law Institute at www.pli.edu.

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Webinar Recap: The CFPB’s Expanding Oversight of Auto Finance, Part I

On October 1, 2014, BuckleySandler hosted a webinar, The CFPB’s Expanding Oversight of Auto Finance, Part One. Through an examination of the Consumer Financial Protection Bureau’s (CFPB) authority, recent enforcement activities, and discussion of the exam process, Kirk Jensen, John Redding, Michelle Rogers, Marshall Bell and Lori Sommerfield explored the different areas of the auto finance industry coming into the CFPB’s focus.

BuckleySandler will present The CFPB’s Expanding Oversight of Auto Finance, Part Two on October 30, 2014.

Explaining the Larger Participant Rule

Since its creation, the CFPB has held statutory authority to supervise nonbank institutions who are “a larger participant of a market for other consumer financial products or services.” On September 17, 2014, the CFPB proposed a rule defining a market for “automobile financing” and “larger participants” within that market. Under this proposed rule:

  • A nonbank institution is a larger participant in the auto finance market if it “has at least 10,000 aggregate annual originations,” which includes:
    • Credit granted for the purpose of purchasing an automobile
    • Refinancings
    • Automobile leases
    • Purchases of extensions of credit and leases
  • An “automobile” includes any self-propelled vehicle used primarily for a consumer purpose for on-road transportation, except for certain identified vehicle types, including recreational vehicles, motor scooters and limited others
  • Affiliates are included in calculations but dealers are excluded

Read more…

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Proposed Changes to the TILA-RESPA Integrated Disclosure Rule

On October 10, the CFPB issued a proposal to modify and make technical amendments to the TILA-RESPA Integrated Disclosure Rule, issued in November of 2013. Specifically, the CFPB proposes to (i) relax the timing requirements associated with the redisclosure of interest rate dependent charges and loan terms after consumers lock in a floating interest rate, such that creditors would have until the next business day after a consumer locks in a floating interest rate to provide a revised disclosure; and (ii) add language to the Loan Estimate form that creditors could use to inform a consumer that the consumer may receive a revised Loan Estimate for a construction loan that is expected to take more than 60 days to settle. In addition, the Bureau proposes non-substantive changes such as technical corrections and corrected or updated citations and cross-references in the regulatory text and commentary, minor word changes throughout the regulatory text and commentary, and an amendment to the 2013 Loan Originator Rule, to provide for placement of the NMSR ID on the integrated disclosures. The CFPB is accepting comments on the proposed changes through November 10, 2014. The CFPB noted its intention to finalize the proposed amendments quickly in order to provide the industry adequate time to implement any resulting changes by August 1, 2015, the effective date of the TILA-RESPA Integrated Disclosure Rule.

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CFPB Report Analyzes Private Student Loan Borrowers’ Complaints

On October 16, the CFPB announced the findings of its annual student loan ombudsman report. Analyzing over 5,000 private student loan complaints that the CFPB received from October 1, 2013 through September 30, 2014, the report highlights the struggle private loan borrowers face in repaying their loans, noting that many are driven into default because practical repayment options are not available to them. The report outlines three main reasons why many private student loan borrowers default: (i) they are unaware of the loan modifications available to them; (ii) they do not have the same affordable options that federal student loan borrowers are entitled to by law; and (iii) the temporary forbearance options that some lenders offer often result in “burdensome enrollment fees and processing delays.” In connection with the report, the CFPB released a sample letter that consumers can edit and send to servicers to request lower monthly payments and information on available repayment plans, as well as a sample financial worksheet to assist borrowers to determine maximum funds available to pay their student loans.

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CFPB And FTC To Hold Roundtable On Debt Collection In The Latino Community

On October 23, the CFPB and the FTC will hold a roundtable to discuss the effects of debt collection and credit reporting in the Latino community. The event will focus on the customers with limited English proficiency, and is scheduled to take place from 9 a.m. to 5 p.m. in Long Beach, CA.

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