On April 15, the CFPB issued an interpretive rule clarifying requirements for providing a list of housing counselors to mortgage borrowers, as required under the Bureau’s 2013 Home Ownership and Equity Protection Act final rule. Among other things, the interpretive rule expounds upon how to provide applicants living abroad with homeownership counseling lists, permissible geolocation tools, conditions under which the homeownership counseling list may be combined with other disclosures, and determining which of the borrower’s addresses (e.g. current address, mailing address, or the address of the property securing the mortgage) should serve as the loan applicant’s location for purposes of generating the list. In addition to clarifying counselor qualifications for high-cost mortgage counseling and parameters, the interpretive rule also provides guidance regarding lender participation during the borrower’s housing counseling sessions to ensure that counselor independence and impartiality is preserved and to prevent violation of anti-steering provisions.
CFPB and Navajo Nation Partner in UDAAP Action Against Companies Involved in Alleged Tax Refund Scheme
On April 14, the CFPB along with the Navajo Nation jointly announced an enforcement action against two companies and their respective owners (Defendants) for running an alleged tax-refund scheme, marking the CFPB’s “first enforcement action taken in conjunction with a tribal government.” According to the complaint, the Defendants operated several tax-refund franchises in New Mexico and in the Navajo Nation territory in which clients were offered short-term, triple-digit APR loans secured by the consumer’s anticipated tax refund, also known as refund anticipation loans (“RALs”). The CFPB and Navajo Nation contend, among other things, that the Defendants (i) steered low-income and vulnerable consumers toward high-cost RALs; (ii) understated the APR of the RALs in disclosure agreements to consumers; and (iii) failed “to disclose that consumers’ tax refunds had been received and would soon be available, but instead persuaded consumers to take out additional RALs.” Under the terms of the proposed consent order, the Defendants would, among other things, (i) pay approximately $438,000 in total consumer redress, which consists of $256,267 in redress fees in addition to roughly $184,000 that has already been paid to affected consumers; (ii) incur $438,000 in civil money penalties; and (iii) be barred, for five years, from offering products associated with tax refunds. The consent order also would prohibit the Defendants from investing, financing, or working for an entity that offers tax refund products.
On April 15, the CFPB issued a final rule temporarily suspending credit card issuers’ obligation to submit their card agreements to the CFPB, as required by the Credit Card Accontability, Responsibility, and Disclosure Act (CARD Act). The CARD Act, as implemented by TILA and Reg. Z (12 C.F.R. 1026.58), requires credit card issuers to submit credit card agreements to the Bureau on a quarterly basis. The first submission was set to be the first business day on or after April 30, 2015, but under the one-year reprieve, credit card issuers will not be required to begin submitting credit card agreements to the Bureau until April 30, 2016. According to the CFPB, during the temporary suspension, the regulator will “work to develop a more streamlined and automated electronic submission system.” The CFPB contends that the new system will allow for easier submission of credit card agreements than the manual submission system currently in place. Other requirements in Section 1026.58, including the requirement that credit card issuers post their credit card agreements on their own public website, remain unaffected by the temporary suspension.
On April 9, the CFPB announced a consent order with a California-based mortgage lender, requiring the lender to pay a $250,000 civil money penalty for advertising that allegedly led customers to believe the company was affiliated with the U.S. government. According to the consent order, the advertisements used the names and logos of the VA and FHA, described loan products as part of a “distinctive program offered by the U.S. government,” and instructed consumers to call the “VA Interest Rate Reduction Department” at a phone number belonging to the mortgage lender, thus implying that the mailings were sent by government agencies. The CFPB further alleged that the advertisements misrepresented interest rates and estimated monthly payments, including whether the interest rate was fixed or variable, and that consumers who called the company were sometimes told that the lender was endorsed by the VA or FHA. The CFPB determined that the advertisements were deceptive and misleading in violation of the CFPA and the Mortgage Acts and Practices Rule (MAP Rule or Regulation N). The CFPB also alleged violations of TILA and Regulation Z for failing to include certain disclosures in the advertisements. In addition to the civil money penalty, the consent order requires the lender to submit a compliance plan to the CFPB and comply with additional record keeping, reporting, and compliance monitoring requirements.
CFPB Files Suit and Obtains Injunction Against Participants of Alleged Illegal Debt Collection Scheme
On April 8, the CFPB announced that it filed a lawsuit in the United States District Court for the Northern District of Georgia on March 26 against participants in an allegedly illegal debt collection operation, involving certain payment processors and a telephone broadcast service provider. The complaint alleges that several individuals and the companies they formed, based in New York and Georgia, attempted to collect debt that consumers did not owe or that the collectors were not authorized to collect. The complaint further alleges uses of harassing and deceptive techniques in violation of the CFPA and FDCPA. Specifically, the collectors allegedly placed robo-calls through a telephone broadcast service provider, also named in the complaint, to millions of consumers stating that the consumers had engaged in check fraud and threatening them with legal action if they did not provide payment information. The CFPB asserts that as a result, the debt collectors received millions of dollars in profits from the targeted consumers. The complaint also names certain payment processors used by the collectors to process payments from consumers. The CFPB obtained a preliminary injunction to halt the debt collection activities and freeze the assets of all defendants named in the lawsuit. Consistent with prior enforcement actions and guidance, the CFPB’s complaint in this matter underscores the importance of exercising thorough due diligence and ongoing oversight of third parties engaged to provide material services in connection with the offering or provision of a consumer financial product or service. For an in-depth analysis of the CFPB’s expanding scrutiny in this area, please see the recently published article Regulatory Blue Pencil: CFPB Guidance, Enforcement Actions Signal Expanding Focus on Vendor Management, authored by BuckleySandler Partner Elizabeth McGinn and Counsel Moorari Shah.
In April 2012, the Consumer Protection Financial Bureau issued Bulletin 2012-03, a guidance document setting forth the CFPB’s high-level expectations related to the engagement of third party service providers by supervised financial institutions. Since then, the Bureau has often referenced the Service Provider Bulletin in subsequent guidance and enforcement actions, but has not provided much in the way of detailed requirements for managing service providers. Despite the absence of strong guideposts, the CFPB has nonetheless sent unmistakable signals to highlight conduct which fails to meet the Bureau’s expectations on a variety of vendor relationship issues.
“The CFPB has voiced its dissatisfaction on a number of occasions with supervised entities that fail to perform adequate vendor oversight,” according to Elizabeth McGinn, Partner in the D.C. office of BuckleySandler. “In particular, nonbanks and service providers that are still coming up-to-speed on federal agency supervision and enforcement have to be alert and aware of important trends in recent enforcement actions that challenge outdated notions of vendor management.” Read more…
On March 31, the CFPB announced a new toolkit as part of its “Know Before You Owe” mortgage initiative. Designed to “help customers understand the nature and costs of real estate settlement services,” the step-by-step guide includes worksheets, checklists, and research tips for consumers. The new toolkit replaces an existing HUD booklet that creditors provide to mortgage applicants. The release of the toolkit precedes the August 1 effective date for the TILA/RESPA integrated disclosure rule, giving the industry “time to order and receive or print the new toolkit and integrate electronic versions into their mortgage origination systems.”
On March 30, the CFPB announced an enforcement action against a nationwide debt collection operation and its CEO for allegedly violating the FDCPA. The Bureau’s complaint alleges that the debt collection operation (i) posed as state or district attorneys by sending communication letters on prosecutors’ letterheads; (ii) threatened consumers with criminal prosecution for bounced checks before a state or district attorney had determined if a violation had occurred; and (iii) deceived consumers into believing that they must enroll in and pay for a financial education class to avoid potential criminal prosecution for bad checks. In addition to the $50,000 civil money penalty the company will pay, the proposed consent order requires that the debt collection operation: (i) end its deceptive communication practices; (ii) stop threatening customers with imprisonment; (iii) no longer use district attorney letterhead; and (iv) increase its supervision – to include state and district attorneys – of communicating with consumers about diversion programs.
On March 26, the CFPB announced that it is considering proposing a rule to “end payday debt traps” and released several related documents, including a fact sheet and an outline of the proposal that will be presented to a panel of small businesses pursuant to the Small Business Regulatory Enforcement Fairness Act (SBREFA). The proposal sets forth ability to repay requirements for “short-term” and “longer-term” loans, and then provides alternative options for lenders to provide both types of loans in lieu of complying with the general ability to repay requirements.
Under the SBREFA process, the CFPB first seeks input from a panel of small businesses that likely will be subject to the forthcoming rule. A report regarding the input of those reviewers is then created and considered by the CFPB before issuing its proposed rule.
Questions regarding the matters discussed in this Alert may be directed to the lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.
On March 19, the CFPB announced the publication of its Final Policy Statement on disclosure of complaint narratives. The Final Policy allows consumers who file complaints with the CFPB to “opt-in” to have the actual narrative of the complaint disclosed in the CFPB’s consumer complaint database, with private information scrubbed out of the narrative. Until now, the database contained only general information. The company identified in the complaint will have the option, for a 180 day period, to select from a pre-set list of structured responses to accompany the consumer complaint narrative. Further, the CFPB will disclose the consumer narrative when the company provides its public-facing response or after the company has been in receipt of the complaint for 60 calendar days, whichever occurs first. On the same day, the CFPB issued a Request For Information regarding the potential collection, identification, and sharing of consumer feedback specific to positive interactions with banks and non-banks in conjunction with the complaint handling process.
On March 17, the CFPB announced a Request for Information (RFI) seeking public comment on key aspects of the credit card market. This RFI is a part of a review mandated by the Credit Card Accountability, Responsibility, and Disclosure Act (the CARD Act)—a law passed in 2009 that requires the CFPB to conduct a review of the credit card market every two years. The review seeks feedback on how the credit card market has functioned over the last two years and the impact new credit card protections have had on consumers. Specifically, the review solicits input on the changing patterns of credit card agreement terms, unfair or deceptive practices within the credit card market, the use of third-party debt collection agencies, and how consumers understand credit card reward products. Information obtained from the review will culminate in a public report to Congress.
On March 12, the FTC announced its coordination with the CFPB to reauthorize for a three-year term their memorandum of understanding (MOU), which outlines the two agencies’ coordination under the Consumer Financial Protection Act. The interagency agreement outlines processes for, among other things, coordinated law enforcement activities, commencement of or settling investigations and actions and proceedings, intervention in law enforcement actions, consultation on rulemaking and guidelines, sharing supervisory information, sharing consumer complaint information, and coordination to minimize duplicative or burdensome oversight or administrative proceedings.
CFPB Releases Winter Issue of Supervisory Highlights, Schedules Date for Field Hearing on Payday Lending
On March 11, the CFPB released its seventh issuance of Supervisory Highlights, which highlights the CFPB’s supervision work completed between July 2014 and December 2014, detailing examination findings and observations in consumer reporting, debt collection, deposits, mortgage origination, and fair lending examinations. The winter issue also reveals recent supervisory resolutions reached in the areas of payday lending, mortgage servicing, and mortgage origination have resulted in remediation of approximately $19.4 million to more than 92,000 consumers during the time reported. Other notable information included within the report is the addition of Credit Card Account Management examination procedures to the CFPB’s Supervision and Examination Manual. In a separate announcement, the CFPB also announced it will host a field hearing on payday lending, scheduled for Thursday, March 26 in Richmond, VA.
On March 10, the CFPB announced the release of its final arbitration study, accompanied by a fact sheet, to coincide with its field hearing held in Newark, NJ. The study examined approximately 850 consumer financial agreements, of which almost 50% were credit card agreements, to analyze the prevalence of arbitration clauses and their terms. Among other data, the Bureau also reviewed over 1,800 arbitration disputes, more than 3,400 individual federal court lawsuits, 42,000 credit card cases filed in small claims court, and 420 class action settlements filed in federal courts.
On March 4, the CFPB Office of Inspector General (OIG) issued a report on its audit of the CFPB’s diversity and inclusion efforts, which was completed at Congress’s request. The report outlines its findings, noting that while the Bureau has worked to create a diverse and inclusive environment, there are four main areas where its efforts could be improved: (i) currently, diversity and inclusion training is not mandatory for employees, senior managers, and supervisors; (ii) ongoing issues exist in connection with data quality in the CFPB’s tracking of potential diversity and inclusion concerns; (iii) the diversity and inclusion strategic plan should incorporate opportunities “to strengthen supervisors’ and senior managers’ accountability for implementing diversity and inclusion initiatives and human resources-related policies;” and (iv) an official succession planning process should be implemented to ensure that candidates applying for senior management positions are diverse. The OIG made several recommendations that are intended to further enhance the Bureau’s “monitoring and promotion of diversity and inclusion,” and the CFPB has since approved new standard operating procedures to address these recommendations.