CFPB Issues Spring 2016 Rulemaking Agenda

On May 18, the CFPB released an overview of its Spring 2016 Rulemaking Agenda, which outlines the CFPB’s current initiatives. In addition to summarizing the CFPB’s recently released proposed rule to ban pre-dispute arbitration clauses in future consumer agreements, the agenda states that the CFPB expects to release this Summer (i) a Notice of Proposed Rulemaking regarding small dollar loan products, including payday loans and auto title loan; (ii) a rule to finalize its November 2014 proposed rule on prepaid products; (iii) a Notice of Proposed Rulemaking to provide clarity concerning its TRID Know Before You Owe mortgage rule; and (iv) a final rule to amend its 2014 proposed rule revising certain provisions of mortgage servicing requirements under RESPA and TILA. The agenda further comments on the CFPB’s oversight of (i) overdraft services on checking accounts, noting that the agency “is engaged in pre-rule making activities to consider potential regulation” of such services;  (ii) debt collection practices, observing that the agency is in the process of developing proposed rules to further regulate the industry; (iii) nonbank institutions, emphasizing the CFPB’s rulemaking efforts to further define larger participants of certain markets for consumer financial products and services; and (iv) mortgage markets, highlighting CFPB efforts to implement “critical consumer protections under the Dodd-Frank Act.” Finally, the agenda comments that the CFPB is in the “very early stages starting work to implement section 1071 of the Dodd-Frank Act, which amends the Equal Credit Opportunity Act to require financial institutions to report information concerning credit applications made by women-owned, minority-owned, and small businesses.”

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CFPB Takes Action Against Law Firm, its Partners, and Debt Buyer for Alleged FDCPA Violations

On April 25, the CFPB issued separate consent orders to a New Jersey-based law firm and two of the firm’s partners and a New Jersey-based debt buyer for alleged violations of the FDCPA and the Dodd-Frank Act. According to the CFPB, between 2009 and 2014, the law firm, which specializes in retail debt collection litigation, filed lawsuits on behalf of the debt buyer without having “sufficient documentation” to support “the original contracts underlying the alleged debts, documentation of the consumer’s alleged obligation, or the chain of title evidencing that the debt buyer actually owned the debt and thus had standing to sue the consumer.” The CFPB alleges that, among other things, (i) the law firm relied on an automated system and non-attorney staff to complete the initial review of data submitted by the debt buyer regarding consumers’ debt accounts; (ii) the debt buyer failed to require that the law firm complete an account-level review of the documents it submitted prior to filing suit; (iii) neither the debt buyer nor law firm obtained sufficient documentation evidencing the alleged debt and its transactional history; and (iv) the debt buyer and law firm collected debts and filed suits based on unreliable data. The CFPB further contends that the named partners had “managerial responsibility for the Firm and materially participated in the conduct of its debt-collection litigation practices.” In addition to the $1 million civil money penalty imposed on the law firm and the two partners and the $1.5 million civil money penalty imposed on the debt buyer, the consent orders prohibit the firm, the two named partners, and the debt buyer from filing suits or threatening to file suits without substantial evidence that the debt is accurate and enforceable and from using deceptive affidavits, including those that misrepresent the type of documentation reviewed and that the review was conducted by the actual person signing the affidavit.

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CFPB Takes Action Against Co-Founders of California Online Lead Aggregator

On April 21, the CFPB filed two complaints against individual operators of an online lead aggregator for their alleged involvement in the company’s practice of reselling consumers’ sensitive personal data to lenders and debt collectors without assessing the sources of this data, a practice the CFPB claims exposed consumers to the possibility that their personal data could be used for illegal purposes. In December 2015, the CFPB filed a complaint against the California-based company for allegedly buying and selling personal information from payday and installment loan applications without “properly vetting buyers and sellers.” The CFPB’s December complaint further alleged that, among other things, the company (i) knew or should have known that the lead generators in its network used false or misleading statements to obtain consumer information; and (ii) connected consumers with lenders that offered less favorable loan terms than were otherwise available, did not comply with state usury limits or claimed they were exempt from state regulation and jurisdiction. The most recently filed complaints charge the two individual operators with, among other things, “knowingly or recklessly provid[ing] substantial assistance to [the company] in its unfair and abusive acts and practices, in violation of [the Dodd-Frank Act].” This assistance allegedly enabled the company’s lead generators “to attract consumers with misleading statements and [take] unreasonable advantage of consumers’ lack of understanding of the material risks, costs, or conditions of the loan products for which they [applied].” The CFPB’s complaints against the individual operators seek monetary and injunctive relief, as well as civil money penalties.

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GAO Report Examines Effectiveness of the Financial Regulatory System

Recently, the Government Accountability Office (GAO) released a report on the effectiveness of the U.S. financial system’s existing regulatory structure. In examining the financial regulatory system, the GAO conducted a performance audit from April 2014 to February 2016, dividing the regulatory system into the following sectors based on the various agencies’ missions: (i) safety and soundness oversight of depository institutions; (ii) consumer protection oversight; (iii) securities and derivatives markets oversight; (iv) insurance oversight; and (v) systemic risk oversight. The GAO found that “[f]ragmentation and overlap have created inefficiencies in regulatory processes, inconsistencies in how regulators oversee similar types of institutions, and differences in the levels of protection afforded to consumers.” Based on its audit, the GAO concluded that the regulatory structure as it stands does not always guarantee (i) efficient and effective oversight; (ii) consistent financial oversight; and (iii) consistent consumer protections. The report further identified problems with the Financial Stability Oversight Council (FSOC) and the Office of Financial Research (OFR), which are regulatory groups created out of the Dodd-Frank Act to address gaps in systemic risk oversight. Specific problems highlighted in the GAO’s findings include: (i) potential missed opportunities and duplicative analyses as a result of the Federal Reserve’s and the OFR’s similar systemic risk monitoring goals but lack of key collaboration; (ii) a lack of reliance by FSOC on the Federal Reserve’s and the OFR’s systemic risk monitoring efforts; and (iii) limitations on FSOC’s authority to address broader systemic risks that are not specific to a particular entity. The GAO emphasized that, “[w]ithout congressional action it is unlikely that remaining fragmentation and overlap in the U.S. financial regulatory system can be reduced or that more effective and efficient oversight of financial institutions can be achieved.”

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CFPB Enters Proposed Final Judgment Against Student Debt Relief Company

On March 15, the CFPB filed a proposed Stipulated Final Judgment and Order in a California federal court against a California-based student debt relief company and its owner for alleged violations of the CFPA and the Telemarketing Sales Rule (TSR). In its December 2014 complaint, the CFPB alleged that the company violated the CFPA by (i) falsely misrepresenting itself as an affiliate of the Department of Education; (ii) charging consumers an upfront enrollment fee and a recurring monthly fee for “consultation” services; and (iii) deceiving consumers about the costs of their student loan debt relief services. The CFPB contended that the company violated the TSR by “primarily rel[ying] on a direct mailer and outbound telemarketing to attract consumers.” If approved by the court, the CFPB’s proposed consent order would require the company to (i) cease all operations within 45 days of the order’s effective date; (ii) stop enrolling consumers in its services and notify customers that it is ceasing operations; (iii) stop advertising, marketing, promoting, offering for sale, selling, or providing debt relief and student loan services; and (iv) ensure that borrowers confirm their income-driven repayment plans with the Department of Education and submit any necessary documentation for recertification or renewal. The order also imposes $8.2 million in damages, but the defendants will only be required to pay approximately $326,000 due to their inability to pay. Finally, the company will pay $1 to the CFPB’s Civil Money Penalty Fund, ensuring that consumers affected by the company’s practices are eligible for additional relief, if such relief becomes available in the future.

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