Developments at the Consumer Financial Protection Bureau

April 8, 2015 – May 11, 2015

Julius L. (“Jerry”) Loeser

1.On April 8, the President of the American Bankers Association wrote to CFPB Director Cordray expressing concern about the CFPB’s adoption of a final policy on publishing consumer complaint narratives and of giving companies complained about a set of form responses they could use to respond.  The ABA letter expresses concern that the use of a form response to what may be an emotional complaint letter will wrongly suggest that a company is indifferent to the consumer complaint.  It also suggests that companies be allowed to use their own form responses.  (The CFPB’s originally proposed policy would have permitted companies to provide their own responses.)

2.On April 9, PayPal Holdings Inc. disclosed in a report filed with the Securities and Exchange Commission that the CFPB has been investigating PayPal online credit products that enable borrowers to finance online purchasers at major retailers.  An enforcement action could be filed as earlier as this quarter.

3.Also on April 9, the CFPB filed an amicus brief in a Truth in Lending Act case pending in the Fifth Circuit on the issue whether a loan for the payment of property taxes is covered  by Regulation Z.  The lower court had ruled that it was not, but the CFPB argues that the arrangement constituted an “extension of credit” because the lender advanced funds to pay property taxes in exchange for the borrower’s promise to repay that advance with interest.

4.On April 14, the CFPB, working with the Navajo Nation, announced an enforcement action against a now-closed franchisee of H&R Block in New Mexico that prepared tax returns for,  and referred consumers to an affiliate that made tax-refund-anticipation loans to, consumers who qualified for the Earned Income Tax Credit.  The annual percentage rate (APR) on the loans exceeded 240%, but the lender disclosed a much lower APR estimating that refunds would be made in 45 days, when they were made on average in 12 days.  The tax preparers received bonuses for successful referrals, but did not disclose their financial interests in the referral, and the CFPB characterized that failure to disclose as “abusive.”  Finally, the defendants allegedly did not tell some borrowers when their tax refunds had been received and loans repaid, thereby causing such borrowers to have to take out additional loans.  The defendants were required to pay approximately $438,000 in redress to consumers and a penalty of $438,000.

5.Also on April 14, the CFPB approved adoption of a final rule, eventually adopted by the banking  agencies, FHFA and NCUA, that sets minimum standards for appraisal management companies that manage a minimum number of licensed appraisers.

6.On April 15, the CFPB issued a final rule governing how credit card issuers are to submit copies of their credit card agreements to the CFPB.  The rule temporarily, for one year, suspends the obligation to file such agreements quarterly.  During the suspension, the CFPB will work to streamline the submission process.  Currently the submission process is manual.  To ensure that its database remains current, during the suspension, CFPB staff will collect agreements from websites of the largest card issuers and post them on the CFPB database.  The CFPB card agreement database currently contains agreements from nearly 450 credit card issuers.

7.Also on April 15, the CFPB issued a final interpretive rule on how to provide mortgage applicants with a list of local homeownership counseling organizations.  Dodd-Frank requires  that mortgage lenders provide applicants with such a list shortly after they apply.  Lenders may use a CFPB online list or develop their own lists.  The interpretive rule assists those lenders choosing the latter option.

8.On April 20, the CFPB announced issuance of  a consent order against Fort Knox National Company and its subsidiary, Military Assistance Company, a “military allotment processor,” for charging servicemembers  undisclosed recurring fees (essentially inactivity fees charged against residual balances and fees for correspondence).  The military allotment system enables sevricemembers to deduct payments from their earnings to send money home and pay their bills.  Under the order, the defendants will pay $3.1 million to affected servicemembers.

9.Also on April 20, the CFPB announced that it would hold its first research conference on May 7 and 8, 2015 at the Bureau of Engraving and Printing.  The conference would be preceded by a public meeting of the CFPB’s Academic Research Council which will consider activities of consumer financial protection agencies in other countries.  The agenda of the conference itself includes a panel on shocks and consumer well-being; consumer learning and behavior change (which will consider a paper entitled “Small Victories: Creating Intrinsic Motivation in Task Completion with an Application to Debt-Repayment”); consumer background, knowledge, and expectations on financial outcomes; information and consumer decision-making (which includes consideration of a paper entitled “Unshrouding Effects on Demand for a Costly Add-on: Evidence from Bank Overdrafts in Turkey”); and supply of credit on consumer decision-making.  

10.On April 21, the CFPB announced with the Federal Trade Commission that Green Tree Servicing, LLC, a mortgage servicer from St, Paul, Minnesota, had agreed to pay $48 million in borrower restitution and a $15 million fine for (a) failing to honor loan modification requests on loans transferred from other servicers; (b) demanding payment before providing loss mitigation options; (c) delaying decisions on short sales, normally taking two months and sometimes as long as six months to respond; (d) making false threats of arrest and imprisonment to delinquent borrowers; (e) making repeated phone calls (seven to 20 a day; (f) revealing debts to employers; and misleading consumers into paying $12 each to make certain kinds of payments by telling them that a particular means of payment was the only method to ensure timely payment.  CFPB Director Cordray criticized Green Tree for “prioritizing collecting payments over helping homeowners.”

11.Also on April 21, the Office of Management and Budget issued a threat that it would recommend that the President veto a bill, H. R. 1195, that would reduce funding for the CFPB.  The bill would  require the Director of the CFPB to create a Small Business Advisory Council, but an amendment to the bill lowers the CFPB’s budget (which was $618.7 million in 2015) by $9 million over ten years.  The House Committee on Financial Services defended the amended bill as merely lowering the maximum amount that the CFPB could spend during two of the next ten years by 0.1%, the financial equivalent of tightening a family’s budget of $50,000 a year by $7 a year.  The bill is sponsored by Representatives Ann Wagner (R-TX), Blaine Luetkemeyer (R-MO), Patrick McHenry (R-NC), and Randy Neugebauer (R-TX).  Democratic co-sponsors Derek Kilmer (D-WA) and Denny Heck (D-WA) withdrew as co-sponsors when the amendment was adopted.

12.Also on April 21, in a blog post, the CFPB praised FICO’s announcement that it will make credit scores available to consumers through nonprofit financial counselors at no additional cost and also praised Experian’s agreement to allow such counselors to share credit reports with consumers.

13.On April 22, the American Banker published a story “Backlog Forces CFPB to Slow Down New Investigations,” citing multiple current and former officials at the CFPB who spoke off the record.  A spokesman for the CFPB acknowledged the slowdown, but attributed it to the fact that the CFPB inherited a number of then-pending investigations when it opened in 2011.  The Government Performance and Results Act requires the CFPB to report to Congress cases that go past two years, which forces enforcement attorneys to resolve outstanding investigations, which has the effect of “clearing the decks.”  A February report by the CFPB indicated that new supervision activities dropped from 160  to 127 in fiscal 2014, a drop of 21%.  The CFPB currently has more than 100 investigations open.

14.Also on April 22, the House of Representatives passed on an almost party line vote of 235-183   legislation that would require the CFPB to create a 15-20 member small business advisory board, including minority- and women-owned businesses and possibly veteran-owned businesses, but also cut the CFPB’s budget by $100 million over ten years.  The CFPB would otherwise be entitled to spend $6.7 billion over those ten years.  The White House has threatened to veto the bill.

15.Also on or about April 22, the Department of Justice released the Attorney-General’s 2014 Annual Report to Congress pursuant to the Equal Credit Opportunity Act, which included a description of  a complaint and consent order against Synchrony Bank f/k/a GE Capital Retail Bank accusing the bank of engaging in a  pattern of discrimination on the basis of national origin because it had excluded Hispanic borrowers from two credit card debt repayment programs if they had a mailing address in Puerto Rico or denoted Spanish as their preferred language, a matter which the Department investigated jointly with the CFPB.  The report also indicated that, at the end of 2014, the Department was conducting ten joint investigations with the CFPB, in five of which the parties were conducting settlement negotiations.  The report further indicated that it had received 18 referrals in 2014, 15 of which came from the CFPB; seven of those CFPB referrals were for discrimination based on race or national origin.

16.Also on April 22, CFPB Director Cordray spoke about student loans and campus financial products at the Ohio College Presidents’ Conference.  He estimated that eight million former students are in default on their student loans, and he criticized student loan servicers.  As to campus financial products he criticized colleges for not adequately disclosing on-line their marketing agreements with financial firms even though that is not legally required.

17.On April 27, the CFPB issued its third “snapshot” of more than 17,000 servicemember complaints it received in 2014.  The largest number of complaints concerned debt collection (39% of the total), and the next largest concerned mortgages (24%).  One recurring complaint resulted from changes in account terms, such as conversion of no-fee accounts to accounts with fees; because servicemembers may experience difficulty in receiving notices of such changes, they often are not aware of them.  Servicemembers may also encounter difficulty in resolving fee issues because they may lack access to a telephone and such issues are not resolvable by e-mail.  The “snapshot” also mentioned  difficulty that military spouses had accessing accounts of active duty servicemembers because the form of power of attorney they were using was not acceptable to the particular financial institution; the CFPB suggested that such institutions post on-line the power of attorney language they require.

18.On April 28, the CFPB  announced an enforcement action against Regions Bank, the first under overdraft fee rules.  The bank allegedly failed to ask consumers whether they wished overdrafts paid in the case of ATM withdrawals and one-time debit card transactions before charging the consumers fees for such payments.  Further, the CFPB alleged that the bank continued this practice for almost a year after discovering the violation although Regions did eventually self-report the problem to the CFPB.  In addition, supposedly the bank charged overdraft and non-sufficient fund fees on deposit advance products despite representing to consumers that it would not do so.  The CFPB reported that hundreds of thousands of consumers paid at least $49 million in illegal charges, which Regions had already refunded to customers.  Regions apparently charged overdraft fees where an overdrawn account was linked to another account which was then exhausted by the overdraft irrespective of its failure to obtain consumer consent.  The CFPB imposed a $7.5 million fine on Regions for this.

19.On April 29, the CFPB announced an enforcement action with the Attorney General of Maryland against Genuine Title (which went out of business in April, 2014)  and certain of its executives and loan officers who traded cash and marketing services for residential mortgage service referrals.  The cash was paid to companies created by the loan officers  and was in amounts ranging from $130,000 to $500,000.  The marketing services included purchasing, analyzing, and providing data on consumers and creating letters with loan officer contact information that Genuine printed, folded, stuffed into envelopes, and mailed.  The Real Estate Settlement Procedures Act (RESPA)  prohibits kickbacks for mortgage service referrals.  Five of the six individual defendants were banned from the mortgage industry and required to pay $662,500 in redress and penalties.  One defendant, Gary Klopp, will fight the charges.

20.Also on April 29, the CFPB’s Office of Minority and Women Inclusion (“OMWI”) released its third annual report.  The report indicates that agencies have completed a final diversity policy statement that is in the process of final approval at each agency.

21.On May 1, a divided panel of the D. C. Circuit U. S. Court of Appeals upheld the dismissal, on procedural grounds (i.e. standing), of a suit challenging the constitutionality of the CFPB in Morgan Drexen, Inc. v. CFPB. 

22.Also on May 1, the CFPB announced the settlement of an enforcement action against land developers for violations of the Interstate Land Sales Full Disclosure Act.  The developers allegedly made misrepresentations related to the maintenance of roads in a Tennessee property development.  A consent order requires the developers to repair the roads. 

23.On May 4, the CFPB announced that the last of its five webinars on the Truth in Lending Act – Real Estate Settlement Procedures Act (TILA-RESPA) integrated disclosures rule will be held May 26 to discuss operational and technology challenges.

24.Also on May 4, the CFPB partnered with the Financial Services Roundtable to host a discussion with financial institution executives about the need for educational efforts to address elder abuse and financial literacy.

25.On May 5, the CFPB published a report on credit reporting that concludes that 26 million consumers, one in every ten adults, has no reported credit history.  Nineteen million, eight percent of Americans, have credit records, but such records are insufficient to establish a credit score.  A limited credit history may result in not having a credit score.  The statistics suggest that many such persons are minorities or live in low-income neighborhoods.  A limited credit history may preclude access to credit.

26.Also on May 5, the CFPB settled an enforcement action against the owner of a Florida law firm, Hoffman Law Group, and two management service company (Nationwide Management Solutions, Inc.) executives.  The CFPB claimed that the firm collected more than five million dollars in illegal fees by recruiting homeowners into “mass-joinder” suits against mortgage lenders.  Allegedly, 1,200 underwater homeowners paid $6,000 each and $495 a month each to join the lawsuits, many of which were dismissed once they were eventually filed.  The owner and two executives of the firm each agreed to an $11.7 million “suspended judgment” to repay the fees and to pay penalties.

27.On May 6, Automotive News published an article noting that, while the CFPB’s above-mentioned April 27 “snapshot” of servicemember complaints indicates that complaints about auto loans were a small number, auto loans are the target  of a large number of CFPB enforcement actions.  The “snapshot” reflected 29,500 complaints, but only five percent of those related to consumer loans, a category that would encompass auto loans, as well as add-on products and credit insurance.  Nonetheless the “snapshot” highlighted enforcement actions in the auto loan area.

28.On May 7, it was announced that the United States Hispanic Chamber of Commerce and the Community Financial Services Association will host a May 13 policy and research summit in Washington, D.C. to discuss the CFPB’s proposals on payday and other short-term loans.  Congressman David Schweikert (R-AZ) and Professors Ronald Mann (Columbia Law School) and Jennifer Priestley (Kennesaw State University) will speak.