Developments at the Consumer Financial Protection Bureau

August 13, 2014 – September 9, 2014

Jerry Loeser, Todd Zywicki, and Asheesh Agarwal

 

  1. On August 13, the CFPB entered into a consent order against USA Discounters, a privately held company that operates a chain of retail stores selling furniture, electronics, bedding, and appliances  from storefronts mostly located near military installations.  Some purchases of its wares were financed by USA Discounters through retail installment sales contracts.  A “Military Services Addendum” to such contracts had servicemembers  engaging the services of an independent company to represent the servicemember in matters  related to compliance with the Servicemembers Civil Relief Act, including receipt of notices to which the servicemember might be lawfully entitled.  USA Discounters collected a $5.00 fee ($350,000 in the aggregate) from each servicemember debtor to pay the independent company for its representative services and remitted $4.50 to the independent company in each case.  The independent company’s sole source of revenue was customers of USA Discounters, but it did not appear that the independent company ever actually performed any actual services for servicemembers.  USA Discounters did not seek verifications of military status from the independent company, but rather  performed its own verifications.  Similarly, USA Discounters never sent notices to the independent company for servicemembers.  Thus, the CFPB deemed the independent company’s services  for which servicemembers were charged “illusory” and USA Discounters’ practices unfair and deceptive.  The Consent Order imposed a $50,000 fine and required  $350,000 in refunds.
  2. On August 15, the CFPB issued an amendment to its Regulation Z reflecting its annual calculation of dollar amounts for certain provisions in Regulation Z based on changes in the Consumer Price Index.
  3. On August 18, the Financial Services Roundtable, a trade association representing the largest financial services companies, announced that it was launching a multimedia campaign highlighting the CFPB’s plan to post unverified anonymous and potentially inaccurate complaints about financial services companies on its website.  The FSR noted that last year 70% of such complaints were resolved with a simple clarification to the consumer.
  4. On August 19, the CFPB issued a compliance bulletin and policy guidance to residential mortgage servicers directing their attention to potential risks that arise when servicing rights are transferred.  A high volume of transfers continues.  The CFPB said that it will require informational plans in some cases of “significant servicing transfers.”  The CFPB’s focus is on the transfer of all necessary documents and information during the transfer of servicing rights and the  proper evaluation of applications for loss mitigation.
  5. Also on August 19, the Boston Globe reported that the jurisdiction with the most consumer complaints to the CFPB was Washington, D.C. with 123 complaints per 100,000 residents.  Delaware and Maryland ranked second and third.  The complaints were analyzed by ValuePenguin.com.
  6. Also on August 19, the Washington Examiner published an article entitled “Revolving Door at Regulator CFPB Enables Former Bureaucrats to Cash In at Taxpayers’ Expense.”  The article reports on a number of CFPB executives who have left the CFPB to work for banks, consulting firms, and law firms and suggests that they now appear to be personally benefitting financially from the regulations they crafted while working at the CFPB.  The article expressly disclaims positing that these executives served anyone but the public while at the CFPB.
  7. On August 20, the CFPB published a  notice in the Federal Register announcing that the CFPB is proposing a new information collection titled “Teacher Training Initiative (TTI) Local Education Agencies (LEA) Partnership Application.”  The effort would design and implement a model for training K-12 teachers to teach financial education concepts in their curricula.
  8. Also on August 20, the CFPB filed a consent order it issued against First Investor Financial Services Group, Inc. (“FIFSGI”), a Texas-based company that takes assignments of retail installment sales contracts from motor vehicle dealers and makes direct loans to consumers, many of whom have impaired credit profiles.  FIFSGI furnished information to consumer reporting agencies on as many as 118,855 accounts in the standard industry-accepted format (“Metro 2”) for the electronic reporting of credit information.  In 2011, FIFSGI allegedly learned that it was inaccurately reporting customer payment history, but it did not correct that practice for nine months during which it knowingly reported inaccurate payment history on between approximately 12,000 and 15,000 accounts every month.  FIFSGI allegedly also learned in 2011 that it was also inaccurately reporting initial delinquency dates, but took no action to remedy the problem for 20 months and then did not correct the problem for 32 months, adversely affecting between approximately 1,600 and 8,000 accounts every month.  Also in 2011, allegedly FIFSGI was systematically overstating past due amounts, but took no action for 20 months and continued the misreporting for 26 months knowingly adversely affecting between 1,300 and 2,700 accounts every month.  In 2012, allegedly FIFSGI learned that it was systematically under-reporting the amount that many of its customers were paying, yet that practice continued for seven months, adversely affecting between approximately 4,100 and 10,000 accounts monthly.  Finally, allegedly FIFSGI learned in 2012 that it was erroneously reporting voluntary surrenders of vehicles as involuntary repossessions, yet continued that practice for 12 months.  FIFSGI consented to a payment of a $2.75 million civil money penalty to the CFPB.
  9. Also on August 20, the CFPB and the Federal Trade Commission filed an amicus brief in Hernandez v. Williams, Zinman & Parham, P.C. pending in the Ninth Circuit U. S. Court of Appeals.  The case concerned a provision in the Fair Debt Collection Practices Act requiring debt collectors to provide, either in the debt collector’s initial communication or within five days thereafter, to consumers “validation notices” containing certain information about their alleged debts and their rights.  The District Court had ruled that only the initial debt collector needs to provide the validation notice and that subsequent debt collectors need not do so.  The CFPB/FTC amicus brief argues that each debt collector must provide the notice.
  10. On August 21, Senator Tom Udall (D-NM) released a letter that he and five other Democrat Senators (Senators Richard Blumenthal (D-CT), Mazie Hirono (D-HI), Tim Kaine (D-VA), Ed Markey (D-MA), and Mark Warner (D-VA)) wrote to CFPB Director Cordray and FTC Chairwoman Ramirez asking that the CFPB do more to protect servicemembers from  abusive loan contracts and particularly that the CFPB adopt regulations under the Fair Debt Collection Practices Act to do so.  The Senators cited a Pro Publica report that USA Discounters was suing servicemembers in courts far distant from where the servicemembers are stationed.  The Senators suggested that this practice was “unfair,” and, thus, within the authority of the CFPB to prohibit, whether done by a debt collection firm or an original creditor.  
  11. Also on August 21,  the CFPB announced the names of 12 firms that would participate in a pilot program it will conduct testing electronic closing of residential mortgages.  The list includes five vendors and seven creditors, including Flagstar Bank and Boeing Employees Credit Union.  The program will not take effect until August, 2015.
  12. On August 22,  the CFPB joined the prudential bank regulators in issuing an Interagency Guidance Regarding Unfair or Deceptive Credit Practices.   The Guidance explains that, while the prudential regulators’ credit practices rules are being repealed, those agencies continue to have supervisory and enforcement authority against such practices, including those set forth in the repealed rules.
  13. On August 25, the CFPB extended by five years to June 21, 2020 a temporary exception in its remittance rule.  The temporary exception permits senders to estimate fees charged by the receiving institution.  The CFPB’s remittance rule requires that firms sending wire transfers abroad for consumers disclose exchange rates and fees charged by third parties.
  14. Also on August 25, the CFPB filed a complaint in the U. S. District Court for the Central District of California against an Oklahoma-based debt-settlement payment processor, Global Client Solutions and its owners.  The processor allegedly helped other firms collect illegal upfront fees from consumers.  A rule prohibits debt-settlement companies from charging  consumers advance fees before settling any of their debts.  The defendants consented to stop these activities and to pay more than $6 million in relief to consumers and a $1 million civil penalty.  This appeared to be the second such action that the CFPB has brought against a debt-settlement payment processor.
  15. Also on August 25, Corinthian Colleges Inc., Santa Ana, California, a for-profit operator of colleges that is being shut down as a consequence of the U. S. Department of Education’s suspension of student aid, reported in a regulatory filing that the CFPB barred its attempted August 20 sale of student loans based on alleged violations of the Dodd-Frank Act and the Fair Debt Collection Practices Act.  Corinthian served approximately 72,000 students at 107 campuses, but was accused of falsifying job placement and marketing data, leading to its plan to close or sell its campuses.  The CFPB apparently has conditioned settlement talks on Corinthian (a) ceasing the transfer of private student loans, (b) agreeing to inform the CFPB of potential sales of assets, and (c) providing students more information about the possible sale or shut-down of its campuses.
  16. On August 26, the CFPB announced it had entered into a “Joint Higher Education Memorandum of Understanding” with the Department of Veterans Affairs, Defense Department, and Department of Education.  The purpose of the MoU is to prevent deceptive recruiting of servicemembers by schools.
  17. Also on August 26, the CFPB  held a webinar on its final TILA-RESPA integrated disclosure rule which will not be effective until August 1, 2015.
  18. On August 27, the CFPB issued a report to promote financial wellness in the workplace.  Apparently, according to the CFPB, financial worries are cited by seven out of ten workers as their most common source of stress.  The report contains case studies that are designed to educate employers on how to improve employee financial health.
  19. On August 28, the CFPB announced that it will hold a field hearing on auto finance on September 18  in Indianapolis.  It is anticipated that the CFPB may issue a new regulation at that time subjecting larger non-bank auto lenders to CFPB jurisdiction.
  20. On August 29, the CU Times quoted from a new CFPB Office of Minority and Women Inclusion (OMWI) internal “Listening Session Report” that it had obtained.  The quotes suggested “complaints about inexperienced supervisors who either micromanage or undermanage their subordinates or ignore employee feedback, and the overabundance of high-pressure projects that are all deemed a priority.”  Director Cordray had directed OMWI to conduct staff listening sessions to address diversity in light of allegations of discrimination.  The report indicates that the CFPB has conducted 48 such sessions in the two months between April 23 and June 18 this year, and more than 300 of the CFPB’s 1,100 employees participated in such sessions.  All 1,100 employees were invited to attend.  The report cited complaints of “elitism, favoritism, lack of respect for everyone’s work, lack of civility, lack of appreciation of different work styles, perceptions of discrimination and lack of diversity in management throughout the bureau.”  The CFPB employees reportedly said that the result has been a “closed environment that was only open to a few select individuals and that others were left wondering how to get into the inner circle.”  The report also revealed that the CFPB has replaced its five-tier employee rating system with a new two-tier system, e.g. “solid performer” and “unacceptable.”
  21. Also on August 29, the CU Times reported that Scott Pluta, the manager of the CFPB’s Office of Consumer Response, which CFPB employees previously testified is nicknamed “the Plantation,” called a Congressional investigation into employment discrimination at the CFPB “political theater” that will eventually go away.  The news report indicates that, at a meeting of employees, he said that “[l]ast year there were 97 some odd thousand EEO complaints in the U.S.  Only one has resulted in a congressional hearing.”
  22. On September 3, the CFPB warned credit card issuers that “offers that lure in consumers and then hit them with surprise charges are against the law.”  The CFPB appears to be concerned about balance transfer promotions in which consumers pay no or low interest on the balance transferred, but may be required to pay full interest on new purchases unless they pay off the entire statement balance, including the transferred balance and the new purchases by the monthly billing due date.
  23. Also on September 3, the CFPB announced that its Consumer Advisory Board would meet on September 11 in Washington, D.C.  The meeting will consider technology, access to financial services, and “consumer engagement.”  The meeting is expected to be open to the public.
  24. On September 4, the Federal Register published a notice from the CFPB that the CFPB later this year will launch a “financial coaching” project for veterans and vulnerable consumers.   The CFPB hopes to “coach” tens of thousands over the next three years.  The notice is about data collection efforts associated with the program as the “coaches” will collect data about clients, evaluators will collect data about interviewees, and “coaches” and clients will self-report data.
  25. On September 8, Congressmen Marlin Stutzman (R-IN) and E. Perlmutter (D-CO) introduced H. R. 5403 which would invalidate the CFPB’s March, 2013 auto finance guidance and require the CFPB to proceed, if it chooses to do so, by rulemaking.