Developments at the Consumer Financial Protection Bureau

May 12, 2015 – June 9, 2015

Julius L. (“Jerry”) Loeser and Wayne Abernathy

 

1.On May 8, The Hill reported that Senator Elizabeth Warren (D-MA) is drafting legislation that would give the CFPB authority over automobile dealers.  Such dealers are currently exempt by statute from CFPB jurisdiction.   In a speech in April, Senator Warren equated the automobile loan industry to the pre-2008  housing industry and characterized auto loans as “the most troubled consumer financial product.”  Although the CFPB takes the position that auto loans originated by auto dealers on behalf of indirect lenders are subject to its jurisdiction, Senator Warren suggested in the April speech that the exemption for auto dealers is why auto loans are such a troubled product.  Legislation introduced by Congressman Frank Guinta (R-NH) and co-sponsored by 40 Congressmen, including 19 Democrats, would provide that the CFPB has no authority over auto loans originated by auto dealers.

2.On May 11, the Assistant Director of the CFPB’s Office of Supervision Policy, Peggy Twohig, at an event hosted by U. S. PIRG, spoke about the CFPB’s approach to regulating “big data.”  She said that the fact that legislators have not enacted laws addressing the subject is not a significant impediment to CFPB action against misusers of data as current laws, such as the FCRA and ECOA, as well as UDAAP prohibitions, apply.  However, she expressed concern that it is not always clear where marketing ends and eligibility decisions begin under FCRA, and ECOA is limited to credit decisions.

3.Also on May 11, the CFPB issued a bulletin to mortgage lenders, guidance  on avoiding discrimination against those receiving public assistance.  The bulletin cautions against discriminating against recipients of Section 8 Housing Choice vouchers. The CFPB suggests that some lenders, in underwriting mortgage loan applications, are automatically declining to consider such vouchers as income for purposes of all mortgage loan products and delivery channels.

4.On May 12, the Office of Inspector General of the CFPB  expressed the view that the CFPB’s Civil Penalty Fund complies with the Improper Payments Information Act, which requires agency heads periodically to review programs and identify those that may be susceptible to improper payments.  For FY 2014, the Fund disbursed $957,772 to harmed consumers.

5.Also on May 12, CFPB Director Cordray addressed the National Association of Realtors and dispelled rumors that the August 1, 2015 effective date of its Truth in Lending Act- Real Estate Settlement Procedures Act integrated disclosure rule would be delayed.  However, a survey conducted by Capsilon Corp. found that 41% of mortgage lenders will not be ready by August 1.  Those lenders reportedly are hiring additional staff to get into compliance, which has the effect of increasing mortgage loan production costs. Only 12% reported that they were “very prepared.”

6.Also on May 12, the CFPB and FTC settled their over-charging or “cramming” claims in the Southern District of New York against Verizon for $90 million and Sprint for $68 million.  The agencies had asserted that the communications companies had imposed charges on telephone bills for apps, games, and other things that customers had not really bought.  Allegedly consumers were tricked into making purchases by clicking onto on-line ads or providing their phone numbers in exchange for supposedly free content.  In other cases, fabricated charges were placed on phone bills.  The companies had outsourced payment processing for these things to payment processors that they apparently did not closely monitor.  The wireless companies received 30% - 40% of the revenue from the cramming.   Of the aggregate settlement of $158 million, $120 million was to be returned to consumers, $28 million was to go to State governments, and $10 million to the U. S. Treasury.  The Sprint Corp case no. is 14 –cv-09931.

7.On May 13, the CFPB extended the  comment period on its review of the consumer credit card market from May 18 to June 17, 2015.

8.On May 14, the House Financial Services Committee’s Subcommittee on Housing and Insurance held a hearing on the CFPB’s new TILA-RESPA integrated disclosure rule.  Members called for the CFPB to provide a grace period from enforcement of the new rule which becomes effective August 1, 2015.  Committee Chairman Blaine Luetkemeyer (R-MO) had written to CFPB Director Cordray asking that the CFPB allow a period of restrained enforcement until January 1, 2016, but Director Cordray responded that the CFPB had considered a January 1, 2016 effective date, but rejected it and chosen August 1, 2015 because the industry had competing operational requirements on January 1, and August  traditionally had a slower pace of applications.  Subcommittee member Steve Pearce (R-NM) has introduced a bill (H. R. 2213) co-sponsored by Congressman Brad Sherman (D-CA) to provide a temporary enforcement safe harbor of the rule until January 1, 2016.  There appears to be concern that the new rule may, like the CFPB’s “QM Rule,” drive lenders out of the market as to comply with the new rules a lender would need two sets of programming, one that it will turn off on July 31, and the other that it would turn on August 1.

9.Also on May 14, the CFPB announced that it is looking into servicing by student lenders, particularly how distressed borrowers are treated.  It simultaneously announced re-launch of an on-line tool to help student loan borrowers consider options for affordable repayment.  It also held a public field hearing in Milwaukee that date at which an Under Secretary of Education, Ted Mitchell, set a goal of a zero default rate on student loans.  CFPB Director Cordray spoke and asked whether servicers were making repayment more complex and costlier by applying payments in a manner to maximize fees or delay full repayment.  He also asked whether, when loans are sold, servicers forward sufficient information to the buyer.  He suggested that perhaps reforms that the CFPB has made to mortgage lending, in the areas of payment handling, loan transfers, error resolution, counseling, and treatment of distressed borrowers, should be made to student lending.  Consumer advocate panelists supported providing counseling to student loan borrowers.  They also suggested private enforcement actions against student loan servicers and the promulgation of servicing standards for such servicers.  The sole industry panelist noted that most student loan borrowers are not in default and the majority of those who are in default had dropped out of school.  He suggested that student loan eligibility at a school be conditioned on the availability of financial literacy courses at that school.  Financial aid representatives urged modernizations of the Telephone Consumer Protection Act which limits the ability of a firm to contact someone by phone, impeding the ability of student loan servicers to call borrowers and offer them solutions.  An audience member urged that servicemembers be permitted to defer repayment of student loans during deployment.

10.On May 15, Housing Wire published an article “Nationwide Biweekly Claims CFPB Suit Contains Multiple Errors” about a defendant’s response to a pending enforcement action by the CFPB.  The CFPB had accused Nationwide Biweekly Administration of misrepresenting savings that consumers may realize by using its biweekly mortgage payment program, e.g. falsely promising consumers that they can achieve savings without increasing their payments, falsely promising immediate savings that actually take years to achieve, misleading consumers about the costs of the program, and falsely claiming to be affiliated with mortgage lenders and servicers.  The company asserts that the CFPB did not contact the company before suing, but that the CFPB claims are demonstrably erroneous on the face of the company’s marketing materials.

11.On May 19, the CFPB filed a complaint and proposed consent order against PayPal, Inc. for allegedly illegally signing up consumers for an online credit product.  The CFPB alleged that PayPal deceptively advertised  promotional benefits (e.g. $10 promised credit toward purchases, deferred interest) that it did not honor, signed up for the credit product consumers only wishing to open a PayPal account or cancel the application process, forced consumers to use PayPal credit instead of other payment methods preferred by the consumers (e.g. linked credit card or checking accounts), and then failed to post payments properly (e.g. imposed late fees and interest charges when consumers were unable to make payments because of website failures), lost payment checks, and mishandled billing disputes.  The CFPB asserted that tens of thousands of consumers had these issues.  PayPal agreed to pay $15 million in redress to consumers and $10 million to the CFPB’s Civil Penalty Fund.

12.On May 19, U. S. Senator David Perdue (R-GA) introduced legislation, the Consumer Financial Protection Bureau Accountability Act of 2015, that would bring the CFPB under the Congressional appropriations process.

13.Also on May 19, U. S. District Judge William Pauley (U. S. D. C.  S. D. N.Y.), presiding over the case the CFPB brought against Sprint Corp, said he would not approve the proposed settlement unless the parties provided him more details on its fairness.  The CFPB and Sprint had filed a one sentence joint motion without any memorandum of law or declarations.  Judge Pauley noted that “[i]t is especially ironic, given the Bureau’s core mission as described on its website to ‘give consumers the information they need to understand the terms of their agreements.’”  Some federal judges have complained that parties seeking court approval of settlements have treated judges as little more than rubber stamps.

14.On May 20, the CFPB  announced the launch of its Financial Coaching Initiative, placing 60 certified financial coaches (accredited by the Association for Financial Counseling and Planning Education) around the country to help recently-transitioned veterans and economically vulnerable consumers.  250,000 servicemembers leave active duty every year.  The Department of Defense offers a Transitional Assistance Program (TAP) which develops financial plans for returning servicemembers, but, later, those plans may need to be reworked.  The 60 financial coaches will be hosted by 60 nonprofits or U. S. Department of Labor American Job Centers, all selected by the CFPB and U. S. Department of Labor.  It appears that the program will be funded by the CFPB’s Civil Penalty Fund.

15.Also on May 20, the Milwaukee Journal Sentinel reported that the CFPB has told Fiserv, Inc. to turn over data on overdraft fees charged by credit unions.  A spokeswoman for the CFPB explained that Fiserv is one of three large financial data processors (another is FIS Global) from which the CFPB is seeking data in order to compare overdraft fees among various sizes of financial institutions.

16.Also on May 20, Promontory Financial Group announced that it acquired  the consulting arm of Fenway Summer, founded in 2013 by former CFPB Deputy Director Raj Date.  Mr. Date will become a senior adviser to Promontory.

17.On May 21, more than 50 Democratic Congressmen wrote to CFPB Director Cordray asking the CFPB to ban mandatory arbitration clauses in consumer financial contracts.  In March, 2015, the CFPB released a report of its study of such clauses; that study found that such clauses provided consumers with little price benefit, but have helped lenders avoid costly class action litigation and also theoretically helped lenders avoid product improvements that might have been required by such class actions.

18.On May 22, the CFPB issued its semi-annual rulemaking agenda.  The CFPB characterized nine rules as “major initiatives:” HMDA, TILA-RESPA, mortgage rule follow-up, prepaid financial products, payday, overdrafts, larger participants in auto lending, debt collection, and arbitration.

19.On May 28,  credit reporting agency Clarity Services released a report  that found that payday loan rules contemplated by the CFPB would reduce the number of regulated loans by 70 percent and would further result in the closing of all storefront payday lending offices.  The prior week, global consulting firm Charles River Associates released a study that suggested that the CFPB rules being considered would reduce the number of payday loans by 82 percent.  The CFPB released a framework for payday lending regulation in March, at which time the CFPB said that such rules could affect payday lenders “particularly severely.”

20.Also on May 28, it was reported that the CFPB and the U. S. Department of Justice had charged Provident Funding Associates with discrimination against African-American and Hispanic borrowers.  Provident allegedly charged higher broker fees to minorities and agreed to pay $9 million in damages.  Provident set a risk-based interest rate and paid mortgage brokers some of the increased  interest revenue from higher rates and also allowed brokers discretion to charge borrowers higher fees unrelated to creditworthiness, thereby causing differences in fees charged to minorities and non-minorities.

21.On May 29, Fiserv sent an e-mail message to its clients advising that the CFPB recently issued an order requiring Fiserv to provide the CFPB anonymized data about 60 data elements (not including  bank name, location, or other identifying information) of each of its clients’ system settings pertaining to overdraft programs.  Data elements sought include  how an overdraft’s duration is measured and how fees are assessed.  The CFPB assured Fiserv that the request was for research purposes only.  Fiserv plans on responding on or about August 15, 2015.  Fiserv estimated that it will require thousands of hours of effort to comply with the CFPB request, costs that the CFPB declines to fund out of its budget, but that Fiserv says it will likely pass on to its bank clients in amounts it will estimate by the end of August.

22.On June 1, the CFPB, working with the Securities and Exchange Commission, released a five-page guide to help seniors in their financial planning.

23.Also on June 1, the Inspectors General of the FDIC, Federal Reserve, U. S. Department of Treasury, and NCUA issued a formal joint assessment of coordination in how the CFPB and the prudential bank regulators are carrying out their responsibilities.  The assessment found that the agencies were generally coordinating.  They heard of no significant complaints from financial institutions about information requests from the CFPB.  The did conclude that there were opportunities for improved coordination, particularly

  • Conducting additional simultaneous examinations,
  • Better communicating matters identified in draft supervisory letters among regulators,
  • Establishing a framework to address the potential for conflicting supervisory determinations,
  • Developing a standard CFPB process for notifying the prudential regulators of violations, and
  • Timely notifying prudential regulators of CFPB information requests to their regulated banks.

24.On June 2, the CFPB  invited those with student debt distress stories, such as payment processing problems, servicing transfer snags, or breakdowns in communications, to share their stories by joining the CFPB’s “Thunderclap,” a website enabling a consumer to “pledge a message from [his or her] social account to all of [his or her] followers on the same day and time that others will be sharing the message.”    Previously, the CFPB adopted a policy to publish consumer complaint narratives despite concerns about the accuracy of such narratives, and this invitation appears to be in that same vein of promoting the communication of consumer information irrespective of concerns about accuracy.

25.Also on June 2, at a Senate Finance Committee hearing on the data breach at the Internal Revenue Service (IRS) that affected taxpayer accounts, Senator Michael Enzi (R-WY) expressed privacy concern about the CFPB which he said is “collecting everything.”  Noting that people are worried about the National Security Administration, he said that “[t]hey ought to worry about the [CFPB]” and the possibility for a data security breach.  Mentioning the flyer from the CFPB that he received in his tax refund envelope, he also criticized the solicitation of Americans’ stories about their money by the CFPB, what he called advertising of the CFPB using what otherwise would become taxpayer dollars.  IRS Commissioner John Koskinen promised to get Senator Enzi details on who paid for the flyer and why it was mailed to taxpayers.

26.Also on June 2, the Federal Trade Commission and the Office of New York State Attorney General announced that the speakers at a June 15 “Debt Collection Dialogue” they will host in Buffalo will include Greg Nodler, the CFPB’s Senior Counsel for Enforcement Policy and Strategy.

27.Also on June 2, The Hill published an article entitled “Real Reason Behind CFPB’s New Payday Regs” by Brian J. Wise, the  senior adviser to the U. S. Consumer Coalition.  Last month, the CFPB issued a “framework” for a possible rule regulating small short-term loans, including payday loans.  At the outset, Mr. Wise noted that such loans account for less than five percent of complaints received by the CFPB.  He charged that the framework was issued at the behest of a Martin Eakes, the Chief Executive Officer and founder of Self-Help Enterprises, whom Mr. Wise suggests is a “major Democrat Party operative.”  Apparently, Self-Help Enterprises and its affiliates compete with payday lenders using lower cost funding from the U. S. Treasury’s Community Development Financial Institutions (CDFI) Fund.  According to Mr. Wise, Mr. Eakes co-founded the Center for Responsible Lending (CRL) which spent more than $2.1 million on Washington lobbyists between 2008 and 2010.  The first president of CRL, Mark Pearce, was appointed by President Obama to  lead the Consumer Protection Division at the FDIC, where he supposedly promoted Operation Choke Point, the controversial effort to choke off banking services to disfavored businesses such as payday lenders.

28.On June 3, the CFPB announced  that its Consumer Advisory Board would meet with Director Cordray in Omaha, Nebraska on June 18 from 10 a.m. to 4 p.m. CST to discuss small dollar loans, such as payday loans, and trends and “themes” in consumer financial markets.

29.Also on June 3, CFPB Director Cordray wrote to 250 Congressmen who, in May, had asked him to delay the August 1, 2015 effective date of the CFPB’s new Truth in Lending Act – Real Estate Settlement Procedures Act integrated disclosure rule by five months.  Director Cordray said that, while the CFPB will consider a firm’s good faith efforts to comply, the CFPB will not provide a formal grace period for compliance.  While that gives lenders assurance from the CFPB, it will not protect lenders against private plaintiffs.  It is said that August is the peak of the home buying season.

30.Also on June 3, the CFPB announced the launch of a nationwide initiative to provide financial counseling services to  disabled workers.  It is called “ROADS” (Reach Outcomes. Achieve Dreams. Succeed.) and will operate in six communities (Austin, Texas; Birmingham, Alabama; Finger Lakes, New York; Seattle, Washington;  throughout Delaware; and the Washington, D.C. Metro Area), using 19 participating organizations.

31.On June 4, the CFPB filed a complaint against RPM Mortgage, Inc. and its Chief Executive Officer for unlawfully paying bonuses and higher commissions to loan originators to steer consumers into mortgages with higher interest rates in violation of the CFPB’s Loan Originator Compensation Rule.  Under a consent order, RPM would pay $18 million in redress to consumers and a $1 million penalty, as would its CEO.  RPM allegedly filtered the payments through so-called “employee-expense accounts.”

32.Also on June 4, the CFPB released  the results of a study on reverse mortgage advertisements.  The results suggested that consumers were confused, believing that the mortgages were government benefits or that the mortgages would enable the consumers to stay in their homes the rest of their lives.  The CFPB also issued an advisory on the subject.  The CFPB interviewed a total of 60 consumers in three cities.

33.Also on June 4, CFPB Director Cordray issued his decision on the first appeal of an administrative action to him.  The appeal was by PHH Corp., a mortgage company that allegedly engaged in receipt of unlawful kickbacks in violation of the Real Estate Settlement Procedures Act.  Director Cordray upheld an administrative law judge’s  finding that PHH’s conduct was unlawful, but Director Cordray increased the penalty from $6.4 million to $109 million.  The administrative law judge had imposed a penalty for each affected mortgage that PHH closed after July 21, 2008, but Director Cordray concluded that PHH should be penalized for each unlawful payment it received after that date, including on mortgages closed before that date.  The payments to PHH were in the form of mortgage reinsurance premiums paid to PHH insurance affiliates by mortgage insurers to which PHH had referred borrowers.  Those premiums represented 40 percent of the insurance premiums that consumers paid to the original insurers.  Mortgage insurance premiums are paid monthly by consumers, not in lump sums at closing, and that was the basis of Director Cordray’s decision.  PHH had stopped providing reinsurance in 2009.  PHH said that it will appeal the decision to a federal court of appeals in 30 days. 

34.Also on June 4, 32 Senate Democrats, led by Senators Jeff Merkley (D-OR), Dick Durbin (D-IL), and Chris Coons (D-DE) wrote to CFPB Director Cordray urging that any CFPB rules addressing payday lending impose meaningful ability-to-pay standards.   The letter cited a CFPB study for the finding that 75 percent of loan fees on payday loans derive from consumers with more than ten transactions in 12 months.  A framework issued by the CFPB in March suggested giving lenders the option of debt trap prevention (ability to pay) rules or debt trap protection (limit loans to $500 with only one finance charge and no vehicle title as collateral) rules.

35.On June 5, BloombergBusiness reported that anticipated CFPB overdraft rules will not cap overdraft fees or limit their frequency.  The CFPB has been studying bank overdrafts for more than three years.  This news report suggested that the CFPB may prohibit banks from processing checks in an order designed to maximize overdraft fees (large to small) and also may require  improved disclosures to consumers.  A CFPB spokeswoman said that no decisions have been made yet.