Developments at the Consumer Financial Protection Bureau

November 17, 2014 – December 9, 2014

Julius L. (“Jerry”) Loeser

  1. On November 17,  the GAO  reported the results of its audit of the CFPB’s financial statements for 2014 and 2013.  Although the report found that the financial statements were presented fairly, in all material respects, in accordance with GAAP, the GAO did find that the CFPB’s internal  control over financial reporting was not effective because of a material weakness in internal control over reporting accounts payable.  The report also discussed a continuing significant deficiency in the CFPB’s internal control over property and equipment.
  2. Also on November 17, Holly Petraeus, the CFPB’s Assistant Director of the Office of Servicemember Affairs, co-authored a blog post with Rohit Chopra, the CFPB’s Student Loan Ombudsman, urging 100% service-disabled veterans to take advantage of federal student loan forgiveness under a program offered by the Department of Education.  They urged such veterans to ensure that their student loan servicer providers correct information to the credit bureaus in order to avoid damage to their credit records.
  3. Also on November 17, the CFPB’s Ombudsman issued her third annual report.  It reflects a number of concerns expressed by the industry, such as a lack of clarity as to the identity of CFPB points of contact, broad examination information requests, how supervision and enforcement work together, and where to obtain interpretations.
  4. Also on November 17, the CFPB issued its fiscal 2014 Financial Report.  The report indicates that 45% of the agency’s employees are in its Supervision, Enforcement, and Fair Lending Division.
  5. On November 18, the U. S. Attorney for Manhattan said that a large investigation of “an absolute epidemic of abusive debt-collection practices” is ongoing by the CFPB, the FTC, and his office.  The context was his office’s announcement of criminal wire fraud charges against a Norcross, Georgia-based debt collection company, Williams, Scott & Associates, its owner, and six of its employees.
  6. Also on November 18, the CFPB and the Federal Reserve Board co-hosted  a fourth webinar on the final TILA-RESPA disclosure rule that goes into effect next August.  This webinar focused on the Closing Disclosure.
  7. Also on November 18, the American Financial Services Association (AFSA) released a study of the method that the CFPB uses to find unlawful discrimination in auto lending.  That method is called Bayesian Improved Surname Geocoding (“BISG”), and it uses  a loan applicant’s surname and zip code as a proxy for race and ethnicity.  The AFSA study applied BISG to residential mortgage loans as to which race and ethnicity are reported under the Home Mortgage Disclosure Act.  It found that BISG identified only 24.2% of actual African-American loan applicants and also produced 22.4% false positives, i.e. identified many non-African-Americans as African-Americans.  Thus, AFSA suggests that BISG may significantly overstate the existence of unlawful discrimination.
  8. On November 19, Reuters reported  that a survey by Aptean of financial services executives showed that 73% of respondents experienced an increase in regulatory compliance costs  since the CFPB began.  Ninety-two percent expected costs to continue increasing, and 54%  predicted increased complaint volume, with none expecting a decrease in complaints.
  9. Also on November 19, the CFPB issued a bulletin warning lenders not to discriminate against  borrowers receiving Social Security disability income.  The Social Security Administration (SSA) will not provide lenders documentation as to how long such benefits may last and, for those relying on such income to qualify for a mortgage, that can be a challenge.  The CFPB suggested that requiring unnecessary documentation on this subject could increase fair lending risk, but the CFPB’s ability to re-pay rule requires lenders to verify income in order to measure Qualified Mortgage debt-to-income ratios.  The CFPB bulletin suggests that, unless the SSA specifically states that benefits will expire in three years, a lender should presume they will continue.
  10. Also on November 19, the FDIC released a technical assistance video, the first in a series of three, on the CFPB’s mortgage rules.  The video addresses the CFPB’s ability to repay rule.
  11. Also on November 19, the CFPB announced the imposition of an $8 million fine on DriverTime Automotive Group, a company that owns auto dealers, and its financing arm, DT Acceptance Corp. The firms allegedly used overly aggressive debt collection practices and also were careless about ensuring the accuracy of consumer credit information.
  12. On November 20, the U.S. Attorney in Manhattan said he is working with the CFPB and FTC to look into payday lenders as potential targets as his office has targeted a debt settlement company and a debt collection company.  Previously it had been reported that his office had asked a grand jury to subpoena a Kansas-based payday lender, AMG Services Inc.
  13. Also on November 20,  the CFPB announced that it is considering new foreclosure protections for struggling homeowners.  The proposal would  permit borrowers to seek loss mitigation more than once, which would help borrowers who suffer multiple unrelated hardships.  These protections would be in the form of amendments to the CFPB’s 2013 mortgage servicing rules.  The amendments cover nine major topics, including forced place insurance.
  14. Also on November 20, CFPB Director Cordray addressed The Clearing House, choosing as his subject electronic payments networks.  He expressed concern about unauthorized charges to consumers’ accounts and data breaches.  He cited statistics that return rates on credit card, auto loan, and mortgage payments average 1% or less, but return rates on payday loan payments  average 25%, which may be attributable to online lenders repeatedly sending automatic debits to collect payments.  He urged that banks do a better job of accepting unscrupulous lenders and their payment processors as clients.  He also expressed concern about what he called a “lack of transparency,” by which he meant uncertainty as to when  deposited funds would be available for use and when some payments (e.g. checks) will be debited or posted, leading to overdrafts and fees.  Third, he expressed concern about the  essentially 3% “tax” imposed on the low-income unbanked to cash checks or purchase money orders.  Finally, he urged the  Clearing House to build a faster real-time payment system as quickly as possible, giving consumers quicker access to their funds and real-time access to information about their accounts, with no fees for authorizations declined for insufficient funds and with rights for consumers to dispute unauthorized transactions and with access for all.
  15. On November 21, the Washington Times published a story about an internal survey of the  CFPB workforce.  Responses to 41 of 75 questions reflected worsening employee opinions of morale at the CFPB.  Nonetheless, some responses reflected satisfaction higher than federal government averages.  The most unfavorable responses concerned reviews, proper recognition from management, employee empowerment, the ability of employees to rise in the organization, and satisfaction with senior leaders’ policies and practices.
  16. On November 25, the CFPB announced it would hold a field hearing in Oklahoma City on medical debt collection on December 11.  Often such field hearings are accompanied by announcements of proposed regulations on the subject of the hearing, which suggests that the CFPB may propose regulations on medical debt collection at that time.
  17. On November 28, Toyota Motor Credit Corp (TMCC), in a filing with the SEC, disclosed that it had received a letter from the CFPB and the U. S. Department of Justice advising that the two agencies were prepared to commence an enforcement action against TMCC unless TMCC agrees to a voluntary satisfactory solution of concerns that the agencies have that TMCC engaged in unlawful discrimination in pricing of loans.
  18. On December 1, the CFPB announced that it would host its first Research on Consumer Finance conference May 7-8 2015.  It encourages the submission of research on consumer decision-making, how various types of credit affect household well-being, consumer financial markets,  “distinct” and underserved populations, and innovations in modeling or data. One purpose of the conference will be to connect researchers and policy-makers.  The announcement listed a “scientific committee” of 15 academics including Robert Shiller of Yale University.
  19. On December 2, American Honda Finance Corp. announced in an SEC filing that the CFPB and DoJ have authorized an enforcement action  against it for unlawful discrimination in the pricing of auto loans through dealerships unless the company agrees to a voluntary satisfactory solution, like that suggested by the TMCC experience reported above.
  20. Also on December 2, the Congressional Budget Office issued a Cost Estimate for H. R. 4662, the Bureau Advisory Opinion Act that would direct the CFPB to respond to specific inquiries about whether prospective activities comply with consumer financial laws, after providing a notice and comment period.  The CBO estimated that would increase spending by the CFPB by $815 million over ten years, assuming that, as the CFPB estimated, it would receive 5,000 inquiries a year.
  21. On December 4,  the CFPB published a notice in the Federal Register indicating that the CFPB is developing a form for companies to use to “proactively participate” in the CFPB’s online portal for viewing and answering consumer complaints.  Comments are due by February 2, 2015.
  22. Also on December 4, the CFPB announced  that it has asked a U. S. District Court to enter a consent order requiring New Jersey-based Premier Consulting Group LLC to pay a $69,075 fine for charging customers upfront fees for debt settlement services that the customers never received, in violation of the FTC’s telemarketing sales rule.  The funds represented by the fine  may be payable to affected consumers.