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The CFPB has issued its third annual Plain Writing Act compliance report. Under the PWA, federal “executive agencies,” including the CFPB, are required to use plain language in documents that: are necessary for obtaining information about a federal government benefit or service or filing taxes; provide information about a federal government benefit or service; or explain to the public how to comply with a requirement that the federal government administers or enforces.
The report discusses the CFPB’s efforts to comply with the PWA and promote the use of plain writing in its communications. Those efforts include:
- Adoption of plain language “as a core principal” for all of the CFPB’s printed and online consumer-facing content.
- Although the PWA does not apply to regulations, making available plain language summaries of the CFPB’s proposed or final consumer protection regulations (with the CFPB citing to the summaries it has issued in connection with its mortgage and remittance transfer rules)
- For technical or specialized documents that target a specific audience, publishing plain language summaries of such documents when the CFPB believes they will impact consumers’ behavior or understanding of their rights under federal consumer financial laws.
In an unexpected move earlier this week, the FDIC issued a Financial Institution Letter announcing that it was withdrawing the list of “risky” merchant categories that was included in prior guidance on account relationships with third-party payment processors. Among the listed categories were payday loans and money transfer networks.
At the House Financial Services Committee hearing last week on “Operation Choke Point,” committee members voiced industry charges that FDIC examiners have been using the list to intimidate banks into terminating relationships with companies in the listed categories regardless of whether such companies were engaged in legitimate activities and operating lawfully.
For more on the FDIC’s action, see our legal alert.
The Government Accountability Office (GAO) has issued a report on the results of its review the CFPB’s Civil Penalty Fund (CPF). The review was requested by Representative Shelley Moore Capito, who chairs the House Financial Services Committee’s Subcommittee on Financial Institutions and Consumer Credit.
Section 1017 of the Dodd-Frank Act established in the Federal Reserve a separate “Consumer Financial Protection Bureau Civil Penalty Fund.” When the CFPB collects civil penalties in an enforcement action, it is required to deposit them in the CPF. The funds are first to be used to compensate consumers who were harmed by the activities for which civil penalties were imposed. If funds remain after the CFPB has provided full compensation to all eligible victims or if payments to victims are impracticable because victims cannot be located or it is otherwise impracticable to pay victims, the CFPB can use the funds for consumer education and financial literacy programs.
The report indicates that as of May 30, 2014, the CFPB had collected more than $139 million in civil penalties and allocated over $31 million to compensate seven classes of harmed victims. It also made one allocation of $13.4 million for consumer education and financial literacy programs, with funds in such allocations designated for a program that provides financial coaching for transitioning veterans and economically vulnerable consumers. (Based on the numbers shown in the report, which include a set-aside of approximately $1.5 million for administrative expenses to administer payments to victims, the CPF had more than $93 million in unallocated funds as of May 30, 2014.)
The report describes the CFPB’s process for collecting and allocating CPF amounts to victims and consumer education and financial literacy program. It also describes the internal controls the CFPB has put in place for administering and monitoring the CPF. There is also a discussion of the similarities and differences that exist between the CPF and the civil penalty funds of the three other federal agencies with statutory authority to deposit the civil money penalties they collect into a fund. (Those agencies are the Commodity Futures Trading Commission, the Centers for Medicare and Medicaid Services, and the Securities and Exchange Commission.)
The GAO found that the CFPB failed to document the factors that the CFP administrator considered in deciding to allocate $13.4 million for consumer education and financial literacy programs. While the report indicates that the CFPB had revised its procedures for administering the CPF to include the factors the administrator will consider when determining such allocations, the GAO found that, at the time of its audit, the revised procedures did not include steps for the administrator to document the specific factors that were considered as part of an allocation. The GAO observes that “federal internal control standards state that it is important to promptly record transactions and events clearly and completely so that they maintain their relevance, value and usefulness to management in controlling operations and making decisions.” It concludes that documenting the specific factors the CFP administrator considered each time he or she makes an allocation “would make such decisions more transparent” and such information “could be used to help ensure that future allocation decisions are made in a consistent manner going forward.”
The report includes a letter from the CFPB concurring with the GAO’s recommendation that the CPF administrator document the specific factors considered in determining the amount of any allocations for consumer education and financial literacy. The report indicates that to implement the recommendation, the CFPB has developed a CPF allocation checklist to help ensure that such factors have been documented and appended the checklist to its revised procedures for administering the CPF.
The CFPB is extending the comment period on its proposed policy statement that would expand the complaint data that it publicly discloses in its Consumer Complaint Database to include “unstructured” complaint narratives. In a statement released on July 29, 2014, the CFPB states that it is extending the deadline for comments to be filed from August 22, 2014 to September 22, 2014, 60 days from the date the proposed policy was published in the Federal Register.
As we previously reported in depth, under the proposal, the CFPB would publish consumer complaint narratives if the consumer provided informed consent, which they could withdraw at any time. In addition, according to the CFPB, companies would be able to submit a narrative response that would appear next to the consumer’s narrative. The CFPB would take “robust” steps to remove all personal information from both the complaint narrative and company’s public response.
The CFPB’s announcement to extend the deadline for comments by 30 days follows a letter sent to the CFPB by five prominent industry trade groups requesting at least 90 days to comment. As reported, the trade groups pointed out that a longer comment period is consistent with Executive Order 13563, dated January 18, 2011, which states that agencies are expected to promote public participation by affording at least 60 days for public comment.
Given the significant risks of disclosing unverified consumer information there is a clear need to allow stakeholders ample time to analyze and respond to the CFPB’s proposal.
Following up on his earlier statement about the impact of the Supreme Court’s decision in NLRB v. Noel Canning on Richard Cordray’s actions taken prior to his July 16, 2013 confirmation by the Senate as CFPB Director, Republican Congressman Jeb Hensarling has sent a letter to Mr. Cordray in which he asserts that the decision raises questions about the validity of those actions and seeks “a complete and proper accounting of the CFPB’s exposure to legal challenges.” Mr. Hensarling chairs the House Financial Services Committee. The letter was also signed by Republican Senator Mike Crapo, the Ranking Member of the Senate Committee on Banking, Housing, and Urban Affairs.
In Canning, the Supreme Court held that President Obama exceeded his Constitutional recess appointment authority when he filled three vacancies on the National Labor Relations Board on January 4, 2012. Although Mr. Cordray’s recess appointment as CFPB Director was not at issue in Canning, his appointment was made on the same day and through the same assertion of recess appointment authority as the NLRB appointments.
Citing to other Supreme Court precedent, Messrs. Hensarling and Crapo also assert in the letter that “there remains serious doubt as to your authority to ratify actions that took place” prior to confirmation. (On August 30, 2013, the CFPB published a notice in the Federal Register in which Director Cordray ratified his pre-confirmation actions.)
The information requested in the letter includes “any and all documents, communications and analyses, undertaken by CFPB officials and/or outside counsel” that is “related to the validity or standing of CFPB actions taken between January 4, 2012 and July 16, 2013 that are not derivative of Dodd-Frank, Title X, Subtitle F authorities” or “justif[ies] the CFPB’s authority and your standing to ratify past Bureau actions.” The letter asks Director Cordray to submit all responsive documents and materials by September 1, 2014.
As we reported, the petition for certiorari filed in May 2014 by the Texas Department of Housing and Community Affairs (Texas DHCA) in Inclusive Communities Project v. Texas Dep’t of Housing and Community Affairs could give the U.S. Supreme Court its third opportunity since 2012 to provide clarity with respect to disparate impact claims under the Fair Housing Act and (by analogy) the Equal Credit Opportunity Act. The respondent filed its brief opposing the Texas DHCA’s petition on July 16, 2014.
While a number of amicus briefs were filed in support of the petition, none were filed opposing the petition. Among the amicus briefs in support of the petition was a brief filed by nine financial services industry trade groups including the American Bankers Association, the American Financial Services Association, the Consumer Bankers Association, the Financial Services Roundtable and the Mortgage Bankers Association. The housing trade groups that filed amicus briefs in support of the petition were the Texas Apartment Association and the National Multifamily Housing Council. Briefs in support of the petition were also filed by several public interest and public policy groups, including the Pacific Legal Foundation and The Cato Institute, and by a conservative interest group, the Eagle Forum Education & Legal Defense Fund.
While the Supreme Court is most likely to rule on the certiorari petition when it begins a new term this October, it is possible the court will issue an earlier ruling in September.
On July 30, 2014, the House Financial Services Committee’s Subcommittee on Oversight and Investigations will hold a hearing titled “Allegations of Discrimination and Retaliation and the CFPB Management Culture.” Director Cordray is the sole witness scheduled to appear.
The hearing will represent the Subcommittee’s fourth hearing on alleged employee discrimination at the CFPB and the first of such hearings at which Director Cordray will testify. (We have previously reported on the hearings held in April, May and June 2014.)
A California federal court recently issued an order granting the CFPB’s petition to enforce its civil investigative demands (CIDs) issued to three tribally-affiliated payday lenders. However, the court also granted the lenders’ request for a stay pending their appeal to the Ninth Circuit. Although the CFPB did not oppose the stay, the court nevertheless found that if its decision was wrong, the lenders were likely to suffer irreparable harm because of the disclosure of sensitive proprietary documents to the CFPB whereas the CFPB would not be injured by a temporary delay.
The court rejected the lenders’ argument that, as arms of sovereign tribes, they were “sovereigns” and therefore were not “persons” to whom the CFPB can issue CIDs under the Consumer Financial Protection Act (CFPA). According to the court, controlling Ninth Circuit precedent established the rule that laws of general applicability such as the CFPA are presumed to apply with equal force to Indian tribes. Such precedent also recognized three exceptions to the rule where (1) applying the law would interfere with a tribe’s right of self-governance on purely internal matters, (2) applying the law would abrogate treaty rights, or (3) there is proof that Congress intended to exempt tribes. The court found that the lenders could not show that any of the exceptions applied.
The court also rejected the lenders’ argument that the CIDs were barred by tribal sovereign immunity because, in its view, settled Ninth Circuit law provided that sovereign immunity did not bar a suit by a federal agency even when Congress has not specifically abrogated tribal immunity. The lenders’ were also unsuccessful in their attempt to have the CIDs invalidated on the grounds that they did not provide adequate notice of the purpose and scope of the CFPB’s investigation, demanded evidence beyond the scope of any possible violation, and were overbroad or unduly burdensome.
To mark the CFPB’s “third birthday,” Director Cordray sent an e-mail inviting consumers to share their “stories with the CFPB.” In addition, the CFPB has posted several videos on its website that Director Cordray described in his e-mail as “a collection of stories from people all over the country about their personal experiences in the financial marketplace.”
Director Cordray often recounts consumer stories in his remarks. Most recently, in his remarks at the CFPB’s El Paso field hearing on consumer complaints, he recounted the story of “William in Virginia, who was having problems with a credit card company.” (One of the videos posted on the CFPB’s website appears to be William telling his story.)
As we observed, the CFPB’s proposal to include consumer complaint narratives in the data it publicly discloses in its complaint database appears to be turning the database into a gripe site. In his field hearing remarks, Director Cordray also noted that consumer “stories matter because they greatly inform the work we do.” Inviting consumers to share their stories, like the disclosure of consumer complaint narratives, may provide consumers with a “feel good” soap box for airing their grievances but the CFPB’s penchant for giving prominence to consumer “stories” seems to be at odds with its promise to be a data-driven agency.
On Thursday, July 31, 2014, the Senate Committee on Banking, Housing, and Urban Affairs will conduct a hearing on “Financial Products for Students: Issues and Challenges.”
The witnesses scheduled to appear are:
- David A. Bergeron, Vice President for Postsecondary Education Policy, Center for American Progress
- Christine Lindstrom, Higher Education Program Director, U.S. Public Interest Research Group
- Kenneth Kocer, President, South Dakota Association of Student Financial Aid Administrators and Director of Financial Assistance, Mount Marty College
- Richard Hunt, President and CEO, Consumer Bankers Association
We find it surprising that the witness list does not include any representatives from either the CFPB or the Department of Education. The CFPB has been calling on financial institutions to publicly disclose their campus financial product marketing agreements with colleges and universities. The ED is expected to soon be issuing proposed revisions to its Title IV cash management rules that many observers believe will contain new restrictions on products that banks sell to college students, even if the product is not specifically designed to distribute financial aid.