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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.
The CFPB continues to ramp up its enforcement actions and its collaboration with state AG offices as part of the new “Operation Mis-Modification.”
The CFPB, the FTC and fifteen states announced a series of lawsuits against what they characterize as “foreclosure relief scammers.” The CFPB filed three lawsuits against individuals and companies – all law firms or associated with law firms – seeking compensation for victims, civil fines and injunctions. The FTC filed six lawsuits. And, in line with Director Cordray’s previous statements that the CFPB was collaborating with state AG offices, the state AGs announced their intent to file 32 lawsuits. It is uncertain whether any of the state AG lawsuits will rely upon Section 1042 of Dodd-Frank, which, as we have previously reported, allows a state AG to bring a civil action for violation of the Dodd-Frank prohibition of unfair, deceptive or abusive acts or practices (UDAAP).
The CFPB alleges that the defendants used deceptive marketing to persuade thousands of consumers to pay them more than $25 million in illegal fees. The crux of the CFPB’s allegations are that these companies:
- Charged consumers with advance fees before obtaining a loan modification in violation of Regulation O (formerly known as the Mortgage Assistance Relief Services Rule);
- Misrepresented in marketing materials the likelihood they would help a consumer save substantial sums in mortgage payments;
- Tricked borrowers into thinking that they would receive legal representation even though many borrowers never spoke with an attorney or had their case reviewed by one; and
- Misled consumers to believe they were eligible for a loan modification or they would receive relief within a few short months when the defendants had not contacted the consumers’ lenders or requested or obtained any meaningful relief for them.
The CFPB’s new lawsuits are similar to the lawsuit the CFPB filed against Morgan Drexen, a nationwide debt-settlement company, for charging consumers fees for debt-relief services before it actually came to an agreement settling or altering the terms of the debt. As previously reported, the California district court rejected Morgan Drexen’s motion to dismiss based on a challenged to the CFPB’s constitutionality and the Ninth Circuit dismissed the appeal for lack of jurisdiction. That case remains ongoing.
The FTC lawsuits also charge the defendants for violating Regulation O, as well as the FTC Act. In each case, the FTC has sought an order freezing the defendants’ assets pending the outcome of the litigation.
The CFPB’s complaints are available here:
The FTC’s complaints are available here:
The CFPB issued a proposed rule amending Regulation C to expand data reporting requirements for mortgage industry participants. The proposed rule is 573 pages and our Mortgage Banking Group will analyze the proposal and work with clients on its impact. Comments are due on or before October 22, 2014.
Because of the absence of important loan and borrower data elements, HMDA data has long been recognized as providing for a less than robust assessment of mortgage lending activity. Dodd-Frank sought to address the issue by directing the CFPB to expand the HMDA reporting categories. Proposed new data elements include the credit score and age of the applicant, the property’s value (which provides for the determination of the loan to value ratio), the total points and fees, the term to maturity, and the duration of any loan.
The expansion of HMDA data to include more and sensitive borrower and transaction information presents serious privacy concerns. By combining HMDA data along with other publicly available data, it is possible that the identity of specific consumers can be determined from the Loan Application Registers of mortgage lenders that must be made available under HMDA. With the expansion of HMDA data to include credit score, age and other elements, the privacy concern will be magnified. Addressing this concern in the press release announcing the proposal, the CFPB states that it is “looking at ways to improve how the public can securely use HMDA data to protect applicant and borrower privacy.” The industry and interested parties should insist on the CFPB making consumer privacy a paramount concern in the consideration of the proposed rule.
In announcing the proposal, the CFPB also states that it “views implementation of the Dodd-Frank Act changes to HMDA as an opportunity to assess other ways to improve upon the data collected, reduce unnecessary burden on financial institutions, and streamline and modernize the manner in which financial institutions collect and report HMDA data.”
CFPB Director Richard Cordray said, “It is critical that we shed more light on the mortgage market – the largest consumer financial market in the world.” He continued to say that HMDA “helps financial regulators and public officials keep a watchful eye on emerging trends and problem areas in the mortgage market.”
The CFPB claims the proposed rule aims to: (1) improve market information, data access, and the electronic reporting process; (2) monitor access to credit; (3) standardize the reporting threshold; (4) ease reporting requirements for some small banks; and (5) align reporting requirements with industry data standards. Our Mortgage Banking Group will assess these aspects of the proposal.
Five prominent industry trade groups have sent a letter to the CFPB asking for at least 90 days to comment on the CFPB’s proposal to expand the complaint data that it publicly discloses in its Consumer Complaint Database to include consumer complaint narratives.
The letter was sent by the Financial Services Roundtable, the American Bankers Association, the Consumer Bankers Association, The Clearing House, and the U.S. Chamber of Commerce. In the proposal, the CFPB indicated that although the proposed policy statement “constitutes an agency statement of general policy exempt from notice and public comment pursuant to [the Administrative Procedure Act],” the CFPB was providing a 30-day comment period (which closes on August 22, 2014).
The trade groups indicate 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 providing at least 60 days for public comment. While noting that the CFPB is not legally bound by the order, the trade groups encourage the CFPB to follow this standard.
The trade groups also urge the CFPB to provide an opportunity to provide input “on all elements of the proposal as a unified whole rather than piecemeal.” They note that, in the proposal, the CFPB indicated that it is conducting a study to verify that its proposed method for scrubbing data will sufficiently address consumer privacy concerns. They further note that the CFPB also indicated that it is conducting research and testing relating to the design, wording, location and timing of consumer consent to publication of narratives. The trade groups urge the CFPB to complete these studies and provide an opportunity of not less than 60 days “to provide input on the entire record including the study results.”