For the third year in a row, CFPB Monitor has made the American Bar Association’s Blawg 100 list, the ABA’s annual list of the best blogs about lawyers and the law. We are honored to have once again received so many recommendations from our readers and thank you for helping CFPB Monitor make the 2014 list.
CFPB Monitor continues to be the only blog focused on the CFPB in the ABA’s top 100. In describing CFPB Monitor, the ABA quotes a reader who said that our blog serves as an “‘ear on the ground’ to know what’s coming next”. We hope our readers agree that our blog provides an insightful and direct perspective on CFPB developments.
The editors of the ABA Journal have asked readers to weigh in and vote for their favorites in each of the Blawg 100′s 13 categories. We have been placed in the “torts/consumer” category with 7 other excellent blogs. If you are a fan of CFPB Monitor, we humbly ask that you cast your vote for us in the “torts/consumer” category by clicking here (you will be prompted to register before voting by creating a username and password).
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As part of this week’s flurry of enforcement-related announcements, the CFPB announced the settlement of a lawsuit filed jointly with the Attorneys General of North Carolina and Virginia against Freedom Stores, Inc. (Freedom), a retailer selling merchandise online and in retail stores located near military bases that offered financing through retail installment contracts (RIC), for alleged unlawful debt collection practices. The complaint, which was filed in a Virginia federal district court, also named as defendants: Freedom Acceptance Corporation (FAC), a company that purchased RICs from Freedom, Military Credit Services LLC (MCS), a company catering to military customers that extended revolving credit for purchases from retailers in MCS’s retailer network, the individual who served as Freedom’s president, and another individual who served as president of FAC and MCS.
Under the consent order agreed to by the parties and submitted for court approval, the defendants are required to provide over $2.5 million in consumer redress (in the form of refunds and balance reductions) and pay a $100,000 civil penalty to the CFPB. The consent order also enjoins the defendants from committing future similar violations, establishes procedures the defendants must follow to avoid future violations, and provides for compliance monitoring by the CFPB.
The complaint alleges that FAC and MCS engaged in conduct that violated the Dodd-Frank prohibition of unfair, deceptive or abusive acts or practices. The UDAAP counts are asserted by the CFPB and the state AGs under Section 1042 of Dodd-Frank. FAC and MCS were alleged to have committed UDAAP violations by engaging in the following conduct:
- FAC and MCS were alleged to have filed debt collection lawsuits in Norfolk, Virginia against consumers who signed credit agreements “far away” from Norfolk and resided “far away” from Norfolk when the lawsuits were commenced. The complaint alleges that the companies’ practice of filing of lawsuits “in a distant forum” was both an “unfair” and an “abusive” practice. These UDAAPs claims are particularly noteworthy in two respects.First, the FDCPA requires “debt collectors” to bring non-mortgage collection actions only in the judicial district in which the contract was signed or in which the consumer resides when the action is commenced. The CFPB’s UDAAP claim appears to be an attempt to extend this FDCPA requirement to creditors collecting their own debts and could signal that such a requirement will be part of a proposed debt collection rule that the CFPB is expected to issue.Second, the CFPB has so far been very sparing in its use of the “abusive” prong of its UDAAP authority, using it in only three enforcement actions (Ace Cash Express, American Debt Solutions and CashCall). Thus, the CFPB’s decision to deem the defendants’ alleged conduct “abusive” represents a significant development.
- When consumers elected to make payments through military allotments, FAC and MCS also allowed consumers to authorize withdrawals from a bank account as a back-up payment method. The complaint alleged that because the companies’ payment processor relied on reports that sometimes incorrectly predicted allotments would not go through or would be insufficient to make a full payment, many consumers had their payments taken from both their allotments and bank accounts in the same month, often without their knowledge and before the payment due date. This practice was alleged to be “unfair.”
- FAC and MCS were alleged to have contacted servicemembers’ commanding officers and requested they intervene in obtaining repayment, doing so in reliance on a provision in the credit contracts that purported to provide permission for the companies to contact third parties, including their chain-of-command, if they fell behind in payments. The complaint alleged that because many consumers were unaware of such provisions or if they were aware, had no opportunity to bargain for their removal, the companies engaged in an “unfair” practice by contacting third parties. (The consent order requires a written consent for the companies to contact a consumer’s chain-of-command that must be on a page separate from all other contract terms, separately signed by the consumer, and clearly and conspicously disclose that the transaction is not conditioned on providing consent.)
- In instances where a third party such as a family member had authorized a one-time payment on behalf of a consumer, FAC and MCS were alleged to have charged the third party’s bank account or credit card for additional payments. The complaint alleged that the companies engaged in an “unfair” practice by taking unauthorized payments from such third parties.
The complaint sought to hold the individual defendants liable for all of FAC’s and MCS’s alleged UDAAP violations as “covered persons” under Dodd-Frank. The complaint also included claims asserted only by the CFPB that the ACH authorization forms used by Freedom violated the Electronic Fund Transfer Act and the open-end credit agreements used by MCS violated the Truth in Lending Act. In addition, the complaint, in claims asserted only by the North Carolina AG, alleged violations of the North Carolina Debt Collection Act by FAC and MCS, and violations of the North Carolina Unfair and Deceptive Practices Act by FAC, MCS and the individual defendants.
The Consumer Law & Policy Blog has reproduced a copy of a letter sent yesterday by the CFPB seeking suggested cases for the CFPB’s amicus brief program. The letter indicates that the amicus program has so far filed 14 amicus briefs in the federal courts of appeals and has worked closely with the Solicitor General’s Office on several amicus briefs in the U.S. Supreme Court.
The letter, which is not posted on the CFPB’s website, apparently was sent to a list of recipients selected by the CFPB. In the letter, the CFPB states that it seeks the case recommendations of such recipients “as important stakeholders in the area of consumer finance.” One wonders to whom the CFPB sent this letter in which it appears to be trolling for more opportunities to submit amicus briefs. I’m not aware of any industry people who received this letter.
In its fifth annual report on college credit card agreements, the CFPB takes financial institutions as well as colleges and universities to task for failing to adequately disclose their marketing agreements for campus financial products. The annual report is required by the CARD Act.
The CARD Act requires institutions of higher education to disclose publicly their credit card marketing agreements. The CFPB “found little indication of institutions proactively disclosing their credit card agreements.” The report states that the CFPB examined agreements covering 35 institutions and “[f]or the overwhelming majority of institutions within the sample, our review identified no information on their websites regarding the relevant agreement.” According to the CFPB, these results “suggest that institutions of higher education are generally not choosing a method of disclosure whereby students and members of the public can reasonably ascertain whether an institution has a current affinity arrangement.”
In the CFPB’s report on campus financial products released in September 2013, the CFPB found that campus financial product marketing arrangements have shifted away from credit cards towards student checking and debit or prepaid cards. In the new report, the CFPB states that “there are now more college debit and prepaid card agreements than credit card agreements.” As it did in the 2013 report, the CFPB once again suggests that the shift is the result of CARD Act and other federal law restrictions on credit card affinity arrangements. The CFPB’s press release on the new report notes that marketing arrangements have shifted “from credit cards toward other products such as debit and prepaid cards, which generally have fewer sunshine protections” and includes the following quote from Director Cordray: “Today, financial institutions are cutting more deals with colleges and universities to market student banking products that require less disclosure.”
In December 2013, the CFPB urged financial institutions to publicly disclose on their websites their marketing agreements for campus financial products other than credit cards, such as deposit accounts, prepaid cards and financial aid disbursement accounts. In the new report, the CFPB states that “as a general matter, issuers and institutions [of higher education] have not chosen to disclose in a readily accessible manner these deposit account, debit card, or prepaid card agreements.” The CFPB is apparently criticizing financial institutions for not disclosing these agreements on their websites.
The CFPB’s apparent position that adequate public disclosure of campus agreements requires the agreements to be posted on a website finds no support in applicable law. The Official Commentary to Regulation Z (Comment 1026.57(b)-1) expressly states that colleges and universities can satisfy the CARD Act requirement for public disclosure of their credit card marketing agreements either by posting the agreements on their websites or by making the agreements available on request, as long as the procedures for requesting the documents are reasonable and free of cost. And unlike credit cards, there is no federal law requirement at all for financial institutions to publicly disclose their marketing agreements or similar information for other financial products.
The CFPB’s December 2013 call for disclosure was accompanied by the threat that a financial institution’s failure to disclose its campus marketing agreements could make it a target for examination and the new report includes another veiled threat. The CFPB concludes the new report’s final section on compliance activity with the following statement: “Given the lack of transparency of these arrangements, as well as compliance problems related to institutions with significant market share, the Bureau will continue to carefully assess risks to consumers.”
The American Bankers Association, American Bankers Insurance Association and Consumers Banking Association have submitted a joint comment letter on the CFPB’s proposed policy on issuing “no-action” letters for innovative financial products or services.
The trade groups expressed the overall concern that the proposal will not “serve as a viable approach to alleviating regulatory uncertainty” because it is “limited in its applicability and yet fraught with perils for the requester.” The specific concerns raised in their comment letter included the following:
- The information required by the process for requesting a no-action letter puts the requester “at the risk of providing a roadmap for inventive legal attack against the proposed product” by asking the requester to describe any creative liability that might attach to the new product. The trade groups believe the process should be re-cast to emphasize how the new product’s features vary from products described by the existing rules and why its features achieve the consumer protections pursued by existing rules.
- In its proposal, the CFPB stated that it plans to issue no-action letters “only rarely and on the basis of exceptional circumstances.” The trade groups are concerned that this approach will discourage requests and believe the CFPB’s staff should instead pledge to provide a timely response to all requests, giving reasons for their action to grant or deny the request.
- As proposed by the CFPB, a no-action letter would not provide an interpretation of a statute or regulation nor a safe harbor from the CFPB’s supervisory and enforcement authority. It also could be modified or revoked by the CFPB at any time. In the trade groups’ view, the extremely limited scope of a no-action letter “creates virtually no incentive for innovators to undertake the request process.” The changes they recommend include an expansion of a letter’s scope “to assure against not only Bureau enforcement or supervisory criticism, but to preclude enforcement or supervisory criticism by any agency authorized to conduct such activities under the DFA with respect to institutions in its respective jurisdiction.”
- The CFPB indicated in the proposal that its disclosure of a no-action letter request and any data received from the requester in connection with a request is governed by the CFPB’s rule regarding disclosure of records and information. As the CFPB observed, that rule generally requires the CFPB to disclose records unless they are subject to a FOIA exemption or exclusion. The trade groups seek improved assurance of confidentiality for information submitted by requesters, commenting that the CFPB’s disclosure of the detailed information and legal analysis that the proposal would require requesters to provide could enable competitors to exploit the idea or add compliance or litigation risk.
A new lawsuit filed by the CFPB alleges that a Texas-based company, Union Workers Credit Services, deceived consumers into paying fees to sign up for a “platinum card” that purported to be a general-use credit card but, in actuality, could only be used to buy products from the company. The CFPB’s complaint, filed in a Texas federal district court, seeks restitution for victims, a civil penalty, and an injunction against the company.
The complaint alleges that the company engaged in deceptive conduct in violation of the CFPA prohibition of unfair, deceptive or abusive acts or practices by representing, expressly or impliedly, in its advertising and marketing that consumers would receive a general-use credit card if they enrolled and paid the membership fee. The CFPB claims the company also engaged in deceptive conduct by falsely advertising an affiliation with labor unions. According to the complaint, the company’s website contained a banner that included images of police, firefighters, and medical workers and its online application form sought information on applicants’ union affiliation and allowed them to select their union membership from a drop-down list.
The complaint also alleges that the company used consumer reports in violation of the Fair Credit Reporting Act and Regulation V. According to the complaint, the company sent direct-mail prescreened credit offers that did not include the requisite prescreen opt out notice.
Congress has unanimously approved legislation to extend until January 2016 a provision of the Servicemembers Civil Relief Act (SCRA) that prohibits foreclosing on a servicemember’s house for one year following the servicemember’s return from active duty. The CFPB has made SCRA compliance a priority issue.
Senator Sheldon Whitehouse proposed S.2404, known as the Foreclosure Relief and Extension for Servicemembers Act of 2014, last May. The Senate approved the measure on December 11, and the House of Representatives approved the measure the following evening during a special 10-minute session.
“After fighting for our country overseas, our troops shouldn’t have to fight to keep a roof over their heads when they return home,” said Sen. Whitehouse in a press release. “Servicemembers returning from active duty often need time to regain their financial footing, particularly those in the National Guard and Reserves who give up their full-time jobs to fight for our freedom. We should ultimately pass legislation to make this protection permanent, but I’m glad we were able to secure peace of mind for our veterans for one more year.”
Congress extended the protection period from three to nine months back in 2008 and then to one year in 2012. Had Congress failed to act before the end of this year, the protection period would have reverted back to its pre-2008 level of three months.
In a letter dated December 4, the Financial Services Roundtable (FSR) encouraged congressional leadership to extend the protection for a minimum of one year, noting that a number of financial services companies had implemented a one-year protection period as a matter of company policy. We, along with the FSR, applaud Congress for this legislation and fully expect President Obama to sign it into law.
As part of its Project Catalyst, the CFPB’s initiative for facilitating innovation in consumer-friendly financial products and services, the CFPB has announced a new research pilot using insights from behavioral economics and an American Express trial program to evaluate the effectiveness of certain practices to encourage prepaid card users to develop regular saving behavior. The CFPB hopes the pilot will help it better understand how to promote saving among consumers, particularly among low- and moderate-income prepaid card users who may not have traditional savings accounts.
According to the CFPB, American Express has agreed to share with the CFPB insights from a feature of one of its prepaid card programs that allows cardholders to create a subaccount within their main prepaid account dedicated for savings. To spend money saved in the subaccount, a consumer must manually transfer funds back to his or her main account. The card also has automatic transfer functions that allow consumers to schedule regular fund transfers from the main transaction account to the subaccount.
American Express plans to conduct a marketing campaign to educate cardholders about the benefits of saving and encourage use of the subaccount feature and will offer promotional incentives to encourage saving. American Express will conduct a randomized controlled trial to assess results in a statistically meaningful way.
The research pilot is part of the CFPB’s efforts to carry out its Dodd-Frank mandate to improve the financial literacy of American consumers, and in particular, its charge to provide
consumers – especially low-to-moderate income consumers – with wealth-building strategies. We continue to view this as one of the CFPB’s most worthwhile mandates and believe American Express should be applauded for agreeing to work with the CFPB in furtherance of this mandate.
On December 11, the CFPB announced lawsuits against two student loan debt relief companies alleged to have deceived borrowers into paying upfront fees for federal student loan repayment benefits that are available for free.
The action against College Education Services LLC and its individual owners, which was filed jointly by the CFPB and the Florida Attorney General in a Florida federal district court, alleged that the company violated the Telemarketing Sales Rule (TSR), the Consumer Financial Protection Act (CFPA) prohibition of unfair, deceptive or abusive acts or practices and the Florida Deceptive and Unfair Trade Practices Act. The defendants’ alleged conduct included charging unlawful advance fees, falsely promising lower payments, and falsely claiming quick relief from default or garnishment. The basis for the charge that the defendants made false claims of quick relief was that debt consolidation, the principal debt relief approach used, did not and could not ensure such quick relief in all cases and not in the short timeframe promised.
Simultaneously with filing the complaint, the CFPB and Florida AG submitted a proposed consent order to the court that would permanently ban the defendants from offering or providing any debt relief service or assisting any person offering such service. The consent order also would require the defendants to pay a $25,000 civil money penalty to the CFPB. (The CFPB stated in its press release that the penalty amount was based on the defendants’ inability to pay a more substantial amount.)
The second action was filed by the CFPB against Student Loan Processing.US (a fictitious business name of Irvine Web Works, Inc.) and its individual owner in a California federal district court. The complaint alleges that the defendants violated the TSR and CFPA by conduct that included falsely representing an affiliation with the U.S. Department of Education, charging unlawful advance fees, and deceiving borrowers about the costs and terms of the company’s services. The complaint seeks an injunction barring future TSR and CFPA violations by the defendants, restitution to harmed consumers, and civil money penalties.
Given the vulnerability of those student loan borrowers who really are struggling with their debts, we were glad to see that the CFPB’s announcement of the lawsuits was accompanied by the issuance of a consumer advisory warning consumers about student debt relief scams.
Last week, the CFPB published a Federal Register notice stating that it was developing a form to allow companies to “proactively participate” in its online company portal for viewing and responding to consumer complaints. Although the CFPB’s proposed form, the “Company Portal Boarding Form,” was not available when the notice was published, the proposed form as submitted by the CFPB to the Office of Management and Budget can now be viewed.
In conjunction with its field hearing today on medical debt collection, the CFPB released a study that “describes characteristics of the medical and non-medical collections tradelines on consumers’ credit reports and the processes by which they appear and disappear.” However, what deserves to be the headline grabber is the CFPB’s accompanying announcement that “the major consumer reporting agencies will be required to provide regular accuracy reports to the Bureau on how disputes from consumers are being handled.” Although the CFPB did not specify what “major” consumer reporting agencies (CRA) means, presumably the CFPB is referring to the CRAs that are subject to CFPB examination because they qualify as “larger participants” under the CFPB’s larger participant rule for the credit reporting industry.
The CFPB has labeled the “accuracy reports” which the CRAs must complete a “Consumer Reporting Agency Data Request.” The information requested for the relevant reporting period includes:
- Names of the 25 furnishers with the largest number of consumer disputes and the number of disputes received as to each such furnisher
- Names of furnisher industries and the number of disputes received about furnishers in each such industry
- Names of the 10 furnishers in each industry with the largest number of consumer disputes
- Information about the outcome of disputes
- Information about collection account disputes, consisting of the total number of such disputes and the percentage of collection disputes by portfolio types (e.g. medical, credit card, retail, telecom)
The CFPB is expecting CRAs to do more than just complete and submit the new form. In its press release, the CFPB states that “[i]f a credit reporting company continuously experiences an outsized number of consumer disputes about information from a particular furnisher, the CFPB expects the credit reporting agency to investigate, identify if there is a problem, and take appropriate action.”
The CFPB’s study of collections tradelines focuses on information furnished distinctly to CRAs as collections tradelines, and observes that the vast majority of such tradelines are furnished by third-party debt collectors and debt buyers. While the study’s discussion of medical collections tradelines is the focus of the CFPB’s press release and Director Cordray’s prepared remarks for the field hearing, a substantial portion of the study is devoted to a general discussion of collections tradelines, debt collectors and debt buyers who furnish information about debts in collection, and the varying practices of furnishers.
For the study, the CFPB used data in its Consumer Credit Panel (CCP) from December 2012 and over the period January 2013 through June 2014. The study describes the CCP as a “longitudinal, nationally representative sample of approximately 5 million de-identified credit records” from one of the three nationwide CRAs. The study also draws on consumer complaints to the CFPB and interviews with debt collection agencies, healthcare providers, and “other observers of the healthcare billing and payment processes.”
Key findings include:
- 67.5 percent of all collection tradelines are reported on accounts that originated with a healthcare provider, utility company, or telecommunications company, with medical collection tradelines accounting for 52.1 percent of all collection tradelines
- Collection tradelines appear on the credit reports of 31.6 percent of consumers with 19.5 percent of credit reports containing one or more medical collection tradelines and 24.5 percent containing one or more non-medical collection tradelines
- The average and median amounts of medical collections tradelines ( $579 and $207) are lower than the average and median amounts of non-medical collection tradelines ($1000 and $366)
- The large number of collectors furnishing information on collections tradelines and their indirect and short term ties to the underlying debt creates potential sources of error in collections reporting
- Whether or not a collections tradeline appears on a consumer’s credit report, when it appears or disappears (i.e. “falls-off”), and whether an account is labeled as paid or deleted when it is settled reflects policies and strategies of creditors, debt collectors and debt buyers, with the variety in practices introducing a range of variability that is not present in the reporting of active tradelines for which payment status is the primary indicator of delinquency. Such variability by industry, creditor and furnisher makes a collections tradeline an imprecise indicator of a consumer’s financial condition or willingness to pay
- Medical collection tradelines present special concerns due to the complexity of the medical billing and reimbursement process which frequently makes medical bills a source of confusion for consumers and increases the likelihood that consumers will hesitate or delay paying medical bills due to uncertainty “about what they owe, to whom, when, or for what.”
- Many more consumers with only medical collections tradelines demonstrate a tendency to pay their bills on time regardless of the number of collections tradelines as compared with consumers with only non-medical collections tradelines or those with both medical and non-medical collections tradelines. Because consumers with only medical collections tradelines owe smaller amounts on their debts in collection relative to consumers in such other groups, consumers with only medical collections tradelines “presumably” have a higher capacity to repay such debts and their nonpayment of such debts suggests “there is something different” about their understanding of their debts and reasons for nonpayment. (In his remarks, Director Cordray commented that this analysis “reinforces” the CFPB’s finding in its May 2014 report entitled “Data point: Medical debt and credit scores,” that credit scoring models may be overly penalizing consumers with medical debts that go into collection by producing credit scores that underestimate such consumers’ creditworthiness.)
The CFPB also released a consumer advisory that provides advice to consumers in dealing with medical debts, such as to carefully review medical bills and to act quickly to resolve or dispute medical bills.