CFPB Monitor

News Guidance Perspectives of CFPB | Ballard Spahr Law Firm Blog

CFPB promotes online student financial aid resources

Posted in Student Loans

In a new blog post , the CFPB promotes its online financial aid resources to students who are now in the process of choosing which school to attend this fall. 

The blog post directs students to a just-launched “crisp new version of our Paying for College tool kit,” stating that “[m]aking apples-to-apples comparison of your financial aid offers has never been easier.”  The CFPB indicates that the kit incorporates “a more user-friendly design” and that the CFPB has also reintroduced “the GI Bill calculator, which gives servicemembers the ability to calculate the benefits available to them through the GI Bill and tuition assistance programs.”

The blog post also touts the CFPB’s continued piloting of  its “Financial Aid Shopping Sheet,” stating that the sheet will be sent to prospective students this fall by the “more than 2,000 schools” that have adopted the sheet.  The CFPB also includes a link to the Q&As about student loans that are part of the “ask cfpb” feature on the CFPB’s website.  

In a related blog post, Rohit Chopra, the CFPB’s Student Loan Ombudsman, indicates that the “Paying for College tool kit” reflects expected increases this fall in new federal student loan interest rates.  His blog post includes current and estimated new rates on direct subsidized and unsubsidized loans for undergraduate students, direct unsubsidized loans for graduate/professional students, and direct PLUS loans for parents and graduate/professional students, and shows the effect of the higher rates on monthly payments.

CFPB files petition in CA federal court to enforce CIDs issued to tribal payday lenders

Posted in Payday Lending

The CFPB recently filed a petition in U.S. District Court for the Central District of California seeking to enforce the civil investigative demands (CIDs) it issued in June 2012 to three tribally-affiliated payday lenders.  A hearing on the petition has been scheduled for April 28.

In September 2013, the CFPB issued an order denying the lenders’ petition requesting that the CFPB set aside the CIDs.  The order rejected the lenders’ argument that they were not subject to the CFPB’s CID authority because they are affiliated with, and “arms” of, Indian tribes.  The order also directed the lenders to produce all responsive documents, items and information covered by the CIDs by October 17, 2013. 

In its petition seeking to enforce the CIDs, the CFPB alleges that although it subsequently granted the request of the lenders’ counsel for an extension of the compliance deadline until October 24, 2013, the lenders have not complied with the CIDs.

CFPB general counsel gives glimpse into CFPB’s upcoming agenda

Posted in CFPB General, Debt Collection

On Monday, April 7, CFPB General Counsel Meredith Fuchs warned that debt collection, payday lending, prepaid cards and privacy notices are priorities for the Bureau in the coming months. Appearing before the Practicing Law Institute’s 19th Annual Consumer Financial Services Institute in New York City, Ms. Fuchs noted that the CFPB has already received in excess of 22,000 comments in response to its debt collection advanced notice of proposed rulemaking (ANPR). Calling “certain debt collection practices a source of concern,” Ms. Fuchs did not promise that the CFPB would issue its proposed debt collection rule in 2014. She justified the protracted process by noting that no federal agency has issued debt collection rules governing how the FDCPA should be applied to modern technology. Fuchs did suggest that the debt collection rule could cover (1) the collection or attempt to collect time-barred debt; (2) first-party collection tactics and (3) the transfer of consumer’s information between the original creditor and the debt buyer. We are not surprised that the potential debt collection rule would go beyond the scope of the FDPCA. Indeed, we have written previously that the CFPB would invoke its UDAAP authority to cover first-party collectors in its proposed rule.

Turning to payday lending, Fuchs cited the recent CFPB report in explaining that the CFPB remains concerned with consumers’ sustained use of short-term, small dollar loan products, the amortization of these products and the use of these products by the elderly and others that depend on fixed government benefits. While Fuchs vacillated on the specific timing for payday lending rule-making, she did indicate that the CFPB would continue to aggressively police the ACH, lead generators and other “choke points” that payday lenders rely upon to reach consumers. Given that the CFPB does not intend to commission any further studies analyzing the benefits of payday loans, we anticipate that the proposed rule will impose rigid, arbitrary limits on numerous payday loan features.

Fuchs also indicated that prepaid cards are a high priority for the CFPB in 2014. Noting that Regulation E is not applicable to prepaid cards, Fuchs insinuated that a proposed rule could be issued in 2014 and feature model disclosures and mandatory error resolution procedures.

Lastly, Fuchs reiterated the CFPB’s intention to streamline privacy notice rules. The General Counsel indicated that the CFPB is inclined to eliminate the annual privacy notice in certain circumstances (e.g. if an institution’s internal policy has not changed in that year). We would applaud such a move as neither the institution nor the consumer benefits from excessive paperwork.

Bill to create CFPB small business advisory board introduced

Posted in CFPB General

A bill to require the CFPB to establish a small business advisory board was recently introduced by Republican Congressman Robert Pittenger and Democratic Congressman Denny Heck. 

H.R. 4383, entitled the “Bureau of Consumer Financial Protection Small Business Advisory Board Act,” would establish a board comprised of at least 12 members who are “representatives of small business concerns that provide eligible financial products or services.”  The board would be required to meet at least twice yearly.

The CFPB currently has four advisory groups: the Community Bank Advisory Council, the Credit Union Advisory Council, the Academic Research Council, and the Consumer Advisory Board.  The CFPB’s closed-door meeting policy for the advisory groups has been the subject of criticism by us and others.


Guilty pleas entered in CFPB’s first criminal referral

Posted in CFPB Enforcement

The CFPB’s first publicly announced criminal referral has resulted in the entry of guilty pleas by a debt settlement company and its principal, according to a Reuters report.  The referral, which was made to the U.S. Attorney for the Southern District of New York, arose out of the CFPB’s investigation of two debt-relief service providers and related entities and was announced by Director Cordray at a May 2013 press conference.

The CFPB had also filed a civil complaint in the SDNY federal district court against the debt settlement company and its principal alleging that the defendants had charged advance fees in violation of the FTC’s Telemarketing Sales Rule and engaged in deceptive and unfair practices in violation of the Consumer Financial Protection Act of 2010 (meaning Title X of Dodd-Frank). 

The guilty pleas were reported to have been entered on conspiracy charges of mail and wire fraud.  According to Reuters, the company and its principal agreed to forfeit $2.2 million as part of the plea agreement.  The principal reportedly faces up to 10 years in prison, although the actual sentencing guidelines range is likely lower than 10 years, while the company reportedly faces an additional fine of up to $4.39 million.  It was also reported that four other employees of the company had previously pleaded guilty and charges against a fifth employee are still pending.  The principal’s attorney is reported to have told the judge assigned to the criminal case that the CFPB plans to dismiss the civil lawsuit. 

The CFPB has also named individuals as defendants in a number of other enforcement actions it has filed.  Based on reported statements by Director Cordray that the CFPB is committed to pursuing individuals, and not just companies, when exercising its enforcement authority, the CFPB can be expected to continue to name individual defendants in enforcement actions.  In  addition, given that Director Cordray stated when he announced the CFPB’s first criminal referral that the CFPB would be looking for more opportunities “to coordinate and collaborate” with the U.S. Attorney, more criminal referrals by the CFPB of both companies and individuals can also be expected.

CFPB to hold mortgage closing forum on April 23

Posted in Mortgages

The CFPB has announced that it will be holding a forum on the mortgage closing process in Washington, D.C. on April 23, 2014.  The announcement states that the event will feature remarks from Director Cordray, and a discussion with consumer groups, industry representatives, and members of the public.

The CFPB has indicated that the next phase of its “Know Before You Owe” initiative is to identify ways to improve the closing process.  To kick off that phase, the CFPB published a notice in the Federal Register in January 2014 in which it asked 17 questions intended to provide the CFPB with information about “what consumers find most problematic about the current closing process.”  The forum appears to be a continuation of those information gathering efforts. 

We will be attending and reporting on the forum.

No CFPB regulations in 2014 implementing expanded ECOA small business data collection requirements

Posted in CFPB Rulemaking, Fair Lending

Section 1071 of Dodd-Frank amended the Equal Credit Opportunity Act to require financial institutions to collect and maintain certain data in connection with credit applications made by women- or minority-owned businesses and small businesses.  Such data includes the race, sex, and ethnicity of the principal owners of the business. 

In April 2011, the CFPB issued guidance indicating that the CFPB would not enforce Section 1071 until the CFPB issued implementing regulations. 

Since then, the development of regulations to implement Section 1071 appeared as a “long-term action” item in the CFPB’s semiannual rulemaking agendas issued in January and July 2013 but was not mentioned in its most recent semiannual rulemaking agenda issued in December 2013

At the Practicing Law Institute’s 19th Annual Consumer Financial Services Institute (co-chaired by Alan Kaplinsky) held earlier this week in New York City, a CFPB representative indicated that the CFPB will not be issuing regulations this year to implement Section 1071.

CFPB General Counsel Meredith Fuchs in the “Disparate Impact” Hot Seat

Posted in Auto Finance, CFPB Enforcement, Vehicle Loans

As we previously reported, the House Financial Services Committee has been interested in the specific methodology and metrics used by the CFPB in its disparate impact analysis under the Equal Credit Opportunity Act and Regulation B. On March 7, Chairman Hensarling sent a letter to Director Cordray seeking a response to the Committee’s questions, and it appears the CFPB has yet to respond to the letter. At the House Financial Services Committee meeting held yesterday, Chairman Hensarling’s first question reiterated to CFPB General Counsel Meredith Fuchs the Committee’s desire for information on this issue.

Ms. Fuchs provided nothing new.  She stated that the CFPB has been engaged in a “regular dialogue” with the Committee’s staff to go over the methodologies used for its auto finance investigation. However, when pressed by the Chairman on the specifics of the CFPB’s approach (such as the existence of any numerical thresholds that may indicate disparate impact) and whether they should be made public, Ms. Fuchs repeated the CFPB party line that its methodology varies depending on the business model of each individual institution, and that there is no “one size fits all” process. Ms. Fuchs did not commit to making the CFPB’s methodology available to the public in the future, nor did she address why Director Cordray had not responded to the Committee’s latest letter.

Most of the questions directed to Ms. Fuchs throughout the hearing focused on how the CFPB’s disparate impact analysis methodology amounted to de facto rulemaking that made it impossible for auto dealers to operate without knowing the parameters of the CFPB’s analysis. Congressman Neugebauer (R-TX) also spoke about his concern with the lack of transparency on this issue. In particular, he expressed concern that the uncertainty created by the CFPB’s de facto rulemaking is “damaging and creating an inability for some people to access some of our capital markets and get much-needed credit.”

It may be that the House Financial Services Committee has opted to let the CFPB off with a warning.  Drawing comparisons to the recent controversy surrounding the CFPB’s own internal discriminatory practices, Chairman Hensarling ended his questioning of Ms. Fuchs by stating that “you certainly create the impression that you are trying to impose a standard upon others that you are incapable of living under yourself.”

We will be blogging further about the hearing and Ms. Fuchs’ testimony, so stay tuned.

CFPB and FTC Representatives Speak at Symposium on Fine Print

Posted in CFPB General, CFPB People, FTC

CFPB General Counsel Meredith Fuchs and CFPB Assistant General Counsel for Law and Policy Anne Zorc spoke last week at the Georgetown Consumer Law Society and Citizen Works’ symposium entitled “Making the Fine Print Fair.” The CFPB’s representatives focused on the Bureau’s updates to the RESPA-TILA integrated disclosures rule, about which we previously reported. According to Ms. Fuchs, the simplified forms will help consumers better understand the terms of the deal offered and determine what they can and cannot afford.

Ms. Zorc used her remarks to summarize the new RESPA-TILA integrated disclosures. In their remarks, several of the symposium’s panelists had suggested that empirical testing should be used in the development of effective disclosures and Ms. Zorc discussed the CFPB’s use of testing to develop the new notices. These studies resulted in more graphic notice forms that Ms. Zorc described as containing “as few words as possible,” with the most important information to consumers appearing on the front page.

Ms. Fuchs briefly mentioned several other efforts underway at the CFPB to improve consumer disclosure. The first was the Bureau’s trial disclosure policy that allows companies to request individual waivers from certain federal disclosure requirements to test innovative disclosure methods. The Bureau is also evaluating shorter, simpler credit card agreements through a pilot program with the nation’s largest credit union.

Ms. Fuchs also briefly summarized the Bureau’s ongoing mandated study of arbitration clauses in financial product agreements. She highlighted that about 90% of the agreements reviewed by the CFPB contained clauses that bar consumers from participating in class actions. She also noted the CFPB’s finding that, for credit card agreements, the arbitration provisions were on average 14% of the entire agreement (based on the number of words).

The symposium also featured an address by FTC Chairwoman Edith Ramirez, who highlighted two recent and ongoing FTC actions to combat abuses in fine print. The first was the FTC’s action against ten auto dealers for deceptively using fine print to contradict advertised prices and rates. The second action was a rare use of the FTC’s authority to combat unfair practices, charging that a payday lender’s restriction on claims being litigated in tribal court in South Dakota were unfair to consumers.

All speakers and panelists at the seminar shared the view that fine print is harmful to consumers. When referring to “fine print,” the panelists broadly referred to both traditional non-negotiable contracts, such as cell phone service agreements, and so-called “clickwrap” contracts. In clickwrap contracts, such as End User License Agreements, customers consent to any terms or conditions by clicking on a dialog box on a screen in order to complete a transaction. Several law professors presented empirical studies that showed both traditional and clickwrap contracts are getting longer and more complicated, and that consumers do not understand what they are reading (assuming they even attempt to read a contract).

The panelists presented several possible solutions to the “problem” of fine print. One solution would require companies to notify customers in the event of changes to clickwrap contracts, via procedures similar to existing data breach notification requirements. Another solution involved creating a list of certain non-waivable terms, similar to the European Union’s unfair contract terms “blacklist.” A listed term, such as a right to a trial, could not be waived in any kind of consumer contract.  Along similar lines, Nancy Kim, a professor at California Western School of Law, suggested that only certain so-called “shield” terms that are designed to protect a company’s property or proprietary rights should be enforceable in clickwrap contracts.

Another solution involved using performance-based standards, similar to existing over-the-counter drug label testing requirements. Under this model, companies would have to demonstrate to regulators that a sufficient number or percentage of consumers understand the terms of a contract as they are formatted before they can be used. This way, the responsibility for designing disclosures that are readable to consumers would move from regulators to the firms themselves, which are better suited to educate consumers, simplify and innovate terms, and channel consumers to suitable terms.

Overall, the seminar was very pro-consumer, with no speakers representing industry. It is clear from the seminar that the use of fine print is an issue of interest to both the CFPB and the FTC, with the CFPB currently focused on the use of fine print in disclosures and the FTC focused on deceptive advertising concerns. It seems likely that both agencies will increasingly focus on fine print issues as consumer advocate groups mobilize on this issue.

A video of the entire symposium is available on Georgetown Law’s website.

CFPB payday loan proposal for rulemaking is coming, but timing of its publication remains unclear

Posted in CFPB General, CFPB Rulemaking, Payday Lending

At the Practicing Law Institute’s 19th Annual Consumer Financial Services Institute held on Monday in New York City, Meredith Fuchs, Associate Director & General Counsel for the CFPB delivered the opening keynote address, which touched on a number of topics regarding current areas of interest of the CFPB and provided updates on where several of such initiatives are heading. HMDA, prepaid cards, debt collection and privacy notice regulatory streamlining were areas which Associate Director Fuchs singled out as likely areas for future rulemaking. In response to questions from Alan Kaplinsky (who once again co-chaired the Institute) and others, Ms. Fuchs agreed that payday lending/small dollar, short term loan regulation was also on the list of focus areas. 

When asked to comment on when the industry could expect to see a Notice of Proposed Rulemaking for payday lending/small dollar, short term loans (“payday loans”), Associate Director Fuchs responded that she could not speak to the timing of or provide any exact time for publication of any such proposed rule. Similarly, Charles Honig, a Managing Counsel of the Office of Regulations in the Research, Markets, and Regulations Division of the CFPB, and a panelist at the event, also declined to give a specific date for publication, but did raise some interesting points. He discussed various research findings that the agency found troubling, and indicated that the findings of their research are indicative of where the CFPB could be going with the rules. Further, he alluded to the regulatory flexibility analysis process, which in the case of CFPB as a “covered agency” may include IT being required to obtain advice and recommendations from selected small business entities relative to costs of credit issues/effects of the proposed rules. We are not aware of whether or not this analysis process has been begun for the payday loan rulemaking—the last published regulatory agenda from Fall, 2013 lists this requirement as “undetermined”, and a new regulatory agenda is due to be published in the Federal Register this month. If the regulatory flexibility analysis process has not been initiated or substantially completed as yet, and given our understanding from the panel that such a process is typically initiated several months before a Notice of Proposed Rulemaking is published for comment, this suggests at least that publication of a full Notice of Proposed Rulemaking for general public comment may also be some months away.