Today, the CFPB held a forum to learn more about how consumers are impacted by checking account screening policies and procedures. The CFPB recognizes that checking accounts are one of the most widely used financial products by consumers, but the CFPB has expressed concerns that screening practices may be preventing consumers from gaining access to basic checking accounts. During the forum, the CFPB heard presentations from consumer groups, federal and local government officials, and industry representatives on the following topics:
- The Account Screening Information Ecosystem and Financial Institution Screening Practices
- Consumer Experiences
- Improving Information and Access for Consumers
According to the CFPB, many banks and credit unions rely on reports provided by specialty consumer reporting agencies (CRAs) to determine whether to open a checking account for new customers. CRAs that specialize in checking account screening commonly provide banks and credit unions with information about a consumer’s check writing and account history, including whether a consumer has had a previous account closed and whether the consumer has a record of bounced or returned checks and overdrafts. In addition to these specialty reports, banks and credit unions may also screen consumers to determine if they pose a credit risk when deciding whether to open a consumer checking account.
In prepared remarks, CFPB Director Richard Cordray stated that, “The Consumer Bureau has three areas of concern. First, we are concerned about the information accuracy of these reports. Second, we are concerned about people’s ability to access these reports and dispute any incorrect information they may find. Third, we are concerned about the ways in which these reports are being used.”
The CFPB identified the following potential next steps to improve checking account screening policies and practices:
- Increase the accuracy of data furnished to and reported by consumer reporting agencies;
- Identify how institutions can use various screening tools to manage risk without unnecessarily excluding potential accountholders;
- Inform consumers about their rights to review their account histories and correct any inaccuracies; and
- Inform consumers about how they can access different account products that meet their needs.
Director Cordray also noted that, “We are seeking, in particular, to explore ways that account screening can move beyond the use of specialized consumer reports as crude ‘black lists’ where consumers are turned down for an account simply because their name appears on the list. We envision a process that better understands consumers’ needs and can provide an account that is appropriate to their personal circumstances.”
The CFPB has released Version 3.0 of its “2014 CFPB Dodd-Frank Mortgage Rules Readiness Guide.” The Guide, originally issued in July 2013, now contains changes to the final rules issued through August 1, 2014. The updated Guide includes the TILA-RESPA Integrated Mortgage Disclosures Rule that takes effect in August 2015.
According to the CFPB, the Guide provides guidelines to “help financial institutions come into and maintain compliance with the new mortgage rules.” Designed to help institutions of all sizes, the Guide consists of: (1) a summary of the rules, (2) a readiness questionnaire, (3) frequently asked questions, and (4) tools.
On October 22 from 2:00 to 3:30 p.m., the FDIC’s Division of Depositor and Consumer Protection will host a teleconference as part of its periodic series of events for bankers on important banking regulatory issues in the compliance and consumer protection area. According to the announcement, the upcoming teleconference will focus on common questions and answers regarding the implementation of the Ability-to-Repay/Qualified Mortgage and the Loan Originator Compensation Final Rules. Specifically, the teleconference will address issues raised by community banks about these rules. The announcement provides no indication whether the CFPB staff will participate in the call.
The session is free, but registration is required.
On October 1, 2014, the CFPB staff and Federal Reserve Board co-hosted a webinar that addressed questions about the Final TILA-RESPA Integrated Disclosure Rule that will be effective for applications received by creditors or mortgage brokers on or after August 1, 2015. The webinar focused on the Loan Estimate and addressed specific questions regarding the content of the Loan Estimate form that relate to corresponding provisions of the Closing Disclosure. Many of the issues covered were in response to questions received by the CFPB from mortgage industry stakeholders and technology vendors who need additional information in order to facilitate the development of compliance and quality control procedures and software.
The webinar is the third in a planned series to address the new rule. In the initial webinar, the CFPB staff provided a basic overview of the final rule and new disclosures. In the second webinar, the CFPB staff focused on core operation issues such as the receipt of an application, assumptions, fee tolerances, record retention, and timing for the initial and revised Loan Estimates.
According to the CFPB staff, this webinar and the ones that will follow will be in the format of a spoken Q&A. Although the CFPB staff does not plan to issue written Q&A, the staff believes this approach will help facilitate clear guidance on the new rules in an accessible way. As we have stated before, industry members would prefer formal written guidance. Among other concerns, the CFPB approach presents challenges to the ability of hearing impaired individuals to benefit from the guidance.
During the webinar the CFPB staff provided a high-level overview of the rule and answered more than thirty technical questions. Below is a summary of select questions of interest addressed by the CFPB staff. The topics covered include: (1) brokered transactions, (2) origination charges, (3) calculating cash to close, and (4) the adjustable payment and adjustable interest rate tables. More >
Yesterday, the U.S. Supreme Court invited the Solicitor General to file a brief to express the Obama administration’s views on whether certiorari should be granted in a consumer case involving an important issue of statutory standing. In the case – Spokeo v. Robins – the issue is whether a plaintiff asserting a private cause of action under the federal Fair Credit Reporting Act has the requisite injury-in-fact for Article III standing when his complaint alleges no injury other than violation of the statutory right itself. See our prior e-alert on the Ninth Circuit’s decision in Spokeo, holding that standing did exist.
For the past few years, this issue of standing has been percolating in federal appellate courts in various consumer statutory contexts. In 2010, in Edwards v. First American Corp., the Ninth Circuit held that a plaintiff bringing a claim under RESPA possesses Article III standing to recover statutory damages even in the absence of any actual damages caused by the alleged RESPA violation. The U.S. Supreme Court initially granted certiorari in Edwards, and – upon the Court’s request – the Solicitor General and the CFPB jointly filed an amicus brief arguing that deprivation of statutory rights is all that is required for standing under RESPA. Ultimately, the Supreme Court did not address the merits of the issue in Edwards, and instead dismissed the writ as “improvidently granted.” See our prior blog posts about Edwards here and here.
Last year, in Charvat v. Mutual First Federal Credit Union, the Eighth Circuit held that the plaintiff did have standing to assert a claim under the federal Electronic Fund Transfer Act for the failure of an ATM to contain a transaction fee notice, even if the plaintiff had suffered only “informational injury” and not any economic or other injury. The Supreme Court denied certiorari in Charvat earlier this year. See our prior blog post on Charvat.
Spokeo gives the U.S. Supreme Court another opportunity to hear this significant issue of consumer statutory standing. For details on the parties’ arguments in Spokeo, see the petition for certiorari, opposition brief, and reply brief. In addition, several amicus briefs in support of granting certiorari have been filed in Spokeo, which can be found here (by Pacific Legal Foundation), here (by ACA International), here (by Trans Union LLC), here (by Chamber of Commerce of the United States of America), here (by eBay Inc., Facebook, Inc., Google, Inc. and Yahoo! Inc.), here (by Experian Information Solutions, Inc.), here (by Consumer Data Industry Association), here (by National Association of Professional Background Screeners), here (by New England Legal Foundation), and here (by DRI – The Voice of the Defense Bar). There is no deadline for the Solicitor General to file its brief. We will closely monitor the proceedings in Spokeo given its potential to impact the ability of consumers to recover under a wide array of consumer protection statutes where actual damages are often difficult to prove or non-existent.
A September 29, 2014 Report of the Joint Federal Reserve/CFPB Office of the Inspector General (OIG) concluded that the CFPB’s rulemaking process generally complies with the requirements of Section 1100G of the Dodd-Frank legislation and offered only minor criticisms identifying potential improvements. Section 1100G amended the Regulatory Flexibility Act to require the Bureau to (A) assess the impact of any proposed rule on the cost of credit for small business entities through regulatory flexibility analyses and (B) to convene panels to seek direct input from small business entities prior to issuing certain rules.
The CFPB’s Division of Research, Markets, and Regulations (RMR) created two internal guidance documents that outline the agency’s process to comply with these requirements. OIG reviewed both documents, along with some randomly selected rulemaking proceedings, to assess overall compliance with Section 1100G.
The report makes three recommendations predicated principally on the following findings:
- RMR’s interim policies and procedures have been in use for approximately two years without being updated or finalized
- Those interim policies and procedures afforded teams significant discretion in their 1100G rulemaking approach to regulatory analysis, which contributed to a variance in documentation and inconsistent knowledge transfer practices
- RMR takes an inconsistent approach with respect to storing supporting documentation related to 1100G rulemakings.
The three recommendations offered by the report are for the Bureau to:
- Finalize RMR’s interim policies and procedures;
- Establish a standard approach to manage electronic documents that facilitates retrieval of Section 1100G rulemaking supporting documentation; and
- Ensure that the standard approach complies with CFPB’s Policy for Records Management, in addition to other applicable provisions, such as the Federal Records Act, including National Archives and Records Administration regulations.
The Consumer Financial Protection Bureau recently announced a consent order with Flagstar Bank, F.S.B., alleging unfair acts and practices under the Consumer Financial Protection Act (CFPA) and violations of the CFPB’s Mortgage Servicing Rules. The penalties include $27.5 million in damages for harmed borrowers, a $10 million civil money penalty, a temporary restriction on the bank’s ability to acquire additional default loan servicing rights, and a required compliance review and plan implementation.
While this constitutes the first CFPB enforcement action for violations of the Bureau’s Mortgage Servicing Rules, the majority of the activity subject to the consent order occurred before January 10, 2014, when the rules took effect. The Bureau concluded that a variety of alleged activities constitute unfair acts and practices under the CFPA, including failure to properly evaluate loss mitigation applications, improper denial of loan modifications, and prolonging trial periods for loan modifications. Regarding activities that occurred after January 10, 2014, the CFPB alleged violations of the Mortgage Servicing Rules, namely the loss mitigation requirements under 12 C.F.R. § 1024.41. These alleged activities are generally continuations of the alleged unfair acts and practices that occurred prior to January 10, 2014. The bank did not admit any of the findings.
It is not surprising that the CFPB’s first enforcement action under the Mortgage Servicing Rules pertains to alleged loss mitigation violations. Among the rules that took effect on January 10, 2014, a failure to meet the loss mitigation requirements has the greatest potential for borrower harm. Surprisingly, the Bureau effectively enforced certain of these requirements, for violations occurring prior to the effective date, using its UDAAP enforcement authority.
It is also interesting to note the CFPB’s imposition of a provision restricting the bank’s ability to acquire additional servicing rights for default loan portfolios. Over the past six months, a variety of regulators have increasingly attempted to restrict or otherwise scrutinize servicing transfers before the transfer occurs. The Federal Housing Finance Agency has published heightened guidelines for approval of servicing transfers by the GSEs, and its Inspector General advocated even greater scrutiny for transfers to nonbank servicers. The CFPB’s recent bulletin also provides a framework for pre-transfer evaluation of a servicing transfer plan. This restriction on the bank’s acquisition of default loan servicing rights seems to be part of a growing regulatory trend for the industry.
The enforcement action should be a wake-up call to the industry that the CFPB is going to strictly enforce the Mortgage Servicing Rules and that servicers should confirm that they are in full compliance.
For more on the consent order, see our legal alert.
On October 2, 2014, the CFPB announced a research pilot to explore ways to encourage saving among consumers at tax time, with particular focus on tax-time saving practices among low-income consumers. The pilot is part of the CFPB’s “Project Catalyst,” which is designed to encourage consumer-friendly developments in markets for consumer financial products and services. See our prior blog posts about Project Catalyst here, here, here and here.
The pilot is the latest of several initiatives launched by the CFPB over the past three years to encourage consumers to save their tax refunds or a portion thereof. These initiatives are pursuant to the CFPB’s 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 and access to financial services during the tax preparation process to claim certain credits and federal benefits. The CFPB has expressed its view that tax time presents an opportunity to many consumers to improve long-term financial health and economic stability by saving their tax refunds.
As part of the pilot, H&R Block, Inc. has agreed to share insights with the CFPB from H&R Block’s own tax time savings project. In its own project, H&R Block is testing the effectiveness of certain strategies to promote tax-time saving behavior, such as providing consumers with informational materials to encourage saving of tax refunds, and having tax preparers introduce to consumers the idea of saving once the consumer learns that he or she will receive a refund.
On October 15 from 3:30 to 5:30 p.m., a meeting of the CFPB’s Community Bank Advisory Council will take place at the CFPB’s offices in Washington, DC. According to the agenda Brian Webster, Program Manager for the Office of Mortgage Markets, will discuss mortgages, and Gary Stein, Deposit Markets Program Manager and Jesse Leary, Section Chief of Consumer and Household Research, will discuss overdrafts. Both topics are very much of concern to community banks. On September 29, 2014, the Bureau announced that it had entered into a consent order with Flagstar Bank regarding alleged violations of the Bureau’s new mortgage servicing regulations. Earlier this year, the Bureau issued a report about overdrafts and it is anticipated that this was a prelude to rulemaking.
This meeting will be open to the public to attend in person or over the internet. The CFPB earlier this year decided to change its prior policy under which meetings of its advisory councils were held behind closed doors.
Could the third time be the charm? Today, the U.S. Supreme Court granted the petition for certiorari filed in May 2014 by the Texas Department of Housing and Community Affairs (Texas DHCA) in Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, Inc.
The case gives the Supreme Court its third opportunity since 2012 to rule on the issue of whether disparate impact claims are cognizable under the Fair Housing Act. The prior two cases, Twp. Of Mount Holly v. Mt. Holly Gardens Citizens in Action, Inc. and Magner v. Gallagher, were both settled after the completion of briefing but before the Court could hear oral argument and answer the question presented. This time around the Court granted the certiorari petition without first soliciting the views of the Solicitor General.
The Texas DHCA’s certiorari petition presented two issues: (1) whether disparate impact claims are cognizable under the FHA; and (2) if disparate impact claims are cognizable under the FHA, what standards and burdens of proof should apply. The Supreme Court’s grant of certiorari is limited to the first question. An industry favorable ruling on this question by the Supreme Court would have implications with respect to the analogous issue of whether disparate impact claims are cognizable under the Equal Credit Opportunity Act. Thus, this significant development also is of interest to non-mortgage creditors.
On October 16, 2014, Ballard Spahr attorneys will discuss this development and recent CFPB fair credit developments in a webinar, “Auto Finance II: Fair Credit,” from 12:00 p.m. to 1:00 p.m. ET. The registration form is available here.