CFPB Monitor

News Guidance Perspectives of CFPB | Ballard Spahr Law Firm Blog

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.

CFPB’s Office of Minority and Women Inclusion issues second annual report

Posted in CFPB General

The CFPB’s Office of Minority and Women Inclusion (OMWI) has issued its second annual report to Congress covering the OMWI’s activities in 2013.  The Dodd-Frank Act required the CFPB and various other federal agencies including the Fed, Treasury, OCC, FDIC, NCUA, SEC and FHFA, to establish an OMWI, and also required each OMWI to submit an annual report to Congress. 

From industry’s perspective, the most noteworthy task Dodd-Frank assigned to each OMWI was the development of standards to assess the diversity policies and practices relating to employment and third party contracting of the institutions regulated by the OMWI’s agency.  As the report indicates, in October 2013, the CFPB and the agencies listed above other than the FHFA issued a proposed policy statement establishing joint standards for assessing the diversity policies and practices of their regulated entities.  Comments on the proposal were due by February 7 and the report states that the agencies are “in the process of reviewing the comments and working towards the development of a final policy statement.”

In a section entitled “Challenges,” the report references the CFPB’s recently released internal report which showed a pattern of racial disparities in CFPB staff evaluations and has led to Congressional scrutiny of the CFPB’s employment practices.  Referring to the results of the internal report as “growing pains,” the OMWI report discusses the steps the CFPB is taking to address its employee ratings.  Based on remarks made by Director Cordray in his speech last week at the Greenlining Institute’s Economic Summit, it appears those steps will also include a more active role for the CFPB’s OMWI.  More specifically, Director Cordray stated that the CFPB had “recently changed [its] internal structure to elevate the role of [its] OMWI in addressing issues of diversity and inclusion throughout the Bureau.” 

In what appears to be an implicit acknowledgement of the reportedly high employee turnover rates the CFPB has experienced, the report notes that while many of its early staff remains, “others have moved on to opportunities in the public, private, non-profit, and academic sectors.”  The report further states that “[t]his continuous influx of new employees can make it difficult to establish an organizational culture.”  

Another task of an OMWI is to develop standards for creating diversity in an agency’s own workforce.  According to the report, as of year-end 2013, the CFPB had 1,354 employees, representing an increase of 283 employees from year-end 2012.  Of the 1,354 employees, 46% were female and 54% were male.  (The percentage of women represents a 2% decrease from
2012′s percentage.)  In addition, of those employees, 69% self-identified as White, 17% as Black/African-American, 10% as Asian American, and 4% as another racial group or belonging to two or more racial groups.  The report notes that minorities and women hold about 47% of the CFPB’s executive level positions, and that among the areas that need improvement, diversity of senior leadership is a “particular focus.” 

With regard to procurement, the report indicates that in FY 2013, the CFPB entered into 922 “contract actions,” totaling approximately $111.0 million.  Of the total contract dollars awarded in FY 2013, the report states that 9% went to women-owned businesses and 15% went to
minority-owned businesses (consisting of businesses owned by Hispanic Americans, African-Americans, Asian/Pacific Islander Americans and American Indians/Alaskan Natives and “Others”).

As noted above, the diversity assessment standards proposed by the CFPB and other regulators cover not only cover a regulated entity’s diversity policies and practices relating to employment but also cover such policies and practices relating to contracting with third parties.   The OMWI’s report thus serves as a reminder of the need for banks and other regulated entities to include consideration of vendor diversity in their vendor management policies.


House to hold hearing on economic consequences of actions taken by CFPB and other federal regulators

Posted in CFPB General

This Tuesday, April 8, the House Financial Services Committee will hold a hearing entitled “Who’s in Your Wallet: Examining How Washington Red Tape Impairs Economic Freedom.” 

According to the Committee memo, the hearing will examine the economic consequences of recent rulemaking, supervisory, and enforcement actions of the CFPB, FDIC, Fed, NCUA and OCC.  Issues to be explored include (1) how the agencies evaluate the costs and benefits of their actions, (2) whether products or services are no longer being offered because of agency actions,
(3) the steps federal regulators take to measure the impact on consumers if they no longer have access to specific products or services as a result of regulatory action, and (4) the procedures or standards agencies follow in determining whether to engage in formal rulemaking under the Administrative Procedure Act. 

Meredith Fuchs, CFPB General Counsel, is among the witnesses scheduled to appear.  Observers such as Politico think Ms. Fuchs is likely to be questioned about the claims made by a CFPB employee alleging discrimination and retaliation by the CFPB which were the focus of  a Committee hearing last week. 

This is an important topic for a Congressional hearing since we are aware of certain products and services desired by consumers (such as credit card debt cancellation coverage and identity theft protection to name just a few) that many banks have stopped offering because of fear of CFPB enforcement actions.  Through consent orders, the CFPB has extracted commitments from banks that go well beyond the proscriptions of existing statutes and regulations. 

In addition to Ms. Fuchs, the other witnesses scheduled to appear are:

  • Richard J. Osterman, FDIC Acting General Counsel
  • Scott G. Alvarez, Fed General Counsel
  • Michael McKenna, NCUA General Counsel
  • Amy Friend, OCC Senior Deputy Comptroller and Chief Counsel

Follow Alan on Twitter at @AlanKaplinsky



CFPB employee testifies at House hearing on alleged CFPB employee discrimination

Posted in CFPB General

At yesterday’s hearing on alleged CFPB employee discrimination conducted by the House Financial Services Committee’s Subcommittee on Oversight and Investigations, a CFPB employee is reported to have testified that the agency has “a pervasive culture of retaliation and intimidation that silences employees and chills the workforce from exposing wrongdoing.”   

Angela Martin, a CFPB enforcement attorney, claimed that she experienced gender discrimination and retaliation for filing an Equal Employment Opportunity complaint with the CFPB’s Human Capital Office.  Ms. Martin is also reported to have testified that the CFPB is staffed with inexperienced managers who have adopted an “authoritarian” and “unaccountable” management style that allows them to discriminate against minority and female employees. 

Also testifying at the hearing was Misty Raucci, an outside investigator retained by the CFPB to look into Ms. Martin’s claims.  Ms. Raucci’s report supported Ms. Martin’s claims and in her testimony, Ms. Raucci reportedly charged the CFPB with failing to uphold its own equal employment opportunity policies.  She is also reported to have testified that during the course of her investigation, she was contacted by numerous other CFPB employees who alleged mistreatment by the CFPB. 

The CFPB declined the Subcommittee’s invitations to two of it representatives to participate in the hearing and, according to news reports, has contested the credibility and validity of Ms. Raucci’s report.  It has been reported that Democrats on the House Financial Services Committee are now urging Committee Chair Jeb Hensarling to hold a future hearing featuring senior CFPB officials.  Following the hearing, Director Cordray is reported to have issued a statement in which he apologized to any CFPB staff members who feel they have been unfairly treated and said that he welcomed the opportunity to appear before Congress to discuss the CFPB’s workplace issues. 

A video of the hearing is available here.


OIG finds CFPB’s supervision program needs improvement

Posted in CFPB Exams

Earlier this week, the results of an evaluation of the CFPB’s supervision program conducted by the Office of Inspector General (OIG) that the CFPB shares with the Fed were released in a report entitled “The CFPB Can Improve the Efficiency and Effectiveness of Its Supervisory Activities.”  The report is based on data in the CFPB’s Supervisory Examination System (SES) database as of July 31, 2013.  As of that date, the CFPB had completed 82 examinations (excluding baseline reviews), which resulted in 35 reports of examination and 47 supervisory letters.  63 of the completed examinations were of depository institutions and 19 were of nondepository institutions. 

The report begins with a background discussion that serves as a useful primer on the operation of the CFPB’s supervision program.  For example, the OIG details the types of exams conducted by the CFPB, the “products” that result from an exam (i.e. report or supervisory letter), and the process for exam scheduling, planning, execution, and reporting. 

The background discussion is followed by 8 findings, with each finding accompanied by recommended actions for the CFPB to take to address the finding and the CFPB’s response.  Key findings include the OIG’s conclusion that: 

  • The CFPB did not meet its internal timeliness requirements for exam reporting, with nearly 60% of the 82 drafts submitted to headquarters by regional exam teams not meeting the CFPB’s requirement for submission within 30 days of fieldwork completion and 90% of the drafts that received headquarters approval not meeting the 30-day requirement for such approval.  The report notes that several exams have been outstanding for more than a year “indicating that the agency is not providing timely written feedback to the institutions it supervises.”  It also observes that “[t]he CFPB’s inability to provide examination reports to institutions in a timely manner creates uncertainty for supervised institutions.”
  • The CFPB did not consistently use standard compliance rating definitions.  In two out of eight sampled examination products, CFPB staff had edited standard definitions to omit information and add qualifying language to the assessment of discriminatory acts or practices.  More specifically, in one examination that included ECOA compliance, the CFPB altered the FFIEC’s definition for a 3 rating to state that no “overt” discriminatory acts or practices were evidenced.  The examiners had identified the discretion given to the institution’s customer service representatives to grant fee waivers as a situation that created a risk of ECOA violations.  While the CFPB required the institution to create policies and procedures limiting such discretion, the report did not indicate “whether the CFPB identified any discriminatory acts or practices, suggesting that the CFPB did not reach a definitive conclusion as to whether fee waivers had been granted on a discriminatory basis.”  The OIG found that by adjusting the standard definition to insert “overt,” the CFPB had created “the appearance that the CFPB deviated from the standard template language to qualify its rating of the supervised institution, calling into question the appropriateness of the assigned rating.”  A second examination team that had also added the word “overt” had copied such language from the other report rather than from the CFPB’s template.
  • The CFPB’s examination reporting policy has not been updated to reflect the December 2012 reorganization of the CFPB’s supervision offices or the current definition of fieldwork completion (which initiates the reporting process).  The OIG found the outdated definition to be a potential source of confusion among staff responsible for drafting and reviewing examination reports and that the entry of incorrect dates by examiners into SES could impact the CFPB’s ability to track performance against reporting milestones.
  • The CFPB did not have a consistent approach to scheduling or tracking examination staff hours.  The OIG observed that the lack of a policy for scheduling or tracking “hinders the CFPB’s ability to hold staff and regions accountable for the staff resources allocated and time expended on examinations.”
  • The CFPB has not yet finalized its commissioning program for new examiners and lacks a formal, centralized process to track examiners’ completion of on-the-job modules.  The CFPB has a smaller proportion of commissioned examiners to noncommissioned examiners than peer federal regulators. 

The OIG indicates that since completing its field work in October 2013, it has been told by senior CFPB officials that various measures have been taken to address certain findings in the report, including streamlining the report review process and reducing the number of examination reports that have not been issued.  As part of its follow-up activities, the OIG plans to assess whether such measures and the other planned measures that the CFPB outlined in its responses address the OIG’s findings and recommendations. 

In his remarks yesterday to the Consumer Bankers Association, Steven Antonakes, CFPB Deputy Director, said that the CFPB is 80% staffed insofar as examiners are concerned and that he expects the examination staff to be fully-staffed within a year.  He also expects that the CFPB will be meeting its deadlines for issuing exam reports within the same time frame.  Mr. Antonakes did not mention the OIG report.

CFPB launching community financial education project

Posted in Financial Literacy

The CFPB has announced that it plans to launch a new Community Financial Education Project in which it will work with public libraries across the country to help them provide free financial information and referrals.  The launch will be the subject of an event hosted by the CFPB’s Office of Financial Education that is scheduled for April 7 and will be streamed live on the CFPB’s website.

The CFPB has said that its goal is to make libraries vital financial education hubs in communities across the country.  The CFPB’s plan to help community resources such as libraries become providers of financial education information makes eminent sense and deserves wide-spread support.