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More on the debate over the impact of student loan debt on home ownership

Posted in Student Loans

We recently wrote about a new Brookings Institution report which suggested that charges coming from various quarters, including the CFPB, that student loan debt is causing young adults to postpone home ownership are overblown.  The report found that the typical household with debt is no worse off today than a generation ago, with increases in lifetime earnings more than offsetting increases in debt, and monthly payment burdens kept manageable by longer repayment periods. 

In a blog post earlier this month, Matthew Chingos, one of the report’s authors, looked further at the data in an effort to explain why the rhetoric on student loans is so far removed from reality.  More specifically, he posed the question “whether the recent surge in attention paid to student loans stem in part from increases in debt among affluent households, similar to the attention Congress paid to sequestration when federal budget cuts led to flight delays out of New York and other major cities?” 

Having found from his analysis of relevant data that increases in debt have been concentrated among the affluent, Mr. Chingos observes that “[a]n era in which students from low-income families used loans to supplement grants has given way to a system dominated by the wealthiest Americans, many of whom were born to affluent parents.”  According to Mr. Chingos, “[t]his trend supports the theory that the intensification of the public debate over student loans may be due in part to the increased prevalence of debt among more affluent households.” 

He comments that since this trend is likely to continue, policymakers may face increasing political pressure to offer broad-based borrower relief, such as a reduction in interest rates.  He suggests that “[a]bsent credible evidence that such a policy would have a large ‘trickle-down’ effect on the broader economy, policymakers should instead focus on the core mission of the federal loan program: promoting access to higher education on terms that are fair to both students and taxpayers.”


CFPB continues to solicit comments on proposed debt collection survey

Posted in Debt Collection

The CFPB published a notice in the Federal Register today announcing that it will continue to take comments until August 22, 2014 on its plans to seek approval from the Office of Management and Budget “to conduct a mail survey of consumers to learn about their experiences interacting with the debt collection industry.”

The Federal Register notice published by the CFPB on March 7, 2014 announcing the CFPB’s plans to conduct the survey required comments to be filed on or before May 6, 2014.  We previously questioned the CFPB’s ability to draw valid conclusions from many of the responses it receives and observed that because contact with a debt collector is not an event that a consumer can be expected to welcome, there appeared to be a substantial risk that consumer bias will produce responses that do not accurately reflect consumers’ actual experiences.

Our concerns about the survey’s ability to produce reliable and representative data that can be used to inform any related rulemakings or other agency actions were shared by the American Bankers Association and Consumer Bankers Association who submitted comments to the CFPB.  Other than the ABA, AFSA and CBA, only ACA International has submitted comments so far on behalf of industry.  Given the survey’s shortcomings and the CFPB’s plans to use the survey results to inform its debt collection rulemaking, we hope more industry members will weigh in.

CFPB issues second Financial Literacy Annual Report

Posted in Financial Literacy

The CFPB has issued its second Financial Literacy Annual Report to Congress.  The report covers the CFPB’s activities to improve consumer financial literacy during the period from June 2013 through May 2014.  The report’s Appendix contains a list of the CFPB’s financial education resources as of May 31, 2014.   

The report discusses the CFPB’s activities as they relate to the three key components of the CFPB’s financial literacy strategy: education initiatives, research and innovation, and outreach to key stakeholders who can help to reach the public. 

With regard to education initiatives, the report describes various active CFPB initiatives during the period covered by the report, including the CFPB’s “Paying for College” tools, initiatives through community institutions such as helping libraries develop financial education programming and developing information for employers about workplace financial education, and the development of guides and other resources to enhance protection for older consumers. 

In the area of research and innovation, the CFPB discusses its various projects which include (1) a research project to develop measures of financial well-being for working age and older American consumers, (2) a project to conduct a quantitative evaluation of two existing financial education programs involving financial coaching, (3) a multi-phase project to help the CFPB determine whether the financial capability of low-income and other economically vulnerable consumers can be enhanced through bundled financial products and services, (4) a project to develop prototypes of innovative approaches to help consumers overcome common decision-making challenges and then evaluate the effectiveness of the approaches, and (5) a research project to study the effectiveness of “rules-of-thumb” -based approaches aimed at helping consumers decrease their credit card debt. (The CFPB describes “rules of thumb” as “a decision-making and education technique that uses practical, easily-implemented guidelines for making decisions.”) 

In the area of outreach, the CFPB discusses various webinars, meetings, programs and other activities it conducted during the period covered by the report, including those specifically targeted at servicemembers, students, older consumers and low-income and other economically vulnerable consumers.

Update on state AG/regulator lawsuits using Dodd-Frank authority

Posted in UDAAP

We have been following four lawsuits brought by state Attorneys General and a state regulator using their Dodd-Frank enforcement authority.  Under Dodd-Frank Section 1042, a state AG or regulator is authorized to bring a civil action for a violation of the Dodd-Frank prohibition of unfair, deceptive or abusive acts or practices (UDAAP).  Here’s an update on the lawsuits: 

Mississippi. The most recent of the four lawsuits was filed in May 2014 by the Mississippi AG against Experian in Mississippi state court alleging widespread federal and state law violations.  (While the AG’s complaint did not expressly allege that his claim of alleged UDAAP violations by Experian was brought under Section 1042, his complaint seeks various remedies under Dodd-Frank Section 1055 (12 U.S.C. 5565).)  

In June 2014, Experian removed the case to a federal district court in Mississippi.  It filed an answer to the complaint on June 20 and on July 10, the AG filed an amended complaint which includes new allegations regarding deceptive marketing practices by Experian. 

Illinois. The Illinois AG has filed two lawsuits using her Section 1042 authority.  In March 2014, the Illinois AG filed a state court lawsuit against a small loan lender alleging violations of the Dodd-Frank UDAAP prohibition as well as state law violations.  In April 2014, the defendant removed the case to an Illinois federal court and, in May 2014, filed a motion to dismiss which is now pending before the court.  The AG filed her response to the motion on July 21, 2014.

The Illinois AG’s second use of Section 1042 was in a lawsuit initially filed in state court against a for-profit college and its owners.  In March 2014, the state court granted the AG’s motion to further amend her complaint to add new counts alleging that the defendants’ practices were unfair and abusive under Dodd-Frank and in May 2014, the defendants (as we predicted) removed the case to a federal district court in Illinois. 

On June 16, 2014, the defendants filed a motion with the federal district court to dismiss the amended complaint.  Among the arguments made by the defendants in the motion is that the AG lacks authority to bring claims under Section 1042 because (1) her purported authority is derived from the CFPB which is an unconstitutional entity, (2) Illinois law does not give the AG authority to enforce federal law, and (3) the Dodd-Frank UDAAP standard is unconstitutionally vague. 

Among the defendants’ arguments for why the CFPB is unconstitutional is that the CFPB’s funding is not subject to the Congressional appropriations process.  The defendants assert that because Congress lacks control over the CFPB’s funding, Congress cannot exercise meaningful oversight over the CFPB and the absence of such oversight violates the Constitution’s separation of powers. 

Such argument was rejected by a California federal district court in its ruling denying Morgan Drexen’s motion to dismiss the CFPB’s enforcement action filed against it.  The argument was also made by ITT Educational Services in its pending motion seeking dismissal of the CFPB’s enforcement action against ITT filed in an Indiana federal court.  State National Bank of Big Spring, Texas also argued that the CFPB’s funding made it unconstitutional in its lawsuit filed in federal district court in Washington, D.C. which was dismissed for lack of standing and is currently on appeal before the D.C. Circuit. 

On June 18, the AG filed a motion asking the court to sever and remand Counts I and II of the amended complaint.  In the motion, the AG argues that the facts alleged in Count I, involving alleged misrepresentations and material omissions to students about the defendants’ criminal justice degree program, “do not form a common nucleus of fact” with those alleged in other counts and is therefore outside of the court’s supplemental jurisdiction.  With respect to Count II, in which the AG claims that defendants’ in-house financing program was “structurally unfair” under the Illinois Consumer Fraud and Deceptive Practices Act ” is an issue of first impression in Illinois and should be decided by an Illinois state court.”  The defendants have filed a response opposing the remand. 

New York. In April 2014, Benjamin Lawsky, the Superintendent of the New York Department of Financial Services (DFS), using his Section 1042 authority, brought a civil action in a New York federal court for a violation of the Dodd-Frank UDAAP prohibition against a large subprime auto lender and its CEO and president.  In May 2014, the court entered a preliminary injunction freezing the defendants’ assets and enjoining them from engaging in new loan business and an order appointing a receiver.  On June 10, the court denied the defendants’ motion to modify the preliminary injunction.  On June 20, an intervenor complaint was filed by the defendants’ secured lender seeking a declaratory judgment as to its lien status and its right to exercise various rights and remedies under its loan agreement with the defendants.


Community banks urge CFPB to expand small creditor exemption

Posted in CFPB General, Mortgages

Recently, the Independent Community Bankers of America (ICBA) and a 45-member coalition of state and regional banking associations submitted a letter to the Consumer Financial Protection Bureau (Bureau) urging the agency to expand the small creditor exemptions under certain Title XIV mortgage rules that went into effect in January 2014. The ICBA argues that changes are needed to ensure community banks can continue to serve their respective mortgage markets without being burdened by expensive compliance costs.

Specifically, the ICBA would like mortgage loans that small creditors hold in their respective portfolios to automatically receive qualified mortgage safe harbor status as long as the loans are held in portfolio. The letter also calls for a small creditor exemption from escrow requirements for higher-priced mortgage loans held in portfolio. The ICBA claims that the current escrow and qualified mortgage rules make it too cumbersome and expensive to originate loans to certain consumers.

Under the current mortgage rules, small creditors are exempt if they originate 500 or fewer first lien mortgages in the preceding calendar year and have less than $2 billion in total assets at the end of the preceding calendar year. The ICBA believes the loan threshold is too low and notes that many community banks do not qualify for the exemption because they originate more than 500 loans annually.

In support of expanding the exemption, the ICBA argues that community banks operate differently than large creditors. The letter states that community banks know their customers personally, underwrite loans based on personal relationships, and keep a large number of nontraditional loans in their own portfolios. Finally, the ICBA contends that community banks serve a set of consumers that would be unable to get loans through traditional channels.

CFPB now taking complaints on prepaid cards, debt settlement services and more

Posted in CFPB General

Although we thought an announcement that the CFPB had begun taking complaints about new products would be made at its field hearing on consumer complaints last week, that announcement was made today.  The CFPB announced that it is now taking complaints from consumers about prepaid cards, such as gift cards, benefit cards, and general purpose reloadable cards.  It has also started to take complaints about debt settlement services, credit repair services, and pawn and title loans. 

For prepaid cards, the issues now listed on the CFPB’s online complaint system from which consumers can select to describe a complaint are:

  • Problems managing, opening, or closing an account
  • Fees
  • Unauthorized transactions or other transaction issues
  • Advertising, marketing or disclosures
  • Adding money
  • Overdraft, savings or rewards features
  • Frauds or scams 

For debt settlement and credit repair services, the issues listed from which consumers can select to describe a complaint are:

  • Excessive, unexpected or other fees
  • Advertising and marketing practices
  • Customer service/customer relations
  • Frauds or scams 

For pawn and title loans, the issues listed  from which consumers can select to describe a complaint are:

  • Unexpected fees or interest 
  • Inability to stop lender from charging bank account
  • Receiving a loan that was not applied for or not receiving money on a loan
  • Lender charging bank account on wrong day or for wrong amount
  • Lender not crediting payment 
  • Inability to contact lender
  • Lender sold property or damaged or destroyed property  

The CFPB is expected to issue a proposed prepaid card rule at the end of this summer and has made debt relief and credit repair services the subject of numerous enforcement actionsDirector Cordray has indicated that the CFPB would be looking at auto title loans in connection with its development of proposed regulations for payday and other small-dollar loans and that scrutiny of such products could be expanded to pawn loans.


Are the DFS’ latest debt collection rules a harbinger of things to come?

Posted in Debt Collection

In May, we wrote that the New York Department of Financial Services (“DFS”) would soon be issuing revised debt collection regulations for debt buyers and third party debt collectors. On July 16, the DFS released the revised proposed regulations.

Among other things, the revised proposed rules would require a debt collector to substantiate not only consumer disputes for defaulted debts, but also charged-off debts. The proposed regulations would also impose additional obstacles on collectors seeking to collect debts barred by the statute of limitations. Specifically, the debt collector, before accepting payment on a time-barred debt, would first have to send the consumer a written notice which explicitly states that “suing on an expired debt is a violation of the Fair Debt Collection Practices Act.” For more on the proposed regulations, see our alert.

The DFS’ laser-like focus on the collection of charged-off and time-barred debts likely has implications for debt collectors nationwide. In April, CFPB General Counsel Meredith Fuchs indicated that time-barred debt is a major focus of the CFPB’s upcoming debt collection rules. Given that the DFS and the CFPB have acknowledged they collaborate closely, it would not be surprising if many aspects of the DFS’ proposed regulations are adopted by the CFPB in its upcoming debt collection rule.

House to hold hearing on impact of Dodd-Frank Act

Posted in CFPB General

On Wednesday, July 23, 2014, the House Financial Services Committee will hold a hearing entitled “Assessing the Impact of the Dodd-Frank Act Four Years Later.”  (Today is the fourth anniversary of the date on which the Act was signed into law.)  Most notably, the witness list includes former Congressman Barney Frank, who formerly chaired the Committee and for whom the Act is named (together with former Senator Chris Dodd).  

The other witnesses scheduled to appear are:

  • Anthony J. Carfang, Partner, Treasury Strategies, Inc.
  • Thomas C. Deas, Vice President & Treasurer, FMC Corporation, on behalf of the Coalition for Derivatives End-Users
  • Paul H. Kupiec, Resident Scholar, American Enterprise Institute
  • Dale K. Wilson, Chairman, President, and Chief Executive Officer, First State Bank



CFPB issues new “snapshot” report on consumer complaints

Posted in CFPB General

The CFPB has issued a report on consumer complaints received from July 21, 2011 through June 30, 2014.  According to the CFPB’s “Snapshot,” it handled approximately 395,300 complaints during this period, with its Consumer Complaint Database listing more than 254,800 complaints as of July 1, 2014.  (The report indicates that the database only lists complaints submitted to the CFPB that companies have had an opportunity to respond to and does not include complaints referred from other agencies, found to incomplete, or that are pending with the consumer or the CFPB.) 

Of the approximately 395,300 complaints handled by the CFPB, 34% involved mortgages, 20% debt collection, 14% credit cards, 12% credit reporting, 12% bank accounts and services, 3% consumer loans, 3% student loans, 1% payday loans, 0.5% money transfers, and 0.5% “other.”  Of the complaints received, approximately 56% were submitted through the CFPB’s website, 10% via telephone calls, 24% via referrals, with the balance submitted by mail, e-mail and fax. 

For each product, the report indicates the most common types of complaints received by the CFPB.  For example, the most common type of mortgage complaint involved problems faced by consumers when they are unable to make payments, such as issues related to loan modifications, collections or foreclosures.  The most common type of debt collection complaint was about continued attempts to collect a debt that was not owed, with the consumer’s problem in many cases involving the calculation of the underlying debt rather than the attempt to collect the debt itself. 

The CFPB began taking payday loan complaints in November 2013.  In its Consumer Response Annual Report analyzing complaints handled in 2013, the CFPB provided information on the approximately 1,000 payday loan complaints it received in 2013.  According to the new report, as of June 30, 2014, the CFPB received approximately 2,400 additional payday loan complaints.  Similar to the approximately 1,000 complaints analyzed in the 2013 report, in the approximately 3,400 complaints analyzed in the new report (which includes the 1,000 complaints from 2013), the most common type of payday loan advance complaint issues involved unexpected charges for fees or interest or applying for a loan but not receiving the money.  Unlike the 2013 report, the new report includes information about the types of payday loans consumers complained about.  It indicates that 63% of the complaints involved online loans, 10% involved in store loans, and 27% did not state the loan type.   

Companies reported that 11% of complaints were reported with monetary relief.  As the reporting of an amount of monetary relief is optional, the CFPB’s analysis of relief amounts is based on information reported as to the more than 30,300 complaints for which companies reported relief amounts.  The median relief amount was $150, with the highest median relief amounts reported for mortgage complaints (approximately $445), student loan complaints (approximately $295), payday loan complaints ($310), and debt collection complaints ($339).  

Last week, the CFPB issued a proposal to add consumer complaint narratives to the complaint data it publicly discloses in the database.  The proposal was discussed at a CFPB field hearing last week held in El Paso, Texas.


CFPB hearing in El Paso on proposal to disclose consumer complaint narratives sheds light on CFPB position, reveals concerns of financial institutions

Posted in CFPB General

The CFPB held a field hearing yesterday in El Paso, Texas, at which it described its proposal to expand the complaint data it publicly discloses in its Consumer Complaint Database to include consumer complaint narratives. We previously reported about the proposal, which was released by the CFPB before the hearing.

Director Cordray identified three main reasons why the CFPB believes it is important to expand the Database to include narratives.

First, Director Cordray suggested that narratives provide additional information that is critical for fully understanding a complaint. “Narrative descriptions,” remarked Director Cordray, “contain the heart and soul of the complaint,” providing “vital information about why the consumer believes she was harmed.”

Second, Director Cordray suggested that narratives will assist those who use the Database in spotting trends. The additional, more specific information contained in a narrative can help industry and policymakers alike identify problems that may need to be addressed. Such information may not be reflected in the broad categories of information currently reflected as part of the Database.

Finally, Director Cordray argued that narratives will help consumers make more informed decisions. Drawing a comparison reminiscent of Senator Elizabeth Warren’s well-known toaster analogy, Director Cordray explained that the CFPB wants the Database to function like the Consumer Product Safety Commission website, Safer Products dot gov, or the National Highway Traffic Safety Administration’s website, Safer Car dot gov. which provide consumer narratives in their public complaint databases. Director Cordray suggested that complaint narratives will help empower consumers of financial services with similar information as that provided through these sites, and also encourage businesses to provide better products.

Director Cordray also described the nuts-and-bolts of the proposal itself, including the requirement for consumers to affirmatively opt-in to have their narratives disclosed. In short, Director Cordray explained that by allowing consumers to make their complaint narratives public, the CFPB hopes to encourage more consumers to make complaints and “offer people a megaphone” to tell their stories.

The hearing touched on one of our principal concerns with including complaint narratives. In short, the complaint may not be valid, and yet its narrative may be publicly available before the target business has had an opportunity to investigate. Though the target of the complaint may respond before the narrative is made public, and its response will be included along with the narrative, the target must do so with 15 calendar days. This timeframe is unreasonably short.

One of the panelists, Heather Shull of Western Union, explained that Western Union often needs to interface with consumers more than once to adequately address complaints, in part because the complaint narrative does not contain sufficient information to understand the issue. Complaints made in social media and other public forums suggest that consumers who opt to make their complaint narrative public will provide less detail, which will make it more difficult and time-consuming for institutions to respond.

We remain concerned about the CFPB’s proposal, and have joined with industry in expressing our concerns about it. The El Paso field hearing has further validated those concerns.