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CFPB adopts plan to publicly disclose consumer complaint narratives

Posted in CFPB General

The CFPB has adopted its controversial proposal to publicly disclose consumer complaint narratives in its Consumer Complaint Database.  Its plans for disclosing the narratives are set forth in a final policy statement.   According to the Federal Register document announcing the policy statement, the CFPB will not disclose any narratives for at least 90 days after the statement’s publication in the Federal Register.  In the notice’s supplementary information, the CFPB states further that it will not disclose narratives “until sufficient time has elapsed to allow the Bureau to adequately complete and assess” various actions needed to implement the policy statement, such as modifying its website, online complaint intake form and company web portal.

Consistent with its proposal, the CFPB will not publish a complaint narrative unless the consumer has given consent by checking an opt-in form that the CFPB plans to include in the submission phase of the complaint process.  A consumer can withdraw his or her consent at any time by informing the CFPB and the narrative will be removed from the database.  (In response to a commenter’s concern that companies might require non-disclosure agreements from consumers creating an account, the CFPB states that it “would likely look disfavorably upon agreements that require a consumer to withdraw his or her consent to have a narrative published as a condition of settlement.”)

The policy statement indicates that the CFPB “intends to apply to all publicly-disclosed narratives a robust personal information scrubbing standard and methodology” to address the risk of re-identification, which is modeled after the Health Insurance Portability and Accountability Act Safe Harbor Method.  The CFPB does plan to disclose 5-digit zip codes next to narratives, except were the population in the zip code contains fewer than 20,000 people.  (In such cases, the CFPB plans to disclose the 3-digit zip code unless the 3-digit zip code population is less than 20,000.)

The CFPB’s proposal would have allowed companies to submit an unstructured narrative response to appear next to the consumer’s narrative.  In response to industry comments that legal, business and reputational concerns would limit a company’s ability to provide meaningful public-facing unstructured responses, the CFPB will provide companies within the company web portal a “set list of structured company response options” and a company will have the opportunity to recommend which option, if any, it would like included as a public-facing response.  The list is intended to relieve companies from having to assess “what level of detail will address a complaint while protecting confidential information.”  A company will not be required to provide a public-facing response, and while the CFPB states that it generally plans to adopt a company’s recommended response, it reserves discretion “to assess whether there are good-faith bases for the recommendations.”

With regard to the timing of posting a consumer narrative and a company response, the CFPB plans to disclose the narrative when the company provides its public-facing response, but not later than 60 days after the complaint is routed to the company.  (The CFPB’s complaint system gives companies 15 days to provide an initial response to a complaint and 60 days to provide a final response.)  This timing is intended to guarantee that a public-facing response, if provided within the 60 day period, will be disclosed contemporaneously with the consumer narrative.

We share industry’s disappointment with the CFPB’s action.  From the time the CFPB first announced its plan to publicly disclose complaint data, we have had concerns about disclosing unverified date.  The CFPB’s decision to disclose consumer narratives only exacerbates those concerns.

We take little solace in the CFPB’s comment in the policy statement’s supplementary information that this concern is sufficiently addressed by its disclaimer on the complaint database that “we don’t verify all the facts alleged in these complaints but we take steps to confirm a commercial relationship between the consumer and company.”  We doubt many consumers, even if they read the disclaimer, will appreciate what that means for a complaint’s validity and will continue to assume that a complaint is true because it is being published on a government website.  In other words, complaints will take on an unwarranted level of credibility by virtue of them appearing on the CFPB’s website.

The CFPB prides itself on being a data-driven agency.  Its disclosure of consumer narratives is the antithesis of being data-driven.  Instead, the CFPB will be publishing anecdotes much in the same way as an Internet gripe site.

To address industry comments that the complaint database should include positive feedback in conjunction with complaint narratives, the CFPB also issued a notice and request for information about “the potential sharing of consumer compliments about providers of consumer  financial products and services and more information about a company’s complaint handling.”  Comments on the RFI are due on or before 60 days after its publication in the Federal Register.  In the RFI, the CFPB describes two potential avenues for sharing positive feedback: by providing more information about a company’s complaint handling and by collecting and providing consumer compliments independent of the complaint process.

With regard to complaint handling, the CFPB is seeking information on potential ways it could “record, calculate, standardize, short, share, and visualize the data” associated with complaints “in ways that reveal positive company behavior.”  Among the potential metrics suggested by the CFPB are total number of complaints by product and issue and timeliness and speed of responses.  The CFPB also seeks comment on adding a consumer feedback process to its complaint system that would allow a consumer to rate a company’s handling of his or her complaint.

With regard to soliciting, collecting and sharing compliments, the CFPB asks for comment on expanding its “Tell Your Story” feature on its website to share compliments and establishing a new database to take and publish compliments.





CFPB’s claims under CFPA survive challenge by for-profit education company but TILA claim held to be time-barred

Posted in CFPB General

An Indiana federal court recently granted in part and denied in part the motion of ITT Educational Services, Inc. to dismiss the CFPB’s complaint.  As we previously reported, the CFPB’s complaint alleged that ITT engaged in misrepresentations and other unlawful conduct to lead ITT students to obtain financing with onerous terms to pay tuition.  The CFPB asserted various claims for alleged “unfair” and “abusive” conduct under the Consumer Financial Protection Act (CFPA), and a claim for an alleged TILA violation.

ITT moved to dismiss on three broad grounds: that the CFPA is unconstitutional, that ITT is not subject to the CFPA, and that the CFPB’s complaint failed to state a claim.  While rejecting ITT’s various constitutional and other arguments for dismissal of the CFPA claims, the court dismissed the CFPB’s TILA claim.  In a matter of first impression in federal court, the court held that a CFPB civil action under TILA is governed by TILA’s one-year statute of limitations.  This is an important restriction on the CFPB’s ability to obtain relief for violations of TILA and the other federal consumer laws enforceable by the CFPB.

For a more detailed discussion of the decision, see our legal alert.

CFPB launches another credit card review

Posted in Credit Cards

The CFPB has issued another request for information about the credit card market.  The request is intended to inform the CFPB’s biennial review of the credit card market mandated by the CARD Act.  In October 2013, the CFPB issued its first report to Congress on the results of its first review.  In that report, the CFPB identified six “areas of concern,” such as add-on products and rewards programs, that might warrant further scrutiny.

In the current request, the CFPB lists 12 topics on which it seeks information.  The first four topics concern issues that the CFPB is required by the CARD Act to consider in its review.  The next six topics involve the “areas of concern” identified in the 2013 report.  The last two topics involve “specific areas of interest” identified by the CFPB after issuing the 2013 report.  Comments are due on or before May 18, 2015.

The 12 topics and some of the related questions are:

  • The terms of credit card agreements and the practices of credit card issuers.  Questions include how the substantive terms and conditions of credit card agreements or the length and complexity of such agreements changed over the past two years.
  • The effectiveness of disclosure of terms, fees, and other expenses of credit card plans.  Questions include how effective current disclosures of rates, fees, and other cost terms of credit card accounts are in conveying to consumers the costs of credit card plans.
  • The adequacy of protections against unfair or deceptive acts or practices or unlawful discrimination relating to credit card plans.  Questions include whether unfair, deceptive, or abusive acts and practices, or unlawful discrimination still exists in the credit card market, and if so, in what form and with what frequency and effect.
  • Whether implementation of the CARD Act has affected (i) the cost and availability of credit, particularly with respect to non-prime borrowers; (ii) the use of risk-based pricing; or (iii) credit card product innovation.
  • Online Disclosures.  Questions include how card issuers ensure that consumers using different channels, including mobile, receive effective disclosures both at the point of application and in managing existing accounts.
  • Rewards Products.  Questions include whether rewards disclosures are being made in a clear and transparent manner, what further improvements in disclosure would benefit cardholders at this point, and what costs would be incurred in providing such disclosures.
  • Grace Periods.  Questions include whether grace periods are being disclosed in a clear and transparent manner, what further improvements in disclosure would benefit cardholders at this point, and what costs would be incurred in providing such disclosures.
  • Add-On Products.  Questions include what actions issuers have taken to prevent unfair, abusive, or deceptive marketing practices and what harmful practices persist.
  • Fee Harvester Cards. Questions include what is the prevalence and magnitude of application fees or other fee harvesting practices in connection with account opening.
  • Deferred Interest Products.  Questions include whether consumers who use deferred interest promotions understand the risk of being charged retroactive interest.
  • Debt Collection.  Questions include what practices are used to (1) minimize losses from delinquent customers prior to charge off and with what results, and (2) secure recoveries post charge off and with what results.  The CFPB also asks about the extent to which card issuers sell charged off accounts to debt buyers and the terms of such sales.
  • Ability to Pay.  Questions include how card issuers are determining whether credit card applicants have sufficient income or assets to qualify for new credit or a credit line increase.

Enhance Diversity & Inclusion Efforts in Four Areas CFPB, Audit Recommends

Posted in Diversity and Inclusion

Last week, the Office of Inspector General published its findings following an audit assessing the CFPB’s human resources-related operations and other efforts for equal employment.  The audit, which was conducted in response to a congressional request for information on the CFPB’s activities related to diversity and inclusion (D&I), analyzed the CFPB’s efforts to ensure equal opportunities for minorities and women to obtain senior management positions and to increase racial, ethnic, and gender diversity in the workforce.  The CFPB is subject to certain federal employment provisions, including those contained in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).  Specifically, Dodd-Frank required that the CFPB establish an Office of Minority and Women to handle all management, employment, and business diversity issues.

In its audit, the Inspector General noted that the CFPB has taken steps since July 2011 to instill a diverse and inclusive workforce, including elevating the Office of Minority and Women Inclusion and the Office of Equal Employment Opportunity to the Office of the Director; holding sessions with employees to identify and address fairness, equality, and inclusion issues; and creating an internal advisory council and working groups to consider D&I issues.   Notwithstanding those efforts, the Office of the Inspector General recommended the following improvements:

  • Make D&I training mandatory for CFPB employees, supervisors, and senior managers;
  • Strengthen data quality in tracking spreadsheets for equal employment opportunity complaints and negotiate grievances and analyze data related to performance management for trends that could be indicative of potential D&I issues;
  • Finalize a D&I strategic plan and strengthen supervisors’ and senior managers’ accountability for implementing D&I initiatives and human resources-related policies; and
  • Develop a formal succession planning process to help ensure that the CFPB will have a diverse pool of candidates for senior management positions.

The Office of Inspector General circulated a draft report containing recommendations to the CFPB prior to issuing the final report.  In response to the draft report, the CFPB outlined planned, ongoing, and completed initiatives designed to analyze performance management data and performance management training and to track equal employment opportunity (and non-equal employment opportunity) complaints.  The Inspector General also noted that the CFPB has approved standard operating procedures to address several of its recommendations and is in the process of developing a new performance management system.

Our Diversity Group is working with clients to be sure that they do not have any similar problems.

CFPB supervisory report highlights violations in debt collection, consumer reporting, overdraft practices, mortgage origination, and fair lending

Posted in CFPB General

In its Winter 2015 Supervisory Highlights, which covers supervision work generally completed between July and December 2014, the CFPB highlights legal violations resolved using non-public supervisory actions involving debt collection, consumer reporting, overdraft practices, mortgage origination, and fair lending.

The report indicates that recent supervisory resolutions in the areas of payday lending, mortgage servicing, and mortgage origination resulted in remediation of approximately $19.4 million to more than 92,000 consumers.

The publication of such Supervisory Highlights is a tremendous tool for companies to learn of non-public supervisory actions taken by the Bureau and to inform ongoing efforts to remain in compliance with Federal consumer financial law.  As a former examiner-in-charge at the CFPB, I can assure you that highlights such as this distill findings from dozens of exams and can provide significant insight into the priorities and likely future supervisory focus of the Bureau.

The CFPB’s “supervisory observations” include the following:

  • Debt collection.  “In one or more examinations of debt collectors performing debt collection services of defaulted student loans for the Department of Education,” CFPB examiners identified collection calls, scripts, and letters containing various misrepresentations, such as overstatements regarding the benefits of participating in a federal student loan rehabilitation program (e.g., overstating a program’s impact on credit score) and misrepresentations that consumers could not participate in such a program unless they paid by credit card, debit card, or ACH payment, when, in fact, “no such program requirement existed.”  Examiners also found that some collectors created a false impression that if consumers did not make a payment they would be sued when, in fact, “none of the collection agents knew whether legal action would be taken and did not intend to take legal action.”

CFPB examiners also found “in one or more examinations” of debt collectors that the collectors had “created a risk of deception” by promoting a consumer’s ability to adjust or cancel a recurring ACH payment with only 24 hours’ notice when offering consumers the option to make such payments on delinquent accounts.  According to the report, this representation contradicted both an express representation in monthly periodic statements and internal policies and procedures which stated that a minimum of 72 hours’ notice was required.

  • Consumer reporting.  While CFPB examiners found that “one or more” consumer reporting agencies had “significantly enhanced their dispute handling systems” following prior “CFPB directives,” examiners still “identified several practices that failed to meet dispute handling obligations.”  For example, “one or more” consumer reporting agencies failed to comply with FCRA section 611 obligations to forward “all relevant information” received from consumers in letters and supporting documents to furnishers.  And examiners also identified deficiencies in the handling of consumer disputes of public record items in their credit reports which led “to errors in the updating of files after a reinvestigation and in the reporting of dispute results to consumers.”
  • Overdraft practices.  In reviewing bank overdraft protection services, CFPB examiners found that “one or more institutions” had changed from a ledger-balance method to an available-balance method for purposes of deciding whether to authorize electronic and other transactions.  The examiners found that such changes “were not disclosed at all, or were not sufficiently disclosed, resulting in consumers being misled as to the circumstances in which overdraft fees would be assessed.”  This practice was found to be deceptive.  In addition, examiners found “deceptive practices relating to the disclosure of overdraft processing logic” at “one or more institutions.”  According to the report, the institutions charged overdraft fees on electronic transactions “in a manner inconsistent with the overall net impression created by the disclosures.”
  • Mortgage origination.  “In one or more examinations,” CFPB examiners found that branch managers, who were loan originators and owners of related marketing services entities, were illegally receiving compensation based on the terms of loans they were originating.  According to the report, examiners “found instances of improperly allocated expenses on branch income statements which resulted in marketing services entities receiving income based on the profitability of retail loans originated by branch managers.  Consequently, branch managers, as owners of the marketing services entities, received compensation based on the terms of transactions originated by the branch managers themselves.”  CFPB examiners also found Regulation X and Z violations “at one or more institutions” involving improper use of lender credit absent changed circumstances and failure to provide timely Good Faith Estimates.  They also found “in one or more institutions” where “social media advertising was not subject to monitoring or compliance audit” that loan originators were allowed to create their own advertisements that included “triggering terms” (such as the length of payment, amount of payments, numbers of payments, and finance charges) without providing the additional disclosures required by Regulation Z.

CFPB examiners also found that “one or more supervised entities” failed to provide requisite information in adverse action notices as set forth in Regulation B and failed to provide such notices on a timely basis.  “These errors were attributed to weaknesses in the [entities’] compliance audit programs and the monitoring and corrective action component of the compliance programs.”  More generally, at “one or more institutions, examiners concluded that a weak compliance management system allowed numerous violations of Regulations B, X, and Z to occur.”  The report describes various circumstances that created or permitted the compliance weaknesses.

  • Fair lending.  Bureau examiners found “one or more violations of the ECOA and Regulation B related to the treatment of protected forms of income,” such as income derived from a public assistance program or retirement benefits.  Examiners found that applicants had been “automatically declined” if they were relying on income from a non-employment source, such as social security income or retirement benefits, to repay a loan.  Examiners also found that marketing materials may have unlawfully “discouraged applicants who received public assistance or other protected sources of income from applying for credit.”
  • Supervision program developments.  The Bureau also highlighted recent developments, such as the publication of new Credit Card Account Management examination procedures, the issuance of a bulletin providing guidance to help lenders avoid prohibited discrimination against consumers receiving Social Security disability income (Rich Andreano previously wrote a blog post about this bulletin), and the launch of the CFPB’s Examiner Commissioning Program.

CFPB Holds Field Hearing On Arbitration Report

Posted in Arbitration, CFPB General

On March 10th, the CFPB held a public field hearing in Newark, New Jersey to address the release of its arbitration report to Congress. The event featured opening remarks from Director Richard Cordray, as well as commentary from consumer groups, industry representatives and members of the public. According to Director Cordray, the report was based on the CFPB’s review of:

  • 852 consumer finance agreements;
  • 1800 consumer finance arbitration disputes;
  • 3500 individual consumer finance cases that were filed in federal court;
  • 562 consumer class action lawsuits that were filed in federal and “selected” state courts;
  • 30,000 small claims filings; and
  • 400 consumer finance class action settlements in federal courts over a 5 year period.

Additionally, the CFPB conducted a national telephone survey of over 1,000 credit card holders to “learn about their knowledge and understanding of arbitration and other dispute resolution mechanisms.” Among other things, the CFPB found that only 2% of consumers surveyed said that they would consider bringing formal legal proceedings against their credit card issuer if they were unable to retain relief through the company’s own channels. Three out four of the consumers surveyed did not know whether they were subject to an arbitration clause.

After Director Cordray’s remarks, the guest panelists were introduced and invited to share their initial observations of the report. Alan Kaplinsky started the panel discussion by noting that most consumers are able to resolve their disputes by using the company’s helplines, informal dispute resolution procedures, or via third party intervention such as the Better Business Bureau or the complaint portals that are maintained by the CFPB and most State Attorney Generals. Kaplinsky also noted that the Bureau failed to interview consumers who have actually participated in arbitration, and, as such, consumer satisfaction, a central tenet of the Bureau was completely ignored here. The next panelist, Dong Hong, Vice President, Regulatory Counsel of the Consumers Banking Association (“CBA”), highlighted that arbitration is cheaper and faster than litigation and that consumers generally obtain a better outcome than in litigation. Louis Vetere, President and CEO of Garden Savings Federal Credit Union, opined that his credit union is in favor of arbitration; however, it would not mandate it. Unlike other financial institutions, credit unions hardly ever get sued, and are member owned and do not have to answer to stockholders or investors.

Opponents of arbitration clauses were also represented on the panel. Jane Santoni, a Maryland private consumer protection lawyer, conceded that in every arbitration she has been a part of, the arbitrator has given something small to her client. However, according to Santoni, the same arbitrators refused to find that the corporation violated a consumer protection law or acted fraudulently. Professor Myriam Gilles of Cardozo University noted that one thing the empirical evidence that forms the basis of the report fails to consider is what happens to the development of consumer common law if all consumer cases are arbitrated. Finally, Paul Bland, Executive Director of Public Justice, argued that mandatory arbitration provisions prevented consumers from protecting themselves, particularly as lenders move their services online, making arbitration provisions less visible on websites.

The event concluded with comments from the members of the public.

On March 18, 2015, Ballard Spahr attorneys will hold a webinar “The CFPB’s Arbitration Study: Where Do Things Go From Here?” from 12 p.m. to 1 p.m. ET. More information and the registration form are available here.

CFPB and FTC reauthorize memorandum of understanding for an additional three years

Posted in Federal Agencies

Taking its inspiration from Elvis Costello’s song lyrics, “peace, love and understanding” is how the FTC describes its “cooperative relationship” with the CFPB in a blog post about the reauthorization of the Memorandum of Understanding (“MOU”) entered into by the two agencies on January 20, 2012.

The MOU had an initial term of three years, and when it was signed, Chris Willis wrote about the MOU’s implications for nonbank entities.  Among the topics it addressed were enforcement, rulemaking and guidelines, supervision and examination (including, most notably, the sharing of examination reports and confidential supervisory information), consumer complaints, and information sharing and confidentiality.

The new MOU, which also has a three-year term, makes what the FTC describes as “a few small administrative tweaks” to the initial MOU.  The reauthorization of the MOU is not surprising since, as the FTC writes in its blog post, the two agencies are “in harmony” about consumer protection.

CFPB to hold March 26 payday lending field hearing

Posted in Payday Lending

The CFPB has announced that it will hold a field hearing on payday lending on
March 26, 2015 in Richmond, Virginia.  Like other CFPB field hearings, the event will feature remarks from Director Richard Cordray, as well as testimony from consumer groups, industry representatives, and members of the public.

At his appearance last week before the House Financial Services Committee, Director Cordray indicated the CFPB would soon be convening a small business panel to provide input on the payday and small dollar loan rules under consideration.  (The Small Business Regulatory Enforcement Fairness Act requires the CFPB to convene a small business panel before rolling out regulations that the CFPB expects to have a significant impact on a substantial number of small business entities.)

Given the CFPB’s practice of using field hearings as the venue for announcing new developments, we are expecting an announcement from the CFPB about its payday loan rulemaking plans.


The CFPB’s final arbitration study: what’s the real story?

Posted in Arbitration

Yesterday, the CFPB delivered to Congress the final results of its empirical study of consumer arbitration as mandated by Section 1028 of the Dodd-Frank Act.  It has been widely reported that the final results show that arbitration agreements are detrimental to consumers.  However, after a careful reading of the 728-page study, we found that it would be wrong for Congress or the CFPB to draw that conclusion.  In fact, we think the study confirms that arbitration does benefit consumers.  We have prepared a legal alert that details our analysis.

On March 18, 2015, Ballard Spahr attorneys will hold a webinar “The CFPB’s Arbitration Study: Where Do Things Go From Here?” from 12 p.m. to 1 p.m. ET.  More information and the registration form are available here.



More CFPB reform bills introduced in House

Posted in CFPB General

In addition to the bill introduced last week by Republican Congressman Randy Neugebauer that would replace the CFPB’s director with a five-member commission, four other CFPB reform bills have been introduced by Republican Congressman Sean Duffy.  A series of similar bills were approved by the House Financial Services Committee in November 2013 and incorporated into a bill that passed the House in March 2014 but never reached a vote in the Senate.

The four bills introduced by Mr. Duffy are:

  • The Bureau of Consumer Financial Protection Accountability Act of 2015 (H.R. 1261) which would make the CFPB subject to the congressional appropriations process
  • The Consumer Right to Financial Privacy Act of 2015 (H.R. 1262) which would require the CFPB to notify and obtain permission from  a consumer before collecting nonpublic personal information about such consumer.  The bill would expressly make the requirement applicable to CFPB contractors collecting information on the CFPB’s behalf.
  • The Consumer Financial Protection Safety and Soundness Improvement Act of 2015 (H.R. 1263) which would allow the Financial Stability Oversight Council to set aside a CFPB regulation with a majority rather than a two-thirds vote.
  • The CFPB Pay Fairness Act of 2015 (H.R. 1264) which would require the salaries of CFPB employees to be set in accordance with the regular government pay scale. (Currently, the CFPB can base salaries on the Federal Reserve Board’s higher salary schedules.)