The CFPB has filed a complaint in federal district court in New York against a group of commonly-controlled companies for allegedly engaging in unlawful conduct in connection with making payday loans over the Internet. With the exception of two defendants that are alleged to be incorporated in Malta, the defendants are alleged to be Canadian corporations. In its press release (but not in the complaint), the CFPB describes the action as a suit against an “offshore payday lender.”
According to the complaint, the defendants performed different functions such as purchasing leads from lead generation companies, brokering loans, originating loans, and collecting loans. The complaint alleges that the defendants made payday loans to residents of states in which the loans were void under state law because the defendants charged interest rates that exceeded state usury limits or the defendants failed to acquire required licenses.
The CFPB claims that the defendants violated the Dodd-Frank/Consumer Protection Act prohibition on unfair, deceptive, and abusive acts and practices by actions that included: (1) misrepresenting that consumers were obligated to pay debts that were void under state law and that the loans were not subject to U.S. federal or state law, (2) forcing consumers to pay illegal amounts they did not owe; and (3) misrepresenting that the defendants would sue consumers who did not pay or take other actions they did not intend to take. The complaint also alleges that the defendants violated the Credit Practices Rule by conditioning the loans on irrevocable wage assignments.
The relief sought by the CFPB includes restitution and refund of money paid by consumers on the allegedly void loans.
The new lawsuit is similar to the CFPB’s groundbreaking December 2013 lawsuit filed in Massachusetts federal court against CashCall, several related companies and their principal. The companies allegedly funded, purchased, serviced and collected online payday loans made by a tribally-affiliated lender the CFPB did not sue. The defendants were charged with engaging in unfair, deceptive and abusive acts and practices in seeking to collect loans that were purportedly void in whole or in part under state law because the lender charged excessive interest and/or failed to obtain a required license
The CFPB has issued its 2015 Plain Writing Act Compliance Report. Under the PWA, federal “executive agencies,” including the CFPB, are required to use plain language in documents that: are necessary for obtaining information about a federal government benefit or service or filing taxes; provide information about a federal government benefit or service; or explain to the public how to comply with a requirement that the federal government administers or enforces.
The report discusses the CFPB’s efforts to comply with the PWA and promote the use of plain writing in its communications. As it did in previous PWA reports, the CFPB states in the new report that it has adopted plain language “as a core principle” for all of the CFPB’s printed and online consumer-facing content. Examples given by the CFPB include its “Ask CFPB” online Q&A tool and its reverse mortgage advertising consumer advisory.
In the new report, as it also did in previous reports, the CFPB states that while the PWA does not apply to regulations, it generally makes available plain language summaries of its proposed or final consumer protection regulations (with the CFPB citing to a summary it issued in connection with its mortgage rules as an example).
The CFPB has sent a questionnaire which, according to the CFPB’s accompanying cover letter, is intended to help the CFPB “better understand operational costs and other factors associated with debt collection.” The cover letter indicates that the questionnaire was sent to “a variety of debt collection firms, creditors, and service providers” and that responses “will inform the Bureau’s analysis of the costs and benefits of potential new rules related to debt collection.” The letter also tells recipients that their participation is voluntary and that after the CFPB receives responses to the questionnaire, it plans “to reach out to a subset of respondents to ask whether they would be willing to participate in follow-up phone interviews to help us understand their operations in more detail.”
The questionnaire seeks information about a respondent’s:
- Business generally, including numbers of employees, net revenue from collecting various types of debt, whether the respondent owns the debts it collects
- Specific business processes, including what collections management system is used, whether program adjustments to the system are made by a vendor or in-house, frequency of receiving various categories of account information from creditors, practices for calling and sending written communications to consumers, handling disputes, accepting and processing payments, assessing post-charge off interest or fees, use of vendors for skip tracing, furnishing data to credit bureaus, litigation, and compliance.
The CFPB issued an Advance Notice of Proposed Rulemaking concerning debt collection in November 2013. The ANPR’s comment period closed on February 28, 2014.
The CFPB has announced that it will hold an event in Springfield, Virginia on August 17, 2015 about financial management for seniors and their caregivers. The event will feature remarks from Director Cordray and Virginia Attorney General Mark Herring and financial caregiving experts will be in attendance to answer questions. The event is open to the public but an RSVP is required.
On July 13, 2015, in his remarks at the White House Conference on Aging, Director Cordray indicated that the CFPB “will release an advisory later this year to help financial institutions prevent, recognize, and report elder financial abuse.” It is possible the advisory will be issued in conjunction with the August 17 event.
The prevention of elder financial abuse has been a continuing CFPB focus. CFPB initiatives include a guide issued in June 2014 to help operators and staff of nursing facilities and assisted living residences protect residents from financial abuse, a report issued in June 2015 on the results of a CFPB focus group study of reverse mortgage advertisements, and a consumer advisory also issued in June 2015 warning consumers about the false impressions that might result from reverse mortgage advertisements and highlighting facts consumers should consider when viewing such advertisements.
In a blog post on the CFPB website, the CFPB advocated on behalf of veterans with service-connected disabilities, who face obstacles when transitioning back to civilian life and working to become financially secure. The CFPB emphasized that individuals with disabilities have the right to fair treatment in the financial marketplace and access to tools that can help them improve their financial lives. As we have previously discussed, the CFPB recently launched a ROADS (Reaching Outcomes. Achieve Dreams. Succeed.) to Financial Independence Initiative to provide financial counseling to consumers with disabilities, including veterans.
Companies should be prepared to respond to CFPB questions about any practices that could negatively impact disabled veterans. Although the CFPB does not have regulatory, supervisory, or enforcement authority under the American with Disabilities Act (ADA), the CFPB has shown a willingness to work closely with the Department of Justice (which has enforcement authority under the ADA) to take action against companies that are alleged to be engaged in unlawful and discriminatory practices, such as the recent settlement to resolve fair lending charges against Honda.
The Texas Bankers Association (TBA) announced on its website that it has filed a Freedom of Information Act (FOIA) Request with the CFPB to obtain all documentation the CFPB requested from bank software processors on the overdraft activity of their bank customers.
The FOIA request relates to orders issued by the CFPB in November 2014 to financial services core processors that required the processors to provide information and data about the overdraft services they provide for depository institutions. In a June 2015 memo to state banking associations, the American Bankers Association raised concerns about the costs to industry of the CFPB’s use of its expansive authority to gather information under Section 1022 of the Dodd-Frank Act. The ABA stated in the memo that one of the processors had informed its clients that it may pass on to them the processor’s costs in responding to the CFPB’s order. While urging the state associations to encourage the CFPB to seek all relevant information before engaging in rulemaking (including with regard to the overdraft programs of community financial institutions), the ABA also suggested that the associations insist that the CFPB fund its own data collection efforts.
In its announcement, the TBA states that it was informed by its members that one of the processors would be billing its client banks for the cost of producing the information sought by the CFPB regarding overdraft checking programs. The TBA commented that it “objects to this third-party data search on both legal and customer privacy grounds” and is “concerned about the breadth of this data sweep and why the CFPB’s information requirements could not be satisfied with a representative cross-sampling rather than a demand request apparently sent to every major processor in the banking industry.”
According to the TBA, in addition to seeking “copies of all factual and analytical surveys and investigations conducted by the CFPB, or on its behalf by third parties,” its FOIA request also seeks “access to any legal analysis relied upon by way of supporting the CFPB’s legal authority for the issuance of the information orders.”
Yesterday, the following four CFPB-related bills were passed by the House Financial Services Committee:
- H.R. 3192, the “Homebuyers Assistance Act”: The bill would provide a hold harmless period for the TILA/RESPA Integrated Disclosure (TRID) rule that is scheduled to go into effect on October 3, 2015. Although the CFPB recently delayed the effective date of the TRID rule until such date, it declined to adopt a formal hold harmless period, despite industry calls for such a period. H.R. 3192 provides that the TRID rule may not be enforced against any person until February 1, 2016, and that no suit may be filed against a person for a violation of the TRID rule occurring before such date, so long as the person has made a good faith effort to comply with the rule. Passed by a vote of 45 to 13, the bill’s bi-partisan support in the Committee likely signals passage by the full House. Prospects in the Senate, however, are less clear. An existing bill, S. 1711 (which is a companion bill to H.R. 2213), would provide for a TRID rule hold harmless period until January 1, 2016. The bill was introduced on July 7, 2015 and referred to the Committee on Banking, Housing and Urban Affairs, but no further action has been taken.
- H.R. 1210, the “Portfolio Lending and Mortgage Access Bill”: The bill would modify the TILA ability to repay provisions by creating a safe harbor for depository institutions without regard to their size for loans that the institution retains in portfolio from origination where any prepayment penalties comply with the phase-out requirements for prepayment penalties on qualified mortgages. The bill would also create a safe harbor from the TILA anti-steering provision (for which the CFPB has not yet proposed implementing regulations) that prohibits a mortgage originator from steering a consumer from a qualified mortgage for which the consumer is qualified to a mortgage that is not a qualified mortgage. The conditions for the safe harbor are that the creditor on the loan is a depository institution that has informed the mortgage originator that it intends to retain the loan in portfolio for the life of the loan and the originator informs the consumer that the creditor intends to do so. The bill also had bi-partisan support in the Committee, passing by a vote of 38 to 18.
- H.R. 1737, the “Reforming CFPB Indirect Auto Financing Guidance Act”: The bill would nullify the CFPB’s indirect auto finance guidance issued in March 2013 and require the CFPB to provide for a notice and comment period before issuing any new guidance onindirect auto finance. The bill also includes requirements for the CFPB when proposing and issuing such guidance to (1) make publicly available “all studies, data, methodologies, analyses, and other information” it relied on, (2) consult with the Fed, FTC and DOJ, and (3) conduct a study of the guidance’s impact on consumers and “women-owned, minority-owned, and small businesses.” The bill passed by a vote of 47 to 10.
- H.R. 1941, the “Financial Institutions Examination Fairness and Reform Act”: The bill would establish deadlines within which the banking regulators and CFPB must hold exit interviews after an examination and issue final examination reports. The bill would also establish an Office of Independent Examination Review from which financial institutions can seek an independent review of a material supervisory determination contained in a final examination report. The bill passed by a vote of 45 to 13.
The Office of Inspector General (OIG) for the Fed and CFPB recently completed its review of the information system security controls for the CFPB’s Data Team (DT) Complaint Database. The DT Complaint Database supports the CFPB’s Consumer Response System through which the CFPB collects and responds to consumer complaints and is the source of consumer complaint information published on the CFPB’s website. The OIG did not release a full audit report. Instead, it only issued an executive summary in which it stated that because of “the sensitivity of information security review work, [OIG] reports in this area are generally restricted.”
The OIG found that overall, the CFPB has taken steps to secure the DT Complaint Database in accordance with the Federal Information Security Management Act of 2002, as amended by the Federal Information Security Modernization Act of 2014 (FISMA), and the CFPB’s information security policies and procedures. However, the OIG identified several control deficiencies related to configuration management, access control, and audit logging and review. Specifically, the OIG identified improvements that are needed in the timely installation of database level patches, the enforcement of password expiration and user access requirements, and the logging and review of security events.
The OIG’s full report included seven recommendations to strengthen controls for the DT Complaint Database in these areas. The CFPB’s Chief Information Officer has agreed with those recommendations and outlined actions that have been or will be taken to address them.
The CFPB has issued a Spanish version of “Your Home Loan Toolkit” (“Toolkit”), that is designed to be used with disclosures provided under the TILA/RESPA Integrated Disclosure (“TRID”) rule. The Toolkit will replace the current “Settlement Cost Booklet” (also known as the “Special Information Booklet”) when the TRID rule goes into effect on October 3, 2015. The CFPB has also released a Spanish translation of the disclosures that a company must include in the Toolkit for it to place its logo on the Toolkit cover.
As we have previously blogged, the Toolkit has been redesigned to explain to consumers how the Loan Estimate and the Closing Disclosure work, and how the two documents interact during a home loan purchase. Among other things, the Toolkit provides questions consumers should consider to help define their homeownership goals and mortgage lending choices. Lenders must deliver or mail the Toolkit to consumers no later than three days after receipt of an application. The CFPB has also encouraged all market participants, including realtors, to integrate the Toolkit with its consumer marketing materials.
Earlier this month, American Honda Finance Corporation (AHFC) entered into a settlement with the CFPB and the Department of Justice to resolve charges that it engaged in unlawful discrimination in violation of the Equal Credit Opportunity Act (ECOA). The settlement includes AHFC’s agreement to change its auto dealer compensation policy, pay $24 million in restitution, and distribute $1 million towards the administration and operation of a consumer financial education program. It is noteworthy, however, that the settlement does not include payment of any monetary penalties by AHFC, which perhaps reflects statements in the DOJ’s and CFPB’s press releases praising AHFC for its industry “leadership” in agreeing to change its policy.
When the settlement was announced, we prepared a detailed legal alert. We intended to share the alert with our blog readers at that time but due to an oversight, belatedly share it now.