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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.

CFPB issues second annual complaints report

Posted in CFPB General

In issuing its Consumer Response Annual Report analyzing complaints handled in 2013, the CFPB’s headline was that volume nearly doubled from 91,000 complaints received in 2012 to 163,700 complaints received in 2013. 

The report provides data on the most common types of complaints for each product, the handling of complaints and median monetary relief.  Of the 163,700 complaints received in 2013, approximately 54% were received through the CFPB’s website, 11% via telephone calls, 24% via referrals from other agencies and regulators and the balance via mail, e-mail and fax.  Based on the CFPB’s breakdown of the number of complaints received in each category, mortgages (59,900), debt collection (31,100), and credit reporting (24,200) accounted for 71% of all 2013 complaints. 

59% of the mortgage complaints involved problems when a consumer is unable to pay (loan modification, collection, or foreclosure) and 26% involved making payments (servicing, payments, or escrow).  33% of the debt collection complaints involved continued attempts to collect debts not owed, 22% involved communication tactics, and 14% involved taking or threatening illegal action.  For credit reporting complaints, 73% involved incorrect information on credit reports. 

The report indicates that about 7% of the complaints received in 2013 resulted in monetary relief for consumers.  This includes median relief of $460 for 1,225 mortgage complaints, $126 for 3,090 credit card complaints, $111 for 3,210 complaints involving bank accounts or services, $187 for 240 student loan complaints, and $185 for 100 money transfer complaints.  Of the 31,100 debt collection complaints received in 2013, 250 complaints resulted in monetary relief with $348 the median relief.  Of the 1,000 payday loan complaints received in 2013, 20 complaints resulted in monetary relief with $585 the median relief. 

In his remarks yesterday at CBA Live 2014, Steven Antonakes, CFPB Deputy Director, indicated that the CFPB is now receiving more complaints about debt collection than about mortgages.  According to Mr. Antonakes, debt collection complaints are averaging 5,000 per month. 

The CFPB continues to stress the significant role that complaints play in setting its agenda.  In Director Cordray’s introductory message to the report, complaints are described as “our compass” which “make a difference by informing our work and helping us identify and prioritize problems for potential supervisory, enforcement,  and regulatory action.”  Because they often are not valid, complaints have the propensity to be unreliable evidence that the complained about conduct occurred.  Indeed, as we observed, the CFPB relied on complaints to draw unwarranted conclusions in its annual debt collection report issued last month.  We hope the CFPB will be mindful of the shortcomings of complaints as it continues to use them in its decision-making process.

CFPB official confirms larger participant rule for auto finance coming soon

Posted in Arbitration, Auto Finance, CFPB Exams

Today is the final day of CBA Live 2014, which is being held at the Gaylord Hotel in National Harbor, MD.  I spoke at a program yesterday about the CFPB’s ongoing arbitration study under Section 1028 of Dodd-Frank.  Based on the CFPB’s December 12, 2013 partial release of data, I have predicted that the CFPB will, at a minimum, issue a proposed regulation next year banning the use of class action waivers. 

Steven Antonakes, the Deputy Director, delivered the keynote address this morning as a substitute for Director Cordray.  He confirmed my expectation that the next larger participant rule will relate to the auto finance industry.  Although he did not indicate when the proposed rule will be issued, I would anticipate seeing it during the summer. 

Mr. Antonakes also 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.  The CFPB has been criticized for being dilatory in issuing exam reports.

CFPB issues small entity compliance guide for RESPA/TILA integrated disclosure rule

Posted in Mortgages

The CFPB recently issued an 89-page small entity compliance guide for the TILA-RESPA Integrated Disclosure Rule (the “Guide”).  As we reported previously, the CFPB issued the final rule in November 2013 to integrate the initial and final mortgage loan disclosures under the Truth in Lending Act and RESPA.  The final rule appeared in the December 31, 2013 Federal Register, and the rule becomes effective August 1, 2015. 

The Guide is divided into 17 main sections, and initially provides an overview of the final rule and its scope.  The Guide addresses the initial disclosure—the Loan Estimate—including the requirements for delivery, content and revisions, and the limits on the amount charges disclosed in the Loan Estimate may increase.  It also addresses the final disclosure—the Closing Disclosure—including requirements for delivery, content and revisions. The Guide makes clear that the integrated disclosures provided for in the rule may not be implemented before
August 1, 2015.  

The Guide includes information about two separate disclosure requirements—the escrow closing notice for cases in which a required escrow account will be terminated, and the disclosure of a lender’s applicable policies regarding acceptance of partial payments that must be included in a mortgage transfer notice. 

The Guide concludes by addressing practical implementation and compliance issues, and providing information on obtaining a copy of the final rule and additional guidance.  While the final rule is detailed and the preamble to the final rule is lengthy, it is likely that the CFPB will need to provide significant additional guidance to the industry as it moves forward to implement the rule.

Debt collection complaints: a numbers game?

Posted in Debt Collection

A joint comment letter on the CFPB’s ANPR on debt collection practices was submitted by the American Bankers Association, the Consumer Bankers Association, and the Financial Services Roundtable.  In their letter, the trade groups noted an “unexplained inconsistency” between the number of debt collection complaints publicly reported by Director Cordray and the number of such complaints posted on the CFPB’s Consumer Complaint Database.  

The CFPB began taking debt collection complaints in July 2013.  According to the trade groups, while Director Cordray publicly stated on January 22, 2014 that the CFPB had received “over 31,000″ complaints about debt collection, the number of complaints posted on the database as of February 12, 2014 was 13,546.  (When we checked the database on March 28, there were 17,703 debt collection complaints posted.)

D.C. federal court reconsiders decision on FOIA requests to CFPB

Posted in CFPB General

Last September, a federal district court in Washington, D.C. issued an opinion on Freedom of Information Act (FOIA) requests made by Judicial Watch to the CFPB for documents relating to Richard Cordray’s recess appointment as CFPB Director.  With regard to all but one document, the court agreed with the CFPB’s position that it was entitled to rely on the deliberative process privilege, the attorney client/attorney work product privilege, or the presidential communications privilege to withhold certain records.  

The one document as to which court the disagreed with the CFPB’s invocation of privilege was an e-mail from a White House staffer to a CFPB employee.  The court concluded that the deliberative process privilege was only available to certain White House employees and the CFPB had not provided the information necessary to determine whether the staffer who had sent the e-mail worked in a capacity covered by the privilege.  The court therefore granted the CFPB’s motion for summary judgment in part and denied it in part. 

On March 27, 2014, in an opinion ruling on the CFPB’s motion for reconsideration, the district court changed its position and concluded that the CFPB was also entitled to withhold the e-mail from the White House staffer.  In its new analysis, the court no longer made the capacity in which the staffer worked determinative of whether the deliberative process privilege applied.  Instead, the  court looked to the e-mail’s subject matter to determine whether the privilege applied.  Because the e-mail involved “advice on preparing for an upcoming Congressional hearing regarding Mr. Cordray,” the court held that it could be withheld under the deliberative process privilege which protects “internal communications as part of an Executive Branch decision-making process regarding Congressional hearings.” 

Accordingly, the court granted in full the CFPB’s motion for summary judgment and dismissed the case.  Earlier this month, the CFPB issued its first FOIA Report, which was accompanied by the report of its Chief FOIA Officer.

Report says CFPB representatives will not appear at House hearing on alleged CFPB employee discrimination

Posted in CFPB General

According to a Politico report, a CFPB spokesman has said that the two invited CFPB representatives will not be participating in the hearing scheduled for this Wednesday, April 2 by the House Financial Services Committee’s Subcommittee on Oversight and Investigations.

Entitled “Allegations of Discrimination and Retaliation within the Consumer Financial Protection Bureau,” the hearing is expected to include testimony from a CFPB employee who alleged she experienced gender discrimination and retaliation for filing an Equal Employment Opportunity complaint with the CFPB’s Human Capital Office.  The CFPB’s spokesman, Sam Gilford, is reported to have said that the CFPB’s participation in the hearing would violate employee privacy and due process rights and undermine the CFPB’s  Equal Employment Opportunity and labor relations processes.  The two invited CFPB representatives are M. Stacey Bach, Assistant Director of the CFPB’s Office of Equal Opportunity Employment, and Liza Strong, Director of Employee Relations.

FTC Holds Seminar on Alternative Scoring Products

Posted in CFPB General, FTC

On March 19, 2014, the Federal Trade Commission hosted a seminar on Alternative Scoring Products, the second in its Spring Privacy Series. The speakers discussed the privacy concerns associated with predictive analytics products and scores that are offered by many data brokers. Alternative scores are used by companies to predict risks such as the likelihood that a person has committed identity fraud, whether contacting a consumer by mail or phone will lead to successful debt collection, or the credit risk associated with certain loan applications. Because consumers are often not aware of these alternative scores, or the data underlying the scores, these scores raise a variety of privacy concerns. For more on the seminar, see our legal alert.

The CFPB has reiterated that credit reports and scores remain a high priority for the Bureau, and Director Cordray has said that if there is harm to consumers, the Bureau is “very concerned” about the use of these alternative scores.