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.)
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.
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.
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.
The House Financial Services Committee’s Subcommittee on Oversight and Investigations has scheduled a hearing for April 2, 2014 entitled “Allegations of Discrimination and Retaliation within the Consumer Financial Protection Bureau.” The hearing follows the American Banker’s recent article revealing that CFPB staff evaluations showed a pattern of racial disparities.
According to the Committee memorandum, Committee staff received corroborating information 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 memo indicates that the employee’s claims of retaliation were confirmed by an outside investigator retained by the CFPB. Both the employee and the investigator are scheduled to testify at the hearing.
Other CFPB employees have been invited to testify at the hearing. If they accept the invitation, the hearing will consist of two panels of witnesses, including the following individuals:
- Panel 1
Angela Martin, Senior Enforcement Attorney, CFPB
Misty Raucci, former Investigator, Defense Investigators Group
- Panel 2
M. Stacey Bach, Assistant Director, Office of Equal Opportunity Employment, CFPB (invited)
Robert Cauldwell, President, National Treasury Employees Union, Chapter 335 (invited)
Liza Strong, Director of Employee Relations, CFPB (invited)
In what appears to be the first lawsuit by a state attorney general of its kind, the Illinois AG recently filed a state court lawsuit against a small loan lender alleging violations of the Dodd-Frank prohibition of unfair, deceptive or abusive acts or practices in addition to violations of state law. Section 1042 of Dodd-Frank (12 U.S.C. 5552) authorizes state AGs to bring civil actions in the name of the state against state-licensed entities to enforce provisions of Dodd-Frank.
According to the complaint, the lender (which was licensed under Illinois law) offered lines of credit on which it charged a stated annual interest rate ranging from 18% to 24%. It alleges that to evade the state law 36% annual interest rate cap, the lender charged borrowers a mandatory “account protection fee” ranging from $10-$15 for every $50 of the borrower’s outstanding balance which was payable every two weeks in addition to accrued daily interest. The complaint charges that the fee was “nothing more than undisclosed interest,” resulting in an actual interest rate between 350% and 500%. It also alleges that the lender instructed borrowers to make a monthly minimum payment, but did not apply any of the minimum payment toward principal. In addition to alleging that the lender misrepresented the true cost of its loans, the complaint alleges that the lender’s loan product was “structurally unfair” because the account protection fee resulted in “an endless cycle of debt.”
The Illinois AG’s reliance on Dodd-Frank appears to be an attempt to use Dodd-Frank’s prohibition of abusive acts or practices as an alternate way of challenging the account protection fee should it be found not to violate Illinois law. This lawsuit and other state AG lawsuits relying on Dodd-Frank open the door for state court judges, rather than the CFPB, to determine what is an “abusive” act or practice. The Illinois AG’s lawsuit also opens the door to the possibility that her theory of liability could be used to attack other loan products such as payday loans that are claimed by the CFPB, state AGs and consumer advocates to create a cycle of debt for consumers.
On April 4, the Georgetown Consumer Law Society and Citizen Works will be hosting a symposium at Georgetown Law Center titled “Making the Fine Print Fair.” Two CFPB representatives have been invited to speak: Meredith Fuchs, CFPB General Counsel, and Anne Zorc, CFPB Assistant General Counsel for Law and Policy. Accepted speakers include a number of prominent consumer advocates, such as David Vladeck, former Director of the FTC’s Bureau of Consumer Protection; Deepak Gupta, former CFPB Senior Counsel; and Omri Ben-Shahar, co-reporter for the Restatement on Consumer Contracts.
The CFPB has taken aim at fine print when describing its mission and suggested that the use of fine print could potentially be challenged by the CFPB as an unfair, deceptive, or abusive practice. Assuming Ms. Fuchs or Ms. Zorc accepts her invitation, the symposium should provide an opportunity to learn more about the CFPB’s views on this issue. At a minimum, the CFPB will undoubtedly be following this symposium with great interest. We will certainly be following it.
The Senate Banking Committee’s subcommittee on Financial Institutions and Consumer Protection is holding a hearing today titled: “Are Alternative Financial Products Serving Consumers?” Observers have noted that the hearing could provide insight into the priorities of Democratic Senator Sherrod Brown who chairs the subcommittee and is expected to become chair of the full Banking Committee if Democrats maintain control of the Senate.
The witnesses scheduled to appear are: G. Michael Flores, CEO of Bretton Woods, Incorporated; Stephanie Klein, Director of NetCredit Consumer Lending, Enova International; Nick Bourke, Project Director of the Safe Small-Dollar Loans Research Project, The Pew Charitable Trusts; David Rothstein, Director of Resource Development and Public Affairs for the Neighborhood Housing Services of Greater Cleveland; and Nathalie Martin, Frederick M. Hart Chair in Consumer and Clinical Law at the University of New Mexico School of Law.
The hearing follows on the heels of the CFPB’s issuance of its latest payday lending report and Director Cordray’s promise to issue rules with respect to that industry.
On March 24, 2014, the CFPB along with five other federal agencies issued a joint proposed rule (“Proposed Rule”) regarding Appraisal Management Companies (“AMC”) as required by section 1473 of the Dodd-Frank Act (“Dodd-Frank”). Under Dodd-Frank, Congress tasked federal regulators with establishing minimum requirements regarding AMC registration and supervision. The other regulators are the federal banking agencies, the National Credit Union Administration and the Federal Housing Finance Agency. Comments on the Proposed Rule are due 60 days after the proposal is published in the Federal Register.
Although the Proposed Rule does not require states to adopt a regulatory structure for AMC registration and supervision, AMCs would be prohibited from providing appraisal management services for federally related mortgage transactions in a state where such a regulatory structure has not been adopted.
An AMC would be subject to the requirements if, in a given year, it oversees an appraiser panel of more than 15 state-certified or state-licensed appraisers in a state or 25 or more state-certified or state-licensed appraisers in two or more states. Federally regulated AMCs would be exempt from state registration. A “federally regulated AMC” is an AMC that is owned and controlled by an insured depository institution or an insured credit union, and is regulated by the OCC, the Federal Reserve System, the NCUA, or the FDIC. Federally regulated AMCs must still register with the FFIEC Appraisal Subcommittee (“ASC”).
States will have 36 months following the issuance of the joint final rule to adopt a regulatory scheme implementing the minimum requirements found in the Proposed Rule, although there could be a 12 month extension in certain cases. As we have addressed previously, most states have passed or proposed model legislation regarding AMC registration and regulation.
Under the Proposed Rule states would need to require that an AMC:
- Register with or obtain a license from the state and be subject to regulatory supervision
- Contract with or employ only state-certified or licensed appraisers for federally related transactions
- Require that appraisals comply with the USPAP
- Establish policies and procedures to ensure compliance with the appraisal independence standards established under TILA.
Additionally, the state regulator for AMCs would need to have the power to:
- Approve or deny AMC registration applications
- Examine AMC books and records
- Verify that AMC appraisers hold valid state certifications or licenses
- Conduct investigations, discipline AMCs for noncompliance with related laws, and report violations to the ASC.
Notably, the Proposed Rule does not provide for additional federal registration fees to be paid to the ASC in connection with registration on the ASC’s National Registry. States already impose fees and under the Proposed Rule, and an AMC would be responsible for determining the National Registry fee based on the number of appraisers with which it contracts or employs and applicable state fee requirements. Moreover, the ASC retains the ability to impose registration fees at a later date.
The CFPB has marshaled data against what it sees as a sustained use problem by payday loan borrowers and is “in the late stages” of drafting rules to limit payday loan borrowing, according to Director Cordray’s remarks prepared for today’s field hearing.
It appears that in the near future the Bureau will issue a notice of proposed rulemaking in which it concludes that repeated payday loan borrowing is “unfair” or “abusive” under the Dodd-Frank Act.
In conjunction with a hearing today in Nashville, the CFPB Office of Research has released another payday lending report, this one focused on measuring “loan sequences,” which it defines as “a series of loans taken out within 14 days of repayment of a prior loan.” Specifically, the CFPB considers a renewal to mean either rolling over a loan for a fee or re-borrowing within 14 days after repaying a loan. The Bureau likely will use this new, broad definition of “renewal” to prevent consumers from repeatedly borrowing within the same pay period that they repay a prior loan.
Unsurprisingly, the report concludes that states with cooling-off laws like those in California and Virginia (which prevent a borrower from re-borrowing within the same day or one day of repayment) have the same seven-day and 14-day renewal rates as states without any cooling-off periods. The report also looks at the length of loan sequences (i.e., number of renewals), loan size and amortization over the course of loan sequences, and number of loan sequences over an 11-month period.
The report, the first in the Office of Research’s occasional “Data Point” publication series, uses the same data set as the Bureau’s April 2013 Payday Loans and Deposit Advance Products White Paper (which we wrote about here and here). The White Paper had been criticized by the CFSA, the national payday lender trade association, for using a sampling method that overstated borrowers’ loan volume and borrowing frequency. While the CFPB has never acknowledged shortcomings with the White Paper, the Office of Research apparently heeded the CFSA’s criticism in designing this new study. To measure loan sequence duration and annual usage, it analyzed only new loans made during the sample period (rather than including any loan that existed at the beginning of the period, which had caused the White Paper to overstate loan usage).
Like the White Paper before it, this newer report seems to assume without question that frequent utilization of payday loans is bad for consumers. This is reflected most clearly in Director Cordray’s statements that many payday loans become “revolving doors of debt” or “debt traps.” It appears that the CFPB may move forward with its rulemaking without studying whether payday loans are better or worse than other small-dollar credit options that consumers have, or how consumers will be affected by restricted access to payday loans. Absent such data, we expect the rulemaking process to confront a very real legal challenge.