The next meeting of the CFPB’s Consumer Advisory Board will take place on February 19 in Washington, DC. The focus of the meeting will be to “discuss trends and themes related to consumer and financial well-being and medical debt.” The meeting is open to the public and will be recorded. The CFPB on December 11 of last year held a field hearing about medical debt collection. We have often blogged about developments at the CFPB related to medical debt collection. See here, here, and here.
On January 29, the CFPB proposed amendments to the portions of Regulation Z governing mortgages made by small creditors. In the same notice, the CFPB also proposed amendments to Regulation Z’s definition of the term “rural,” which controls certain special permissions for small creditors operating predominately in areas that satisfy the definition. The proposed amendments follow the Bureau’s May 2013 announcement that it intended to study potential adjustments to the terms “rural” and “underserved,” as well as its May 2014 request for comments regarding the small creditor loan origination threshold. Comments on the proposed amendments are due on or before March 30, 2015, and the Bureau proposes that the amendments would become effective January 1, 2016.
Three of the CFPB’s major mortgage rules feature special provisions and exemptions for small creditors: The escrow rule exempts certain small creditors from the requirement to establish escrow accounts for certain higher-priced mortgages; the ability-to-repay (ATR) rule includes three varieties of qualified mortgages—two permanent, one temporary—that are available only to small creditors; and the Home Ownership and Equity Protection Act (HOEPA) rule exempts small creditors from its prohibition on balloon payment features for certain high-cost mortgages. More >
As a follow up to a January 2014 meeting with private student loan lenders and servicers convened by Director Cordray and Education Secretary Arne Duncan, the CFPB sent letters last week to certain “market participants” requesting information about current and planned loan modification options. The letters reference guidance on private student loans with graduated repayment terms also issued last week by the CFPB jointly with the Fed, FDIC, NCUA, and OCC.
Information Requests. According to a blog post by Rohit Chopra (the CFPB’s Student Loan Ombudsman), the CFPB has sent the requests to check on the progress lenders and servicers have made since last year’s meeting in developing “more options to help borrowers avoid default and increase the likelihood of full repayment.” Mr. Chopra indicates that the requests will help the CFPB “get to the bottom of” questions from borrowers asking why their lenders “won’t make a deal” and how repayment plans work.
The requests are divided into three sections dealing with existing private student loan modification options, planned private student loan modification programs, and federal student loan modification programs. Each section contains a series of questions. The requests indicate that they are not confidential supervisory information requests and responses are voluntary.
In response to the CFPB’s announcement that it was sending the requests, the Consumer Bankers Association issued a statement noting that “the private student loan market continues to enjoy an over 97 percent repayment rate with the vast majority of borrowers paying back their loans in accordance with their agreements.” The CBA also commented that many of its members are continuing to work with the prudential regulators to develop loan modification programs and that many have already launched modification programs, while others are piloting programs in advance of a broader roll-out.
Graduated Repayment Terms Guidance. The guidance is intended for financial institutions that originate private student loans that provide graduated repayment terms at origination. It advises such institutions to “prudently underwrite the loans in a manner consistent with safe and sound lending practices” and to “provide disclosures that clearly communicate the timing and the amount of payments to facilitate a borrower’s understanding of the loan’s terms and features.”
The guidance contains six principles dealing with the following issues that financial institutions “should consider in their policies and procedures for underwriting private student loans with graduated repayment terms at origination”:
- Ensure orderly repayment
- Avoid payment shock
- Align payment terms with a borrower’s income
- Provide borrowers with clear disclosures
- Comply with all applicable federal and state consumer laws and regulations and reporting standards
- Contact borrowers before reset dates
Although the guidance appears intended to make lenders feel more comfortable in offering graduated repayment programs, it could have the opposite effect due to the many restrictions it contains. In addition, the guidance could call into question some of the minimum payment programs already in the marketplace.
The American Bankers Association has sent a letter to the CFPB urging it to take down from its website its new mortgage interest rate calculator tool. The CFPB launched the new tool earlier this month, in conjunction with its highly publicized report that found nearly half of consumers do not shop among multiple lenders before applying for a mortgage loan.
The CFPB’s “Rate Checker” tool allows a consumer to enter information about his or her location, credit profile, desired loan amount, and collateral value. Pairing this information with data from financial institutions (via a private research firm), the Rate Checker purports to display the prevailing interest rates for which the consumer may qualify, as well as the number of financial institutions offering those rates to consumers with the consumer’s profile.
The ABA believes the tool should be removed and reconsidered based on its concerns which include the following:
- The calculator is not an adequate shopping comparison tool for consumers because the interest rate figure it provides excludes significant transactional costs and interest prepayments in the form of points.
- There is a high potential for inaccuracy because the calculator does not include a broad enough sample of lenders to generate an accurate rate in any one area or locality.
- It is uncertain whether the CFPB has the quality control safeguards in place to guarantee the reliability and integrity of the reported data.
- The pricing yielded by the tool is questionable because it is unclear if the pricing factors employed in the calculator are weighed in a fashion that is representative of lender underwriting standards across all markets and industry segments.
- The calculator currently allows options for only three loan types and overlooks various types of products that allow for customized lending in which community banks often specialize.
- The calculations generated by the tool will appear to consumers as officially sanctioned prices, and possibly as interest rate caps, and consumers will incorrectly perceive them as entitlements of the interest rates they ought to be receiving.
- The CFPB did not provide an opportunity for comment on the tool, thereby undermining the credibility of the project.
The U.S. Supreme Court heard oral argument last week in Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, Inc.— the case presenting the issue of whether disparate impact claims are cognizable under the Fair Housing Act (FHA). Two prior cases presenting this issue were settled after merits briefing but before oral argument was heard in the Supreme Court.
We attended the oral argument and prepared a detailed summary of it based on our observations and those of members of the Ballard Spahr Housing Group who also were in attendance. Our summary of the argument is available here. The Supreme Court will issue its decision sometime before the end of June 2015.
A ruling that disparate impact claims are not cognizable under the FHA should have positive implications with respect to the separate issue of whether disparate impact claims are cognizable under the Equal Credit Opportunity Act (ECOA). Conversely, because the ECOA’s text differs in certain respects from that of the FHA, a ruling that disparate impact claims are cognizable under the FHA would not resolve the issue of whether such claims are cognizable under the ECOA. For more on the ECOA issue, see Peter’s Business Lawyer article titled “The ECOA Discrimination Proscription and Disparate Impact – Interpreting the Meaning of the Words That Actually Are There,” 61 Bus. Law. 829 (2006).
A new CFPB report entitled “Financial well-being: The goal of financial education” describes the CFPB’s initial research into how people acquire financial capability. The CFPB states in the report that it undertook the research specifically to inform financial education and improve consumer outcomes. According to the CFPB, its “overarching objective” was to determine how to define and measure the success of different financial literacy strategies so that it would have a basis for measuring the effectiveness of different strategies. To achieve that objective, the CFPB found it necessary to define the end goal of financial education.
Having found an emerging and growing consensus that improvement in individual financial well-being is the “ultimate measure of success” for financial literacy efforts, the CFPB developed a definition of financial well-being based on interviews conducted by its research team with adult consumers and financial practitioners. As discussed more fully in the report, it found that financial well-being can be defined as a state of being wherein people:
- Feel in control of their day-to-day and month-to-month finances
- Have capacity to absorb financial shock
- Are on track in meeting financial goals
- Have the financial freedom to make choices that allow them to enjoy life
A substantial portion of the report is devoted to a discussion of the CFPB’s efforts to identify specific types of financial behaviors, financial knowledge, and personal traits that are helpful to people in achieving greater financial well-being. The report also includes a discussion of the implications of the CFPB’s research for financial capability practitioners and further research.
The Financial Services Roundtable and CFPB are joining forces in a nationwide public-private initiative to promote effective financial education. According to an announcement posted on the Roundtable’s website, the CFPB and Roundtable plan to work together to facilitate the gathering and sharing of information about effective financial education strategies, to encourage adoption of financial education initiatives, especially in K-12 schools and in the workplace, and to protect older Americans from financial exploitation. The Roundtable indicated on its website that the announcement followed a closed meeting of financial industry executives and CFPB officials.
The CFPB and Roundtable plan to host a series of working groups and listening sessions at various locations throughout the country to determine best practices and a path forward.
We have often commented that we consider the CFPB’s Dodd-Frank mandates to improve the financial literacy of American consumers and protect older Americans from financial exploitation deserving of industry support. We applaud the Roundtable for partnering with the CFPB in furtherance of these worthwhile mandates.
In a new compliance bulletin (2015-01), the CFPB reminds supervised financial institutions, including nonbanks, of their obligations regarding the disclosure of confidential supervisory information (CSI).
The bulletin is intended to assist supervised entities in complying with the CFPB’s regulations governing the use and disclosure of CSI (12 CFR Part 1070). In the bulletin, the CFPB reviews the definition of CSI, which includes: reports of examinations, inspections and visitations; any documents, including examination reports, prepared by, or on behalf of, or for the use of the CFPB or any other federal, state or foreign government agency in the exercise of supervisory authority over a financial institution; any communications between the CFPB and a supervised entity or a federal, state, or foreign government agency related to the CFPB’s supervision of the entity; any information provided to the CFPB by a supervised entity to enable the CFPB to monitor for consumer risk in the offering or provision of consumer financial products or services or to assess whether an entity is a covered person or subject to CFPB supervisory authority; and information that is exempt from disclosure under certain provisions of FOIA.
The bulletin includes examples of what constitutes CSI, noting that it includes: any workpapers or other documentation that CFPB examiners have prepared in the course of an examination; supervisory information requests from the CFPB to a supervised entity and the entity’s responses; and CFPB supervisory actions such as MOUs between the CFPB and an entity, and related submissions and correspondence.
In the bulletin, the CFPB states the general rule that “supervised financial institutions and other persons in possession of CSI of the CFPB may not disclose such information” and reviews the exceptions to the general prohibition and requirements for disclosing CSI. Among the exceptions are ones permitting disclosure of CSI by a supervised entity to: its affiliates; directors, officers or employees of the supervised entity or its affiliates to the extent the disclosure of such CSI is relevant to the performance of such individuals’ assigned duties; and a supervised entity’s accountants, legal counsel, and other service providers.
Since the above portions of the bulletin largely review what is already contained in the CFPB’s regulations, it would seem that the most noteworthy aspect of the bulletin is its discussion of third-party non-disclosure agreements (NDAs) that purport to restrict a supervised entity from sharing certain information with a regulator or require the entity to notify the third party when it shares with a regulator information subject to the NDA. (The bulletin’s discussion of NDAs was also highlighted in the CFPB’s press release.)
The CFPB states that the provisions of NDAs do not alter or limit the CFPB’s supervisory authority or the supervised entity’s obligations relating to CSI. It warns that a supervised entity “should not attempt to use an NDA as the basis for failing to provide information sought pursuant to supervisory authority” and that “[f]ailure to provide information required by the CFPB is a violation of law for which the CFPB will pursue all available remedies.” The CFPB further warns that a supervised entity “may risk violating the law if it relies upon provisions of an NDA to justify disclosing CSI in a manner not otherwise permitted” and notes that any disclosure of CSI outside of the applicable exceptions would require prior written approval from the Associate Director of Supervision, Enforcement and Fair Lending.
Below is an update on the lawsuits we have been following that state attorneys general and a state regulator have brought using their Dodd-Frank enforcement authority. Under Dodd-Frank Section 1042, a state AG or regulator is authorized to bring a civil action to enforce provisions of Dodd-Frank Title 10 or regulations issued under Title 10, including the Dodd-Frank prohibition of unfair, deceptive or abusive acts or practices (UDAAP).
Illinois. The Illinois AG 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. In May 2014, the defendant filed a motion to dismiss.
Since our prior update, the court entered an order on December 9, 2014 denying the defendant’s motion to dismiss. The court rejected the defendant’s arguments that (1) the AG’s claims were barred by res judicata based on the prior administrative proceedings brought by the Illinois Department of Financial and Professional Regulation, and (2) the disclosures in the defendant’s revolving credit plan regarding the minimum payment barred any claims based on misrepresentations. The defendant must file an answer to the complaint by February 4, 2015.
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 removed the case to a federal district court in Illinois.
Since our prior update, the defendants filed a motion for partial summary judgment on December 22, 2014. The motion seeks summary judgment on the AG’s Illinois Consumer Fraud Act claim to the extent it relies on internet marketing allegations. The AG alleged that because the defendants’ internet advertisements appeared in response to google searches that involved terms relating to the FBI or Illinois state troupers, they misled consumers about the type of employment available to graduates of the defendant college’s criminal justice program.
Among the defendants’ argument for summary judgment on the ICFA claim is that the AG cannot satisfy the ICFA requirement that any confusion or deception of consumers must relate to a material fact. According to the defendants, the AG did not produce any evidence that any consumer considered the appearance of one of their advertisements in response to a google search to be a material factor in deciding whether to enroll. With regard to the AG’s Dodd-Frank UDAAP claims, the defendants argue that the court should enter partial summary judgment in their favor to the extent the AG is seeking remedies for alleged conduct that occurred before July 21, 2011, the effective date of Dodd-Frank. The AG must respond to the motion by January 30, 2015 and the defendants have until February 11, 2015 to file a reply.
New York. In April 2014, Benjamin Lawsky, the Superintendent of the New York Department of Financial Service, 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 his lawsuit, , Mr. Lawsky alleged that the lender had systematically concealed from its customers the fact that they had refundable positive credit balances and failed to make refunds except when expressly requested by a customer. The complaint also included the allegation that the lender had violated TILA by calculating interest based on a 360-day year and applying the resulting daily interest rate to its customers’ loan accounts each of the 365 days during the year. According to the complaint, this practice resulted in customers paying interest in excess of the disclosed APR. As we reported, in December 2014, Mr. Lawsky announced a settlement that included a $3 million civil penalty and required the defendants to refund all positive credit balances and interest charged in excess of the disclosed APR, plus nine percent interest on such amounts.
Florida/Connecticut. On July 29, 2014, a Section 1042 lawsuit was filed jointly by the Attorneys General of Florida and Connecticut in a Florida federal court. The lawsuit alleges that four individuals and their four businesses formulated and participated in a mortgage rescue scam that deceived consumers into paying upfront fees to be included as plaintiffs in so-called “mass-joinder” lawsuits against their mortgage lenders or servicers.
In addition to asserting claims under their states’ unfair trade practices acts, the AGs allege in their amended complaint that the defendants’ conduct violated the federal Mortgage Assistance Relief Services Rule (MARS Rule). The AGs assert their MARS Rule claim pursuant to Section 1097 of Dodd-Frank (12 USC Section 5538), which authorizes a state AG to bring civil actions on behalf of his or her state’s residents to enforce the MARS Rule. The AGs also assert a UDAAP claim under Section 1042 of Dodd-Frank. Dodd-Frank Section 1097 further provides that a violation of the MARS Rule “shall be treated as a violation of a rule prohibiting unfair, deceptive, or abusive acts or practices under the Consumer Financial Protection Act of 2010.” The AGs assert that pursuant to Section 1097, a violation of the MARS Rule is a UDAAP violation under Dodd-Frank.
Since our prior update, the court approved settlements with several of the defendants under which they are permanently banned from engaging in various activities such as telemarketing and providing mortgage or debt relief services.
Mississippi. In May 2014, the Mississippi AG filed a lawsuit 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. There have been no significant developments since our prior update.
Last Friday, the CFPB announced the following additions to its senior leadership team:
- Leandra English will serve as the CFPB’s Deputy Chief Operating Officer. Ms. English previously served as a senior advisor and chief of staff to the Office of Management and Budget’s Deputy Director of Management. Before joining the OMB, Ms. English helped to launch the CFPB, working in a number of senior leadership roles including deputy chief of staff.
- Agnes Bundy Scanlan will serve as the CFPB’s Northeast Regional Director of Supervision Examinations. Mrs. Bundy Scanlan previously worked as a senior risk advisor at Treliant Risk Advisors and as the Chief Compliance Officer at TD Bank.
- Jeffrey Sumberg will serve as the CFPB’s Chief Human Capital Officer. Mr. Sumberg previously worked as a senior leader in the human capital practice of Deloitte Consulting and as a senior executive with the U.S. Office of Personnel Management where he directed human capital programs.
In its announcement, the CFPB confirmed that Anthony Alexis will become the CFPB’s Assistant Director of Enforcement. Mr. Alexis previously served as Acting Assistant Director of Enforcement and replaces Kent Markus, who will become Senior Counsel to CFPB Deputy Director Steven Antonakes. (Our previous report about these changes incorrectly stated that Mr. Alexis’s new title would be Director of Enforcement. While the CFPB’s announcement indicates that his title will be Assistant Director of Enforcement, he will continue to lead the CFPB’s Office of Enforcement.)