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CFPB seeking approval for field study of Owning a Home project

Posted in Mortgages

The CFPB has published a notice stating that as part of its Owning a Home project, it plans to seek approval from the Office of Management and Budget to conduct a field study of the project.  The project consists of a various online tools and resources developed by the CFPB to help consumers make decisions about mortgages.  Comments are due by November 25, 2014.

According to the CFPB, the purpose of the field study is to evaluate and improve its Owning a Home project.  Among the issues as to which the CFPB seeks to gain insight through the study are whether and how the project impacts consumers and which consumer segments or profiles benefit most from the project.  To conduct the field study, the CFPB plans to recruit prospective homebuyers and assign them to one of two study groups: those exposed to the project (treatment group) and those not exposed (control group).  The CFPB then plans to survey both groups as they go through the mortgage shopping process, track the treatment group’s usage of Owning a Home tools and resources, and compare the two groups’ attitudes, behaviors and outcomes.

 

Senate passes bill exempting condo unit sales from ILSFDA registration

Posted in CFPB General

In May 2013, we reported that the CFPB’s amicus program scored a victory when the U.S. Court of Appeals for the Second Circuit ruled that the sale of a single-floor condominium unit in a multistory building was subject to the disclosure and reporting requirements of the Interstate Land Sales Full Disclosure Act (ILSFDA).  At the court’s invitation, the CFPB had filed a letter brief supporting the consumer/appellee’s position that the ILSFDA covered such sales. 

Now, it is condominium unit developers who have scored a victory with the Senate’s unanimous approval of H.R. 2600 on September 18, 2014, following the bill’s similar unanimous passage in the House last year.  While not exempting condominium unit sales from the ILSFDA’s antifraud requirements, the bill exempts condominium unit developers from the requirement to register their projects under the ILSFDA and provide federal property reports to purchasers.  Barring a veto by President Obama, the new exemption will take effect approximately six months from now. 

For more on the bill, see our legal alert.

Industry trade groups provide recommendations to CFPB on TILA-RESPA implementation

Posted in CFPB General, CFPB Rulemaking

Sixteen industry trade groups, including the American Bankers Association, the Mortgage Bankers Association, and Financial Services Roundtable, have sent a letter to Director Cordray in which they requested that the CFPB provide additional guidance to help the mortgage industry implement the new TILA-RESPA Integrated Disclosures Rule that will become effective on August 1, 2015.

In the letter, the trade groups asked the CFPB to provide clear written authoritative guidance in addition to offering oral guidance through webinars and other venues.  The trade groups expressed their belief that due to the complexity of the rule, the CFPB should memorialize its guidance on issues to ensure a timely and effective implementation.

In the letter, the trade groups said, “Uniform written guidance developed with stakeholders’ input that can be relied upon will further fair competition and minimize the possibility of undue liability increasing costs.  Most importantly, it will ensure that consumers will not be harmed by unnecessary confusion.”

In order to successfully put the new law into effect, the trade groups also recommend that the CFPB:

  • Continue to actively participate in conferences and forums
  • Provide additional exemplar forms
  • Maintain contact with industry vendors
  • Resolve conflicting regulations

We have extensively covered the CFPB and Federal Reserve Board’s  June and August webinars that have addressed questions about the final TILA-RESPA Integrated Disclosures Rule.  The recommendations of the trade groups echo concerns we have heard from industry members, and we consider the concerns to be valid.

News groups oppose opt in for CFPB’s proposed disclosure of complaint narratives

Posted in CFPB General

While industry continues to voice its opposition to the CFPB’s proposal to publicly disclose consumer complaint narratives, some news groups think the CFPB’s proposal doesn’t go far enough.  The Reporters Committee and eight news organizations have submitted a comment letter asking the CFPB to remove from its proposal the requirement for a consumer to consent to disclosure of his or her narrative.  They assert in the letter that the complaints are already subject to disclosure as public records under the Freedom of Information Act, regardless of whether the sender opts to post them online.

GAO report finds CFPB needs to improve privacy and security procedures for data collections

Posted in CFPB General

A new report from the Government Accountability Office on the CFPB’s data collection efforts finds that the CFPB needs to do more to reduce the risk of improper collection, use or release of such data.  The CFPB’s data collection efforts have been the focus of criticism from lawmakers during several hearings at which Director Cordray and Deputy Director Antonakes testified.  In its background discussion, the GAO indicates that it conducted the review in response to requests from  lawmakers and to fulfill a statutory mandate for such a review in the Consolidated Appropriations Act of 2014.

The GAO reviewed the CFPB’s 12 large-scale ongoing and one-time data collections undertaken from January 2012 to July 2014.  Subjects of the collections included mortgages, student loans, overdraft fees, online and storefront payday loans, deposit advance products, and arbitration case records. Of the 12 collections, 3 included information that identified individual consumers (arbitration case records, deposit advance products and storefront payday loans).  The GAO indicates that it was told by CFPB staff that while most of the 12 collections were conducted under the CFPB’s supervisory authority, several were conducted using its market monitoring authority. The report reviews large-scale data collections conducted by the Fed, OCC and FDIC and finds that such other regulators collect “similarly large amounts of data” as the CFPB but that the other regulators’ collections generally do not contain information that directly identifies consumers.  It also reviews the CFPB’s information sharing agreements with other regulators and finds overlap in the data collected by the CFPB, Fed and OCC.

The GAO’s key conclusions are:

  • The CFPB lacks written procedures for its data intake process, including for evaluating whether statutory restrictions related to collecting personally identifiable financial information apply to a large-scale data collection, documenting determinations of whether these collections are subject to Paperwork Reduction Act requirements (such as the need for OMB approval and to seek comments on a proposed collection), and assessing and managing privacy risks of these collections.
  • Although it has informal procedures for anonymizing data collections that contain personally identifiable financial information, the CFPB has not established written procedures for anonymizing data. (The report cites specific instances in which the CFPB failed to remove sensitive information in some of its collections.)
  • The CFPB did not consistently or comprehensively document its information security risk-assessment results.
  • The CFPB has not yet developed a comprehensive privacy plan that brings together existing policies and guidance, has not established a regular schedule of periodic reviews of its privacy program, or completed development of a role-based privacy training program.
  • The CFPB did not comprehensively evaluate the service provider that processes consumer financial data on its behalf for compliance with contract provisions.

The report contains 11 specific recommendations for executive action by the CFPB to remedy the weaknesses identified by the GAO.  It also contains a letter from Director Cordray concurring with the GAO’s recommendations and outlining the actions being taken by the CFPB in response.

The report’s conclusions seem particularly ironic given the importance the CFPB places on implementation of data security procedures and service provider oversight by the entities it supervises.  We expect Director Cordray to hear more from lawmakers about the GAO’s conclusions when he next appears before Congress for an oversight hearing.  Indeed, House Financial Services Committee Chair Jeb Hensarling has already issued a statement on the report commenting that it “reveals troubling deficiencies in the CFPB’s data security procedures and privacy controls, as well as an apparent effort by the CFPB to skirt the consumer privacy protections required by Congress in both the Dodd-Frank Act and the Paperwork Reduction Act. ”

 

CFPB releases report on fair credit exams and white paper on proxy methodology

Posted in Auto Finance, CFPB Exams, Fair Credit

Along with its proposed larger participant rule for the auto financing market, the CFPB recently issued a special edition of Supervisory Highlights (“report”) describing its fair credit supervisory activity in what it characterizes as “the indirect automobile lending market.”

The report indicates that CFPB supervisory examination teams have been conducting targeted Equal Credit Opportunity Act compliance reviews of “indirect auto lenders.  “This is the segue into the surprising news that multiple targeted ECOA reviews conducted during the last two years have resulted in non-public, supervisory resolutions with several auto “lenders” involving approximately $56 million in redress for approximately 190,000 consumers.

The report includes numerous assertions and observations drawn from supervisory examinations.  It also explains the CFPB’s use of the hybrid Bayesian Improved Surname Geocoding (BISG) methodology to proxy for unidentified race and ethnicity in the non-mortgage context.  The report was accompanied by a white paper explaining this proxy methodology in further detail and reporting that a study conducted by the CFPB had concluded that this “integrated approach to building a proxy is more accurate than either surname or geographic data individually.”

Our legal alert containing a detailed discussion of the report and the white paper on the BISG proxy methodology is available here.  On October 16, 2014, Ballard Spahr attorneys will discuss these developments in a webinar, “Auto Finance II: Fair Credit,” from 12:00 p.m. to 1:00 p.m. ET.  The registration form is available here.

CFPB to hold Oct. 1 Credit Union Advisory Council meeting

Posted in CFPB General

The CFPB has announced that it will hold a meeting of its Credit Union Advisory Council on October 1, 2014.  The meeting will be take place in Washington, D.C. and Director Cordray is scheduled to attend.  According to the agenda, the meeting topics will be overdrafts and consumer complaints.  Attendance requires an RSVP.

 

CFPB Proposes Rule to Supervise Nonbank Auto Finance Companies

Posted in CFPB Exams

The CFPB has issued a proposal to supervise nonbank companies that qualify as “larger participants of a market for automobile financing.”  Comments on the proposal will be due 60 days after its publication in the Federal Register.

The proposal is based on the CFPB’s authority to supervise nonbank entities considered to be “a larger participant of a market for other consumer financial products or services.” Nonbank larger participants would include specialty finance companies, “captive” finance companies, and “Buy Here Pay Here” finance companies.

The proposal defines as “larger participants” nonbank entities that engage in “automobile financing” that have at least 10,000 aggregate annual originations.  An entity’s “annual originations” is calculated by adding the following transactions for the preceding calendar year: (1) credit granted for the purpose of purchasing an automobile, refinancings of such credit obligations and any subsequent refinancings thereof; (2) purchases or acquisitions of such credit obligations (including refinancings); and (3) automobile leases and purchases or acquisitions of automobile leases.

Ballard Spahr attorney Peter Cubita notes that “the CFPB’s proposal also would define certain automobile leasing activity as a financial product or service, thereby effectively expanding the statutory definition of a ‘financial product or service’ as it relates to a personal property lease.”  Peter is one of the nation’s leading consumer financial services attorneys with extensive experience in auto finance and leasing.   He recently joined our Consumer Financial Services Group as of counsel in the firm’s New York office.

Auto finance companies that qualify as larger participants will be subject to examination by the CFPB for federal law compliance once a final rule becomes effective.  On September 30, 2014, Ballard Spahr attorneys will hold a webinar, “Auto Finance I: How the CFPB’s Larger Participant Rule for the Auto Finance Market Will Change the Game for Nonbank Auto Finance Companies,” from 12 p.m. to 1 p.m. ET.  More information on the webinar and a link to register are available here.

For more on the proposal, see our legal alert.

 

 

CFPB and FTC file lawsuits against online payday lenders

Posted in CFPB Enforcement, Payday Lending

Earlier this month, the CFPB and FTC filed lawsuits against different groups of interrelated companies and their individual principals for engaging in allegedly unlawful online payday lending schemes.

The CFPB’s lawsuit, which the CFPB made public yesterday, was filed under seal on
September 8, 2014 in a Missouri federal court contemporaneously with an ex parte application for a temporary restraining order to halt the defendants’ operation and freeze its assets (which was granted).  (We found it flattering that, in support of its request to file the action under seal, the CFPB referenced our blog’s extensive coverage of CFPB enforcement actions and the possibility that our blog would cover the CFPB’s filing if it were not sealed.) 

The CFPB’s complaint alleges that the defendants purchased consumers’ sensitive personal and financial information directly from lead generators or data brokers to whom lead generators had sold such information to make payday loans, many of which were unauthorized by the consumers to whom they were made, and to make unlawful withdrawals from those consumers’ accounts.  The complaint alleges the defendants engaged in deceptive and unfair acts or practices in violation of the Consumer Financial Protection Act as well as violations of the Truth in Lending Act and the Electronic Fund Transfer Act.  According to the complaint, the defendants’ unlawful actions included:  

  • After depositing loan proceeds into consumers’ accounts without authorization, withdrawing a finance charge from such accounts every two weeks indefinitely and, after consumers reported such unauthorized deposits and withdrawals to their banks, misrepresenting to such banks that the transactions were authorized and providing such banks with bogus documentation
  • Not providing TILA disclosures before consummation or providing TILA disclosures that did not reflect the terms of the loans as actually structured
  • Not obtaining authorization for preauthorized electronic funds transfers and requiring repayment by such transfers 

The FTC’s complaint was also filed on September 8, 2014, also initially under seal in the same Missouri federal court in which the CFPB’s complaint was filed.  (As in the CFPB’s lawsuit, the court immediately entered a restraining order stopping the defendants’ operation and freezing its assets.)  The FTC defendants’ alleged unlawful conduct is substantially similar to the conduct in which the CFPB defendants are alleged to have engaged.  Like the CFPB, the FTC alleges that the defendants’ conduct violated TILA and the EFTA.  However, instead of alleging that such conduct also violated the CFPA, the FTC alleges that it constituted deceptive or unfair acts or practices in violation of Section 5 of the FTC Act.

OMB gives go-ahead to CFPB telephone survey of consumers for arbitration study

Posted in Arbitration

Over the vigorous objections of industry trade groups, on September 4, 2014, the Office of Management and Budget (OMB) approved the CFPB’s request to conduct a national telephone survey of 1,000 credit card holders as part of its study of the use of mandatory pre-dispute arbitration agreements in connection with consumer financial products and services.

The CFPB initially gave notice in June 2013 that it was seeking OMB funding for the survey. It provided a 30-day period for comments on the draft survey questions and the proposed methodology. In their comments, industry trade groups questioned the value and usefulness of any telephone survey. However, both industry and consumer advocates who commented agreed that if the CFPB did proceed with its telephone survey, it needed to substantially revise the proposed survey questions.

In response to those initial comments, on May 29, 2014, the CFPB gave notice that it had revised the survey, and it posted the revised survey for comment, along with a description of the proposed statistical methods to be utilized in the survey. The revised notice indicated that the survey will explore: (a) the role of dispute resolution provisions in consumer card acquisition decisions and (b) consumers’ default assumptions (meaning consumers’ awareness, understanding, or knowledge without supplementation from external sources) regarding their dispute resolution rights vis-à-vis their credit card issuers, including their awareness of their ability, where applicable, to opt-out of mandatory pre-dispute arbitration agreements.

The revised survey questions were generally less overtly hostile to arbitration than the original survey questions. Nevertheless, like the initial survey, the revised survey will not gather data regarding respondents’ post-fact satisfaction with arbitration or litigation proceedings. The CFPB stated that it is not seeking such data because of “the difficulty in finding consumers that have had personal experience with both forums.” This severely limits the usefulness and relevance of the telephone survey because post-fact satisfaction with individual arbitration compared with class action litigation is extremely relevant to the question of whether consumer arbitration is in the public interest.

In their earlier comments, industry trade groups had urged the CFPB to conduct “apples to apples” empirical research comparing the benefits that consumers derive from individual arbitration to the benefits they derive from class action litigation. In particular, they suggested that the CFPB study: (a) whether class actions provide meaningful benefits to individual consumers as compared with individual arbitration in terms of outcomes, duration, costs, ease of access and consumer satisfaction; (b) the costs and impact of class action lawsuits, including frivolous or nuisance class action lawsuits, on consumers, businesses and the courts; and (c) whether class actions are an efficient, cost-effective mechanism to ensure compliance with the law given the range of enforcement powers afforded to the CFPB and other state and federal enforcement authorities.

Accordingly, the trade groups had urged the CFPB to expand the proposed telephone survey to include questions concerning consumers’ satisfaction with individual arbitration as compared with class action litigation. A consumer who has prevailed in an individual arbitration within months of initiating the arbitration may have a much different perspective about arbitration than a consumer who has received a $5 check or a product coupon after many years of class action litigation, particularly if the attorneys for the class have received six or seven figures (or more) in attorneys’ fees.

Because a consumer’s actual experience with arbitration and class action proceedings is at least as important as a consumer’s awareness of the arbitration provision, if not more so, in ascertaining whether consumer arbitration is in the public interest, it was very disappointing that the revised telephone survey eschewed that important data. It is difficult to see how information concerning “the role of dispute resolution provisions in consumer card acquisition decisions” and “consumers’ default assumptions regarding their dispute resolution rights vis-à-vis their credit card issuers” will help the CFPB determine whether arbitration provisions in consumer financial services products actually benefit consumers, especially when compared with class actions.

Comments on the revised telephone survey were due on or before June 30, 2014. Industry trade groups once again submitted comments criticizing the revised survey. They strongly recommended that OMB not approve the proposal “because it will not produce information of practical utility, remains materially flawed, and is inconsistent with the statutory mandate.” Instead, these groups recommended that the CFPB “focus on obtaining important consumer information related to arbitration, including information with more utility than it seeks to obtain from this survey, through more effective means rather than through a telephone survey.” In particular, they urged the CFPB to find alternative ways to capture data that would compare how consumers benefit from arbitration as opposed to class action litigation.

Nevertheless, the CFPB now has OMB approval to proceed with the revised consumer telephone survey. The CFPB estimates that the telephone survey will take 645 hours. This suggests that it could be concluded before the end of 2014, which is the CFPB’s target date for completing its consumer arbitration study.

The CFPB’s arbitration study was mandated by Congress in Section 1028 of the Dodd-Frank Act. Section 1028 also authorizes the CFPB to “prohibit or impose conditions or limitations on the use of” such agreements based on the study results. In April 2012, the CFPB published a request for information about the scope, methodology and data sources for the study. In December 2013, the CFPB published preliminary study results. This past April, at the 19th Annual Consumer Financial Services Institute in Chicago (which Alan Kaplinsky co-chaired), Will Wade-Gery (who is managing the study for the CFPB) indicated that the study will be completed by the end of this year.