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CFPB reports on research project offering savings incentive to prepaid card users

Posted in Financial Literacy, Prepaid Cards

The CFPB released a report, “Tools for saving: Using prepaid accounts to set aside funds,” that presents the results of a research project involving a pilot program offering an incentive to prepaid card users to use a savings feature.

In December 2014, as part of its Project Catalyst, the CFPB’s initiative for facilitating innovation in consumer-friendly financial products and services, the CFPB announced a new research pilot program using insights from behavioral economics and an American Express pilot program to evaluate the effectiveness of certain practices to encourage prepaid card users to develop regular saving behavior.

From January to March 2015, American Express launched a pilot program to encourage prepaid card users to use a feature that allows users to set money aside dedicated for savings and keep it separate from funds in their main prepaid account. The trial program included about 540,000 prepaid card users, with certain of such users receiving various forms of encouragement to sign up for the savings feature. The company used four strategies consisting of emails highlighting the benefits of savings, direct mail sending a refrigerator magnet highlighting the benefits of savings, an offer of $10 if an individual saved $150 by March 31, and encouragement to use an automatic transfer feature they could sign up for.

The project findings included the following:

  • The  $10 incentive was highly effective in encouraging card users to enroll in the savings feature.
  • Usage of the savings feature was tracked for nine months after the three-month pilot program ended.  The study found that for customers still using the savings feature, savings balances generally did not decrease after the pilot ended.
  • Users who were offered the $10 incentive reported significantly less payday loan use than those who were not offered the incentive.

CFPB approves FHLMC/FNMA revised uniform residential loan application; collection of HMDA ethnicity and race information in 2017

Posted in Mortgages

In a notice published in today’s Federal Register, the CFPB announced that it has given its “official approval” to a revised and redesigned Uniform Residential Loan Application (2016 URLA) and to the collection of expanded Home Mortgage Disclosure Act information on ethnicity and race in 2017.

2016 URLA.  The 2016 URLA approved by the CFPB was issued by the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association and is included as an attachment to the CFPB’s notice.  The notice indicates that the CFPB’s staff has determined that the relevant language in the 2016 URLA complies with the provisions in Regulation B (which implements the ECOA) that limit requests by creditors for certain information in applications, such as information about race and other protected characteristics, a spouse, marital status, or income from alimony and certain other sources.  The CFPB stated that while a creditor’s use of the 2016 URLA is not required under Regulation B, a creditor that uses the 2016 URLA without any modification that would violate these Regulation B provisions would be in compliance with such provisions.

The CFPB noted that a version of the URLA dated January 2004 is included in appendix B to Regulation B as a model form and describes the safe harbor provided in appendix B for creditors that use the model form.  The CFPB also noted that the Official Staff Commentary to Regulation B provides that creditors can use a previous version of the URLA dated October 1992 without violating Regulation B.  The CFPB stated that its official approval “is being issued separately from, and without amending” the Official Staff Commentary and that it will consider whether to address the treatment of outdated versions of the URLA in the Commentary at a later date.

Expanded HMDA Information Collection.  The amendments to Regulation C (which implements HMDA) finalized in 2015 will require financial institutions covered by HMDA to permit applicants to self-identify using disaggregated ethnic and racial categories beginning January 1, 2018.  In the notice, the CFPB stated that before such date, such inquiries would not be allowed under Regulation B Section 1002.5(a)(2) which limits inquiries by creditors about race or other protected characteristics.  Believing there will be significant benefits to permitting creditors to ask consumers to self-identify before January 1, 2018, the CFPB gave approval for a creditor “at any time from January 1, 2017, through December 31, 2017…at its option, [to] permit applicants to self-identify using disaggregated ethnic and racial categories as instructed in appendix B to Regulation C, as amended by the 2015 HMDA final rule.”  A creditor adopting that practice “shall not be deemed to violate” Section 1002.5(a)(2) and “shall also be deemed to be in compliance with  Regulation B § 1002.5(a)(2) even though applicants are asked to self-identify using categories other than those explicitly provided in that section.”

The notice also includes instructions for creditors to use to submit information concerning ethnicity and race collected under the approval  in connection with applications received from January 1, 2017 through December 31, 2017.  The instructions distinguish between applications on which final action is taken during the 2017 calendar year and those on which final action is taken on or after January 1, 2018.

For applications on which final action is taken during the 2017 calendar year, a financial institution is directed to submit the information on ethnicity and race using only the aggregate categories and codes provided in the filing instructions guide for HMDA data collected in 2017, even if the financial institution has permitted applicants to self-identify using disaggregated categories pursuant to the approval.  For applications on which final action is taken on or after January 1, 2018, a financial institution is given the option to submit the information on ethnicity and race using disaggregated categories if the applicant provided such information instead of using the transition rule adopted by the 2015 HMDA final rule or to submit the information using the transition rule.


SEC to hold fintech innovation public forum

Posted in Technology

The Securities and Exchange Commission has announced that it will host a public forum in Washington, D.C. on November 14, 2016 to discuss financial technology innovation in the financial services industry.  The forum is designed to foster greater collaboration and understanding among regulators, entrepreneurs and industry experts about fintech innovation and evaluate how the current regulatory environment can most effectively address these new technologies.

The panels will discuss issues such as blockchain technology, automated investment advice or robo-advisors, online marketplace lending and crowdfunding, and how they may impact investors.  The forum will be open to the public and webcast live on the SEC’s website.

A bill was recently introduced by Congressman Patrick McHenry that would establish a “Financial Services Innovation Office” within various federal agencies, including the CFPB and SEC, that would consider petitions from persons that offer or intend to offer a financial innovation and seek to enter into an agreement under which the agency would agree to waive or modify regulatory or statutory requirements applicable to the innovation.


CFPB discusses handling of student loan partial prepayments by servicers

Posted in Student Loans

In a new blog post by Student Loan Ombudsman Seth Frotman, the CFPB discusses its concerns regarding how student loan servicers may be responding to borrowers seeking to make partial prepayments on their student loans and provides advice to such borrowers.

The CFPB expresses its concern that “student loan servicers may be making it harder for borrowers to get ahead who have made additional payments on their loans. A number of consumers have reported that, after trying to get ahead on paying off their student loans, they were sidetracked by their student loan servicer.”  According to the CFPB, these consumers have reported that by lowering their monthly payment amount, their servicers extended the repayment period, thereby increasing the amount of interest the borrower would pay.  The CFPB indicates that servicers are reported to have made such a change without a request from the borrower and, in some cases, without letting the borrower know the change would be made.

The CFPB warns borrowers who seek to pay down their loans more quickly to watch out for “surprise redisclosure” of payment terms by servicers, meaning a resetting of loan repayment  terms.

Borrowers are advised that if they discover from their monthly statement or account payment history that their servicer has lowered their monthly payment, they can tell their servicer to set their monthly payment back to their requested payment amount, or choose to make extra payments each month.  Borrowers who regularly make partial prepayments through automatic payments are advised that they should contact their servicer to establish a standing instruction as to how such prepayments will be applied (such as to the loan with the highest interest rate).  Borrowers are also advised that they can provide instructions with individual payments and to make sure partial prepayments are not advancing payment due dates by creating a “payment holiday.”

Finally, borrowers are advised to submit a complaint if they have trouble with their servicers.

In February 2014, the CFPB presented its findings based on responses it received to a letter sent to private student loan servicers asking them for information about their practices for handling extra payments from borrowers.  Such practices are routinely the subject of scrutiny by CFPB examiners.


CFPB September 2016 complaint report highlights money transfer complaints, complaints from Pennsylvania consumers

Posted in Remittance Transfers

The CFPB has issued its September 2016 complaint report which highlights complaints about money transfers and complaints from consumers in Pennsylvania and the Philadelphia metro area.  The CFPB began taking money transfer complaints in April 2013.

General findings include the following:

  • As of September 1, 2016, the CFPB handled approximately 982,400 complaints nationally, including approximately 28,700 complaints in August 2016.
  • Debt collection continued to be the most-complained-about financial product or service in August 2016, representing about 34 percent of complaints submitted and showed the greatest month-to-month increase, increasing 50 percent from July 2016.  Debt collection complaints, together with complaints about credit reporting and mortgages, collectively represented about 67 percent of the complaints submitted in August 2016.
  • Complaints about student loans showed the greatest percentage increase based on a three-month average, increasing about 78 percent from the same time last year (June to August 2015 compared with June to August 2016).  In March 2016, the CFPB began accepting complaints about federal student loans.  Previously, such complaints were directed to the Department of Education.  As we noted in blog posts about prior complaint reports issued since March 2016, rather than reflecting an increase in the number of borrowers making student loan complaints, the increase most likely reflects the change in where such complaints are sent.
  • Payday loan complaints showed the greatest percentage decrease based on a three-month average, decreasing about 18 percent from the same time last year (June to August 2015 compared with June to August 2016).  Complaints during those periods decreased from 461 complaints in 2015 to 379 complaints in 2016.  In the complaint reports for March through August 2016, payday loan complaints also showed the greatest percentage decrease based on a three-month average.
  • Wyoming, Alaska, and Colorado experienced the greatest complaint volume increases from the same time last year (June to August 2015 compared with June to August 2016) with increases of, respectively, 29, 26, and 21 percent.
  • Maine, Nebraska, and Idaho experienced the greatest complaint volume decreases from the same time last year (June to August 2015 compared with June to August 2016) with decreases of, respectively, 36, 19, and 15 percent.

Findings regarding money transfer complaints include the following:

  • The CFPB has handled approximately 6,900 money transfer complaints, representing about 0.7 percent of total complaints.
  • Consumers using money transfer services to make purchases commonly report being the victims of fraud or scams, with sellers to whom they send funds not sending the items purchased.
  • Consumers reported that money transfer providers had placed holds on their accounts without providing an explanation.  Money transfer service providers have explained that the holds result from a risk-based model that will hold reserves to cover potential losses arising from reversals or chargebacks.
  • Sellers involved in transactions using an online money transfer service often reported encountering problems with the dispute resolution process.  Sellers describe several scenarios where they do not receive payments after sending the item to the buyer, which often occurs when the seller is told that the buyer’s payment has been accepted but is later cancelled.  Cancellation is either by the buyer directly due to a dispute, or by the buyer’s financial institution due to insufficient funds in the buyer’s account.  Sellers often indicate that money transfer service providers, when deciding a dispute in the buyer’s favor after the item has already been sent, will debit the seller’s account without guaranteeing that the buyer will return the item to the seller.
  • Consumers submitting complaints about international money transfers commonly report delays and restrictions when attempting to make transfers or the absence of an explanation for a denial.  Many of these complaints are the product of company risk-based assessments, review for OFAC compliance, and consumer identification efforts.

Findings regarding complaints from Pennsylvania consumers include the following:

  • As of September 1, 2016, approximately 34,700 complaints were submitted by Pennsylvania consumers of which approximately 69 percent (about 24,100) were from Philadelphia consumers.
  • Debt collection was the most-complained-about product, representing 25 percent of the complaints submitted by Pennsylvania consumers and 27 percent of complaints submitted by consumers nationally.
  • The percentage of mortgage complaints submitted by Pennsylvania consumers, 22 percent, was lower than the 25 percent national average.  However, the percentage of mortgage complaints submitted by Philadelphia consumers, 26 percent, was higher than the national average.
  • Average monthly complaints received from Pennsylvania consumers increased 9 percent from 2014 to 2015, similar to the increase of 8 percent nationally.






CFPB enters into consent order with auto title lender

Posted in Auto Title Loans, CFPB Enforcement

The CFPB announced that it has entered into a consent order with TMX Finance, LLC to settle allegations that the company did not provide sufficient information to consumers about the terms of auto title loans, pawns or pledges, and engaged in unfair collection practices.  The consent order requires TMX Finance to pay a $9 million civil money penalty.

The consent order involves 30-day credit transactions made by TMX Finance under the brands TitleMax and TitleBucks at storefronts in Alabama, Georgia and Tennessee.  Under the applicable laws of the three states, consumers can renew or extend a transaction by paying the finance charge at the end of each 30-day period.  According to the CFPB’s findings of fact and conclusions of law set forth in the consent order (which TMX Finance does not admit or deny), the company engaged in the following conduct in violation of the Consumer Financial Protection Act:

  • After telling a consumer the amount of credit for which he or she was eligible, a company employee would ask the consumer to indicate the number of months over which he or she would like to repay the transaction or how much the consumer would like to pay each month.  After the consumer identified a payback period or target monthly payment, the employee would show the consumer a payback guide showing the monthly payments required to repay the principal balance in full at the end of a stated period.  The payment guide did not disclose the total finance charge that a consumer would pay if he or she chose to renew a transaction multiple times but showed the amount of finance charge and principal that needed to be paid at the end of each 30-day period for the transaction to amortize over the consumer’s selected term.  The CFPB found the use of the payback guide was “abusive” in violation of the CFPA because it materially interfered with a consumer’s understanding of the terms and cost of the transactions.  More specifically, the CFPB found that the company’s sales pitch and the guide materially interfered with a consumer’s ability to understand such things as that guide was not an actual payment plan, renewing the transaction over an extended period would substantially affect the overall cost of the transaction, and the transaction would be more expensive the longer it took the consumer to it pay off.
  • Company employees were permitted to conduct “in-person” visits to a consumer’s home or places of employment if a consumer failed to make a timely payment and did not respond to communications from company employees.  The CFPB found that during such visits, employees disclosed the existence of a consumer’s debts to third parties.  It also found that employees visited places of employment even after being informed by a consumer or a consumer’s supervisor that such visits were not permitted.  The CFPB found that the company’s practice of making in-person visits was “unfair” in violation of the CFPA.

In addition to requiring payment of the civil money penalty, the consent order contains various restrictions on the company’s conduct.  Such restrictions include a prohibition on in-person visits unless they are for the purpose of locating and repossessing vehicles and using a payback guide or similar document.

As TMX Finance noted in a press release issued in connection with the settlement, the consent order does not require TMX Finance to pay any restitution to consumers.  The press release included a statement from the company’s president in which he affirmed the company’s continuing commitment to remaining a reliable source of credit for customers facing short-term financial setbacks like medical emergencies or home repairs.  The press release noted that the payback guide was designed to assist customers in understanding the ramifications of renewing or extending their 30-day credit transactions.

Last week, the CFPB announced that it had filed administrative enforcement actions against five Arizona auto title lenders for alleged violations of Truth in Lending Act advertising requirements.


Congressman introduces fintech bill

Posted in Technology

Republican Congressman Patrick McHenry, Vice Chair of the House Financial Services Committee, has introduced the “Financial Services Innovation Act of 2016,” which is intended to provide a streamlined regulatory process for innovative fintech products and greater certainty about compliance requirements.

The federal agencies covered by the bill include the CFPB, Federal Reserve, FDIC, NCUA, OCC, FTC, and HUD.  The bill would require each agency to publish in the Federal Register within 60 days of enactment and biannually thereafter a list that identifies 3 or more areas of existing regulations that apply or may apply to a “financial innovation” and that the agency would consider modifying or waiving if it received a petition as contemplated by the bill.  “Financial innovation” is defined as “an innovative financial service or product, the delivery of which is enabled by technology, that is or may be subject to an agency regulation or Federal statute.”

The bill contemplates that each agency would establish a “Financial Services Innovation Office” (FSIO) to support the development of financial innovations.  The FSIO would consider petitions from persons that offer or intend to offer a financial innovation and seek to enter into an “enforceable compliance agreement containing a modification or waiver of an agency  regulation or Federal statutory requirement under which the agency has supervisory or rulemaking authority with respect to the [petitioner] or a financial innovation the [petitioner] offers or intends to offer.”

While a petition is pending, the bill would create a safe harbor barring the agency from bringing an enforcement action relating to the financial innovation that is the subject of the petition.  The agency would be required to publish the petition in the Federal Register and provide a 60-day notice and comment period.  If the agency disapproves a petition, it would be required to provide the petitioner with a written notice that explains why the petition was rejected.

If a petition is approved, the petitioner would be able to enter into an “enforceable compliance agreement” with the agency that includes “the terms under which the [petitioner] may develop or offer the approved financial innovation to the public and any requirements of the [petitioner] and any agency with respect to the financial innovation.”  The agreement would also bar other agencies from bringing an enforcement action against the petitioner with respect to the financial innovation that is the subject of the agreement.  States would be barred from bringing an enforcement action if the petitioner has provided the state with a copy of the compliance agreement and a statement of policies and procedures the petitioner has in place to comply with applicable state laws.  Notwithstanding this limitation, the bill would allow a state to bring an enforcement action if a court were to determine “that the agency’s action was arbitrary and capricious and the financial innovation has substantially harmed consumers within such State.”

The bill does not appear to provide a safe harbor from civil litigation.  However, it provides that a petitioner “can elect to arbitrate any action initiated by another person relating to a financial innovation that is the subject of an enforceable compliance agreement.”  It is unclear whether this provision would trump the CFPB’s arbitration rule once it is final and effective.  Under the CFPB’s proposed rule, a class action waiver in an arbitration provision in a consumer financial services agreement would be invalid.

In November 2012, the CFPB launched “Project Catalyst,” an  initiative for facilitating innovation in consumer-friendly financial products and services.  Under Project Catalyst, the CFPB finalized a trial disclosure policy in October 2013 for exempting individual companies, on a case-by-case basis, from applicable federal disclosure requirements to allow those companies to test trial disclosures.  In February 2016, the CFPB issued a final policy statement on issuing “no-action” letters (NAL) for innovative financial products or services.  We have found the CFPB’s NAL policy to be lacking in many important respects.

By recognizing the need to create a more flexible regulatory environment for fintech innovations, Congressman McHenry’s bill appears to be a step in the right direction.






CFPB participates in FTC workshop on disclosure

Posted in CFPB General

The FTC recently held a workshop, “Putting Disclosures to the Test,” to explore the question of what should be done to make disclosures effective.  The workshop included reports on numerous studies related to consumer understanding of disclosures, and the efficacy of different methods and timing of consumer disclosures.

Among the panelists at the workshop was Heidi Johnson, a CFPB research analyst.  She discussed research being conducted by the CFPB, through its Decision Making and Behavioral Studies team, that is exploring the factors that influence the efficacy of disclosures in financial services, how to use different methodologies to study disclosure, and the market effects of disclosures.

For more information about the workshop, including key takeaways from studies that were presented, see our legal alert.


CFPB sues credit repair company

Posted in CFPB Enforcement

The CFPB announced that it has filed a lawsuit in a California federal district court against a credit repair company for alleged violations of the Consumer Financial Protection Act (CFPA) and Telemarketing Sales Rule (TSR).  The CFPB has previously brought enforcement actions against debt settlement companies, including its first criminal referral.  The announcement was accompanied by the CFPB’s release of a consumer advisory entitled “How to avoid credit repair service scams” that includes a list of “red flags” and a consumer’s right under the FCRA to obtain free credit reports and dispute inaccurate information.

In its complaint, the CFPB alleges the company violated the CFPA and TSR by engaging in conduct that included the following:

  • Charging unlawful advance fees before providing consumers with a credit report showing that the promised results were achieved
  • Misleading consumers about the costs of its services, such as by failing to disclose to consumers during sales calls that they would be charged a monthly fee or representing that a monthly fee would be charged only if the consumer affirmatively elected to continue services beyond 60 days while, in reality, automatically charging a monthly fee
  • Failing to disclose that the money-back guarantee offered by the company was subject to significant limits, such as a requirement for a consumer to pay for at least six months of services to be eligible for the guarantee
  • Misleading consumers about the benefits of the company’s services by representing that its services would, or likely would, result in the removal of certain negative entries on a consumer’s credit report or a significant increase in a consumer’s credit score when the company lacked a reasonable basis for making such claims

CFPB announces enforcement actions against auto title lenders

Posted in Auto Title Loans, CFPB Enforcement

The CFPB announced that it has filed administrative enforcement actions against five Arizona auto title lenders for alleged violations of Truth in Lending Act advertising requirements.  According to the CFPB, the lenders violated TILA by advertising a periodic interest rate for their loans on their websites without advertising a corresponding annual percentage rate.  As examples, the CFPB alleges that one lender advertised a monthly interest rate but did not include the APR and another lender asked consumers to take its advertised rate and multiply it by 12 without informing consumers that the resulting number was the APR.

In its press release, the CFPB states that its Rules of Practice for Adjudication Proceedings allow it to publish the Notice of Charges ten days after the company is served and, if allowed by the hearing officer, to publish the charges on its website.

In June 2016, the CFPB issued its proposed payday lending rule which, in addition to payday loans, covers auto title loans, deposit advance products, and certain high-rate installment and open-end loans.  Comments on the proposal are due by October 7, 2016.