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We made the ABA Top 100 Blawg list … for the fourth year in a row!

Posted in CFPB General

Blawg100WebBadgeFor the fourth year in a row, CFPB Monitor has made the American Bar Association’s Blawg 100 list, the ABA’s annual list of the best blogs about lawyers and the law. CFPB Monitor continues to be the only blog focused on the CFPB and one of only two blogs focused on consumer financial services in the ABA’s top 100.

We are honored to have once again received so many recommendations from our readers and thank you for helping CFPB Monitor make the 2015 list. We will continue to bring our readers timely and insightful perspectives on the CFPB and its activity.

While dozens of lawyers in our Consumer Financial Services Group have contributed to the success of our blog, I want to give special acknowledgement to my colleague, Barbara Mishkin, who is principally responsible for monitoring and then reporting developments at the CFPB on a timely basis.

CFPB highlights bank account or service complaints in fifth monthly complaint report

Posted in Deposit Accounts

The CFPB has issued its November 2015 complaint report, the fifth in its new series of monthly complaint reports.  The new report highlights bank account or service complaints and complaints from consumers in Connecticut and the Hartford metro area.

General findings include the following:

  • As of November 1, 2015, the CFPB handled approximately 749,000 complaints nationally, including approximately 23,300 complaints in October 2015.  For October 2015, debt collection continued to be the most complained-about financial product or service, representing about 28 percent of complaints submitted.  (The CFPB stated that this was the 26th consecutive month in which it handled more complaints about debt collection than about any other type of complaint.)  Debt collection complaints, together with complaints about credit reporting and mortgages, collectively represented about 66 percent of the complaints submitted in October 2015.
  • Complaints about prepaid cards showed the greatest percentage increase, increasing about 193 percent from the same time last year (August to October 2014 compared with August to October 2015).  (In its Fall 2015 rulemaking agenda, the CFPB estimated that it expects to issue a final prepaid card rule in March 2016.)
  • Payday loan complaints showed the greatest percentage decrease, decreasing 20 percent from the same time last year (August to October 2014 compared with August to October 2015).  Complaints during those periods decreased from 589 complaints in 2014 to 469 complaints in 2015.  (Payday loan complaints also showed the greatest percentage decrease in the October 2015 complaint report.)
  • Idaho, Nebraska and Arkansas experienced the greatest complaint volume increases from the same time last year (August to October 2014 compared with August to October 2015).  The volume of complaints from Idaho, Nebraska and Arkansas increased by, respectively, 66, 41 and 42 percent.  The states with the greatest complaint volume decreases from the same time last year (August to October 2014 compared with August to October 2015) were Delaware, Alaska and Florida , with decreases of, respectively, 5, 12 and 1 percent.

Findings regarding bank account and services complaints include the following:

  • As of October 1, 2015, the CFPB handled approximately 73,300 bank account and service complaints, representing about 10 percent of total complaints.
  • Problems with account management (such as issues relating to opening and closing  accounts and dispute resolution) and problems with deposits and withdrawals (such as issues relating to restricted access to funds, fund holds, and deposit cutoff times) were the most common complaints.
  • Other issues raised in complaints included difficulty in avoiding fees, such as monthly account management fees due to low balances, debit card replacement fees, check cashing, overdraft fees, excessive withdrawal fees, dormant account fees and ATM withdrawal fees.

Findings regarding complaints from consumers in Connecticut and the Hartford metro area include the following:

  • As of October 1, 2015, approximately 8,300 complaints were submitted by Connecticut consumers, of which about 2,500 were from Hartford consumers.
  • Mortgages were the most-complained-about product, with mortgage-related complaints representing 28 percent of the complaints submitted by Connecticut consumers.
  • Debt collection and credit cards were, respectively, the second and third most-complained-about financial products by Connecticut consumers.

CFPB plans national survey on financial well-being

Posted in Financial Literacy

The CFPB has published a notice in the Federal Register indicating that it is planning to conduct a “Financial Well-Being National Survey.”

In the notice, the CFPB states that through its prior research, it has determined that improvement in consumer financial well-being is the ultimate goal of its financial literacy initiatives.  To inform its identification and development of financial literacy strategies that seek to improve consumer financial well-being, the CFPB plans to conduct a nationally representative survey to measure adult financial well-being and related concepts, and to oversample adults age 62 and older to gather additional data relevant to the needs and experiences of older consumers.

Comments are due on or before January 25, 2016.


CFPB issues compliance bulletin on preauthorized electronic payments

Posted in Electronic Payments

The CFPB has issued a compliance bulletin (Bulletin 2015-06) concerning the Electronic Fund Transfer Act (EFTA) and Regulation E requirements for obtaining a consumer’s authorization for preauthorized electronic fund transfers (EFT) and the CFPB’s compliance expectations.  The bulletin was accompanied by the CFPB’s publication of sample letters a consumer can use in connection with preauthorized EFTs, including to revoke his or her authorization.

In the bulletin, the CFPB observes that under the EFTA and Regulation E, a company can obtain the required consumer authorization for preauthorized EFTs in paper form or electronically.  The CFPB notes that Regulation E requires a company using electronic authorizations to comply with E-Sign Act requirements for electronic records and signatures.  The CFPB confirms that the EFTA and Regulation E allow a company to use oral recordings obtained over the phone to authorize preauthorized EFTs if the recordings comply with such E-Sign Act requirements.  It states that “[i]n at least one examination, Supervision has concluded that one or more entities did not violate EFTA or Regulation E merely because they obtained by telephone consumer authorizations that were signed or similarly authenticated by the consumer orally.”  According to the CFPB, a company can satisfy Regulation E if a customer authorizes preauthorized EFTs by entering a code into a telephone keypad or it “records and retains the consumer’s oral authorization, provided in both cases the consumer intends to sign the record as required by the E-Sign Act.”

The CFPB also discusses the Regulation E requirement for a company to provide a copy of an authorization for preauthorized EFTs to the consumer, commenting that “two of the most significant terms of an authorization are the timing and amount of the recurring transfers from the consumer’s account.”  It states that as an alternative to providing a copy of the authorization after its execution, a company can comply with Regulation E by using a confirmation form, such as by providing a consumer with two copies of an authorization form and asking the consumer to sign and return one copy and retain the second copy.  The CFPB cautions that a company does not comply with Regulation E by making a copy of the authorization available only upon request.

The CFPB notes that it expects “all entities obtaining consumer authorizations for preauthorized EFTs “to know and comply with” the Regulation E requirements to obtain the authorization before initiating preauthorized EFTs and provide a copy of the authorization to the consumer.  It states that “when practical” companies are encouraged to provide a copy of the authorization to the consumer before the first EFT is initiated.

Although the bulletin does not mention the Regulation E prohibition on conditioning on conditioning a loan on the borrower’s repayment through recurring preauthorized EFTs, several CFPB enforcement actions have involved alleged violations of that prohibition as well as the requirement for obtaining authorization for preauthorized EFTs.  In addition, various compliance issues relating to preauthorized EFTs have been noted by CFPB examiners.

To assist consumers “who may be getting the runaround” when seeking to stop preauthorized EFTs, the CFPB published four sample letters for consumers to use that address the following scenarios:

  • Revoking authorization given to a company or merchant for preauthorized EFTs
  • Providing notice to a bank or credit union that the consumer has revoked a company’s or merchant’s authorization for preauthorized EFTs
  • Issuing a “stop payment order” to a bank or credit union to stop payment of one or more preauthorized EFTs
  • Notifying a bank or credit union of an unauthorized debit from a consumer’s account

The CFPB also published a series of “consumer tips” about using preauthorized EFTs.  Such tips include that a consumer should verify that the company to which he or she is providing authorization is legitimate and credible, be “wary” of a company that “pressures repayment” by automatic payments, and monitor accounts for unauthorized payments or transfers.

On October 7, 2015, Ballard Spahr attorneys conducted a webinar “The Next EFTA Class Action Wave Has Started,” that focused on the wave of new class actions being filed in which companies are alleged to have failed to comply with the EFTA and Regulation E requirements for preauthorized EFTs.


CFPB issues eighth Semi-Annual Report

Posted in CFPB General

The CFPB has issued its eighth Semi-Annual Report to the President and Congress covering the period from April 1, 2015 through September 30, 2015.

The 190-page report recycles information from previously-issued CFPB reports and reviews ongoing and past developments, which we have covered in previous blog posts.

By way of aggregate statistics, the report indicates that in the six-month period it covers, CFPB supervisory actions resulted in financial institutions providing more than $95 million in redress to over 177,000 consumers.  It also indicates that during that period, the CFPB obtained orders in enforcement actions providing for approximately $5.8 billion in total relief for consumers and over $153 million in civil money penalties.

The $5.8 billion in consumer relief obtained by the CFPB appears to represent an all-time high.  By way of comparison, in its last Semi-Annual Report covering the period October 1, 2014 through March 31, 2015, the CFPB reported that during that period, it obtained orders in enforcement actions providing more than $19 million in consumer relief.

We expect the issuance of the new report to be followed by the scheduling of hearings on the report by the House Financial Services and Senate Banking Committees at which Director Cordray will appear as a witness.



CFPB raising LGBT issues with supervised entities

Posted in Fair Lending

We recently blogged about remarks made by Patrice Ficklin, Director of the CFPB’s Office of Fair Lending, at the American Bar Association’s Consumer Financial Services Institute.  In her remarks, she stated that the CFPB is focusing on LGBT consumers and the challenges they face.  She suggested that the ECOA’s prohibition against discrimination on the basis of “sex” includes discrimination on the basis of gender identity and sexual orientation.

Since Ms. Ficklin made those remarks, it has come to our attention that the CFPB has been asking entities it supervises about how they incorporate sexual orientation and gender identity into their policies, procedures, and fair lending analyses.  We have been heavily involved in counseling clients concerning these issues.  (Last month, we conducted a webinar: “Implications for CFPB-Regulated Banks and Non-Banks of the U.S. Supreme Court’s Opinion in Obergefell v. Hodges.”)

CFPB issues snapshot of servicemember complaints

Posted in Military Issues, Payday Lending

The CFPB has issued a new “snapshot of servicemember complaints.”  The report states that as of November 2015, the CFPB had received about 2,500 complaints from servicemembers, veterans and their dependents about high-cost consumer credit.  These complaints were submitted under two complaint categories: the “payday loan” category or under the “debt collection” category with “payday loan” indicated as the sub-product.  The payday loan category represented 3 percent of total servicemember complaints while the payday loan sub-product category represented 19 percent of servicemember complaints submitted under the debt collection category.

The CFPB comments that “given the overall size of the marketplace for high-cost consumer credit products, the number of debt collection complaints servicemembers, veterans and their dependents submitted stemming from these loans is high.  This suggests, in part, that military consumers struggle more with repayment of high-cost credit products, as compared to other types of credit.”  The CFPB also comments that “the good news is that recent updates [to the Department of Defense (DoD) regulation implementing the Military Loan Act (MLA)] should generally help servicemembers and their families avoid this type of high-cost debt going forward.”

The report includes a summary of the amendments to the MLA regulation published by the DoD in July 2015 which dramatically expanded the MLA’s scope.  MLA coverage was previously limited to only three types of consumer credit extended to active-duty service members and their dependents: closed-end payday loans with a term of 91 days or less in which the amount financed does not exceed $2,000, closed-end vehicle title loans with a term of 181 days or less, and closed-end tax refund anticipation loans.  The amendments extended the MLA’s 36 percent interest cap and other restrictions to a host of additional products, including credit cards, installment loans, private student loans and federal student loans not made under Title IV of the Higher Education Act, and all types of deposit advance, refund anticipation, vehicle title, and payday loans (residential mortgages and purchase-money personal property loans are excluded).  The amended regulation will apply only to consumer credit transactions or accounts that are consummated or established after October 3, 2016 for most products, and after October 3, 2017 for credit cards.

Alan Kaplinsky and Professor Sovern: the arbitration debate continues

Posted in Arbitration

In a new American Banker article, Alan Kaplinsky, Practice Leader of Ballard Spahr’s Consumer Financial Services Group, responded to an article by Professor Jeff Sovern that called into question Alan’s prediction that the CFPB’s proposed plan to ban class action waivers in consumer arbitration agreements will cause companies to abandon arbitration completely.

In the article, Alan restated his opinion that the CFPB’s proposal would dramatically change firms’ cost-benefit analysis enough to convince them to stop using arbitration for individual claims as well.  Professor Sovern suggested in his article that a total abandonment of arbitration by financial services companies would be a non-event because the evidence points to few individual arbitrations occurring in the first place. Alan pointed out that, in fact, there have been thousands of individual arbitrations in recent years.  He noted that the CFPB’s own study on arbitration clauses examined 1,847 of them alone from just one administrator, the American Arbitration Association.  Alan also observed that but for the steady stream of negative publicity about arbitration generated by plaintiffs’ class action lawyers and consumer advocates, there likely would have been even more individual arbitrations.

Alan noted that he has urged the CFPB to direct its consumer education and engagement division to educate consumers about the benefits that arbitration can provide, although it has declined to do so.  He also noted that under the rules of the two leading consumer arbitration administrators, the American Arbitration Association and JAMS (formerly known as Judicial Arbitration and Mediation Services), the cost to the consumer for small-dollar claims in arbitration is capped at $200 and $250, respectively.  The company is required to pay the remainder of the administrative and arbitrator fees, which typically amounts to several thousand dollars.

Alan commented that companies are willing to bear that extra expense to resolve individual consumer disputes if they are not also required, at the same time, to incur the extraordinary cost and burden of defending class actions.  He concluded the article by rejecting Professor Sovern’s suggestion that companies deserve to be criticized if they decide to abandon arbitration altogether if they are prohibited from using class action waivers.

House passes bill to curb QM requirements

Posted in CFPB General, Mortgages

On November 18, 2015, the U.S. House of Representatives passed a bill that would provide a safe harbor exception for depository institutions from certain provisions of the Truth in Lending Act and Regulation Z, and for mortgage originators from the steering prohibition of the loan originator compensation requirements under Regulation Z (LO Comp Rule). By a vote of 255 to 174 the House passed the “Portfolio Lending and Mortgage Access Act” (H.R. 1210). The text of the bill can be found here.  To take effect immediately, the bill would expressly exempt depository institutions from suit for violation of the Truth in Lending Act’s general ability to repay requirements and certain related requirements with respect to a loan that, since origination, the creditor has held on their balance sheet, while the loan also complies with the prepayment penalty restrictions imposed by Dodd-Frank on qualified mortgage loans. Such a loan could qualify for the safe harbor even if it provided for a balloon payment.

The bill would also provide a safe harbor for loan originators from the LO Comp Rule’s prohibition on steering a consumer from a mortgage loan for which the consumer is qualified and that is a qualified mortgage loan to a non-qualified mortgage loan, when the originator and the consumer receive a statement of intent from the creditor indicating that the creditor intends to hold the loan on their balance sheet for the life of the loan and that creditor is a depository institution.

Proponents of the bill state that under current requirements, customers are forced to fit into certain prefabricated financial products, thus limiting access to credit for some demographic groups. Opponents of the bill claim the safe harbor would create a sense of déjà vu for the types of financial products that led to the 2009 financial crisis. The bill now heads to the Senate where its prospects remain uncertain. Per the White House, the President has threatened that if presented with the bill he would issue a veto.

CFPB Fall 2015 rulemaking agenda includes delays for payday loan and other rules

Posted in CFPB Rulemaking

The CFPB released its Fall 2015 rulemaking agenda last Friday.  The agenda sets the following timetables for key rulemaking initiatives:

Arbitration.  The Fall 2015 agenda gives a December 2015 date for further prerule activities.  We assume that date reflects the December 19 due date for the report to be issued by the CFPB’s arbitration Small Business Regulatory Enforcement Fairness Act (SBREFA) panel.  The panel was convened on October 20, 2015 to review the proposals the CFPB is considering for regulating the use of arbitration agreements in certain consumer financial services contracts.  The panel’s report will not become public until the CFPB issues its proposed rule, which we expect will not occur before spring 2016.

Payday and deposit advance loans.  In April 2015, the CFPB convened a SBREFA panel to review the proposals it is considering for payday (and other small-dollar, high-rate) loans.  The Fall 2015 agenda estimates the issuance of a Notice of Proposed Rulemaking in February 2016 “after additional outreach and analysis.”  The Spring 2015 agenda had estimated that a proposed rule would be issued “later in 2015.”

Prepaid financial products.  In November 2014, the CFPB issued a proposed rule for prepaid financial products, including general-purpose reloadable prepaid cards and certain digital and mobile wallets.  The Fall 2015 agenda estimates the issuance of a final rule in March 2016.  The Spring 2015 agenda had estimated that a final rule would be issued in January 2016.

Overdrafts.  The CFPB issued a June 2013 white paper and a July 2014 report on checking account overdraft services.  In the Fall 2015 agenda, the CFPB states that it “is continuing to engage in additional research and has begun consumer testing initiatives related to the opt-in process.”  Although the Spring 2015 agenda had estimated an October 2015 date for further prerule activities, the new agenda moves that date to January 2016.

Debt collection.  In November 2013, the CFPB issued an Advance Notice of Proposed Rulemaking concerning debt collection.  In the Fall 2015 agenda, the CFPB states that “it is in the process of analyzing responses to a survey seeking information from consumers about their experiences with debt collectors and is engaged in qualitative testing to determine what information would be useful for consumers to have about debt collection and how that information should be provided to them.”  The agenda estimates that further prerule activities, which are expected to involve the convening of a SBREFA panel, will occur in February 2016.  The CFPB had estimated in its Spring 2015 agenda that further prerule activities would occur in December 2015.

Larger participants.  In its Spring 2015 agenda, the CFPB confirmed that is considering a “larger participant” rule for “consumer installment loans and vehicle title loans.”  In the new agenda, the CFPB states that it is “also considering whether rules to require registration of these or other non-depository lenders would facilitate supervision, as has been suggested to the Bureau by both consumer advocates and industry groups.”  (Pursuant to Dodd-Frank Section 1022, the CFPB is authorized to “prescribe rules regarding registration requirements applicable to a covered person, other than an insured depository institution, insured credit union, or related person.”)  While the prior agenda estimated a January 2016 date for prerule activities, the new agenda estimates a September 2016 date.

Small business lending data.  Dodd-Frank Section 1071 amended the ECOA to require financial institutions to collect and maintain certain data in connection with credit applications made by women- or minority-owned businesses and small businesses.  Such data include the race, sex, and ethnicity of the principal owners of the business.  In the Fall 2015 agenda, the CFPB estimates a September 2016 date for prerule activities.  (We recently blogged about the CFPB’s efforts to hire an Assistant Director to lead the interdisciplinary team that the CFPB is in the process of standing up to implement Section 1071.)

Mortgage rules.  In November 2014, the CFPB issued a proposal to amend various provisions of its mortgage servicing rules.  The new agenda estimates issuance of a final rule in June 2016.  The previous agenda had estimated a March 2016 date.  The new agenda also estimates an April 2016 date for issuance of a proposed interagency rule to implement Dodd-Frank amendments to FIRREA concerning appraisals.

Student Loan Servicing.  For the first time, the CFPB has included student loan servicing in its rulemaking agenda and designated it a “long-term action.”  In the new agenda, the CFPB states that it “will evaluate possible policy responses, including potential rulemaking,” to its September 2015 report on student loan servicing and continued monitoring of the student loan servicing market.  It further states that “possible topics for consideration might include specific acts or practices and consumer disclosures.”  No estimated date is given for further action.

Consumer reporting.  Another topic added for the first time to the CFPB’s rulemaking agenda and designated a “long-term action” is consumer reporting.  In the agenda, the CFPB states that it “continues to monitor the credit reporting market through its supervisory, enforcement, and research efforts” and “will evaluate possible policy responses to issues identified, including potential additional rules or amendments to existing rules governing consumer reporting.”  It further states that “potential topics for consideration might include the accuracy of credit reports, including the processes for resolving consumer disputes, or other issues.”  No estimated date is given for further action.