As we wrote last week, the CFPB recently published a Fall 2015 Supervisory Highlights which included a summary of changes that have been made to the CFPB’s supervisory appeals process. The original supervisory appeal process was published three years ago in CFPB Bulletin 2012-07. The revised supervisory appeals process incorporates a number of changes. (Note that as of November 13, 2015, the URL / hyperlink within the Bureau’s Supervisory Highlights for this revised appeals process was incorrect / broken.) The Bureau’s summary of most of these changes is excerpted below.
We believe the most important change is that the revised appeals process does not permit a supervised entity to appeal “adverse [supervisory] findings . . . related to a recommended or pending investigation or public enforcement action until the enforcement investigation or action has been resolved” (emphasis added). The prior appeal process merely stated that the supervisory appeal process could not be used to appeal “enforcement actions” generally.
This development highlights the importance of preparing compelling responses to CFPB PARR letters, since it is now clear that a decision to resolve examination findings through a public enforcement action cannot be appealed. (The PARR letter – a notice of Potential Action and Request for Response – was discussed in the Summer 2015 edition of Supervisory Highlights.) The PARR letter notifies a supervised entity after an examination when “the Bureau is considering taking supervisory action, such as a non-public memorandum of understanding, or a public enforcement action, based on the potential violations identified” during the course of the examination and described in the letter.
The CFPB expects that examiners will share preliminary negative findings with the supervised entity throughout the examination, and that the company will respond with any relevant information to correct or inform such preliminary findings. The PARR letter supplements this process by affording supervised entities an opportunity to include in their response “any reasons of fact, law or policy as to why the Bureau should not take action against the entity” and to provide supporting documentation. In short, if examiners were not persuaded by the responses and arguments provided during the examination, the PARR letter response gives the supervised entity a second bite at the apple to make any relevant arguments as to why a heightened supervisory action or a public enforcement action should not be undertaken.
After reviewing a PARR letter response, if the Bureau’s senior leadership on the Action Review Committee decides that any issues identified during an examination should be resolved through a public enforcement action, the revised appeals process dictates that this decision cannot be appealed. Thus the PARR letter response is a company’s last chance to keep exam findings within the realm of a confidential, non-public, supervisory resolution. Companies should therefore carefully consider and prepare PARR letter responses with close guidance from counsel experienced in handling CFPB supervisory and enforcement matters to ensure the response is as thorough and strategically-sound as possible.
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The Supervisory Highlights summary of other changes to the appeals process notes that the revised policy:
- Expressly allows members of the Supervision, Enforcement, and Fair Lending (SEFL) Associate Director’s staff to participate on the appeal committee, replacing the existing requirement that an Assistant Director serve on the committee;
- Permits an odd number of appeal committee members in order to facilitate resolution of appeals;
- Limits oral presentations to issues raised in the written appeal;
- Provides additional information regarding how appeals will be decided, including the standard the committee will use to evaluate the appeal; and
- Changes the expected time to issue a written decision on appeals from 45 to 60 days.
In conjunction with the retirement planning event that the CFPB is holding in Washington, D.C. today with the Social Security Administration, the CFPB has issued a report, “Issue Brief: Social Security claiming age and retirement security,” and unveiled a new online “Planning for Retirement” tool.
The report discusses the CFPB’s research regarding the important role Social Security plays as a source of income for current and future retirees and the potential for many Americans to face financial insecurity in their retirement years. The CFPB found that many retirees take a substantial reduction in benefits by starting to collect before their full retirement age. It also found that a lack of and inaccurate information hinders the ability of many people to make an informed decision about when to claim benefits, citing to studies indicating that people claiming Social Security benefits early have less information about benefits and claiming options as compared to those who claim at their full retirement age or later. The report makes five recommendations to help consumers make an informed decision about when to claim benefits.
The new online “Planning for Retirement” tool is intended to assist consumers in deciding when to claim social security benefits. It allows consumers to estimate how much they can expect to receive in benefits at different ages.
We think consumers will find the information the CFPB has provided through the report and tool to be very helpful as they plan for retirement.
The Federal Trade Commission and the Department of Veterans Affairs have signed a “Memorandum of Agreement” (MOA) “to provide mutual assistance in the oversight and enforcement of laws pertaining to advertising, sales, and enrollment practices of institutions of higher learning and other establishments that offer training for military education benefits recipients.”
Federal law (38 U.S.C. 3696) requires the VA to enter into an agreement with the FTC to help ensure that the VA does not approve the enrollment of an eligible veteran or person in a course offered by an institution that uses any type of unfair or deceptive advertising, marketing or enrollment practices in violation of Section 5 of the FTC Act. The MOA provides that the VA can request that the FTC investigate an institution approved for enrollment of veterans eligible for educational benefits.
When making a referral, the VA must provide a written explanation for its belief that the institution is using or has used unfair or deceptive practices and provide supporting documentation or information. The MOA details the factors to be considered by the FTC in deciding whether to accept a referral. If the FTC accepts a referral, FTC staff must prepare an analysis setting forth its conclusions as to whether the institution has engaged in unfair or deceptive practices. The MOA details how the analysis is to be used by the VA and how third party requests for nonpublic information the FTC or VA receive from each other are to be handled.
In July 2014, the CFPB announced that it had entered into a “Joint Higher Education Memorandum of Understanding” (MOU) with the VA, Department of Defense, and Department of Education as part of a joint effort by the agencies “to prevent abusive and deceptive recruiting practices by schools serving servicemembers, veterans, spouses and other family members.”
The MOU was described as carrying out the agencies’ “comprehensive strategy to strengthen enforcement and compliance mechanisms” developed in accordance with Executive Order 13607 signed by President Obama in April 2012. The Executive Order was intended to combat concerns about aggressive and deceptive targeting of service members, veterans, spouses and other family members by educational institutions to gain access to educational benefits. It also mandated the creation of uniform procedures for referring potential matters for civil or criminal enforcement to the DOJ or other agencies.
Among other things, the CFPB agreed in the MOU to send alerts to each agency regarding potential significant trends and patterns of noncompliance identified in ongoing oversight activities and provide complaint data to the FTC’s Consumer Sentinel database.
Regulated entities should be aware of two recent developments concerning the final diversity and inclusion standards issued this summer under Dodd-Frank Section 342 by the CFPB, OCC, Fed, FDIC, NCUA and SEC. Given that the final standards have been in effect since June 10, 2015, entities should begin taking steps to incorporate them into their daily business practices and plan for their self-assessments.
The first development was the CFPB’s release of its Diversity and Inclusion Strategic Plan for 2016-2020. The plan sets forth the CFPB’s diversity and inclusion vision statement and describes how the CFPB will promote diversity and inclusion in the workforce and with its suppliers, as well as assess and strengthen diversity and inclusion within its regulated entities. The CFPB expects such entities to take similar steps within their organizations.
The second development is a joint notice, request for comment, and notice of information collection published in the Federal Register on November 6, 2015 by the six agencies that issued the final diversity and inclusion standards. In conjunction with the issuance of the final standards, the agencies had published a 60-day notice requesting public comments on the information collection process and parameters, and how this requirement might affect the regulated entities. The Notice addresses the four comments received during the 60-day comment period, and invites additional comments on the collection of information. Comments are due by December 7, 2015.
For more information about these developments, see our legal alert.
On October 29, 2015, the CFPB filed a petition in D.C. federal court to enforce the CID it issued on August 25, 2015 to the Accrediting Council for Independent Colleges and Schools (ACICS).
ACICS’ petition to modify or set aside the CID was denied by the CFPB on October 8. (According to the CFPB’s petition to enforce the CID, ACICS filed a motion to reconsider the denial with the CFPB and was notified by the CFPB that such a motion is not permitted by the CFPA or CFPB regulations.)
In its memorandum in support of its petition to enforce the CID, the CFPB claims that the CID is within the CFPB’s authority to prevent unfair, deceptive or abusive acts or practices. According to the CFPB, the CID relates to an a CFPB investigation “to determine whether any entity or person has engaged or is engaging in unlawful acts or practices in connection with accrediting for-profit colleges, in violation of [CFPA provisions dealing with UDAAPs].”
The CFPB further states that it “has investigated for-profit colleges for deceptive practices tied to their private student lending activities.” It also cites its authority to issue a CID to “any person” that it has “reason to be believe” may have information relevant to a violation. The CFPB further claims that the CID seeks relevant information and is not too indefinite, overly broad, or unduly burdensome.
ACICS must respond to the petition by November 18, 2015 and the CFPB has until November 25, 2015 to file a reply.
The CFPB’s Division of Research, Markets & Regulations recently posted a job opening for an individual to serve as the “Assistant Director for Small Business Lending Markets.” According to the job posting, the Assistant Director “will lead an inter-disciplinary team in the Bureau’s research and development of a landmark collection of data about loans to small, women-owned, and minority-owned businesses.”
The new position relates to the CFPB’s rulemaking to implement the small business lending data requirements of Dodd-Frank Section 1071. 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 includes the race, sex, and ethnicity of the principal owners of the business. The job posting indicates that the Assistant Director’s job responsibilities will include “lead[ing]the market research that will establish the factual foundation for designing the collection,” “lead[ing] development of options for the scope and approach of the collection,” and “serv[ing] as a trusted advisor on a rulemaking to implement the collection.”
The CFPB has been facing increasing pressure to issue rules to implement Section 1071, including from lawmakers and consumer groups. However, even if the CFPB has succeeded in filling the Assistant Director position, rulemaking would not appear to be imminent given how recently the new Assistant Director would have been hired.
While this position appears to be focused on Section 1071 issues, it also may be a further indication of the CFPB’s interest in small business lending. The new Assistant Director will be tasked with “monitor[ing], analyz[ing] and interpret[ing] developments in small business loan products.” Although the CFPB’s jurisdiction obviously is focused on consumer financial services, it also extends to enforcement of some statutes that apply to small businesses, such as the ECOA and FCRA. Presumably this new Assistant Director will have some influence over the CFPB’s activity in this area.
Last week, the FTC announced a new coordinated effort against unlawful debt collection practices, “Operation Collection Protection.” The FTC also announced that federal, state and local law enforcement agencies have brought 30 new actions against debt collectors nationwide.
In targeting debt collectors, the FTC is joining forces with the CFPB as well as the Department of Justice, 47 state attorneys general, 17 state regulatory agencies, one Canadian provincial regulator, and a number of local authorities.
Debt collection continues to be a major CFPB focus, extending to the regulatory, supervisory and enforcement arenas. In addition to challenging the practices of debt collectors, the CFPB has targeted companies for engaging in alleged UDAAP violations in connection with collecting their own debts.
In November 2013, the CFPB issued an Advance Notice of Proposed Rulemaking concerning debt collection. In its Spring 2015 rulemaking agenda, the CFPB indicated that further prerule activities, which are expected to involve the convening of a SBREFA panel, would occur in December 2015.
For more on the FTC’s announcement, see our legal alert.
Daniel Fisher of Forbes has written another article criticizing the NY Times for its stance on arbitration. Last week, Mr. Fisher criticized the first article in the Times’ three-part series on arbitration for disregarding the many negative aspects of class action litigation. (Alan Kaplinsky, Practice Leader of Ballard Spahr’s Consumer Financial Services Group, was quoted extensively in the first article and blogged about the article’s failure to acknowledge many critical facts concerning consumer arbitration and class actions that are inconsistent with the article’s negative conclusions. The U.S. Chamber of Commerce has also been highly critical of the Times’ articles.)
In his new article, Mr. Fisher comments that the Times “drew a lot of criticism, from me and others, for its three-part series on arbitration that largely ignored the wealthy special-interest group that opposes arbitration the most: Class-action lawyers.” He also observes that in its editorial this past weekend, the Times “repeat[ed] the error, equating arbitration with a ‘shift away from the civil justice system,’ as if people with $2 disputes over their cell phones could recover any meaningful relief through a conventional lawsuit.” He comments that “to reject [arbitration] wholesale would be to chip away at the right of individuals to order their transactions the way they want.”
Mr. Fisher criticizes the Times for “paint[ing] a simplistic, either-or portrait of arbitration, however, leaving readers with the impression consumers who agree to arbitration have given up their ‘right to sue’ when that is a practical illusion. No lawyer will take small consumer disputes unless they are bundled together into a class action, where there is ample evidence attorneys often settle on terms that are profitable for them but don’t bring much to their clients.” He also calls into question the CFPB’s statement that its proposal to ban class action waivers “would give consumers their day in court to hold companies accountable for wrongdoing.”
Mr. Fisher observes that the CFPB’s own final arbitration study released in March 2015 “casts doubt on that conclusion,” noting that in the study, the CFPB “concluded that in 60% of 562 class actions filed between 2010 and 2012, consumers got nothing, mostly because lawyers settled their cases without negotiating a payment for the class (but presumably getting a fee for themselves).” He also references Alan Kaplinsky’s analysis, which showed that “only 15% of the class actions studied by the CFPB resulted in settlements that provided monetary benefits to class members. Consumers who received settlement cash payments got $32.35 on average after waiting for up to two years, while class counsel class recovered $424,495,451 in attorneys’ fees.”
Last week, the U.S. Supreme Court heard oral argument in Spokeo, Inc. v. Robins, an important case presenting the question of whether a plaintiff who cannot show any actual harm from a violation of the Fair Credit Reporting Act (FCRA) nevertheless has standing under Article III of the U.S. Constitution to sue for statutory damages in federal court. The CFPB, together with the U.S. Department of Justice, filed a brief in the case as amicus curiae in which it supported the plaintiff.
A Supreme Court decision in favor of the defendant in Spokeo could have far-reaching consequences because numerous statutes other than the FCRA allow plaintiffs to recover statutory damages where actual damages for violations are often difficult to prove or nonexistent. Also, a ruling in favor of the defendant would affect state law statutory damages claims that are filed in federal court and could discourage the filing of class actions. In countless class actions filed in federal court, the plaintiffs’ class action bar has obtained massive recoveries based on alleged technical violations that did not cause any actual injury to the named plaintiffs and class members.
For a report on the Justices’ comments at the oral argument, see our legal alert.
The CFPB recently announced that it has entered into a consent order with two affiliated companies that generate and provide employment background screening reports. The consent order settles charges that the companies, which the CFPB’s press release describes as “two of the largest background screening report providers in the United States,” violated FCRA requirements for consumer reporting agencies. It requires the companies to pay a $2.5 million civil penalty and $10.5 million in redress to consumers.
The settlement also serves as a reminder to employers that the use of background checks when making personnel decisions can create compliance obligations under the FCRA.
For more on the consent order, see our legal alert.