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CFPB issues 2016 Plain Writing Act Compliance Report

Posted in CFPB General

The CFPB has issued its 2016 Plain Writing Act Compliance Report.  Under the PWA, federal “executive agencies,” including the CFPB, are required to use plain language in documents that: are necessary for obtaining information about a federal government benefit or service or filing taxes; provide information about a federal government benefit or service; or explain to the public how to comply with a requirement that the federal government administers or enforces.

The report discusses the CFPB’s efforts to comply with the PWA and promote the use of plain writing in its communications.  As it did in previous PWA reports, the CFPB states in the new report that it has adopted plain language “as a core principle” for all of the CFPB’s printed and online consumer-facing content.  Examples given by the CFPB are its “Ask CFPB” online Q&A tool and its consumer-facing advisories and other information on various topics such as opening and managing a checking account, preventing elder financial abuse, sending money abroad, paying for college, and retirement planning.

In the new report, as in previous reports, the CFPB states that while the PWA does not apply to regulations, it generally provides summaries written in plain language at the beginning of proposed or final consumer protection regulations.  It also notes that its small entity compliance guides and other documents intended for use by industry in implementing regulations are “written in plain language appropriate for the intended audience.”

 

Ballard attorneys author article on CFPB’s “regulation by enforcement” approach

Posted in CFPB Enforcement

Earlier this year, in his appearance before the Senate Banking Committee and in remarks to the Consumer Bankers Association, Director Cordray attempted to defend the CFPB’s “regulation by enforcement” approach that relies on enforcement in place of rulemaking.  That approach has been widely criticized by industry and we have shared our own criticism in prior blog posts.

The CFPB’s “regulation by enforcement” approach was the subject of a recent article written for the Washington Legal Foundation by two of my colleagues, Stefanie Jackman and Dan Delnero.   The article, “CFPB’s Systemic Regulation of Four Industries: Enforcing Broader Changes Via Consent Order,” explores consent orders in the credit card, debt sales, auto finance, and data-security industries used by the CFPB to bring about systemic changes.

 

 

CFPB outlines future principles for loss mitigation

Posted in Mortgages

Looking forward to a post-financial crisis and post-HAMP mortgage marketplace, the CFPB has issued a document outlining principles intended to “provide a framework for discussion about the future of loss mitigation.”  The four principles discussed are Accessibility, Affordability, Sustainability, and Transparency.  This release by the CFPB echoes the principles discussed in the recent white paper issued by the Treasury, HUD, and the FHFA titled: “Guiding Principles for the Future of Loss Mitigation: How the Lessons Learned from the Financial Crisis can Influence the Path Forward.”

According to the document these principles build on, but are distinct from, the CFPB’s mortgage servicing rules, supervisory authority and enforcement authority.  The CFPB further notes that the document does not establish binding legal requirements, and is instead meant to “complement ongoing discussions among industry, consumer groups and policy makers on the development of loss mitigation programs.”  Notably, the document cautions that while the principles have applicability to most loss mitigation programs, certain recommendations may not align with government insured lending programs, such as those offered by FHA, VA, or Rural Housing Service.

Many of the principles are reflective of positions the CFPB has taken in the past, through guidance bulletins, supervisory highlights, or more specifically in the mortgage servicing rules.  Notably, however, certain of these principles are aimed at the terms of loss mitigation options made available to borrowers.  We note that the loss mitigation-related requirements under Regulation X give deference to the investor in terms of the loss mitigation options available.  Now, with HAMP’s expiration upcoming, it appears that the CFPB and other regulators will further seek to influence the types of loss mitigation options offered by private investors in terms of “affordability” and “sustainability.”

The principles provided in the document are set forth below.

Accessibility

  • Consumers can easily obtain and use information about loss mitigation options and application procedures from their servicers.
  • Consumers can submit a request for loss mitigation using a common and readily available form of application in order to expedite consideration and to better enable housing counselors and others to support consumers in the loss mitigation process.
  • Consumers are asked to submit only documentation necessary to enable consideration for available options, and servicers make appropriate efforts to obtain and verify information within the servicer’s control.
  • Consumers have ready access to individuals, including housing counselors and others, who can help them seek loss mitigation and understand the effect of the terms they are being offered.
  • Consumers’ requests for loss mitigation assistance are responded to timely and effectively by servicers.
  • Consumers have access to clear and effective escalation options.
  • Consumers are considered for appropriate loss mitigation options from imminent default through late stages of delinquency.
  • Consumers who are similarly situated receive fair and equal consideration for loss mitigation options within similar timeframes.
  • Servicers should generally be aware of and consider how they will meet the needs of those with limited English proficiency.

Affordability

  • When repayment plans and modifications are offered, they are generally designed to produce a payment and loan structure that is affordable for consumers.
  • Modifications for consumers with hardships provide a meaningful payment reduction.
  • Loss mitigation options are flexible enough to assist special populations (e.g., pre-crisis subprime loans) or unique circumstances (e.g., disasters).
  • Consumers are not required to pay upfront costs or fees to obtain a loss mitigation option from their servicer.

Sustainability

  • The loss mitigation option offered is designed to resolve the delinquency.
  • Deficiency balances are not imposed on consumers experiencing hardship as a condition of a short sale or deed-in-lieu on their principal residence.
  • When modification options are used, they are designed to provide affordability throughout the remaining or extended loan term.
  • Where trial modifications are used, successful trials are converted to permanent modifications timely and efficiently.
  • Servicers and investors should consider modification options that reduce principal when doing so may benefit the investor, unless prohibited by statute.
  • Loss mitigation options are defined and made available for consumers who decline a loan modification offer.
  • Loss mitigation options are available for borrowers who re-default.
  • Loss mitigation outcomes are monitored by servicers and investors to determine their impact on re-default rates, and program terms are adjusted to achieve effective outcomes and respond to economic conditions

Transparency

  • All terms (e.g., deferred interest, future rate or term changes, and repayment of forbearance amounts) are clearly described in a manner consumers can understand. Plain language should be used to the extent reasonably feasible.
  • Key loss mitigation vocabulary, e.g., hardship, imminent default, streamlined modification, etc., and data standards are defined and used consistently by mortgage servicers and investors.
  • Consumers get clear, concise information and rationales about loss mitigation decisions.
  • Consumers are not required to sign broad waivers of rights as a condition of receiving loss mitigation assistance.
  • Key loss mitigation data is reported publicly on a regular basis to ensure that loss mitigation programs are effectively meeting consumer and market needs.

 

 

CFPB looks to expand consumer complaint feedback

Posted in CFPB General

In a notice published in today’s Federal Register, the CFPB is seeking comments on a proposed addition to the current complaint intake form.  The new field would include a survey that consumers may choose to respond to, providing their feedback on the company’s response to their complaint.  The consumer would be able to opt-in and provide this feedback publicly, much the way they can with their complaint narrative.  The CFPB anticipates that, in addition to providing additional public information for future consumers, the feedback field will enable consumers to “highlight positive company behavior.”  Comments must be received on or before September 30, 2016.

The proposed feedback field would replace the existing “dispute” function that currently allows consumers to indicate their dissatisfaction with a company’s response.  Instead, consumers will have the  option to score the company’s response from 1 to 5 and to provide a narrative description of the rationale for the number they selected.

The ability to emphasize positive outcomes and exceptional customer service have been a major focus of industry commentary throughout the development of the complaint portal, and especially in response to last year’s proposed publication of consumer narratives.  (The CFPB adopted the proposal in March 2015  and began publishing narratives in June 2015.) The CFPB’s request for information appears to be an effort to be responsive to  industry commentary by allowing for positive, in addition to negative, feedback, and thus ostensibly rewarding companies for being responsive through the Portal.  With this latest move, the CFPB is increasingly shaping the Portal to resemble a consumer finance “Yelp”-style rating platform.

CFPB Releases Debt Collection Industry Study

Posted in Debt Collection

On July 28, the CFPB held a field hearing about debt collection in Sacramento, California coinciding with the release of an outline of the proposals it is considering in connection with its debt collection rulemaking. Together with its release of the outline, the CFPB issued a report, “Study of Third-Party Debt Collection Operations.” In the outline, the CFPB stated that it conducted the study “to obtain a better sense of current collector practices and procedures, so that the Bureau will be able to make informed decisions about the potential costs associated with various rulemaking policy options.”

The study, which was conducted from July to September 2015, gathered data through responses to a written survey from and telephone interviews with firms that would be considered “debt collectors” under the FDPCA (collection agencies, debt buyers, and collection law firms) and telephone interviews with debt collection industry vendors.

The study concluded that, industry wide, “most debt collection firms are small” and that 75% of collection firms employ fewer than 20 people each. However, the most heavily represented group of survey respondents—over 30% of the total respondents—were firms with between 100 and 500 employees. The study admits that “larger firms are overrepresented among survey respondents” with debt collection firms with more than 500 employees representing less than 3 percent of all debt collection firms based on 2012 U.S. Census Data but comprising roughly 19 percent of survey respondents.

Nevertheless, the study revealed that industry practices are relatively uniform in many areas. The great majority of firms—75%—reported having clients that audit the collector’s compliance with federal and state law. Also, the majority of respondents indicated that they always or often receive from clients most of the data fields surveyed by the CFPB, including the consumer’s full name, last known address, phone number, social security number, date of birth, chain of title, debt balance at charge-off, breakdown of post-charge-off fees and interest, account agreement documentation, and billing statements. The survey also asked respondents to categorize consumer disputes as one of four types. Responses indicated that the least prevalent dispute involved a collector contacting the wrong consumer.

The survey responses regarding collection management systems—software platforms handling account-level information—suggest that the industry is relatively standardized with most collection firms using software provided by a few vendors. Furthermore, nearly all respondents reported sending validation notices within 24 to 48 hours of when a debt is placed with them for collection. Only two respondents reported sending validation notices after making contact with the consumer.

The study also surveyed collector communications practices, particularly call frequency. The study concluded that larger respondents generally call no more than two to three times per week. Smaller respondents were unlikely to call more than one to two times per week and generally do not speak to a consumer more than one time per week. Importantly, the CFPB admitted that the survey was qualitative and did “not produce estimates that are necessarily representative of the debt collection industry as a whole.” Of the sample selected, the CFPB ultimately received only 58 responses. Additionally, the CFPB was forthright that the study was skewed towards those debt collection firms and vendors most comfortable speaking to the Bureau.

CFPB Holds Hearing to Present Proposals for Debt Collection Regulation

Posted in Debt Collection

July 28th, the CFPB held a field hearing in Sacramento, California on debt collection that coincided with its release of an outline of the proposals it is considering in connection with its debt collection rulemaking. In his opening remarks, Director Cordray discussed the key elements of the proposals under consideration which would only cover businesses that would be “debt collectors” under the Fair Debt Collection Practices Act, such as third-party debt collectors, debt buyers, and collection law firms. His remarks mirrored those set forth in his prepared remarks issued in advance of the field hearing.

Following Director Cordray’s remarks, John McNamara, CFPB Debt Collections Program Manager, moderated a panel discussion during which participants from consumer advocacy groups and debt collection firms had the opportunity to provide remarks and answer questions. The panelists included:

  • Keo Chea, Assistant Deputy Director, CFPB
  • Anthony Alexis, Assistant Director of Enforcement, CFPB
  • Brent Yarborough, Attorney, Zarzaur & Schwartz, P.C.
  • James Mastriani, Chief Financial Officer and Chief Legal Officer ,Velocity Portfolio Group, Inc.
  • Linda Guinn, CEO, CB Merchant Services
  • Scott Maurer, Associate Clinical Professor, Santa Clara University School of Law
  • Graciela Aponte-Diaz, Director of California Policy, Center for Responsible Lending
  • Susan Shin, Legal Director, New Economy Project

The panelists focused on the CFPB’s efforts to limit harassing calls, institute time place and manner restrictions, and spent a majority of time discussing streamlining the documentation requirements for third-party collectors to limit confusion and inaccuracies in the debt collection process. The panelists also discussed the following issues:

  • Best practices for communication with consumers and compiling proper documentation.
  • Challenges faced by debt collectors in collecting debts and communicating with consumers via new technologies that are not contemplated by the FDCPA.
  • The need for mechanisms to be set in place to allow for consumers to contest their debt and to disclose to consumers their rights regarding communication.

CFPB previews debt collection rule in SBREFA outline

Posted in Debt Collection

The CFPB has moved a step closer to issuing a debt collection rule by releasing an outline of the proposals it is considering in preparation for convening a small business review panel.  The Small Business Regulatory Enforcement Fairness Act and the Dodd-Frank Act require the CFPB to convene such a panel when developing rules that may have a significant economic impact on a substantial number of small businesses.  While changes may result from input provided by the small entity representatives selected to meet with the panel, the outline is a strong indicator of the approach the CFPB is likely to take in a proposed debt collection rule.

Perhaps most surprising is the CFPB’s decision to limit the proposals’ coverage to “debt collectors” that are subject to the Fair Debt Collection Practices Act.  The proposals include debt substantiation requirements, requirements to provide certain information in connection with debt transfers, changes to the FDCPA validation notice, a new “Statement of Rights,” new disclosures for time-barred debts, and limits on collector communications.

Our legal alert containing a detailed summary of the outline is available here.

On August 31, 2016, Ballard Spahr attorneys will hold a webinar “The CFPB’s Debt Collection Rulemaking – A Review of  the Bureau’s SBREFA Outline and Where We Think It’s Headed” from 12 p.m. to 1 p.m. ET.  The webinar registration form is available here.

 

 

CFPB Releases Amendments to TRID Rule

Posted in CFPB General, CFPB Rulemaking, Mortgages

The CFPB has issued a proposed rule with request for public comment containing both substantive amendments and technical corrections (collectively, Proposed Amendments) to the final TILA-RESPA Integrated Disclosure (TRID) rule that became effective on October 3, 2015.  In a press release the CFPB advised that the Proposed Amendments are “intended to formalize guidance in the rule, and provide greater clarity and certainty.”  Comments are due on or before October 18, 2016.  The CFPB is proposing that the final rule based on the proposal would be effective 120 days after publication in the Federal Register, but is expressly requesting comment on the timeframe to implement the Proposed Amendments.

 
Four of the Proposed Amendments that are highlighted by the CFPB in the press release would (1) create a tolerance for the total of payment calculation; (2) exclude recording fees and transfer taxes from the one percent fee limit that applies to the TRID rule exemption for down payment assistance and similar subordinate lien loans often made by housing finance agencies, non-profits, and similar entities; (3) amend the scope of the TRID rule to cover units in a cooperative, whether or not they are considered real property; (4) clarify how a creditor may provide separate Closing Disclosures to the consumer and the seller through the removal of information that raises privacy concerns.

 
In addition to the Proposed Amendments highlighted by the CFPB, the proposal would make numerous other changes, including a change that addresses the so-called “black hole” by providing creditors with greater flexibility to use the Closing Disclosure to reset tolerances.  Currently, only the Loan Estimate may be used to reset tolerances, subject to an exception that permits a creditor to use a Closing Disclosure to reset tolerances in a limited situation.  Essentially, the exception applies when the creditor would not have sufficient time after learning of a change to be able to issue a new Loan Estimate and also satisfy the pre-consummation waiting period requirements under the TRID rule.  The exception has proven to be too narrow in many cases, resulting in creditors having to absorb increases in fees or require that the consumer reapply for a loan.  To address these unintended consequences, the CFPB proposes to expand the exception to include both (1) the current situation that is based on the timeframe between when a creditor learns of a change requiring revised disclosures and the consummation of the loan, and (2) any situation in which a Closing Disclosure has already been issued.

 
Other topics addressed by the Proposed Amendments include, among others, affiliate charges, the calculating cash to close table, construction loans, decimal places and rounding, escrow account disclosures, escrow cancellation notices, the treatment of gift funds, the written list of service providers, the distinction between model forms and sample forms, principal reductions, the summaries of transactions table, the total interest percentage calculation, and informational updates to the Loan Estimate.

 
We are continuing to analyze the Proposed Amendments and will provide a more detailed summary of the proposal in the next edition of the Mortgage Banking Update.

CFPB July 2016 complaint report highlights credit card complaints, complaints from Washington consumers

Posted in Credit Cards

The CFPB has issued its July 2016 complaint report which highlights complaints about credit cards and complaints from consumers in Washington and the Seattle metro area.  The CFPB began taking credit card complaints on July 21, 2011, the day on which the CFPB officially opened its doors for business.  In its first and second biennial reports on the credit card market, the CFPB identified deferred interest products and rewards programs as “areas of concern” for consumers.  We previously commented that these “areas of concern” would likely be the subject of heightened CFPB supervisory scrutiny and enforcement activity.  As noted below, in the new complaint report, the CFPB describes deferred interest and rewards programs as issues about which consumers “continue” to complain.  We expect the CFPB’s continued receipt of complaints about such programs to further fuel its supervisory and enforcement activity directed at such programs.

General findings include the following:

  • As of July 1, 2016, the CFPB handled approximately 930,700 complaints nationally, including approximately 24,500 complaints in June 2016.  Debt collection continued to be the most-complained-about financial product or service in June 2016, representing about 29 percent of complaints submitted.  Debt collection complaints, together with complaints about credit reporting and mortgages, collectively represented about 67 percent of the complaints submitted in June 2016.
  • Complaints about student loans showed the greatest percentage increase based on a three-month average, increasing about 62 percent from the same time last year (April to June 2015 compared with April to June 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 15 percent from the same time last year (April to June 2015 compared with April to June 2016).  Complaints during those periods decreased from 453 complaints in 2015 to 383 complaints in 2016.  In the March, April, May, and June 2016 complaint reports, payday loan complaints also showed the greatest percentage decrease based on a three-month average.
  • North Dakota, Alaska, and Wyoming experienced the greatest complaint volume increases from the same time last year (April to June 2015 compared with April to June 2016) with increases of, respectively, 40. 31, and 30 percent.
  • Hawaii, Delaware, and Maine experienced the greatest complaint volume decreases from the same time last year (April to June 2015 compared with April to June 2016) with decreases of, respectively, 18, 18, and 14 percent.

Findings regarding credit card complaints include the following:

  • The CFPB has handled approximately 97,100 credit card complaints, representing about 10 percent of total complaints.  Credit cards are the fourth most-complained-about product or service.
  • The most-complained-about issue involved billing disputes.
  • “A number of consumers” complained about how their payments were applied to accounts with multiple balances and different expiration periods that resulted from balance transfers, cash advances, or deferred interest purchases, with consumers frequently indicating they were not adequately informed about how their payments would be applied and were surprised that payments were not applied to promotional or deferred interest balances.
  • Credit card complaints were the subject of the CFPB’s October 2015 complaint report.  In that report, the CFPB included deferred interest programs as the subject of complaints.  In the June 2016 report, the CFPB states that such programs “continued to be the subject of complaints.”  According to the CFPB, “many” consumers complained that the terms of such programs were not adequately explained to them.
  • Although rewards programs were not mentioned in the October 2015 report, the CFPB states in the June 2016 report that consumers “continue to complain about misleading offers” for such programs.  According to the CFPB, consumers “often state that they have difficulty receiving promised benefits, or that the terms and conditions of the programs were not clearly explained when they opened the card.”

Findings regarding complaints from Washington consumers include the following:

  • As of July 1, 2016, approximately 18,900 complaints were submitted by Washington  consumers of which approximately 58 percent(about 11,000) were from Seattle consumers.
  • Mortgages were the most-complained-about product, representing 29 percent of the complaints submitted by Washington and Seattle consumers and 25 percent of complaints submitted by consumers nationally.
  • The percentage of debt collection complaints submitted by Washington and Seattle consumers, 27 and 28 percent, respectively, was similar to the 27 percent national average.

 

 

Diversity assessment and remedial measures required by CFPB consent order

Posted in Diversity and Inclusion, Fair Lending

On June 29, 2016, BancorpSouth Bank announced a proposed settlement and consent order with the CFPB and the U.S. Department of Justice of charges that the bank’s mortgage lending practices violated the Equal Credit Opportunity Act and Fair Housing Act by redlining majority-minority neighborhoods in the Memphis MSA and illegally discriminating against African Americans in the underwriting and pricing of certain mortgage loans.  The charges stemmed from what the CFPB characterized as its first use of testers or “mystery shoppers” posing as consumers to support discrimination charges.  Another unique aspect of the case is that the consent order, if approved, will require the Bank to adopt or revise diversity policies and practices as part of a written compliance plan to ensure that it does not engage in discrimination.

Under the consent order, the Bank agreed to engage a third-party compliance management system consultant to assist in the review and revision of its fair lending management system.  The consultant will conduct a detailed assessment, including a review of the Bank’s diversity policies and practices in the Memphis MSA.  This aspect of the assessment appears to parallel the Dodd-Frank Act diversity standards which call for regulated entities to conduct an annual self-assessment of their diversity policies and practices in four areas: (1) organizational commitment to diversity and inclusion, (2) workforce and employment practices, (3) procurement and business practices, and (4) practices to promote the transparency of organizational diversity and inclusion.

The consent order further will require the Bank to submit a written compliance plan which must include adoption or revision of its diversity policies and practices, as informed by the consultant’s findings.  The consent order also touches upon several recognized diversity and inclusion practices, including that the Bank must conduct fair lending training for covered employees with an implicit racial bias component and that the Bank must develop or expand community partnerships designed to enhance financial education around credit, homeownership, and foreclosure prevention.

Ballard Spahr’s Diversity Team is working with numerous financial institutions and publicly traded companies to undertake self assessments in the diversity and inclusion arena and to adopt measures in conjunction with the Dodd-Frank Act diversity standards.  On July 26, 2016, Ballard Spahr attorneys conducted a webinar on the BancorpSouth Bank consent order: “Fair Lending Lessons That Go Beyond Mortgages – The BancorpSouth Bank Consent Order.”  Last July, Ballard Spahr attorneys conducted a webinar on the Dodd-Frank Act diversity standards: “Complying with the Final Diversity and Inclusion Standards.”