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Republican Congressmen seek CFPB forum on impact of payday lending rule on state and tribal sovereignty

Posted in CFPB Rulemaking, Payday Lending

Two Republican members of the House Financial Services Committee, Randy Neugebauer and Mick Mulvaney, have sent a letter to Director Cordray asking him to convene a forum or roundtable of state and tribal officials before the CFPB proposes a payday loan rule.

In the letter, the Congressmen assert that comments made by CFPB officials about the CFPB’s anticipated payday loan rule indicate a “disregard for state and tribal sovereignty and the existing state-based regulatory framework.”  In particular, they note “concerns with the Bureau’s efforts to preempt state laws by setting a federal legal floor.”  They challenge Director Cordray for “refus[ing] to concede that [the CFPB] will be preempting any state laws” when he appeared before the House Financial Services Committee last month.  They quote Director Cordray’s statement to the Committee that “preemption is when the federal government overrides state law and invalidates state law” and assert that “by setting a federal legal floor, [the CFPB] will override and invalidate state laws that are less restrictive than [the CFPB’s] federal legal floor.”

The Congressmen want the CFPB to hold a forum or roundtable “to ensure that the perspective of state and tribal officials [is] adequately considered” before the CFPB issues a proposed payday loan rule.  They assert that the CFPB has failed to adequately engage state and tribal officials to hear their concerns and that the forum “will ensure that the Bureau carefully considers the perspectives of these officials as it relates to market trends, access to credit issues, and state regulatory models and experiences.”  According to the Congressmen, it would be “irresponsible and disrespectful to the principles of the 10th Amendment of the United States Constitution” for the CFPB to move forward with a proposed rule before holding such a forum.

 

Alan Kaplinsky receives Lifetime Achievement Award from American College of Consumer Financial Services Lawyers

Posted in Arbitration, CFPB General

I am delighted to report that Alan Kaplinsky has received the prestigious Senator William Proxmire Lifetime Achievement Award from the American College of Consumer Financial Services Lawyers.  The award is granted periodically to a person whose career has produced many years of distinguished accomplishments and contributions to the field of consumer financial services law.  Alan received the award at the College’s 18th Annual Dinner in Montreal this past Saturday evening.  As the formal written presentation appropriately observed about Alan: “He has forever altered the course of consumer financial services law.”

It was because of Alan’s immediate recognition of how significant the Dodd-Frank Act’s enactment and the CFPB’s creation would be for the consumer financial services industry that we launched our blog, CFPB Monitor, on July 21, 2011, the day the CFPB opened its doors for business.  Last year, Alan was twice selected by the CFPB to testify as an industry representative at field hearings related to the CFPB’s arbitration study and rulemaking.

Alan is a most deserving recipient of the Proxmire Award.  His notable achievements in the area of consumer financial services law include defending many of the first consumer class actions brought against financial institutions and pioneering the use of pre-dispute arbitration provisions in consumer contracts.

Since 2006, Alan has been recognized annually by Chambers USA as a Band One leading lawyer in consumer financial services law.  Alan was selected as one of the National Law Journal’s 2015 Litigation Trailblazers for his pioneering work regarding consumer arbitration.  He is currently an adviser to the American Law Institute (ALI) in connection with its ongoing project to create a Restatement of the Law Third, Consumer Contracts.

As leader of Ballard’s more than 110-member Consumer Financial Services Group, Alan is an inspiration to all of the firm’s consumer finance lawyers.  Here’s a photo of Alan receiving the Proxmire Award:

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Director Cordray defends CFPB positions in appearance before Senate Banking Committee; comments on small business lending and Fintech companies

Posted in Auto Finance, CFPB Enforcement, Fair Credit, Payday Lending, Small Business

Much of Director Cordray’s testimony in his appearance before the Senate Banking Committee yesterday consisted of his predictable defense of various CFPB positions.  While the hearing was much less contentious than last month’s hearing of the House Financial Services Committee at which Director Cordray appeared, the questions raised by Republican Senators focused on many of the same areas of concern as those of Republican House members.

In response to criticism of the CFPB’s enforcement actions against auto finance companies, Director Cordray continued to defend the CFPB’s reliance on disparate impact liability.  As he did in the House hearing, Director Cordray pointed to the U.S. Supreme Court’s Inclusive Communities decision as vindicating the CFPB’s position despite the fact that the decision did not address whether disparate impact claims are cognizable under the Equal Credit Opportunity Act.  According to Director Cordray, the Supreme Court had “resoundingly reaffirmed” the validity of using disparate impact to prove discrimination.  He also defended the CFPB’s methodology for establishing disparate impact as well as its method for identifying consumers entitled to relief under the auto finance company settlements.

Director Cordray also gave no ground on the CFPB’s reliance on enforcement in place of rulemaking.  Indeed, he appeared to embrace the phrase “regulation by enforcement” used by industry to criticize the CFPB’s approach.  Director Cordray cited to his remarks last month to the Consumer Bankers Association in which he called it “compliance malpractice” for companies not to look at CFPB consent orders with others to assess their own compliance.

In addition to his continued defense of CFPB positions, Director Cordray did provide some noteworthy information in response to Senators’ questions:

  • In response to a question regarding the CFPB’s activities related to small business lending, Director Cordray appeared to acknowledge that the CFPB’s role is limited to its enforcement of the Equal Credit Opportunity Act and implementation of the expanded small business lending data collection requirements of Dodd-Frank Act 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.)  As we previously reported, the CFPB has been seeking to hire a new “Assistant Director, Small Business Lending,” who will be charged with leading its Section 1071 team.  Based on Director Cordray’s comment that he would welcome recommendations from Senators of candidates for the position, it appears that the position has not yet been filled.
  • In response to a question asking how consumers will be able to access small dollar loans in the wake of anticipated CFPB restrictions on payday loans, Director Cordray indicated that he envisions three categories of outlets: a “reformed” payday loan industry, community banks and credit unions, and Fintech companies.  With regard to Fintech, Director Cordray indicated that he envisions “real opportunities” for online lending but commented that small-dollar lending is “tricky” for Fintech companies.  He also commented that the CFPB will be “mindful” and “watchful” of the need for Fintech innovations “to be consumer friendly.”  He indicated that while Fintech companies should not have an advantage in the marketplace over banks because they are not complying with same rules, the CFPB would seek to enforce the laws without stifling innovation.
  • When questioned about the criticism directed at the CFPB’s policy on no-action letters for its restrictiveness, Director Cordray acknowledged that legitimate questions have been raised about the policy.  He indicated that he was “not satisfied” with the policy and that further thought would be given to it (while also noting that the CFPB was “leery” of the burden that would result from a high volume of requests for no-action letters).

PLI’s “The CFPB Speaks” Panel Discussion

Posted in Arbitration, Auto Finance, CFPB Enforcement, CFPB General, CFPB People, CFPB Rulemaking, Hot Issues

On April 4, at the Practicing Law Institute’s (“PLI”) 21st Annual Consumer Financial Services Institute in Manhattan, Alan Kaplinsky (a co-chair of the institute) moderated a panel entitled “The CFPB Speaks,” where CFPB officials shared their own insights on industry trends on their radar, priorities for the coming years, and views on certain hot-button issues. On the panel from the CFPB were Anthony (“Tony”) Alexis (Assistant Director for Enforcement), Jeffrey Langer (Assistant Director for Installment Lending and Collections Markets), Diane Thompson (Managing Counsel, Office of Regulations), and Peggy Twohig (Assistant Director for Supervision Policy).

During the discussion, the CFPB panelists gave us their hopes on the timetables for new rules that the CFPB is promulgating. They indicated that debt collection rules may be forthcoming in late spring, that the payday lending rules will “hopefully” come out before summer, that the arbitration rules may come out in late spring or early summer, that overdraft rules should be issued in late summer, and that prepaid card rules will be promulgated in “early summer.”

Peggy Twohig first shared the CFPB’s supervision priorities for the coming year, which include: (i) arbitration, (ii) consumer reporting by both CRAs and furnishers, (iii) debt collection both by first and third parties, (iv) demand-side consumer behavior, which she indicated was an initiative to create tools to allow consumers to make better financial decisions, (v)household balance sheets, (vi) mortgages, (vii) open use credit, which she defined as credit like payday, installment, credit card, and other lending not tied to a specific purchase, (viii) small business lending, and (ix) student lending. In addition, she pointed out that the CFPB would continue to pursue past priorities, such as auto finance ECOA cases based on dealer finance charge participation.

Tony Alexis commented on several areas of interest to industry in response to questions posed by Alan and others:

  • Civil Money Penalties: He defended the CFPB’s case-by-case approach to assessing civil money penalties in enforcement actions and declined an invitation by another panelist to establish set parameters for the size of a civil money penalty relative to restitution.
  • Precedential Value of Consent Orders: In response to Alan’s question on whether CFPB consent orders have precedential value, he confirmed that the CFPB’s consent orders, while not binding on other industry participants, are nevertheless indicative of the types of conduct that the CFPB believes to constitute violations of law.  Recently, Director Cordray gave a speech in which he said that consent orders are precedential and that the Bureau will expect industry to comply with orders issued to others who are engaged in practices similar to those engaged in by parties to consent orders. Chris Willis also opined that, in advising clients, he treats consent orders as precedential.

Chris Willis also asked Mr. Alexis about a trend he referred to as “reverse vendor oversight,” where the CFPB has lately been holding service providers liable for the conduct of financial institutions to which they provide services, citing as examples the recent CFPB actions against lead generators, payment processors, and debt collection law firms.  Mr. Alexis indicated that reverse vendor oversight is contemplated by Dodd-Frank and consistent with the CFPB’s enforcement modus operandi. This confirms that service providers to entities under the CFPB’s (ever expanding) jurisdiction  must themselves take steps to ensure they are not assisting in violations of law, or risk prosecution themselves.

Jeffrey Langer reiterated the strong priority that the CFPB places on student lending. His remarks also highlighted the divergence between the CFPB and the Department of Education. He stated that, while the two agencies cooperate, they each have their own statutory mandates and that they set priorities independently. He also touched upon the types of alleged abuses and violations that the CFPB is taking great pains to correct in the marketplace, including issues related to the availability of loss mitigation options, the transfer of servicing from one entity to another, misallocation of partial payments, failure to credit payments appropriately, the lack of transparency around student loan refinancing, and student loan debt relief fraud.

Diane Thompson responded to Alan’s question about whether it is a foregone conclusion that the CFPB will be banning consumer arbitration. She pushed back on the notion that the CFPB has already decided to ban arbitration or class action waivers. She said that the CFPB is taking great pains to carefully analyze the impact of arbitration and to reach a decision that is good for consumers and industry alike.

Overall, the CFPB’s remarks were not surprising, but they provide useful insight on the CFPB’s views on these and other important topics.

CFPB releases 2015 complaint report

Posted in CFPB General

The CFPB’s Consumer Response Annual Report analyzing complaints handled in 2015 indicates that volume rose 8% from 250,700 complaints in 2014 to 271,600 in 2015.

The report provides data on the most common types of complaints for each product, the handling of complaints, and median monetary relief.  Of the 271,600 complaints received in 2015, approximately 71% were received through the CFPB’s website, 7% via telephone calls, 12% via referrals from other agencies and regulators, and the balance via mail, e-mail and fax.  Based on the CFPB’s breakdown of the number of complaints received in each category, debt collection (85,200), credit reporting (55,000), and mortgages (50,800) accounted for 70% of all 2015 complaints.  Credit reporting complaints had the largest increase from 2014 (when the number of complaints received was 44,800).

While in both 2014 and 2015 the CFPB received the most complaints about debt collection, it received fewer debt collection complaints in 2015 (85,200) than it did in 2014 (88,300).  40% of the debt collection complaints involved continued attempts to collect debts not owed (with many complaints not challenging the underlying debt but asserting that the calculation of the amount sought was inaccurate or unfair), 18% involved communication tactics, 15% involved debt validation (such as not receiving enough information to verify the debt), and 11% involved taking or threatening illegal action.  For credit reporting complaints, 79% involved incorrect information on credit reports.  For mortgage complaints, 43% involved problems relating to inability to pay (such as issues involving loan modifications, collections, or foreclosures) and 37% involved making payments (such as issues involving servicing, posting of payments, and escrow accounts).

The report contains monetary relief information for companies that reported relief amounts.   The median amount of relief reported included $317 for 400 debt collection complaints, $23 for 170 credit reporting complaints, $500 for 1,240 mortgage complaints, $105 for 3,170 bank account and services complaints, $100 for 3,290 credit card complaints, $263 for consumer loan complaints, $173 for 240 student loan complaints, and $347 for 80 payday loan complaints.  (Companies have the option to report an amount of monetary relief.  As a result, the total number of complaints receiving monetary relief is greater than the number of complaints on which the median relief amounts are based.)

 

 

CFPB issues guidance on resumption of quarterly credit card agreement submissions

Posted in Credit Cards

The CFPB has issued guidance to credit card issuers regarding the resumption of the requirement to submit card agreements to the CFPB on a quarterly basis.  The next submission is due on or before May 2, 2016.

In April 2015, the CFPB issued a final rule that suspended for one year the Truth in Lending Act/Regulation Z requirement for issuers of open-end credit cards to send their credit card agreements to the CFPB quarterly for posting in a public database on the CFPB’s website.  The final rule suspended the submission requirement for the submissions that would otherwise have been due to the CFPB by the first business day on or after April 30, 2015; July 31, 2015; October 31, 2015; and January 31, 2016.  The suspension was intended to reduce the burden on issuers while the CFPB updated its submission system.

By May 2, issuers must submit to the CFPB all credit card agreements offered to the public as of the end of March 2016.  The guidance provides instructions for an issuer to follow in submitting card agreements (which can be done by sending an email to the CFPB with links to the agreements posted on the issuer’s public website.)  After the May 2 deadline, the remaining 2016 submission deadlines are August 1 and October 31.  The guidance also includes answers to a series of questions.

The CFPB also published a “Notice of expiration of suspension” in today’s Federal Register.  The notice indicates that submission instructions are available on the CFPB’s website.

CFPB Community Bank Advisory Council to meet on April 21

Posted in CFPB General

The CFPB will hold a meeting of its Community Bank Advisory Council on April 21, 2016 in Washington, D.C.

According to the CFPB’s notice published in today’s Federal Register, there will be a discussion of the CFPB’s strategic outlook and elder financial abuse.  These topics were also discussed at the meetings of the CFPB’s Credit Union Advisory Council and Consumer Advisory Board earlier this year.

 

Director Cordray to appear before Senate Banking Committee on April 7

Posted in CFPB General

Director Cordray is scheduled to appear before the Senate Banking Committee on April 7, 2016 for a hearing entitled “The Consumer Financial Protection Bureau’s Semi-Annual Report to Congress.”  (The CFPB’s most recent Semi-Annual Report is the report issued in November 2015 covering the period from April 1, 2015 through September 30, 2015.)

Director Cordray is expected to receive questions on a broad range of CFPB initiatives, particularly the CFPB’S anticipated proposed rule on payday and other small-dollar, high-rate loans and its enforcement actions against auto finance companies for alleged discriminatory practices.

 

Democratic Senators expected to introduce bill requiring CFPB registration of lenders making small-dollar loans

Posted in CFPB General

A group of Democratic Senators led by Oregon Senator Jeff Merkley is expected to introduce the “Stopping Abuse and Fraud in Electronic Lending Act of 2016” or “SAFE Lending Act of 2016.”

The bill represents the latest version of bills with similar titles introduced by Senator Merkley and other Democratic Senators in previous years.  In addition to limits on remotely authorized checks, the bill would amend the Truth in Lending Act to establish a requirement for lenders making “small-dollar consumer credit transactions” to register with the CFPB.  It should be noted however, that under Section 1022(c)(7) of the Dodd-Frank Act, the CFPB already has authority to establish registration requirements for “covered persons” other than insured depository institutions, insured credit unions, and related persons.

The bill defines “small-dollar consumer credit transactions” to mean a loan of $5,000 or less (subject to annual CFPB adjustment) that is one of the following: (1) if closed-end, payable in 1 or more installments of less than 12 months (or such longer period as the CFPB determines by rule), (2) if open-end, made under a plan in which each advance is repayable within a defined time or in connection with a defined event, or both, or (3) any other loan as the CFPB determines by rule.  While perhaps not intended, the open-end plans covered by the definition could be read to include conventional credit cards.

The bill would require any small-dollar consumer credit transaction that is made over the Internet, telephone, facsimile, mail, or email “to comply with the laws of the State in which the consumer resides with respect to annual percentage rates, interest, fees, charges, and such other or similar matters as the Bureau may, by rule, determine.”  It would also require any  small-dollar consumer credit transaction “conducted by a national bank” to comply with the laws of the state in which the consumer resides. This provision would appear to be an attempt to override Section 85 of the National Bank Act, which allows a national bank to make loans to borrowers at the rate allowed by the laws of the state where the bank is located.  This rate authority applies regardless of any conflicting law of the state where the borrower resides or the credit transaction is consummated.

The bill would also prohibit lead generation in small-dollar consumer credit transactions by an entity that is not “directly providing the small-dollar consumer credit to the consumer.”  In addition, the bill includes a ban on overdraft fees on general use prepaid cards.

 

 

CFPB settles with another student debt relief company

Posted in CFPB Enforcement

The CFPB announced it has entered into a consent order with Student Aid Institute, Inc., a student debt relief company, and its chief executive officer.  The order settles charges that the company and CEO violated the Telemarketing Sales Rule, the Consumer Financial Protection Act prohibition of unfair, deceptive or abusive acts or practices, and Regulation P (which implements the Gramm-Leach-Bliley Act) by conduct that included falsely representing an affiliation with the U.S. Department of Education (ED), charging unlawful advance fees, misleading borrowers about the benefits of the company’s services, and failing to provide required privacy notices.  The settlement follows closely on the heels of another CFPB settlement with a student debt relief company and its individual owner about two weeks ago.

Under the terms of the consent order, all contracts between the company and any consumers are immediately rescinded and the company must immediately cease charging any fees under the agreements.  Within 45 days of the date on which the consent order is entered, the company must permanently cease operations.  The consent order permanently bars the company and CEO from participating in the debt relief industry.  For any consumer who paid fees to the company since December 2012 and is enrolled in a ED income-driven repayment or forgiveness plan with an annual recertification or renewal deadline within 30 days of the date on which the consent order is entered, the company must handle all paperwork necessary for the consumer to maintain enrollment in the plan.  In addition, a $50,000 civil money penalty must be paid by the company and CEO.