PHH has filed a reply to the CFPB’s opposition to PHH’s motion for leave to file a supplemental response to the CFPB’s petition for rehearing en banc. On December 22, PHH and the United States filed responses to the CFPB’s petition with the D.C. Circuit. The D.C. Circuit had invited the Solicitor General to file a response expressing the views of the United States.
In its motion for leave to file a supplemental response, PHH asserts that “the United States [in its response] argues that this Court should grant the CFPB’s petition for rehearing en banc on several grounds that were not pressed in the CFPB’s petition, and with which PHH strongly disagrees.” Further asserting that “[t]he United States government has now had two rounds of briefing and taken two separate positions in this Court in support of rehearing,” PHH seeks an opportunity to be heard “on the United States’ newly expressed views.” In its opposition to the motion, the CFPB states only that it opposes PHH’s motion and that if PHH “wants an opportunity to present additional arguments to this Court, they may do so if this Court grants rehearing en banc and seeks additional briefing.”
In its reply, PHH describes the CFPB’s opposition as “completely nonresponsive to PHH’s basis for seeking a supplemental response.” It states that “the CFPB does not dispute or even address” PHH’s point that it has not had a chance to respond to the United States’ response and “[i]nstead it offers a non sequitur: that if rehearing is granted, PHH will have a chance to brief the merits.” PHH asserts “[t]hat is always true—and has nothing to do with whether PHH has had a fair opportunity to respond to the arguments for rehearing. It has not.”
The CFPB has opposed the motion filed by PHH for leave to file a supplemental response to the CFPB’s petition for rehearing en banc. On December 22, PHH and the United States filed responses to the CFPB’s petition with the D.C. Circuit. The D.C. Circuit had invited the Solicitor General to file a response expressing the views of the United States.
In its motion for leave to file a supplemental response, PHH asserts that “the United States [in its response] argues that this Court should grant the CFPB’s petition for rehearing en banc on several grounds that were not pressed in the CFPB’s petition, and with which PHH strongly disagrees.” Further asserting that “[t]he United States government has now had two rounds of briefing and taken two separate positions in this Court in support of rehearing,” PHH seeks an opportunity to be heard “on the United States’ newly expressed views.”
The CFPB’s opposition filed in the D.C. Circuit states only that the CFPB opposes PHH’s motion and that if PHH “wants an opportunity to present additional arguments to this Court, they may do so if this Court grants rehearing en banc and seeks additional briefing.”
The CFPB has issued its December 2016 complaint report which highlights complaints about debt collection. The report also highlights complaints from consumers in Arizona and the Phoenix metro area.
General findings include the following:
- As of December 1, 2016, the CFPB handled approximately 1,058,100 complaints nationally, including approximately 23,100 complaints in November 2016.
- Debt collection continued to be the most-complained-about financial product or service in November 2016, representing about 29 percent of complaints submitted. Debt collection complaints, together with complaints about credit reporting and mortgages, collectively represented about 64 percent of the complaints submitted in November 2016.
- Complaints about student loans showed the greatest percentage increase based on a three-month average, increasing about 120 percent from the same time last year (September to November 2015 compared with September to November 2016). In February 2016, the CFPB began accepting complaints about federal student loans. Previously, such complaints were directed to the Department of Education. As we have noted in blog posts about prior complaint reports issued beginning in April 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.
- Prepaid card complaints showed the greatest percentage decrease based on a three-month average, decreasing about 59 percent from the same time last year (September to November 2015 compared with September to November 2016). Complaints during those periods decreased from 444 complaints in 2015 to 183 complaints in 2016. Prepaid cards also showed the greatest decrease based on a three-month average in the November 2016 complaint report.
- Iowa, Georgia, and Alaska experienced the greatest complaint volume increases from the same time last year (September to November 2015 compared with September to November 2016) with increases of, respectively, 39, 37, and 35 percent.
- Vermont, Rhode Island, and Idaho experienced the greatest complaint volume decreases from the same time last year (September to November 2015 compared with September to November 2016) with decreases of, respectively, 23, 20, and 17 percent.
Findings regarding other financial services complaints include the following:
- The CFPB has handled approximately 285,000 debt collection complaints.
- The most common type of debt collection complaint (39 percent) involved consumers reporting they were contacted about debts that they no longer owed and were not provided documentation to verify the debt, even after submitting requests for verification. Consumers complained that their accounts were forwarded to third-party collectors without any prior contact from the original creditors about an outstanding balance or that their accounts were not in delinquent status prior to being contacted by third-party collectors. A frequent complaint involved reported attempts by third-party collectors to collect incorrect balances on medical debt.
- Consumers complained about frequent and repeated calls, including calls to their places of employment after having informed collectors that contact at work was prohibited by their employers.
Findings regarding complaints from Arizona consumers include the following:
- As of December 1, 2016, approximately 23,300 complaints were submitted by Arizona consumers of which approximately 64 percent (about 15,000) were from Phoenix consumers.
- Debt collection was the most-complained-about product, representing 30 percent of all complaints submitted by Arizona consumers and, on a national basis, 27 percent of all complaints submitted by consumers.
- Average monthly complaints received from Arizona consumers increased 14 percent from the same time last year (September to November 2015 to September to November 2016), higher than the increase of 13 percent nationally.
The CFPB has published a notice in the Federal Register announcing that it is seeking applications from persons interested in becoming members of its Consumer Advisory Board (Board), Community Bank Advisory Council (CBAC), or Credit Union Advisory Council (CUAC). Appointments to the Board are typically for three years and appointments to the CBAC and CUAC are typically for two years.
Membership in the Board is open to persons with expertise in consumer protection, financial services, community development, fair lending and civil rights, and consumer financial products or services, and representatives of depository institutions that primarily serve underserved communities, and representatives of communities that have been significantly impacted by higher-priced mortgage loans. The notice indicates that “expertise” depends, in part, on “the constituency, interests, or industry sector the nominee seeks to represent, and where appropriate shall include significant expertise as a direct service provider to consumers.” Dodd-Frank directs the CFPB to seek Board members who represent the interests of industry and consumers.
Membership in the CBAC is open to individuals (1) with similar expertise or who represent community banks that primarily serve underserved communities or communities that have been significantly impacted by higher-priced mortgage loans, and (2) who are current employees of banks and thrifts with total assets of $10 billion or less that are not affiliates of depository institutions or credit unions with total assets of more than $10 billion.
Membership in the CUAC is also open to individuals (1) with similar expertise or who represent credit unions that primarily serve underserved communities or communities that have been significantly impacted by higher-priced mortgage loans, and (2) who are current employees of credit unions with total assets of $10 billion or less that are not affiliates of depository institutions or credit unions with total assets of more than $10 billion.
The CFPB states that it has a special interest in ensuring that women, minority groups and individuals with disabilities are adequately represented on the three advisory groups. It further states that because it also has a special interest in establishing a Board that is represented by diverse viewpoints and constituencies, the CFPB encourages applications for Board membership from candidates who represent U.S. geographic diversity and the interests of special populations identified in Dodd-Frank such as servicemembers and older Americans.
Applicants for the positions must submit a complete application package on or before March 1, 2017 to be considered for membership. (The application will be available online on January 16, 2017.) The CFPB expects to announce new members in August 2017.
PHH and the United States have filed responses with the D.C. Circuit to the CFPB’s petition for rehearing en banc. The D.C. Circuit invited the Solicitor General to file a response expressing the views of the United States and entered an order requiring both PHH and the SG to file their responses by December 22.
In PHH, the D.C. Circuit ruled that that the CFPB’s single-director-removable-only-for-cause structure violates the U.S. Constitution’s separation of powers. To remedy the constitutional defect, it severed the removal-only-for-cause provision from the Dodd-Frank Act so that the President “now has the power to supervise and direct the Director of the CFPB, and may remove the Director at will at any time.” It also rejected the CFPB’s interpretation of RESPA, which departed from HUD’s prior interpretation, to prohibit captive mortgage re-insurance arrangements such as the one at issue in PHH. The court also held that even if the CFPB’s interpretation was correct, the CFPB’s attempt to retroactively apply its new interpretation violated due process.
In its petition, the CFPB argued that the panel’s constitutionality ruling conflicts with U.S. Supreme Court precedent and should therefore be reconsidered by the court sitting en banc. It also argued that panel’s RESPA ruling should be reviewed by the court sitting en banc but observed that the panel’s retroactivity holding “is perhaps not worthy of en banc review on its own.” The CFPB also did not seek en banc reconsideration of the panel’s ruling that CFPB administrative enforcement actions are subject to the same statute of limitations as would apply to a CFPB lawsuit filed in court.
In its response, PHH asserts that the panel’s constitutionality ruling is fully consistent with Supreme Court precedent “and more than two centuries of separation-of-powers jurisprudence.” As a result, PHH contends the panel’s “correct application of settled constitutional principles warrants no further review.” PHH argues that further review of the panel’s RESPA interpretation is also not warranted because it “is plainly correct irrespective of the separation-of-powers ruling, and it presents no conflicting authority.” PHH asserts that “[o]n the contrary, the CFPB would ask the en banc Court to create a circuit split with every other court to have considered the proper scope of RESPA.” (emphasis supplied.) In addition, PHH contends that the panel’s retroactivity holding “provides another independent basis for vacating the $109 million penalty against PHH.”
The United States, in its response filed by the Department of Justice, does not address the D.C. Circuit’s RESPA rulings and instead “addresses only the panel’s separation-of-powers holding.” The United States argues that “the panel’s approach to resolving [the CFPB’s] constitutionality departs from the approach the Supreme Court has applied in resolving such separation-of-powers questions.” According to the United States, the panel’s opinion was “premised on its view that an agency with a single head poses a greater threat to individual liberty than an agency headed by a multi-member body that exercises the same powers.” The United States contends that, under relevant Supreme Court precedent, the proper inquiry is whether a removal restriction is an “impermissible intrusion on Presidential power or on the functioning of the Executive Branch,” and although a removal restriction’s effect on individual liberty “may shed light on whether it constitutes [such] an impermissible intrusion…the possible impact on individual liberty has not been an independent inquiry.”
PHH has filed a motion for leave to file a supplemental response to the petition for rehearing en banc. In the motion, PHH asserts that “the United States [in its response] argues that this Court should grant the CFPB’s petition for rehearing en banc on several grounds that were not pressed in the CFPB’s petition, and with which PHH strongly disagrees.” Further asserting that “[t]he United States government has now had two rounds of briefing and taken two separate positions in this Court in support of rehearing,” PHH seeks an opportunity to be heard “on the United States’ newly expressed views.”
Earlier this week, we blogged about reports that Director Cordray has no plans to leave the CFPB before his term expires in July 2018. Yesterday, several national civil rights groups issued a joint statement applauding the CFPB’s work and expressing support for Director Cordray “as he continues to lead the CFPB in the fourth year of his five-year tenure.” The groups are the Leadership Conference on Civil and Human Rights, NAACP, National Council of La Raza, and National Urban League.
In their statement, the groups express their view that under Director Cordray’s leadership, the CFPB “has significantly improved the lives of people across the country, especially in our diverse communities” and warn that “any effort to weaken the agency or undermine its leadership would risk severe impacts on our communities—including communities of color and low-income families who are most vulnerable to financial abuse.” The groups tout the CFPB’s recovery of “more than $11 billion for 27 million consumers harmed by illegal, predatory financial schemes” and the CFPB’s efforts to fight “against discriminatory practices in the financial marketplace, including bringing enforcement actions to enforce fair lending laws that protect consumers of color from being charged more for a mortgage, auto loan, or credit card.”
The CFPB has issued its tenth Semi-Annual Report to the President and Congress covering the period April 1, 2016 through September 30, 2016.
The 178-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 $14 million in redress to over 339,000 consumers. It also indicates that during that period, the CFPB announced orders in enforcement actions providing for approximately $40 million in total relief for consumers and over $13.7 million in civil money penalties. According to the report, the CFPB had 1,587 employees as of September 17, 2016.
The amounts of consumer redress from supervisory actions, consumer relief from enforcement actions, and civil money penalties are substantially less than the corresponding amounts reported by the CFPB in its last Semi-Annual Report covering the period October 1, 2015 through March 31, 2016. The prior report indicated consumer redress in supervisory actions of more than $44 million, consumer relief in enforcement actions of approximately $82 million, and over $70 million in civil money penalties. (In the CFPB’s Semi-Annual Report covering the period April 1, 2015 through September 30, 2015, the amount of consumer relief in enforcement actions reported was $5.8 billion and the amount of civil money penalties was over $153 million.)
The CFPB has announced annual adjustments to two asset-size exemption thresholds. First, the CFPB has made no change to the asset-size exemption threshold under HMDA/Regulation C which is currently set at $44 million. Banks, savings associations, and credit unions with assets at or below $44 million as of December 31, 2016 will continue to be exempt from collecting HMDA data in 2017.
Second, the CFPB has increased the asset-size threshold under TILA/Regulation Z for certain small creditors operating primarily in rural or underserved areas to qualify for an exemption to the requirement to establish an escrow account for higher-priced mortgage loans (HPML). The threshold is currently set at $2.052 billion. Loans made by creditors operating primarily in rural or underserved areas with assets of less than $2.069 billion as of December 31, 2016 (including assets of certain affiliates) that meet the other Regulation Z exemption requirements will be exempt in 2017 from the escrow account requirement for HPMLs. (The adjustment will also increase the asset threshold for small creditor portfolio and balloon-payment qualified mortgages which references the HPML escrow account asset-size threshold.)
The CFPB announced that it has entered into a consent order with Military Credit Services, LLC, a company providing revolving credit to military consumers, to settle allegations that the company’s open-end credit agreements violated the Truth in Lending Act and the Electronic Fund Transfer Act. MCS had entered into a consent order with the CFPB in 2014 to settle a complaint that named several other companies as defendants, including Freedom Stores, Inc. (Freedom), a retailer catering to military customers that offered financing through retail installment contracts. While that complaint charged MCS with TILA violations similar to those described in the new consent order, it only charged Freedom with similar EFTA violations. Nevertheless, the 2014 consent order required all defendants to ensure that their contract provisions included required EFTA disclosures and required TILA account-opening disclosures.
According to the new consent order (whose findings of fact and conclusions of law are not admitted or denied by MCS), the provision in MCS’s revolving credit agreements that authorized electronic payments were not “clear and understandable” as required by the EFTA and Regulation E. The consent order also states that the credit agreements violated TILA and Regulation Z because they did not include all required account-opening disclosures in the required form, such as the APR that corresponds to each periodic rate that may be used to compute the finance charge.
The consent order requires MCS to pay a $200,000 civil money penalty and ensure that its contracts comply with EFTA/Regulation E and TILA/Regulation Z disclosure requirements. MCS must also hire an independent consultant “with specialized experience in consumer-finance compliance” and who is acceptable to the CFPB to review the company’s issuance and servicing of credit. The purpose of the review is to determine whether MCS has updated its contracts for compliance. The company must develop a compliance plan to correct any deficiencies identified by the consultant and provide the report and compliance plan to the CFPB for a determination of non-objection.
The CFPB announced that it has sued four Virginia-based pawnbrokers in lawsuits filed in a Virginia federal district court for alleged violations of the Truth in Lending Act and the Consumer Financial Protection Act in connection with closed-end “pawn” loans made by the companies. The defendants are: Spotsylvania Gold & Pawn, Inc.; Fredericksburg Pawn, Inc.; Pawn U.S.A., Inc.; and A to Z Pawn, Inc.
Each of the complaints allege that the defendant charged various fees, such as fees for “interest,” “storage,” “service,” “appraisal,” and “setup,” that were part of the finance charge and therefore required to be included in the calculation of the annual percentage rate. While each of the complaints allege that the defendant violated TILA and Regulation Z by inaccurately disclosing the APR, only one complaint (against A to Z Pawn, Inc.) alleges that the finance charge was also inaccurately disclosed in violation of TILA and Regulation Z.
The complaint against Spotsylvania Gold & Pawn, Inc. also alleges that the company’s disclosures violated TILA and Regulation Z by failing to include the brief description of the APR required by TILA and Regulation Z. (Regulation Z requires the term “APR” to be described as “the cost of your credit as a yearly rate.” The complaint alleges that the company’s contracts described the APR as “[c]ost of your credit interest (only) per year.”)
The CFPB alleges in the complaint that the alleged TILA and Regulation Z violations constitute violations of the CFPA. The CFPB cites to 12 U.S.C. Section 5536(a)(1)(A) which provides that it is unlawful for “any covered person…to offer or provide to a consumer any financial product or service not in conformity with Federal consumer financial law, or otherwise commit any act or omission in violation of a Federal consumer financial law.” In the complaints, the CFPB seeks unspecified monetary relief, injunctive relief, and penalties.
Last month, the CFPB announced that it had filed a lawsuit in a Virginia federal district court against another Virginia-based pawnbroker, B&B Pawnbrokers, Inc., for similar alleged TILA and CFPA violations.