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CFPB says SCRA-related complaints are increasing
On May 23, the CFPB published a blog post reporting that complaints from servicemembers, veterans, and their families significantly increased, with the total number of complaints surpassing 400,000 since the CFPB began cataloging complaints. The Bureau noted a 27 percent rise in complaints from 2022 and a 98 percent increase compared to 2021, with servicemember complaints mostly alleging credit reporting errors, mortgage problems, and financial fraud and scams.
The CFPB’s blog post specifically focused on the application of interest rate protections under the Servicemembers Civil Relief Act (SCRA), which among other protections permitted servicemembers to request a decrease to 6 percent in interest rates on loans they took out before active duty. However, after a review of the complaints, the Bureau found servicemembers who claimed to face challenges in obtaining interest rate reductions. The CFPB noted a significant number of otherwise eligible servicemembers did not receive SCRA benefits. The CFPB suggested possible solutions like automated interest rate reductions, which it argued have been successful for federal student loans. The CFPB also noted instances where the CFPB cannot directly resolve an issue, it would refer complaints to appropriate agencies, such as the DOJ, for potential SCRA violations. The CFPB has also coordinated with other agencies to address military community complaints, including identity theft and financial fraud.
CFPB releases RFI on mortgage closing costs
On May 30, the CFPB announced a request for information (RFI) regarding mortgage “junk fees” and their impact on borrowers and lenders. The CFPB identified an increase of over 36 percent in median total loan costs for home mortgages from 2021 to 2023 in its analysis, with median mortgage closing costs of $6,000 in 2022. The Bureau argued these fees and costs, many of which are fixed, can reduce home equity and may undercut home ownership.
The RFI requested public input on whether the fees are subject to competition, how fees are set, who profits from them, and how fee changes, if any, impact consumers and the mortgage market. The CFPB was particularly interested in the factors driving fee increases, such as hard-pull tri-merge credit report costs, and how such fees are affecting housing affordability and access to homeownership. The CFPB also highlighted the potential impact of title insurance and mortgage origination fees.
The RFI included nine specific questions related to
(i) whether there are fees that are particularly problematic or burdensome for consumers;
(ii) whether there are unnecessary fees charged for loan closure;
(iii) whether and to what extent consumers compare closing costs across lenders;
(iv) whether and to what extent consumers shop for closing costs across settlement providers;
(v) the determination of fees, the beneficiaries, and lenders’ influence over third-party costs;
(vi) which fees have increased, and what are their causes;
(vii) factors contributing to rising closing, credit report, and credit score costs, the roles of various entities in the credit report chain, competitive pressures on these costs, and their consumer impact;
(viii) lenders’ ability to negotiate closing costs more effectively than consumers; and
(ix) the potential impact of closing costs on housing affordability, homeownership access, or home equity.
Comments in response to the RFI must be received by August 2.
FTC outlines TILA and EFTA efforts in letter to CFPB
On May 20, the FTC released a letter to the CFPB detailing its enforcement activities related to Regulation Z (TILA), Regulation M (the Consumer Leasing Act or CLA), and Regulation E (the EFTA) during 2023.
The FTC noted its TILA enforcement efforts related to automobile financing; specifically, the Commission detailed two actions involving deceptive car dealer practices. The Commission reported its finalization of the CARS Rule to address the sale, financing and leasing of motor vehicles. The Commission highlighted its “junk fees” rulemaking and stated that such fees cost consumers tens of billions of dollars each year and undercut honest businesses. The Commission noted its military credit and leasing initiatives as well as its report to Congress on consumer issues affecting American Indian and Alaska Native populations, such as impersonation scams and predatory lending.
The Commission also discussed its work pertaining to the EFTA and Regulation E. The Commission referenced its 2023 enforcement actions, including a case involving negative options. The Commission described its proposed amendments to its 1973 Negative Option Rule which included the addition of a “click to cancel” provision requiring sellers to make cancellation as easy for consumers as it was to sign up. Finally, the Commission confirmed that it released guidance cautioning consumers about money transmission payment apps and their potential for exploitation by scammers.
CFPB holds its Consumer Advisory Board Meeting
On May 15, the CFPB held its Spring 2024 Consumer Advisory Board Meeting (CAB) to discuss mortgage servicing and origination, consumer data reporting accuracy, and medical debt on credit reports. The CAB met with the CFPB leadership to discuss broad policy matters related to the CFPB’s Unified Regulatory Agenda and scope of authority. The discussions on mortgage servicing and origination covered capping closing costs to make homeownership more accessible. Additional concerns related to the impact of private equity on the housing market and how it changes home affordability in certain neighborhoods. Additionally, CAB members raised yet another implication which would make home ownership difficult in the refinancing space for small-balance mortgages. Predatory practices involving solar lending were of concern due to the influx of funds related to the Inflation Reduction Act. CAB members shared the challenges faced by mortgage servicing and foreclosure prevention services leading to delays in loss mitigation processing and high-touch mortgage servicing areas. Additional talking points included topics such as tenant screening and employment background checks, purpose limitations under the FCRA, creation of a “Public Credit Registry,” reduced time limits on negative information reporting, and restricted use of credit scores in employment and rental decisions.
OIG makes recommendations for CFPB’s examiner commissioning program
On May 15, the Office of Inspector General (OIG) for the Fed and CFPB published a report entitled “The CFPB Can Enhance Certain Aspects of Its Examiner Commissioning Program.” The report assessed the CFPB’s examiner commissioning program (ECP) and included recommendations to enhance the program. The OIG made three high-level recommendations in the report:
- Create clear guidelines delineating the duties and expectations for those servicing in ECP support roles, including (i) mentorship during acting EIC assignments, (ii) provide regional training leads support during rotations, and (iii) field manager assistance in selecting suitable examinations and identifying acting examiner in charge (EIC) tasks for commissioning candidates.
- Establish a uniform method for supervision learning and development and regional offices to jointly offer additional support to examiners during their ECP preparation.
- Review and improve the feedback parameters for the EIC case study assessment, ensuring examiners receive detailed, constructive feedback while maintaining the integrity of the EIC case study assessment. Update the feedback guidelines accordingly and provide training on these new standards.
Chopra remarks on how less credit reporting competition may lead to higher mortgage costs
On May 20, CFPB Director, Rohit Chopra, delivered a speech at a trade association event addressing the rising costs in the mortgage lending industry, which may be due to limited competition in the credit reporting sector. According to Chopra, the mortgage industry was dominated by three major conglomerates, and credit scores were provided by a single corporation. These entities have significantly increased the price for credit reports and credit scores in recent years, with increases reaching as high as 400 percent since 2022. These price hikes can increase a lender’s origination fees or interest rates and have impacted both lenders, especially small lenders, and homebuyers disproportionately.
Chopra added how lenders require credit reports and credit scores for loan origination and adhere to secondary market requirements, which would necessitate purchasing these reports multiple times, like for joint applications. Director Chopra also noted that price increases were no longer tied to volume discounts and instead were now based on a flat fee pricing model, exacerbating costs for lenders. Additionally, the CFPB questioned the accuracy of credit reports, with the reporting industry profiting from expedited correction services known as a “rapid rescore.”
Director Chopra emphasized the need for regulatory intervention to address these issues within the mortgage industry. Chopra stated that “limiting chokepoints” was critical. As a result, the CFPB was examining these rising costs and considering regulatory measures to enhance competition and affordability. The Bureau was also promoting “open banking,” which would allow consumers to share their financial data directly with lenders to potentially reduce reliance on traditional credit reports and credit scores.
Congressional Democrats pen letter to financial regulators on “de-risking” and inclusion
On May 15, 11 Congressional Democrats sent a letter to Treasury Secretary Yellen, now-former FDIC Chairman Gruenberg, Acting Comptroller Hsu, Fed Chair Powell, FinCEN Director Gacki, NCUA Chair Harper, and CFPB Director Chopra asking for robust, modernized anti-money laundering (AML) and financial crimes compliance to support equitable banking access for Muslim Americans and immigrant communities. The congressmembers raised these concerns as banks increasingly engaged in the practice of “de-risking,” which involved indiscriminately terminating or restricting business relationships with broad categories of customers rather than managing risk consistent with risk-based supervisory or regulatory requirements. The letter highlighted that customers in the Muslim American, Middle Eastern, and South Asian American communities “may” be considered “high-risk” erroneously for sending payments or remittances abroad, or by donating to charities or religious institutions. The letter asserts that this practice can also harm economic stability and sustainability in countries that depend on remittances for development.
The Democrats proposed several changes to address these concerns. First, the letter asked financial regulators to issue a joint statement affirming financial inclusion as a priority. Second, it requested a formal advisory group on financial inclusion. Third, the letter requested FinCEN issue FAQs to help financial institutions “avoid shutting down or restricting accounts unnecessarily.” Fourth, the letter asked the Treasury to amend its annual examiner training to include a discussion on financial inclusion. Fifth, it asked for the promulgation of guidance for banks to provide pre-clearance mechanisms for consumers likely to raise AML flags. Finally, the letter requested that the CFPB establish notice and dispute resolution requirements for consumers who “experience account closures especially when a SAR is not filed.”
CFPB orders debt relief servicer to pay $400,000 for charging advanced fees
On May 20, the CFPB released its consent order and stipulation against a debt relief provider for alleged deceptive acts and practices in violation of the CFPA and for alleged deceptive telemarketing practices and collection of advance fees in violation of the Telemarketing Sales Rule (TSR). The CFPB alleged the violations began in January 2016 and ordered a civil money penalty of $400,000. Specifically, the CFPB found the company harmed 5,970 consumers with student loans in the amount of a total of $974,590 in at least three ways: (1) by charging advance fees of $99 to $199 for debt relief services in violation of the TSR, regardless of success in loan relief; (2) by misrepresenting that the fees would be applied to student loans when they were not often used to pay off the student loans; and (3) by misleading consumers that would consolidate student loans, lower monthly payments, and achieve loan forgiveness – especially when the company did not fulfill any of these claims in many instances.
The Bureau nullified all agreements relating to the company’s debt relief services between a consumer and the debt relief company. The Bureau also ordered the company to cease fee collections or attempts and permanently restrained the company from advertising or marketing its debt relief services or receiving any consideration from holding an ownership interest in, providing services to, or working in any capacity for any person engaged in or assisting others in the advertising, marketing, promoting, offering for sale, or selling debt relief services. If the company failed to disclose any material asset or if any sworn statements contain any material representation or omission, the Bureau will require an additional $5 million fine. The company neither admitted nor denied these findings.
CFPB issues interpretive rule likening BNPL accounts to credit cards under Regulation Z
On May 22, the CFPB issued an interpretive rule stating its position that certain consumer protection provisions of Regulation Z applied to Buy Now, Pay Later (BNPL) accounts. The interpretive rule asserted that “digital user accounts” used to access BNPL credit are considered “credit cards” under Regulation Z.
According to the CFPB, BNPL “digital user accounts” fell within TILA and Regulation Z’s definition of a credit card because they qualified as an “other credit device” or “other single credit device.” The CFPB likened its interpretation of “credit device” to the Fed’s interpretation of “access device” in Regulation E, which included non-physical payment codes to initiate an electronic fund transfer. Further, the CFPB stated that because BNPL “digital user accounts” were usable “from time to time to obtain credit,” they met the definition of a “credit card” under Regulation Z.
As a result, the CFPB’s interpretive rule stated that entities issuing such accounts were “card issuers” and therefore “creditors” who are “broadly subject” to the regulations in Subpart B of Regulation Z. The interpretive rule noted that although Subpart B was entitled “Open-End Credit,” it nevertheless applied to closed-end BNPL credit issued through a digital user account if such credit was not subject to a finance charge and was not payable by written agreement in more than four installments. Subpart B included provisions applicable to, among other things, disclosures, consumer disputes, billing errors, and refunds.
The CFPB will request public feedback on the interpretive rule but will reserve the right to move forward without revisions if they are not warranted. The CFPB will submit a report with the interpretive rule to the Senate, the U.S. House, and the U.S. Comptroller General (head of the GAO) prior to the rule’s published effective date.
CFPB sues online lending platform for alleged CFPA, FCRA violations
On May 17, the CFPB announced a lawsuit against an online lending platform through which consumers could obtain small-dollar, short-term loans through a brokering arrangement with lenders. The CFPB alleged the platform violated the CFPA through its deceptive advertisements to consumers on the platform’s alleged promotion of financing terms which included “no interest,” “0% APR,” or “0% interest” but instead invited consumers to provide “tips” and “donations” to lenders, which, would increase the likelihood of a loan being funded. The CFPB further alleged that while the platform marketed zero-interest loans, the platform did not provide users an option for a $0 donation fee or to skip the fee altogether. The Bureau claimed, “almost all of [the platform’s] loans carry an equivalent annual percentage rate of over 36% APR, and many loans carry an APR in excess of 300%, with some over 1,000%.” The Bureau also claimed the platform violated the CFPA by providing misleading TILA disclosures that did not contain the cost of the additional fees and tips in the quoted total payments.
The complaint alleged further violations of the CFPA where the platform (i) obscured whether and how borrowers can select the option for no donation or tip; (ii) stated or implied through its practices that consumers were obligated to repay loan amounts although the loans violated the applicable states’ lender-licensing or usury laws that declared such loans void ab initio or limited consumers’ obligation to repay; (iii) requested to collect and collects on void loans consumers were not obligated to repay for the aforementioned reason; (iv) misleadingly implied that it will furnish negative information to the credit bureaus unless the consumer makes a payment, without actually intending to do so; and (v) violated the FCRA.
The CFPB’s complaint stated that because the platform was a consumer reporting agency under the FCRA and therefore would be required to “follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates.” The CFPB will seek, among other things, injunctions against the platform to prevent future violations, monetary relief for borrowers, forfeiture of ill-gotten gains, and a civil money penalty.