InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
CFPB Fines Mortgage Servicer for RESPA Violations
On June 7, the CFPB ordered a mortgage servicer to pay up to $1.15 million in restitution for failing to provide borrowers with required foreclosure protections when handling loss-mitigation applications. The consent order alleges the servicer violated RESPA by failing to send critical information to consumers who were applying for foreclosure relief, and, in some circumstances, beginning foreclosure proceedings on borrowers who had submitted completed applications. Pursuant to the consent order, in addition to restitution, the servicer is required to provide borrowers the opportunity to pursue foreclosure relief, must cease its illegal practices, and develop policies and procedures to ensure compliance with mortgage servicing rules.
Cordray Speaks at Consumer Advisory Board Meeting; Extends Comment Period for RFI on Small Business Lending Market
On June 8, CFPB Director Richard Cordray delivered prepared remarks at the Consumer Advisory Board Meeting in Washington, DC announcing, among other things, that the Bureau has extended the comment period of the “Request for Information Regarding the Small Business Lending Market” an additional 60-days. As previously covered in InfoBytes, the RFI—which was issued May 10—will provide feedback on various aspects of the small business lending market. Cordray noted the CFPB is “mindful of the potential complexity and cost of small business data collection and reporting” and that it plans to “explore ways to fulfill this duty in a balanced manner, seeking to provide timely data with the highest potential to meet the statutory objectives, while minimizing the burdens for both industry and the Bureau.” Allowing for more time to receive “quality responses from the public,” Cordray extended the comment period.
Additionally, Cordray discussed three other topics: (i) the Bureau’s emphasis on encouraging credit card market transparency to reduce consumer risk; (ii) updates to the Bureau’s continued “credit invisibility” research; and (iii) the need to formulate new rules governing the debt collection market.
FTC Obtains Multiple Judgments Against California and Florida-Based Robocall Operations
The FTC recently entered judgments against robocalling operations based in California and Florida who engaged in activities that violated, among other things, the Telemarketing Sales Rule (TSR) and the Telemarketing Consumer Fraud and Abuse Prevention Act.
California Default Judgments. On June 2, the FTC announced a California federal district court judge approved default judgments against an individual and each of the nine corporations for which he was an “actual or de facto owner, officer or manager” (Defendants). According to the FTC’s complaint, over a period spanning approximately seven years, the Defendants allegedly initiated—or helped to initiate—“billions” of illegal robocalls without receiving written permission from consumers. Many of the calls made were to numbers on the Do Not Call (DNC) Registry to “induce the purchase of goods or services” such as auto warranties, home security systems, or search engine optimization services. Violations of the TSR cited include knowingly assisting and facilitating telemarketers engaged in abusive practices. According to the terms of the default judgments, the individual has been assessed a $2.7 million penalty, and the Defendants are permanently banned from all telemarketing activities.
Florida Consent Order. On June 5, the FTC and the Florida Attorney General entered eight stipulated orders against Orlando-based individuals and companies—18 Defendants in total—who violated the TSR, Telemarketing and Consumer Fraud and Abuse Prevention Act, and Florida’s Telemarketing and Consumer Fraud and Abuse Act for, among others things, using robocalls to sell credit card interest rate reduction programs, in addition to calling numbers on the DNC Registry. According to the joint complaint, the Defendants allegedly engaged in the following violations: (i) offered debt relief programs but failed to provide promised services; (ii) misrepresented their affiliations with consumers’ banks or credit card companies; (iii) unfairly authorized charges without obtaining consent; (iv) received fees prior to providing debt relief services; (v) failed to transmit telemarketer information; (vi) used prerecorded messages to “induce the purchase of goods or services”; and (vii) failed to make oral disclosures. The stipulated orders settle charges against all Defendants and require that they stop the “allegedly illegal conduct.” Some of the Defendants have also been issued financial penalties. Furthermore, the FTC entered a $4.8 million judgment against 12 Defendants identified as the primarily parties for the scam. This amount represents the full amount of consumer harm caused. All stipulated orders can be accessed through the FTC press release.
CFPB Monthly Complaint Snapshot Highlights Complaints from Older Consumers
On May 31, the CFPB released Vol. 23 of its Monthly Complaint Report. This month’s report highlights complaints from “older consumers” defined as those who voluntarily report their age as 62 or older. Since it began accepting complaints, the Bureau has received over 1 million complaints—more than 100,000 from older consumers. The report focuses on these complaints, with some of the most common in 2017 including:
- Reverse mortgage servicing issues, which are unique to this group of consumers. Many of the complaints surround older consumers attempting to stay in their home after the death of the borrowing spouse, occasionally ending in foreclosure;
- Financial scams and identity theft issues are often difficult to recover from—especially for consumers on fixed-incomes;
- Credit card issues such as introductory offers may cause confusion for older consumers in understanding credit terms and conditions or the difference between zero interest and deferred interest. Additionally, many older consumers struggle with billing disputes, unwanted subscription services and credit monitoring; and
- Escrow issues, especially when the consumer is trying to benefit from tax relief programs.
The graph shown in a blog on the Bureau’s website compares complaints from consumers 62 and older with complaints from consumers under 62. Although both groups of consumers reported complaints for many of the same products, the graph shows that mortgages, debt collection and credit cards, in that order, are the top three products for those 62 and older—whereas debt collection, mortgages and credit reporting are the top three for those under 62. Additionally, the report reveals that almost a quarter of all complaints from older consumers came from residents of California, Texas, and Florida.
Cordray Discusses Youth Financial Education, CFPB Responsibilities
Recently, CFPB Director Richard Cordray delivered prepared remarks at the Financial Literacy and Education Commission Meeting in Washington, DC on May 24 and at the People and Places Conference in Arlington, VA on May 31.
Financial Literacy and Education Commission (Commission). Coordinated by the Treasury Department’s Office of Financial Security, the Commission presented results from the 2015 Programme for International Student Assessment study on financial education in the U.S. and how it compares to other countries. Cordray’s opening remarks stressed the-importance of providing financial resources and educational tools empowering young people and outlined efforts the CFPB has underway, such as the Youth Financial Education resource page, the online Money as You Grow tool, and other community outreach education programs.
People and Places Conference. A keynote speaker at the conference, Cordray outlined the three main components of the CFPB’s work: (i) supervision and enforcement; (ii) implementing common-sense rules; and (iii) hearing and addressing consumer complaints to help keep companies accountable. Regarding supervisory and enforcement actions, Cordray stated that the Bureau’s activities serve to help change institutions’ practices for the better by (i) providing consistent supervision; (ii) initiating public enforcement actions to serve as a deterrent to “bad behavior”; and (iii) upholding “laws that ban unfair, deceptive, or abusive acts or practices.” Cordray asserted that by setting expectations financial institutions must meet in their own compliance work, similar violations can be avoided. Cordray spoke next about the need to establish “common-sense rules of the road” in order to protect consumers. He used the mortgage industry as an example of how the Bureau responded to Congress’s directive for developing “much-needed reforms” by “implementing rules to govern underwriting, servicing, and loan originator compensation” and “temper[ed] these regulations for small creditors so as to ease regulatory burdens on community banks and credit unions.” Furthermore, Cordray stated the Bureau’s ability to receive and process consumer complaints is crucial to identifying, understanding, and prioritizing problems.
FTC Submits Annual Report on 2016 Enforcement Actions to CFPB
On June 1, the FTC announced that it submitted its 2016 Annual Financial Acts Enforcement Report to the CFPB. The report—requested by the Bureau for its use in preparing its 2016 Annual Report to Congress—covers the FTC’s enforcement activities related to compliance with Regulation Z (Truth in Lending Act or TILA), Regulation M (Consumer Leasing Act), and Regulation E (Electronic Funds Transfer Act or EFTA), as well as its initiatives to engage in research and consumer education.
According to the report, the FTC’s enforcement actions in 2016 concerning TILA involved automobile purchasing and financing, payday loans, and financing of consumer electronics. Regarding mortgage-related credit activity, the report highlights continued litigation in two cases involving mortgage assistance relief services involving “forensic audit scams.” Furthermore, the FTC continued its consumer and business education efforts on issues related to consumer credit transactions in the following areas: military lending, auto sales and financing, payday lending, marketplace lending, and consumer disclosures and testing.
Regarding the Consumer Leasing Act, the report noted the FTC had issued a final administrative consent order for deceptive advertising practices and failure to disclose key lease offer terms. The FTC also filed two federal court actions against automobile dealers. The FTC also engaged in research and policy development and educational activities in this area.
Concerning the EFTA, the FTC reported six new or ongoing cases, including four cases alleging violations in the context of “negative option” plans, in which a consumer agrees to “receive various goods or services from a company for a trial period at no charge or at a reduced price” but later incurs unauthorized recurring charges after the end of the trial period, in violation of the EFTA. The remaining two cases involved payday lending and consumer electronics financing. The FTC also engaged in rulemaking, research, policy development, and educational activities involving the EFTA.
CFPB Seeks Public Comment on its Plans for Assessing the Ability-to-Repay/Qualified Mortgage Rule
On May 25, the CFPB issued a request for comment on its plans for assessing the 2014 Ability-to-Repay/Qualified Mortgage Rule’s effectiveness in meeting the purposes and objectives outlined in the Dodd-Frank Act, which requires the Bureau to assess each significant rule or order it adopts under Federal consumer financial laws. According to the request for comment, and a May 25 blog post on the CFPB’s website, the self-assessment will focus on objectives to ensure that: (i) consumers are provided with timely and understandable information to make responsible decisions about financial transactions; (ii) consumers are protected from unfair, deceptive, or abusive acts and practices and from discrimination; (iii) outdated, unnecessary, or unduly burdensome regulations are regularly identified and addressed in order to reduce unwarranted regulatory burdens; (iv) federal consumer financial law is enforced consistently, without regard to the status of a person as a depository institution, in order to promote fair competition; and (v) markets for consumer financial products and services operate transparently and efficiently to facilitate access and innovation.
The Dodd-Frank Act established new standards for mortgage lending and created a class of “qualified mortgage” (QM) loans. The standards required lenders to assess consumers’ ability to repay (ATR). Dodd-Frank also provided for a class of QM loans that must not have “certain risky product features and are presumed to comply with the ATR requirement.”
The CFPB issued rules to make ATR and QM standards “clear and effective” in January 2013. As previously covered in a Special Alert, the rule and its amendments that took effect on January 10, 2014 provide a mechanism for curing point-and-fees overages on QM loans as well as more minor amendments to its mortgage origination and servicing rules.
Florida Judge Issues Temporary Injunction to Halt Debt Relief Operation
On May 25, at the request of the FTC and the State of Florida, a Southern District of Florida court issued a preliminary injunction order temporarily halting a debt relief operation that bilked millions of dollars from financially strapped consumers. According to the complaint filed by the FTC and the State of Florida, the Defendants—who operated the debt relief operation—allegedly violated the FTC Act, the FTC’s Telemarketing Sales Rule (TSR), and the Florida Deceptive and Unfair Trade Practices Act by claiming they would enroll consumers in loan forgiveness or payment reduction programs to pay, settle, or obtain dismissals of their debts and improve their credit. (See FTC v. Marcus, No. 0:17-cv-60907-CMA (S.D. Fla. May 8, 2017).) Consumers were often promised attractive interest rates and significantly lower monthly payments. However, consumers, after paying hundreds or thousands of dollars a month for promised debt-consolidation services, discovered their debts were unpaid, their accounts had defaulted, and their credit scores damaged. Several were sued by their creditors, and some were forced into bankruptcy. The FTC and the State of Florida further allege that the Defendants “falsely claimed non-profit status to appear more credible and legitimate.” The complaint further alleges that Defendants called consumers already enrolled with debt-relief providers to inform them that they were taking over the servicing of those accounts and would provide the same or similar debt relief services. Contrary to the Defendants’ promises, consumers ended up in worse financial positions.
In its preliminary injunction order, the court determined that there was good cause to believe that “immediate and irreparable harm” would result unless an injunction was issued. The order prohibits the defendants, in connection with the advertising, marketing, promotion or sale of any good or service, including any debt-relief product or service or credit product or service, from making misrepresentations about debt-relief programs or services and violating any provision of the TSR. The court also ordered a freeze of the Defendants’ assets, imposed financial reporting requirements, and appointed a temporary receiver. In a press release issued by the FTC, the Agency claims it seeks to “permanently stop the alleged illegal practices and obtain refunds for affected consumers.”
CFPB Closes Public Comments on Remittance Transfer Rule; Industry Groups Submit Responses
As previously covered in InfoBytes, the CFPB issued a request for comment on its plan for assessing the effectiveness of its May 2013 final rule governing consumer remittance transfers (Remittance Rule). The request, which closed for public comment on May 23, focused on, among other things: (i) “whether the market for remittances has evolved . . . in ways that promote access, efficiency, and limited market disruption”; and (ii) whether the Remittance Rule (and other CFPB regulatory activity) has “brought more information, transparency, and greater predictability of prices to the market.” The CFPB received over 35 public comments from a vast array of large and small credit unions, as well as some of the leading providers of money transfer by volume. The consensus among these institutions was that implementing and maintaining the Remittance Rule’s new disclosures, cancellation windows, and audits are costly and the benefits to consumers are negligible. Specifically, one commenter noted increased consumer confusion, increased consumer delays in receiving their funds, and some have discontinued offering money transfers altogether.
On May 23, the American Bankers Association (ABA) submitted a comment letter calling upon the Bureau to conduct an evidence-based assessment on whether the rule has preserved consumers’ access to remittance services. According to a survey conducted by the ABA of 75 member banks of varying asset sizes and cited in the comment letter, the rule—intended to “provide additional information to help consumers shop for remittances and establish error resolution procedures and protections”—has “restricted consumers’ access to remittances, increased fees for use of the service, and unnecessarily delayed remittance requests.” As explained in the letter, the ABA expressed concern about the rule, stating that there is “little evidence that the final rule has improved consumer decision-making or facilitated comparison shopping.” Furthermore, the ABA has asked the CFPB to examine the following issues: (i) whether consumers, including those in rural areas, have access to remittance transfer services; (ii) whether consumers are provided information about remittance services that inform rather than confuse; and (iii) whether regulation of remittances is not unnecessarily burdensome to the financial institutions that provide this service.
Separately, on May 23, The Clearing House, the Consumer Bankers Association, the Bankers Association for Finance and Trade, and the ABA (Associations), issued a joint letter urging the CFPB to examine the effects of the rule from the perspective of both consumer-senders of remittance transfers and the providers of those services. The Associations outlined recommendations for the CFPB including: (i) continuing to permit depository institutions to provide estimates of third-party fees and exchange rates rather than actual fees and rates in cases where obtaining exact data is not feasible; (ii) excluding from the rule high-value transfers in excess of a certain dollar amount as well as excluding from coverage transfers effectuated through reloadable prepaid cards; (iii) modifying disclosure requirements and cancellation and resend rights; and (iv) making changes to the rule’s error resolution provisions to hold the sender responsible for transaction costs resulting from sender error.Florida Attorney General Rolls Out Military Consumer Protection Program; CFPB Publishes Annual Servicemember Report
On May 17, Attorney General Pam Bondi announced a new consumer protection program designed to spread awareness and help prevent deceptive business practices affecting military and veteran communities. The Military and Veterans Assistance Program (MVAP) will provide resources and information to consumers on emerging scams and other consumer protection related issues, as well as encourage open communication among local, state, and federal partners to help ensure complaints are handled appropriately.
On May 16, the CFPB’s Office of Servicemember Affairs (OSA) published its fifth annual servicemember report, The Office of Servicemember Affairs: Charting our course through the military lifecycle, and a follow-up blog post outlining the work the office has conducted over the past five years and the work it intends to do in the future. The structure of the report—designed to be presented within the construct of the “military lifecycle”—presents the ways that “many common and some uniquely-military consumer issues . . . fit within that continuum.” Under the Dodd-Frank Act, OSA monitors servicemember complaints about consumer financial products or services and coordinates with the efforts of federal and state agencies to improve measures and provide assistance. As of April 1, 2017, the OSA reports that it has handled approximately 74,800 complaints submitted by servicemembers, veterans, and their families since July 2011, of which 42 percent related to debt collection, 18 percent to mortgages, and 11 percent to credit reporting. In total, the OSA claims it has provided approximately $3.3 million in monetary relief to military consumers who submitted complaints to the CFPB.