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Yesterday, in advance of a field hearing being held today on consumer complaints, the CFPB released a proposal to expand the amount of information that will be included in the Consumer Complaint Database to include certain consumer complaint narratives, along with any response to the complaint submitted by the identified financial institution. The CFPB already collects the narrative information as part of the complaint intake process, but to date has not published narratives over privacy concerns it believes it now has addressed. The CFPB describes the proposed change as a natural extension of a policy designed to “provide consumers with timely and understandable information about consumer financial products and services, and improve the functioning, transparency, and efficiency of markets for such products and services.” The CFPB will accept comments on the proposal for 30 days following publication in the Federal Register.
Under the proposed policy, the CFPB would seek consumer consent for publication of the complaint narrative, and would “scrub” personal information from each such narrative. The CFPB would also allow the identified company to submit a response to the narrative to be published. A company that wishes to publish a response would be instructed not to provide direct identifying information in its public-facing response, and the CFPB would take reasonable steps to remove personal information from the response to minimize the risk of re-identification.
The CFPB has been considering publishing complaint narratives for some time, and has faced pressure from consumer advocates seeking publication of narratives. Indeed, the CFPB acknowledges this influence in the proposal, stating that in response to a prior proposed complaint policy statement, “consumer, civil rights, and open government groups supported disclosure on the grounds that disclosing narratives would provide consumers with more useful information on which to base financial decisions and would allow reviewers to assess the validity of the complaints.” In addition, during a March 2013 field hearing on consumer complaints that corresponded with a major expansion of the complaint database, consumer groups repeatedly stressed the need for more specific complaint data, including the full narrative description of complaints submitted by consumers.
The CFPB now believes that with privacy concerns addressed, the benefits will outweigh risks associated with publishing the complaints. To assess the benefits and risks of disclosing narratives, the CFPB focused on the direct and indirect benefits to consumers, the benefit to the CFPB, and the advancement of open government principles. The CFPB identifies the following as potential benefits:
- allowing consumers to share specific stories may expand the number of complaints submitted and enhance the CFPB’s consumer response function;
- additional information will increase use of the complaint database by advocates, academics, and the press; and
- consumer finance markets will benefit as the narratives influence companies to adjust prices to match product quality and improve customer service to remain competitive
The CFPB has demonstrated through its examination and enforcement activity that consumer complaints play a major role in the Bureau’s risk-based approach to supervision and enforcement, and the proposal admits that by increasing consumer complaint volume, publication of narratives would benefit “the many Bureau functions that rely, in part, on complaint data to perform their respective missions including the Offices of Supervision, Enforcement, and Fair Lending, Consumer Education and Engagement, and Research, Markets, and Rulemaking.”
Although it acknowledges that “trade groups and industry commenters nearly uniformly opposed disclosure of consumer complaint narratives,” the CFPB’s proposal makes only a superficial attempt to address those concerns. For example, the CFPB currently takes no steps to verify the accuracy of a complaint before it publishes the complaint, and the policy proposal does not propose to alter that process. The proposal admits that there is a risk that financial institutions could incur “intangible reputational damage” as a result of the dissemination of factually incorrect complaint narratives. It also briefly mentions the lost opportunity cost of consumers that may have otherwise done business with a particular company but for the (mis)information in a complaint narrative, stating that the company and the consumer that lose business would be disserved. However, the CFPB rationalizes these costs, asserting that “the marketplace of ideas would be able to determine what the data shows.”
Moreover, the CFPB asserts that its proposal to publicly release company responses to narratives mitigates this risk by assuring that, to the extent there are factual disputes, both sides of the dispute will be made public. The CFPB’s press release states that “in most cases, this response would appear at the same time as the consumer’s narrative so that reviewers can see both sides concurrently.” However, the proposal does not discuss the timing of publication of narratives, and it remains unclear exactly when consumer and company narratives would be published. Under its current practice, the CFPB publishes a consumer complaint before it receives a response from the company. If narratives and responses are not published concurrently, potentially factually incorrect information could be in the public domain before a company has an opportunity to respond. Regardless of timing, financial institutions may be hamstrung in defending themselves in this forum given, among other things, obligations to maintain the confidentiality of customer information.
Request for Comments
The CFPB asks stakeholders not to submit comments on the complaint database generally, or current data fields. The CFPB seeks comments in response to the following specific issues:
- The need for any additional information to help inform consumer consent, the precise language to most effectively communicate with the consumer, at what point in the complaint process (at complaint submission or later in the complaint handling process) and where on the Bureau website the information in support of the opt-in consent should be displayed.
- Whether company responses should be distinct and in addition to the response companies send directly to the consumer.
- The standard and methodology for removing customer information, including suggestions of appropriate analogues to the HIPAA identifiers in the consumer financial domain, and any other identifiers which could reasonably be used to identify individuals.
On March 31 the CFPB published its Consumer Response Annual Report, providing a review of the CFPB’s complaint process and a description of complaints received during January 1 through December 31, 2013. According to the report the Bureau received approximately 163,700 complaints in 2013. Mortgage complaints outpaced all others (37%), followed by complaints regarding debt collection (19%), bank accounts (12%), and credit cards (10%). Complaints related to consumer loans, student loans, payday loans, money transfers, and “other” each comprised 3% or less of the total. The report also breaks down the types of complaints for each category and summarizes companies’ responses. The majority of closed complaints for all categories were resolved with an explanation by the company, i.e. without monetary or other relief, and companies responded to complaints in a timely fashion 99% of the time, or better. The report also stated that the CFPB “continues to evaluate, among other things, the release of consumer narratives, the potential for normalization of the data to make comparisons easier, and the expansion of functionality to improve user experience.”
On March 19, Illinois Attorney General (AG) Lisa Madigan announced a suit against a lender for allegedly offering a short-term credit product designed to evade the state’s usury cap. The AG claims the lender offers a revolving line of credit with advertised interest rates of 18 to 24%, and then adds on “account protection fees.” The AG characterizes those fees as interest substantially in excess of the state’s 36% usury cap. According to the AG, after a borrower takes out the short-term loan, the lender allegedly provides a payment schedule and instructs the borrower to make minimum payments, which consumers who filed complaints with the AG’s office believed was a timeline to pay off the full debt. The complaint is the AG’s first under the Dodd-Frank Act and claims that the lender’s practices take unreasonable advantage of consumers and constitute abusive practices. The complaint also alleges violations of the state Consumer Fraud and Deceptive Businesses Practice Act and seeks restitution, civil penalties, disgorgement, and an order nullifying all existing contracts with Illinois consumers and prohibiting the company from selling lines of credit and revolving credit in Illinois.
On March 20, the CFPB released its third annual report summarizing its activities in 2013 to implement and enforce the FDCPA. The report describes the CFPB’s and the FTC’s shared FDCPA enforcement authority, incorporates the FTC’s annual FDCPA update, and reiterates the intention of both the FTC and the CFPB to exercise their authority to take action—both independently and in concert—against those in violation of the FDCPA.
The report highlights the debt collection-related complaints the Bureau has received—over 30,000 since the CFPB began accepting and compiling consumer complaints in July 2013, making the third-party debt collection market the largest source of consumer complaints submitted to the CFPB. The report states that the majority of the complaints the CFPB has received involve attempts to collect debts not owed and allegedly illegal communication tactics. The report also identifies several changes within the debt collection industry over the past year that will remain points of emphasis for the CFPB, including the expansion of the debt buying market, the growth of medical debt and student loan debt in collection, and the use of expanded technologies to communicate with debtors.
On March 6, the CFPB released a “snapshot” of servicemember complaints prepared by the Office of Servicemember Affairs (OSA), which analyzes the military consumer complaints received since July 2011. According to the report, servicemembers, veterans, and their families have submitted 14,100 complaints to the Bureau since its opening and have recovered more than $1 million. The volume of servicemember complaints has continued to increase over time, rising 148% from 2012 to 2013.
Notably, although “debt collection” was not added as a complaint category until July 2013, approximately 3,800 complaints received relate to collection practices. Nearly half of these complaints concern attempts to collect non-existent debts, with the remainder concerning improper collection tactics and procedural issues related to collection. The category that received the most complaints—approximately 4,700—was mortgage. Concerns raised relate primarily to practices undertaken when a borrower defaults, but also to loan origination and making payments. The remainder of the complaints received relate to consumer loans, private student loans, payday loans, credit cards, credit reporting, banking services, and money transfers. Along with debt collection practices, the report identifies payday loans—and specifically, compliance with the Military Lending Act's interest-rate restrictions—as a point of focus for OSA.
On January 30 the CFPB, the Department of Defense (DOD), the Department of Veterans Affairs (VA), the FTC, and other federal agencies announced the launch of a new online system designed to collect information from veterans, current servicemembers, and their families regarding negative experiences at education institutions and training programs administering the Post-9/11 GI Bill, DOD Military Tuition Assistance, and other military-related education benefit programs. The new system is modeled after the CFPB’s complaint system and is intended to help the government identify and address unfair, deceptive, and misleading practices. The complaint system, which is comprised of the DOD’s Postsecondary Education Complaint System and to the VA GI Bill Feedback System, was developed in accordance with the April 2012 Executive Order 13607, Establishing Principles of Excellence for Educational Institutions Serving Service Members, Veterans, Spouses, and Other Family Members. That order required, among other things, the Secretaries of Defense and Veterans Affairs to “create a centralized complaint system for students receiving Federal military and veterans educational benefits to register complaints that can be tracked and responded to by the Departments of Defense, Veterans Affairs, Justice, and Education, the CFPB” and other relevant agencies.
On January 28, the CFPB issued a consumer advisory in response to recent reports of data breaches at several large retailers. In addition to providing tips for consumers in the wake of a retail breach, the advisory encourages card holders to submit complaints about debit and credit card issuers’ inadequate responses to consumer charge disputes related to data breaches.
The advisory is the first public response from the CFPB on data breach issues. It follows a request last month from Senator Chuck Schumer (D-NY), a member of the Senate Banking Committee, that the CFPB conduct an investigation of the data breach and issue a “full report on the findings of its investigation -- informing the public of how this breach occurred, how consumers can protect themselves from similar attacks, and any further recommendations the CFPB may have for retailers to minimize the occurrence of similar breaches.” Schumer also asked Director Cordray to “take a closer look at whether retailers systems should be required to transfer credit and debit card information as encrypted data. . . . The CFPB must ensure that necessary rules and standards for retailers are in place to validate consumers’ trust in the transaction process.”
Numerous congressional committees share jurisdiction over data breach issues. The Senate Banking Committee will be among the first to act with a hearing scheduled for February 3, 2014 that will feature governmental witnesses, as well as the views of the retailer and banking industries.
On November 12, the CFPB announced a partnership with the City of Columbus to provide local residents access to the CFPB’s consumer complaint hotline through the city’s existing constituent service hotline. Columbus residents who call the city hotline with a question or complaint about consumer financial products or services will be transferred directly to the CFPB for assistance. The CFPB announced a similar partnership with the City of St. Louis, Missouri on October 31, and has established relationships with numerous other localities in the past, including Newark, New York, Boston, and Jackson.
On November 6, the CFPB announced that it now will formally accept borrower complaints regarding payday loans through its online complaint portal and by phone. The CFPB’s complaint taking process launched with the Bureau in July 2011, and the CFPB began publishing complaints through its online complaint database in June 2012. The CFPB started with credit card complaints and has since expanded the complaint program and public database to cover mortgages, debt collection, credit reporting, student and other consumer loans, and other products and services.
For purposes of complaint collection, the CFPB defines a payday loan as a “small loan, generally for $500 or less, that is typically due on [the borrower’s] next payday or the next time [the borrower] receive[s] income.” The CFPB adds that a payday loan also may be known as a “cash advance” or a “check loan.” The complaint categories offered by the CFPB include: (i) unexpected fees or interest, (ii) unauthorized or incorrect charges to a bank account, (iii) failure to credit a payment, (iv) problems contacting a lender, (v) receiving a loan not applied for, and (vi) failure to provide borrowed funds. Separately, the CFPB highlighted servicemember payday loan protections provided by the Military Lending Act and encouraged servicemembers to submit payday loan complaints.
These announcements are the most recent from the CFPB in connection with its sustained and expanding interest in short-term, small dollar products. Indeed, as we’ve reported here in the past, federal and state authorities more generally have increased their scrutiny of companies that offer these products and affiliated parties like payment processors. For its part, earlier this year the CFPB issued a white paper on payday loans and deposit advance products, and the CFPB has repeatedly ranked high on its enforcement agenda short-term products it believes have the potential to trap consumers in a “cycle of debt.” In addition, based on the CFPB’s most recent rulemaking agenda, the CFPB may publicly begin certain rulemaking activities with regard to payday loans and deposit advance products.
On October 28, HUD issued two mortgagee letters related to the servicing of certain FHA-insured loans. Mortgagee Letter 2013-38 provides a list of the first legal actions necessary to initiate a foreclosure and the reasonable diligence timeframes for completing foreclosure and acquisition of title in each state. The letter also outlines acceptable delays in those timeframes due to mediation or bankruptcy, or when a separate legal action is necessary to acquire possession of the title. In addition, the letter provides a new schedule of allowable attorney fees by state for services performed in connection with a mortgage default. The updated reasonable diligence timeframes apply to all cases in which the first legal action to initiate foreclosure occurs on or after November 1, 2013. The updated attorney fees are effective for all cases in which certain actions occur on or after November 1, 2013. Mortgagee Letter 2013-39 updates the timelines servicers must follow for collection communications, advises servicers regarding early engagement in loss mitigation, outlines staffing requirements to support timely borrower communications, and provides guidance on the timing, content, and method of delivery for collection letters and other borrower communications. This letter also advises servicers to pay special attention to borrowers at risk of early payment default and re-default, and provides specialized collection techniques for such borrowers. Finally, this letter details the FHA’s expectations for escalating borrower inquiries and complaints that allege (i) improper analysis of borrower information or denials of loss mitigation options, (ii) foreclosures initiated or continued in violation of HUD’s policy, or (iii) any other violations of HUD collections and loss mitigation policies. This guidance is effective for all mortgages in default as of January 1, 2014.
- Jonice Gray Tucker to discuss “How the new administration sets the tone for 2021” at the American Conference Institute Legal, Regulatory and Compliance Forum on Fintech & Emerging Payment Systems
- Sherry-Maria Safchuk to discuss UDAAP in consumer finance at an American Bar Association webinar
- Jeffrey P. Naimon to discuss "What to expect: The new administration and regulatory changes" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Jonice Gray Tucker to discuss “The future of fair lending” at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Steven R. vonBerg to discuss "LO comp challenges" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "Major litigation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss “The False Claims Act today” at the Federal Bar Association Qui Tam Section Roundtable