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Special Alert: CFPB’s RESPA advisory addresses online mortgage-comparison platforms
The Consumer Financial Protection Bureau (CFPB) issued guidance yesterday making clear that those who operate or participate in online mortgage-comparison shopping platforms will be closely scrutinized for compliance with the prohibition on payments for referrals to mortgage lenders. “Companies operating these digital platforms appear to shoppers as if they provide objective lender comparisons, but may illegally refer people to only those lenders paying referral fees,” the agency said. Here’s what you need to know:
What happened?
The CFPB issued an Advisory Opinion on how the Real Estate Settlement Procedures Act (RESPA) applies to online mortgage-comparison platforms. The agency said platform operators violate RESPA “when they steer shoppers to lenders by using pay-to-play tactics rather than providing shoppers with comprehensive and objective information.” Specifically, the agency said operators receive a prohibited referral fee when they use or present information in a way that steers consumers to mortgage lenders in exchange for a payment or something else of value.
CFPB advisory stresses “permissible purpose” of consumer reports
On July 7, the CFPB issued an advisory opinion to state its interpretation that under certain FCRA-permissible purpose provisions, a consumer reporting agency may not provide a consumer report to a user unless it has reason to believe that all of the information it includes pertains to the consumer who is the subject of the user’s request. The Bureau explained that “credit reporting companies and users of credit reports have specific obligations to protect the public’s data privacy,” and reminded covered entities that “FCRA section 604(f) strictly prohibits a person who uses or obtains a consumer report from doing so without a permissible purpose.”
Among other things, the FCRA is designed to ensure fair and accurate reporting and requires users who buy these consumer credit reports to have a legally permissible purpose. Specifically, the advisory opinion clarifies that (i) insufficient matching procedures can result in credit reporting companies providing reports to entities without a permissible purpose, thus violating a consumer’s privacy rights (the Bureau explained that if a credit reporting company uses name-only matching procedures, items appearing on a credit report may not all correspond to a single individual); (ii) it is unlawful to provide credit reports of multiple people as “possible matches” (credit reporting companies are obligated to implement adequate procedures to find the correct individual); (iii) disclaimers about insufficient matching procedures will not cure a failure to take reasonable measures to ensure the information provided in a credit report is only about the individual for whom the user has a permissible purpose; and (iv) credit report users must ensure that they are not violating an individual’s privacy by obtaining a credit report when they lack a permissible purpose for doing so.
The Bureau also outlined certain criminal liability provisions in the FCRA. According to the advisory opinion, covered entities may face criminal liability under Section 619 for obtaining information on an individual under false pretenses, while Section 620 “imposes criminal liability on any officer or employee of a consumer reporting agency who knowingly and willfully provides information concerning an individual from the agency’s files to an unauthorized person.” Violators can face criminal penalties and imprisonment, the Bureau said in its announcement.
As previously covered by InfoBytes, the Bureau finalized its Advisory Opinions Policy in 2020. Under the policy, entities seeking to comply with existing regulatory requirements are permitted to request an advisory opinion in the form of an interpretive rule from the Bureau (published in the Federal Register for increased transparency) to address areas of uncertainty.
CFPB warns debt collectors on “pay-to-pay” fees
On June 29, the CFPB issued an advisory opinion to state its interpretation that Section 808 of the FDCPA and Regulation F generally prohibit debt collectors from charging consumers “pay-to-pay” fees for making payments online or by phone. “These types of fees are often illegal,” the Bureau said, explaining that its “advisory opinion and accompanying analysis seek to stop these violations of law and assist consumers who are seeking to hold debt collectors accountable for illegal practices.”
These fees, commonly known as convenience fees, are prohibited in many circumstances under the FDCPA, the Bureau said. It pointed out that allowable fees are those authorized in the original underlying agreements that consumers have with their creditors, such as with credit card companies, or those that are affirmatively permitted by law. Moreover, the Bureau stressed that the fact that a law does not expressly prohibit the assessment of a fee does not mean a debt collector is authorized to charge a fee. Specifically, the advisory opinion interprets FDCPA Section 808(1) to permit collection of fee only if: (i) “the agreement creating the debt expressly permits the charge and some law does not prohibit it”; or (ii) “some law expressly permits the charge, even if the agreement creating the debt is silent.” Additionally, the Bureau’s “interpretation of the phrase ‘permitted by law’ applies to any ‘amount’ covered under section 808(1), including pay-to-pay fees.” The Bureau further added that while some courts have adopted a “separate agreement” interpretation of the law to allow collectors to assess certain pay-to-pay fees, the agency “declines to do so.”
The Bureau also opined that a debt collector is in violation of the FDCPA if it uses a third-party payment processor for which any of that fee is remitted back to the collector in the form of a kickback or commission. “Federal law generally forbids debt collectors from imposing extra fees not authorized by the original loan,” CFPB Director Rohit Chopra said. “Today’s advisory opinion shows that these fees are often illegal, and provides a roadmap on the fees that a debt collector can lawfully collect.”
As previously covered by InfoBytes, the Bureau finalized its Advisory Opinions Policy in 2020. Under the policy, entities seeking to comply with existing regulatory requirements are permitted to request an advisory opinion in the form of an interpretive rule from the Bureau (published in the Federal Register for increased transparency) to address areas of uncertainty.
CFPB: ECOA protection extends past application process
On May 9, the CFPB issued an advisory opinion to affirm its interpretation that ECOA bars lenders from discriminating against customers after they have applied for and received credit, not just during the application process. The Bureau’s opinion and analysis interprets ECOA and its implementing rule, Regulation B, as applying to the “approval, denial, renewal, continuation, or revocation of any open-end consumer credit account,” and is consistent with the agency’s joint amicus brief filed last December with the DOJ, Federal Reserve Board, and FTC, which argued that the term “applicant” as used in ECOA/Regulation B, includes both those seeking credit, as well as persons who have sought and have received credit (i.e., current borrowers). (Covered by InfoBytes here.) This has been the agency’s “longstanding position,” the Bureau stressed, noting it was the view of federal agencies prior to the Bureau’s creation as well.
However, “[d]espite this well-established interpretation, the Bureau is aware that some creditors fail to acknowledge that ECOA and Regulation B plainly apply to circumstances that take place after an extension of credit has been granted, including a revocation of credit or an unfavorable change in the terms of a credit arrangement,” the advisory opinion stated, explaining that ECOA prohibits creditors from lowering a borrower’s available line of credit or subjecting a borrower to more aggressive collections practices on a prohibited basis, such as race or national origin. “In addition, the Bureau is aware that some creditors fail to provide applicants with required notifications that include a statement of the specific reasons for the adverse action taken or disclose an applicant’s right to such a statement.” Creditors are required to provide “adverse action notices” when denying a loan, the Bureau wrote, adding that these notices are required when the terms of an existing loan are modified or terminated. “This interpretation of ECOA, therefore, forecloses a potential loophole that could effectively swallow much of the Act. Such a loophole would be plainly inconsistent with ECOA,” the advisory opinion stressed. While the Bureau acknowledged that “a few other district court decisions have interpreted ‘applicant’ to include only persons actively seeking credit,” the agency stressed that the district courts “read ‘applicant’ in isolation instead of reading this statutory term in context, as required by the Supreme Court,” and that “no court of appeals has endorsed these district courts’ narrow reading.”
As previously covered by InfoBytes, the Bureau finalized its Advisory Opinions Policy in 2020. Under the policy, entities seeking to comply with existing regulatory requirements are permitted to request an advisory opinion in the form of an interpretive rule from the Bureau (published in the Federal Register for increased transparency) to address areas of uncertainty.
CFPB may revisit EWA guidance
On January 18, acting CFPB General Counsel Seth Frotman sent a letter to consumer advocates responding to their concerns that the Bureau’s November 2020 advisory opinion on earned wage access (EWA) products was being misused as justification for passage by proponents of a pending New Jersey bill that would permit third-party earned wage access companies to charge fees or permit “tips” for their products without having to abide by the state’s 30 percent usury cap. As previously covered by InfoBytes, the Bureau issued an advisory opinion on EWA products to address the uncertainty as to whether EWA providers that meet short-term liquidity needs that arise between paychecks “are offering or extending ‘credit’” under Regulation Z, which implements TILA. The advisory opinion stated that “‘a Covered EWA Program does not involve the offering or extension of ‘credit,’” and noted that the “totality of circumstances of a Covered EWA Program supports that these programs differ in kind from products the Bureau would generally consider to be credit.” In December 2020, the Bureau approved a compliance assistance sandbox application, which confirmed that a financial services company’s EWA program did not involve the offering or extension of “credit” as defined by section 1026.2(a)(14) of Regulation Z. The Bureau noted that various features often found in credit transactions were absent from the company’s program, and issued a two-year approval order, which provides the company a safe harbor from liability under TILA and Regulation Z, to the fullest extent permitted by section 130(f) as to any act done in good faith compliance with the order (covered by InfoBytes here).
In his letter, Frotman stated that “[i]t appears from your recounting of the legislative history that the advisory opinion has created confusion, as proponents of the bill seem to have misunderstood the scope of the opinion. The CFPB’s advisory opinion, by its terms, is limited to a narrow set of facts—as relevant here, earned wage products where no fee, voluntary or otherwise, is charged or collected.” Frotman acknowledged that the Bureau’s advisory opinion has also received pushback from consumer groups who sent a letter last year urging the Bureau to rescind the advisory opinion and sandbox approval and regulate fee-based EWA products as credit subject to TILA (covered by InfoBytes here). “Given these repeated reports of confusion caused by the advisory opinion due to its focus on a limited set of facts, I plan to recommend to the Director that the CFPB consider how to provide greater clarity on these types of issues,” Frotman wrote. He further stated that the advisory opinion did not purport to interpret whether the covered EWA products would be “credit” under other statutes other than TILA, including the CFPA or ECOA, or whether they would be considered credit under state law.
CFPB affirms name-only matching practices violate FCRA
On November 4, the CFPB issued an advisory opinion to express its interpretation that credit reporting companies, including tenant and employment screening companies, are in violation of the FCRA if they engage in the practice of matching consumer records solely by name. According to the Bureau, the use of name-only matching procedures (without the use of other personally identifying information such as address, date of birth, or Social Security number) does not assure maximum possible accuracy of consumer information. The Bureau emphasized that there is a heightened risk of mistaken identity from name-only matching among Hispanic, Black, and Asian communities due to less surname diversity among those populations as compared to the White population. “When background screening companies and their algorithms carelessly assign a false identity to applicants for jobs and housing, they are breaking the law,” Director Rohit Chopra stated. “Error-ridden background screening reports may disproportionately impact communities of color, further undermining an equitable recovery.” The advisory opinion affirms consumer reporting companies’ obligation to use reasonable procedures to assure maximum possible accuracy, and “does not create a safe harbor to use insufficient matching procedures involving multiple identifiers.” Other practices, such as combining a name with date of birth, could also lead to cases of mistaken identity, the Bureau warned. The Bureau will work closely with the FTC to eliminate illegal conduct in the background screening industry, while the FTC may be able to take actions against unfair or deceptive conduct not covered by the CFPA. The Bureau further emphasized that violating the FCRA can lead to civil penalties, restitution, damages, and other relief.
Chopra issued a statement on the Bureau’s intention to curb false identity matching, pointing out that name-only matching is just one example of an inadequate procedure and that nothing in the advisory opinion “suggests that the responsibility to follow reasonable procedures to assure maximum possible accuracy can be met with a thoughtless application of any particular loose matching criteria, even if more than names alone are matched.” He also warned companies they should not try to evade their FCRA responsibilities “by issuing a disclaimer that their report might not be matched to the right person.” Chopra further noted that the Bureau will support the FTC in its work to monitor business models that rely on harvesting and monetizing personal data, as well as big tech companies and lesser-known data brokers that traffic data and consumer reports.
CFPB finalizes Advisory Opinions Policy, issues two opinions
On November 30, the CFPB announced the finalization of its Advisory Opinions Policy, which will allow entities seeking to comply with existing regulatory requirements to request an advisory opinion in the form of an interpretive rule from the Bureau to address areas of uncertainty. Persons or entities interested in submitting a request for an advisory opinion should email advisoryopinion@cfpb.gov. As previously covered by InfoBytes, last June the Bureau launched a pilot advisory opinion program to focus primarily on clarifying ambiguities in Bureau regulations, and issued a request for public comment on a proposal for a new policy on advisory opinions. Under the final policy, the Bureau will review submissions, prioritize requests for response, issue opinions with a description of the incoming request, and “may also decide to issue advisory opinions on its own initiative.” All advisory opinions will be published in the Federal Register to increase transparency. The Bureau notes that it will prioritize open questions within its purview that can be addressed legally through an interpretive rule and adds that it “intends to further evaluate potential topics for advisory opinions based on additional factors, including: alignment with the Bureau’s statutory objectives; size of the benefit offered to consumers by resolution of the interpretive issue; known impact on the actions of other regulators; and impact on available Bureau resources.”
Concurrently, the Bureau issued two advisory opinions: one on earned wage access (EWA) products and one clarifying the definition of certain student education loan products. The EWA advisory opinion addresses the uncertainty as to whether EWA providers that meet short-term liquidity needs that arise between paychecks “are offering or extending ‘credit’” under Regulation Z, which implements TILA. The advisory opinion states that “a Covered EWA Program does not involve the offering or extension of ‘credit,’” noting that the “totality of circumstances of a Covered EWA Program supports that these programs differ in kind from products the Bureau would generally consider to be credit.”
The second advisory opinion addresses a different area of uncertainty concerning the application of Regulation Z, clarifying that “loan products that refinance or consolidate a consumer’s pre-existing Federal, or Federal and private, education loans meet the definition of ‘private education loan’ in [TILA] and Regulation Z and are subject to the disclosure and consumer protection requirements in subpart F of Regulation Z.”
CFPB announces advisory opinion program, updates business conduct bulletin, proposes whistleblower award legislation
On March 6, the CFPB announced three new measures it is undertaking to prevent customer harm, including (i) implementing an advisory opinion program; (ii) updating its bulletin regarding responsible business conduct; and (iii) advancing whistleblower award legislation through engagement with Congress. Details of each measure are as follows:
- Advisory Opinion Program. As previously covered by InfoBytes, the Bureau issued three new innovation policies last September to reduce regulatory uncertainty and improve compliance. Similarly, the Bureau’s March 6 announcement states that the advisory opinion program should “provide clear guidance to assist companies in better understanding their legal and regulatory obligations.” The program directs that requests for advisory opinions should be submitted through the CFPB website. The opinions will then be published in the Federal Register and on its website.
- Responsible Business Conduct Bulletin. The amended bulletin, originally released in 2013, “clarif[ies] [the Bureau’s] approach to responsible business conduct” and emphasizes “the importance of such conduct.” The updated bulletin presents four categories of “responsible conduct” that entities are encouraged to adopt to improve the culture of compliance and that the CFPB will use to evaluate whether credit is warranted in an enforcement investigation or supervisory matter, including (i) self-assessment; (ii) self-reporting; (iii) remediation; and (iv) cooperation.
- Whistleblower Award Legislation. The proposed legislative language would amend Title X of the Dodd-Frank Act and authorize the Bureau to create a whistleblower award program. For individuals that volunteer information leading to a “successful enforcement action,” the program would enable the Bureau to provide a monetary award of between 10 to 30 percent of the collected penalty amount, up to $10 million.