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Buckley Sandler Special Alert: CFPB Releases Four Prototype Overdraft Disclosure Forms and a Report on Frequent Overdrafters
On August 4, the CFPB released four new prototype overdraft opt-in model disclosure forms and a report titled “Data Point: Frequent Overdrafters.” A summary of the forms and report are provided below. The prototype forms are still in the process of being developed, and the Bureau is requesting feedback as it works toward finalizing them, but the prototypes are intended to replace the current model form A-9 found in Appendix A of Regulation E. The report focuses on bank customers who overdraft their accounts more than 10 times per year and provides context to the Bureau’s concerns on the impact overdraft services may have on financially vulnerable consumers.
Although overdrafts have long been a focus of the CFPB’s enforcement and supervisory activities, this represents the first sign of movement by the Bureau toward the potential new overdraft services rulemaking listed on its 2017 rulemaking agenda, which is currently in the pre-rule stage. We anticipate that aspects of the approach and language contained in these prototype forms may eventually make their way into account agreements. We invite you to review the forms and report to gain insight into the CFPB’s view of overdraft services and the types of concerns the Bureau may attempt to address in future rulemaking.***
Click here to read full special alert.If you have questions about the report or other related issues, please visit our Retail Banking practice page, or contact a Buckley Sandler attorney with whom you have worked in the past.
CFPB Fines National Bank $4.6 Million for FCRA Violations
On August 2, the CFPB ordered a national bank to pay $4.6 million for allegedly failing to establish adequate policies and procedures for providing consumer deposit account information to nationwide specialty consumer reporting agencies (NSCRAs). The consent order alleges that the bank violated the Fair Credit Reporting Act and Regulation V by failing to provide consumers the results of investigations into their disputes and by withholding the contact information for the consumer reporting company supplying the information used to deny a checking account application. Pursuant to the consent order, in addition to the civil money penalty, the bank must (i) implement policies and procedures to ensure NSCRAs receive accurate consumer deposit account information; (ii) provide consumers with the results of its dispute investigations concerning information furnished to NSCRAs; and (ii) give consumers NSCRA contact information in situations of adverse action.
CFPB Monthly Complaint Report Focuses on Consumer Complaint Process
On August 1, the CFPB released a special edition of its monthly complaint report, highlighting company and consumer responses to the Bureau’s consumer complaint process. According to the Bureau, it has handled over 1.2 million complaints from 2011 through July 1 of this year. In the last three years, debt collection, credit reporting, and mortgage complaints were the top three consumer complaint categories. The report illustrates the handling of a consumer complaint:
- Consumer Resource Centers answer questions about consumer financial products and services and provide status updates on existing complaints;
- The CFPB states that companies receive complaints typically within a day, and that within 15 days, consumers generally receive a response in one of the following four categories: (i) closed with monetary relief; (ii) closed with non-monetary relief; (iii) closed with explanation; and (iv) closed. The Bureau states that companies have provided “timely responses to approximately 97% of complaints”;
- Consumers can check the status of their complaints through the Bureau’s portal, review responses received from the company, and provide feedback on the company’s response.
Consumer feedback, the CFPB stated, primarily concerns disputes regarding companies’ responses. Among the dispute categories, 23 percent related to mortgages, 22 percent to consumer loans, and 20 percent to credit cards. The Bureau reported that negative and positive feedback is used to improve the complaint process.
CFPB Issues Bulletin Warning Service Providers About Pay-By-Phone Fees
On July 31, the CFPB issued a bulletin to warn service providers that misleading consumers about pay-by-phone fees may potentially be a violation of Dodd-Frank’s prohibition on unfair, deceptive, or abusive acts or practices. The Bureau also provided guidance regarding its expectations for UDAAP and FDCPA compliance when assessing pay-by-phone fees. According to the bulletin, the CFPB noted several instances where consumers were either not informed up front of the fees that came with paying expenses over the phone or were not offered lower-cost alternatives. The Bureau cited several public enforcement actions, in which it alleged, among other things, that entities (i) misrepresented available payment options or gave the impression that a fee was required to make a payment by phone, when the only purpose of the fee was to expedite the phone payment; (ii) failed to disclose phone pay fees, thus creating the impression that there was no service fee; or (iii) lacked monitoring and oversight programs to deter this type of misleading behavior. The Bureau further encouraged service providers to consult a 2016 bulletin issued to discuss “detecting and preventing consumer harm from production incentives” to examine whether existing or future provider production incentive programs might “steer borrowers to certain payment types or to avoid disclosures,” which it says increases the potential risk for UDAAP.
FTC to Host Joint Conference on Protecting Military Consumers
On July 27, the FTC announced it is partnering with state and local authorities to host the Protecting Military Consumers: A Common Ground Conference on September 7 in Los Angeles to provide training on consumer fraud and other issues affecting servicemembers and their families. The conference is geared towards military attorneys, law enforcement personnel, and consumer protection officials, and will include the following topics:
- student loans and for-profit colleges;
- identity theft and imposter scams;
- debt collections;
- mortgage disputes; and
- real estate fraud.
Additionally, the conference will discuss several federal, state, and local consumer protection laws, including the Servicemembers Civil Relief Act, the Military Lending Act, and FTC and CFPB rules and regulations.
Earlier in July, the FTC held a Military Consumer Financial Workshop to educate consumers on financial issues and scams they may face. (See previous InfoBytes coverage here.)
Class Action Complaint Filed Against National Bank Related to Auto Insurance Coverage
On July 30, consumers accused a national bank of requiring them to pay for unnecessary auto insurance in a class action complaint filed in the Northern District of California. See Hancock v. Wells Fargo & Co., Case No. 17-cv-04324 (N.D. Cal. Jul. 30, 2017). The consumers allege that they paid for protection against vehicle loss or damage while making monthly loan payments, even though many drivers allege that they already had their own policies. According to the complaint, the bank allegedly received kickbacks from an auto insurance company through shared commissions on policies for more than 800,000 auto loans, which resulted in nearly 250,000 loans becoming delinquent and nearly 25,000 “unlawful vehicle repossessions.” The consumers allege that when they took out auto loans, both the bank and the insurance company failed to check whether the consumer already had coverage or ignored the information, and then created Collateral Protection Insurance (CPI) policies which were “secretly” added to the auto loan bills and the costs automatically deducted from consumer bank accounts.
In addition to the costs incurred for the unlawful forced-placed insurance policies, consumers also claim to have experienced financial harm in the form of (i) inflated premiums and interest rates; (ii) delinquency charges and late fees; and (iii) repossession costs and damage to credit reports. Consumers seek restitution, disgorgement of revenues and/or profits, and compensatory damages.
Notably, before the class action complaint was filed, the bank issued a press release on July 27, announcing plans to remediate approximately 570,000 consumers who may have been financially harmed—less than the 800,000 cited in the complaint. The bank stated that it had conducted a review of CPI policies placed between 2012 and 2017 and stated, ““We take full responsibility for our failure to appropriately manage the CPI program and are extremely sorry for any harm this caused our customers, who expect and deserve better from us. . . . Upon our discovery, we acted swiftly to discontinue the program and immediately develop a plan to make impacted customers whole.”
Massachusetts AG Leads AG Coalition Urging Senate to Oppose Joint Resolution to Set Aside CFPB Arbitration Rule
On July 28, Massachusetts Attorney General Maura Healey, along with 20 other state attorneys general, issued a letter to Senate Majority leader Mitch McConnell and Minority Leader Charles Schumer, urging Senate leaders to oppose S.J.Res. 47—a joint resolution that would set aside the CFPB’s arbitration rule. As previously discussed in InfoBytes, on July 25, the House exercised its authority under the Congressional Review Act to pass a measure to strike down the rule. The coalition of state attorneys general support the CFPB’s proposed rule, which prohibits the use of mandatory pre-dispute arbitration clauses in certain contracts for consumer financial products and services. The letter asserts that most customers lack the time and resources to enter into arbitration and that “[t]he CFPB’s Arbitration Rule would deliver essential relief to consumers, hold financial services companies accountable for their misconduct, and provide ordinary consumers with meaningful access to the civil justice system.”
In 2016, AG Healey led a group of 17 state attorneys general who offered support to the CFPB in favor of the Bureau’s proposed rule and asserted a need for regulations that would prohibit such clauses outright. (See previous InfoBytes coverage here.)
CFPB Ombudsman’s Office Issues Mid-Year Update
In July, the CFPB Ombudsman’s Office issued its mid-year update for 2017. Each year, the Ombudsman is required to submit an annual report to the CFPB Director. The mid-year update outlines issues related to individual inquires made to the Ombudsman’s Office, the accessibility of CFPB print materials, whistleblower communications, Ombudsman Forums, Ombudsman Interactives, and the office’s independent outreach programs. Highlighted are several key points:
- Individual Inquires. The Ombudsman’s Office reported that 820 inquiries were received from consumers, financial entities, consumer and trade groups, and others in the first six months of 2017—an increase from the 541 inquiries received during the same time frame the previous year
- Whistleblower Communications. The Bureau continued to receive complaints about alleged violations of consumer financial protection laws. However, according to the Ombudsman, the contact points for whistleblowers have become more difficult to find since the CFPB’s 2016 website refresh. The Ombudsman’s Office provided suggestions to make the information easier to locate.
- Ombudsman Forums. The Ombudsman’s Office recently conducted a forum with compliance officers, or people in similar roles, from companies that engage with the CFPB. The forum facilitated discussions on: (i) compliance management and the consumer complaint process; (ii) the public Consumer Complaint Database; (iii) the examination process; (iv) CFPB compliance tools and resources; and (v) current regulatory compliance process considerations. Additionally, an event with the associations of state government regulators is planned.
- Ombudsman Interactives. The “Ombudsman Interactives” initiative was launched earlier this year to facilitate discussions similar to those at the Ombudsman Forums. Attendees at consumer, trade, and other conferences participated in the onsite interactives.
- Ombudsman Outreach. The Ombudsman’s Office reported that it continues its independent outreach programs intended to share information on the CFPB’s resources and latest work. A coordinated outreach program held this year was attended by nationwide state banking associations.
Federal Reserve Task Force Shoots for Real-Time Payments Network by 2020
On July 21, the Faster Payments Task Force, created by the Federal Reserve in 2015, announced the publication of its final report detailing strategic efforts to implement faster payment solutions (part one of the report was published in January of this year). The report outlines 16 proposed faster payments solutions and is the culmination of proposals and feedback from providers across the payments industry, including more than 300 representatives from financial institutions, consumer groups, payment service providers, financial technology firms, merchants, government agencies, and numerous other interested parties. The task force’s goal is to have a real-time payments network available to U.S. consumers and businesses by 2020. The report discusses various solutions and technologies for implementing faster payments and recommends a framework for ongoing collaboration, decision-making, and rule setting. The report also addresses security threats, advocates for infrastructure to support faster payments, recommends that the Fed collaborate with relevant regulators to evaluate current laws and make necessary rule changes.
“Our goal is to ensure that anyone, anywhere is able to pay and be paid quickly and securely,” said Sean Rodriguez, the Fed's faster payments strategy leader and chair of the Faster Payments Task Force. “In real terms, that means people will not have to wait hours or days to deliver and access their money. Businesses will have enhanced cash management and better information associated with their payments.”
Buckley Sandler Insights: CFPB Updates Rulemaking Agenda
On July 20, the CFPB released its Spring 2017 rulemaking agenda. The agenda was last updated in Fall 2016. The summer release date, and the fact that certain deadlines listed in the updated agenda have already passed, indicates that the agenda’s release may have been delayed after the CFPB drafted it. The following aspects of the updated agenda are particularly noteworthy:
- Regulation Reviews: The Bureau plans to begin “the first in a series of reviews of existing regulations that we inherited from other agencies through the transfer of authorities under the Dodd-Frank Act,” noting that “other federal financial services regulators have engaged in these types of reviews over time, and believe that such an initiative would be a natural complement to our work to facilitate implementation of new regulations.” The Bureau has formed “an internal task force to coordinate and deepen the agency’s focus on concerns about regulatory burdens and projects to identify and reduce unwarranted regulatory burdens….” The agenda lists “pre-rule activities” as continuing through September 2017. Separately, the Bureau notes its ongoing assessments of the effectiveness of the Mortgage Servicing Rules, the Ability-to-Repay/Qualified Mortgage Rule, and the Remittance Transfer Rule pursuant to the Dodd-Frank Act’s five-year lookback provision.
- Small Dollar Lending: The Bureau reports that it received more than one million comments on its June 2016 proposed rule to impose ability-to-repay requirements for payday, vehicle title, and similar installment loans. The Bureau states that it “continue[s] to believe that the concerns articulated in the [proposed rule] are substantial” but does not provide an expected release date for a final rule.
- “Larger Participants” in Installment Lending: The agenda lists September 2017 as the expected release date for “a proposed rule that would define non-bank ‘larger participants’ in the market for personal loans, including consumer installment loans and vehicle title loans.” Designation as a larger participant brings a non-bank entity within the CFPB’s supervisory jurisdiction. The agenda indicates that a companion rule requiring payday, vehicle title lenders, and other non-bank entities to register with the Bureau is also underway, as noted below.
- Debt Collection: In July 2016, the Bureau released an outline of proposals under consideration for debt collection and convened a panel under the Small Business Regulatory Enforcement Fairness Act in conjunction with the Office of Management and Budget and the Small Business Administration’s Chief Counsel for Advocacy to consult with representatives of small businesses that might be affected by the rulemaking. The Bureau notes that, “[b]uilding on feedback received through [that] panel, we have decided to issue a proposed rule later in 2017 concerning debt collectors’ communications practices and consumer disclosures.” The agenda states that a proposed rule is expected in September 2017. The Bureau also states that, in a departure from the July 2016 outline of proposals, the Bureau “intend[s] to follow up separately at a later time about concerns regarding information flows between creditors and FDCPA collectors and about potential rules to govern creditors that collect their own debts.”
- Overdrafts: The Bureau states that the current opt-in regime “produces substantially different opt-in rates across different depository institutions” and that its “supervisory and enforcement work indicates that some institutions are aggressively steering consumers to opt in.” The Bureau reports that it is “engaged in consumer testing of revised opt-in forms and considering whether other regulatory changes may be warranted to enhance consumer decision making.” The agenda lists “pre-rule activities” as continuing through June 2017.
- Small Business Lending: The agenda lists “pre-rule activities” on the implementation of the small business data reporting provisions of the Dodd-Frank Act as continuing through June 2017. Specifically, the agenda states that, at this juncture, the CFPB “is focusing on outreach and research to develop its understanding of the players, products, and practices in the small business lending market and of the potential ways to implement section 1071.”
- HMDA & ECOA Amendments: The agenda lists October 2017 as the expected release date for the April 2017 proposed ECOA amendments to clarify requirements for collecting information on ethnicity, race, and sex, but does not list an expected release date for finalization of the April 2017 proposed technical corrections to the 2015 HMDA rule, or the July 2017 proposed amendments to the 2015 HMDA rule’s requirements for reporting home equity lines of credit.
- TRID/Know Before You Owe Amendments: The agenda lists March 2018 as the expected release date for finalization of the July 2017 proposed rule addressing the “black hole” issue, which is discussed in our special alert.
- Mortgage Servicing Amendments: The Bureau states that it expects to issue a proposal in September 2017 “to make one or more substantive changes to the rule in response to . . . concerns” raised by the industry.
- Arbitration: Interestingly, the agenda states that the Bureau’s final rule on mandatory arbitration clauses, which was released this month to significant controversy, was not expected until August.
- Non-Bank Registration: The Bureau states that it is “considering whether rules to require registration of [installment lenders] or other non-depository lenders would facilitate supervision, as has been suggested to us by both consumer advocates and industry groups.”
- Prepaid Cards: The agenda does not provide an expected release date for finalization of the June 2017 proposed amendments addressing error resolution and limitations on liability, application of the rule’s credit-related provisions to digital wallets, and other issues.
- Credit Card Agreement Submission: The Bureau is “considering rules to modernize our database of credit card agreements to reduce burden on issuers that submit credit card agreements to us and make the database more useful for consumers and the general public.” The agenda lists “pre-rule activities” as continuing through October 2017.