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  • CFPB Draws Mixed Reactions in Response to Request for Comments on Proposed Student Lending Information Collection

    Agency Rule-Making & Guidance

    Back in February, the CFPB proposed information collection on the student loan servicing market, since then two trade associations have submitted comment letters, one in support of the information collection and one believing that the information collection would be unduly burdensome. According to the Bureau, the proposed information collection was intended to provide the Bureau “with a broader and deeper look into the student loan market.” The comment period for its request closed earlier this month.

    Americans for Financial Reform (AFR). On April 24, the AFR and 31 other organizations sent a sign-on letter to the CFPB expressing support for the CFPB’s proposed student loan servicing data collection initiative. The letter argues, among other things, that “compiling such metrics and borrower outcomes would benefit market participants, federal and state agencies, policymakers, and borrowers,” by allowing each to “[o]btain[] a clearer view of the student loan market overall” while also “inform[ing] all market participants on how best to serve student loan borrowers.” The AFR letter also offers several suggests as to how the Bureau can best ensure the “quality and transparency of the data.” The letter emphasized, among other things, that “transparency is critical to having a servicing system that works for borrowers,” especially given the large number of student loan defaults.

    Consumer Bankers Association (CBA). In an April 24 comment letter, the CBA expressed agreement with the CFPB’s ultimate goal of creating a private student loan market that is both transparent and fair, but argues that its consumer bank members already “effectively tailor[]” their loan products “to meet their customer’s needs” and strive to make loans only “to customers who are judged highly likely to repay them.” Specifically, the CBA believes, among other things, that the CFPB information collection would require unnecessarily duplication of existing publicly reported private loan data. CBA also raised additional concerns, including: (i) whether the CFPB could collect the same data effectively, and with greater protection afforded to loan holders and servicers, through the supervisory process; (ii) whether the CFPB has “grossly underestimate[d]” the burden on servicers to collect the requested data, and (iii) whether the CFPB’s stated market monitoring objectives could be met through less burdensome methods.

    Agency Rule-Making & Guidance Lending Student Lending Consumer Finance CFPB

  • CFPB Deputy Director Addresses Community Bank Advisory Council on Financial Data Usage

    Agency Rule-Making & Guidance

    On April 25, CFPB Deputy Director David Silberman addressed the Community Bank Advisory Council (CBAC) in Washington, D.C. on the Bureau’s work involving the use of data in the financial marketplace. CBAC was established almost five years ago to ensure that the Bureau had a direct line of communication with community banks. The Bureau is focused on understanding “how consumers are exercising control over their personal financial data, including the data that is maintained by their financial institutions.” In November of last year, the CFPB issued a Request for Information (RFI) regarding ways to “address the risks and technological challenges posed when consumers seek ready access to this data and seek to share it electronically with third parties.” The Bureau’s goal is to evaluate how to balance consumer needs without exposing the providers that maintain this data to undue costs and risks, while also making sure consumer data is not misused.

    Silberman discussed the use of new types of data to assess the creditworthiness of consumers when applying for credit. The Bureau is exploring the possibility that “thoughtful and responsible use of alternative data—that is, data that is not part of the traditional credit reporting system—could expand the credit available to underserved consumers.” (See previous InfoBytes summary.) In February 2017, the CFPB issued another RFI to seek feedback about the “potential benefits and risks of using, applying, and analyzing unconventional sources” such as rent or utility payments to “assess people’s creditworthiness.” Silberman acknowledged community banks’ skill and “willingness to go beyond the numbers” in order to make lending decisions based on the totality of information they have available about their customers. The Bureau is exploring ways to combine the objectivity and rigor of automated underwriting with the community banks approach.

    Agency Rule-Making & Guidance Consumer Finance CFPB Community Banks

  • CFPB Monthly Complaint Snapshot Highlights Issues Related to Student Loans

    Lending

    On April 25, the CFPB released its monthly complaint report highlighting consumer complaints year-to-date April 1. The Bureau has handled approximately 1,163,200 consumer complaints across all categories since it began collecting complaints. Of the roughly 28,000 received in March, 2,033 focused on private and federal student loans. Common problems raised by student borrowers included:

    • lost documentation, extended application processing time, and unclear guidance when enrolling in income-driven repayment plans;
    • misapplied payments, such as overpayments being applied to all accounts instead of being applied to a specific account;
    • confusion over Public Student Loan Forgiveness programs and other loan forgiveness programs, specifically regarding enrollment issues, payment problems, and issues due to inaccurately reported employment data; and
    • credit reporting companies receiving incorrect data, resulting in negative scores or collection companies contacting consumers about accounts that were paid in full or for debts that were not owed.

    Similar to past CFPB-issued complaint snapshots, the report identifies the top 10 most common complaint categories with respect to all financial products, as well as the top 10 companies for which they received the most student loan complaints. The report spotlighted Nevada, noting that (i) Nevada consumers have submitted 14,600 of the 1,163,200 complaints received; (ii) debt collection complaints accounted for 29 percent of complaints received from Nevada, exceeding the national average by 2 percent; and (iii) mortgage-related complaints accounted for 23 percent of all complaints submitted by Nevada consumers, a rate equal to the national rate of mortgage complaints.

    Lending Student Lending CFPB Consumer Finance Consumer Complaints

  • Maryland and Tennessee Expand Use of Reporting Requirements for Money Services Businesses

    State Issues

    As previously covered by InfoBytes, the Nationwide Licensing System (NMLS) for Money Services Businesses (MSBs) recently unveiled the MSB Call Report that standardizes and streamlines routine reporting requirements for state-licensed MSBs. On April 18, Maryland Governor Larry Hogan signed into law HB 182, which requires specified licensees to obtain and maintain a valid unique identifier and transfer licensing information to the NMLS. The law will go into effect July 1, 2017. Among those who must now register with NMLS are check cashers, collection agencies, consumer lenders, debt management service providers, credit service businesses, and sales finance companies. Licenses for mortgage lenders, mortgage originators, and money transmitters are already processed through NMLS. The Commissioner of Financial Regulation is charged with establishing a time period that is “not less 2 months within which a licensee must transfer licensing information to the NMLS.” Furthermore, at least 30 days before the transfer period begins, the Commissioner shall notify all licensees of the transfer period and provide instructions for the transfer of licensing information to NMLS.

    On April 12, Tennessee Governor Bill Haslam enacted SB 1202, authorizing Tennessee’s Department of Financial Institutions to license industrial loan and thrift companies, title lenders, and individuals regulated under the Check Cashing Act or the Premium Finance Company Act through a multi-state automated licensing system. The law allows for the sharing of information—subject to specified confidentiality requirements—with state and federal regulatory officials having consumer finance industry oversight authority or finance industry oversight. Licenses for these types of entities will expire on December 31 of each year. The law includes staged effective dates, the first being July 1, 2017.

    State Issues Consumer Finance Lending NMLS Mortgage Origination Licensing

  • CFPB Provides Resources for Consumers During Money Smart Week

    Consumer Finance

    On April 22, the CFPB highlighted a series of consumer education resources as part of its participation in Money Smart Week—(April 22-29)—and Financial Literacy Month. The CFPB blog post is here. Among the financial decision-making resources are: (i) Ask CFPB—an online tool that the Bureau states will provide “clear, unbiased” answers to common financial questions; (ii) Owning a Home—a tool that provides resources for homebuyers; and (iii) Money as You Grow—a resource center where parents can find activities and conversation starters to help children build money skills. In addition, the Bureau also advised consumers that there are numerous free financial education classes and seminars conducted by local and regional organizations covering a variety of money-management topics such as buying a house, credit management, saving for college, and financing retirement. Consumers should visit Money Smart Week to find events and online resources.

    Consumer Finance CFPB Consumer Education

  • FTC Announces Civil Penalty Judgment Against Debt Collector Fined $2 Million for FDCPA Violations

    Consumer Finance

    On April 24, the FTC announced a civil penalty judgment against the president of a Texas-based debt collection company, ordering him to pay $2 million for violating the Fair Debt Collection Practices Act by falsely threatening debtors (see previous InfoBytes post). The judgment was filed in the Eastern District of Texas and resolves a case filed on the FTC’s behalf by the Department of Justice in January 2015, alleging that the company’s collectors were impersonating attorneys and judicial employees; falsely threatening litigation, wage garnishments and asset seizures; and misrepresenting the character or legal status of debts under collection. Both the president and the debt collection company have been banned from the debt collection business under a permanent injunction issued in April 2016.

    Consumer Finance FTC Debt Collection

  • CFPB Orders Law Firm to Comply with CID

    Agency Rule-Making & Guidance

    On April 10, the CFPB issued a Decision and Order denying a law firm’s petition to set aside a civil investigative demand (CID) asking for information about the firm’s business practices to determine whether debt relief providers or lead generators engaged in “unlawful acts or practices in the advertising, marketing, or sale of debt relief services or products, including but not limited to debt negotiation, debit elimination, debt settlement, and credit counseling.” Specifically, the Bureau determined that none of the objections raised by the law firm warrant setting aside or modifying the CID.

    On March 19, the firm filed a petition to set aside the CID (issued on February 27, 2017), offering four key reasons why the CID should not be enforced:

    • the CFPB’s structure is unconstitutional and the CID should be stayed pending the PHH Corp. v. CFPB case;
    • the CFPB lacks supervisory and enforcement authority with respect to the law firm;
    • the CID’s requests are “excessively vague and overly broad”; and
    • the CID was issued after the Bureau failed to prevail on a contempt order before the district court.

    In responding to these arguments, the CFPB took the following positions. First, the Bureau contended that the law firm had waived its objection to the Bureau’s authority by failing to raise it during the meet-and-confer process with Bureau enforcement counsel. Second, the CFPB noted that under the Consumer Financial Protection Act, the Bureau has the authority to issue CIDs to “any person” who may have relevant information. Third, the Bureau disagreed that the requests in the CID were “excessively vague and overly broad,” and stated that the time to have raised this challenge was during the meet-and-confer process. However, the Bureau stated it is willing to engage in further discussions to determine if modifications may be appropriate. Fourth, the Bureau determined that the mere fact that the law firm in question was never held in contempt by a court of law does not preclude the CFPB “from issuing a CID or investigating whether it violated federal consumer financial law.”  Pursuant to the Decision and Order, the law firm is required to produce documents and provide answers to interrogatories within 10 calendar days.

    Agency Rule-Making & Guidance Consumer Finance CFPB Single-Director Structure Seila Law

  • Banking Regulator Admits to Flaws in Supervision of Community Banking Sales Practices

    Federal Issues

    On April 19, the OCC released a report detailing the results of an internal review that concedes the regulator’s oversight of a national bank’s consumer complaints and whistleblower cases was “untimely and ineffective” and that OCC supervisors missed or failed to address warning signs throughout the course of the bank regulator’s recent investigation. The objective of the internal review was to, among other things, “identify gaps in supervision,” and “[d]etermine if there are lessons learned that can result in improved supervision process.” The report—which was prepared by the OCC’s Office of Enterprise Governance (OEG) and the Ombudsman—concluded, among other things, that OCC supervisors had “focused too heavily on bank processes versus what those processes were actually reporting,” and notes that the OCC’s internal review “found no evidence that supervisory activities included in-depth review and testing of monitoring systems and controls” over incentives-based sales compensation or sales integrity. In addition to identifying “lessons learned” and “missed opportunities,” the report also sets forth general recommendations that it believes the OCC’s large bank supervision division should consider in order to improve their practices going forward, including that the regulator “[d]evelop an enterprise-wide whistleblower process and update external-facing interfaces . . . to inform the public or other governmental agencies how to communicate whistleblower information to the OCC,” and that it also “[e]nsure issues or concerns are followed through to effective corrective action.”

    Federal Issues Consumer Finance OCC Consumer Complaints

  • House Financial Services Committee to Discuss the “Financial CHOICE Act” at April 26 Hearing

    Federal Issues

    On April 19, House Financial Services Committee Chairman Jeb Hensarling (R-TX) announced that the Committee will hold a hearing to discuss the Financial CHOICE Act next Wednesday, April 26. Touted as a potential replacement for the Dodd-Frank Act, the proposed new law—which stands for Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs—was unveiled last June by Chairman Hensarling in a speech to the Economic Club of New York and was subsequently approved by the Committee last September. The hearing will focus on an updated discussion draft of the bill at next Wednesday’s hearing.

    If enacted, the Financial CHOICE Act would, among other things, tailor a bank’s supervision to its risk profile/business model and provide for an independent exam appeals process, while also providing for and imposing more stringent penalties in cases of fraud or deception. Other provisions of the bill would repeal the Volcker Rule, strip the CFPB of its examination powers, and “UDAAP” enforcement authority and also discontinue small business loan data collection.  And, finally, the Act would bring the CFPB, FDIC, OCC, FHFA, NCUA, and the Fed’s supervisory functions under the congressional appropriations process, thereby mandating a cost-benefit analysis and, in some cases, congressional approval prior to the release of any new regulations.

    According to a press release from GOP Committee members, the proposed new law is based upon two central principles: (i) “all banks need to be well-capitalized” but (ii) “Dodd-Frank’s one-size-fits-all regulations . . . make[] no sense and hurt[] smaller, hometown banks and credit unions that did nothing to cause the last financial crisis.” To this end, the Financial CHOICE Act seeks to ease capital standards for community banks and credit unions that “elect to maintain enough capital to ensure that if they get in trouble, taxpayers won’t be forced to bail them out.” Meanwhile, offering a very different response to the release of an updated draft of the bill, Maxine Waters (D-CA), the Ranking Member of the Financial Services Committee, released a statement reiterating numerous objections to what she terms “the Wrong Choice Act.” Among other things, Rep. Waters argues that the proposed law “prioritize[s] the needs of Wall Street over the needs of hard-working Americans,” and “would take away much needed protections and put our economic security at risk.”

    Federal Issues Consumer Finance Dodd-Frank House Financial Services Committee

  • Supreme Court Hears Arguments on Whether a Debt Collector Who Purchases the Debt is Liable Under the FDCPA

    Courts

    On April 18, the United States Supreme Court heard oral argument in Henson v. Santander Consumer USA, Inc., Dkt. No. 16-349, on the question of “[w]hether a company that regularly attempts to collect debts it purchased after the debts had fallen into default is a ‘debt collector’ subject to the Fair Debt Collection Practices Act [FDCPA].” The case arose out of a class action filed by four consumers who had defaulted on automobile loans made by an auto lending affiliate of a major bank. The originator hired Respondent to collect the loans on behalf of the lender and Respondent later purchased the delinquent loans as part of a pool. Though Petitioners did not allege that debt collection was the principal purpose of the Respondent’s business, the consumer-plaintiffs had claimed that the Respondent regularly buys and attempts to collect defaulted debts, and that, in this instance, the Respondent engaged in conduct that violated the FDCPA after it bought the loans. The Petitioner needed to establish, among other things, that the Respondent was a debt collector under the FDCPA and that the loans were in default when they were acquired.

    In March 2016, the U.S. Court of Appeals for the Fourth Circuit rejected the consumers’ arguments, concluding that the FDCPA “generally does not regulate creditors when they collect debt on their own account and that, on the facts alleged by the plaintiffs, [the defendant] became a creditor when it purchased the loans before engaging in the challenged practices.” Accordingly, the Fourth Circuit noted that the originator of the loans was irrelevant. In September 2016, the consumer-plaintiffs filed a cert petition with the Supreme Court, which was subsequently granted on January 13. Attorneys general from 28 states and the District of Columbia also joined in an amicus brief supporting the consumers’ argument.

    At oral argument before the Supreme Court, the Petitioners cited 15 U.S.C. §1692a(6)(F) and argued that the debts are "owed" to the original lender, but are "due" to the debt buyer. As such, argued Petitioner, a debt buyer should be considered to be collecting debts “owed or due another,” and thus fall within the FDCPA definition of a “debt collector”. Respondent countered that “owed or due another” could only mean that the debt is currently owed to another person. However, Respondent argued, as a debt buyer, it was collecting debts owed to itself, and thus would not be  a “debt collector” under the FDCPA. Both sides also presented policy-based arguments. Petitioner suggested that because Respondent was considered a “debt collector” before purchasing the loan, it could not remove itself from the scope of the FDCPA by purchasing the debts. Conversely, Respondent noted that, by purchasing essentially all of the original lender’s loans it had “stepped into [the lender]’s shoes.” Counsel emphasized that Respondent therefore fit the FDCPA definition of “creditor,” and, as a creditor, it had an incentive to maintain a positive relationship with consumers.

    Courts Consumer Finance Debt Collection FDCPA Class Action Lending U.S. Supreme Court

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