InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
Amendments and Proposal to TRID Rule Published in Federal Register, Comments Due October 10
As previously reported in a Special Alert, the CFPB issued amendments to its TILA/RESPA Integrated Disclosure rule, which importantly included a concurrent proposal to address the “black hole” issue that prevents creditors from resetting tolerances using the Closing Disclosure except in very limited circumstances. On August 11, the Bureau published the amendments in a final rule and the proposal in the Federal Register. The final rule takes effect October 10, 2017 with mandatory compliance by October 1, 2018. Comments on the proposal are due October 10, 2017.
House Financial Services Committee Issues Report Accusing Bureau of Contempt Charges Relating to Investigation into Arbitration Rulemaking
On August 4, the Majority Committee Staff of the House Financial Services Committee (Committee) released a report accusing CFPB Director Richard Cordray of failing to comply with an April 4, 2017 Congressional subpoena concerning the Committee’s on-going investigation into the Bureau’s arbitration rulemaking, and presenting a case for instituting contempt of Congress proceedings. According to the report, the Committee first requested documents relating to the CFPB’s pre-dispute arbitration rulemaking on April 20, 2016 but asserts it received a production that was “far from complete.” Subsequent document requests and “rolling” productions were also allegedly “incomplete.” In April 2017, the Committee issued a congressional subpoena in order to compel the CFPB to produce the relevant records, but the report claims that while Cordray was legally obligated to answer, he failed to adequately respond. Consequently, the Committee accused Cordray of defaulting on the subpoena and concluded that the CFPB’s argument regarding the burdensome nature of the request does not excuse the Bureau from producing records or “searching for and identifying sources of records in an effort to quantify the putative burden.” As a result, the Majority Committee Staff believes there is ample basis to proceed against Cordray for contempt of Congress.
District Judge Denies Student Loan Servicer’s Motion to Dismiss, Rules CFPB is Constitutional
On August 4, a federal judge in the U.S. District Court for the Middle District of Pennsylvania denied a motion to dismiss brought by a student loan servicer, ruling that the CFPB is constitutional, and that it has the authority to act against companies without first adopting the rules used to define a specific practice as unfair, deceptive, or abusive. Further, the court found that the Bureau’s complaint is “adequately pleaded.” As previously reported in InfoBytes, the CFPB filed a complaint in January of this year, contending that the student loan servicer systematically created obstacles to repayment and cheated many borrowers out of their rights to lower repayments, causing them to pay much more than they had to for their loans.
Citing numerous precedents, including several which have already examined the issue of the CFPB’s constitutionality, the court disposed of several arguments raised by the student loan servicer, finding that:
- There is no merit in the argument that the “CFPB lack[ed] statutory authority to bring an enforcement action without first engaging in rulemaking to declare a specific act or practice unfair, deceptive, or abusive,” because under the provisions of Title X of Dodd-Frank, the CFPB has the authority to declare something as “unlawful” both through rulemaking and litigation.
- The CFPB isn’t outside the bounds of the Constitution, in part because its provision making it difficult for the President to remove the CFPB’s director isn’t any more burdensome than those of other agencies, such as the FTC. By recognizing this, and that the CFPB director “is not insulated by a second layer of tenure and is removable directly by the President,” the court ruled that the “Bureau’s structure is not constitutionally deficient.”
- The funding method utilized by the Bureau has parallels in other federal agencies and does not affect presidential authority, stating that “although the CFPB is funded outside of the appropriations process, Congress has not relinquished all control over the agency’s funding because it remains free to change how the Bureau is funded at any time.” The court therefore found that the President’s constitutional powers have not been curtailed.
The court dismissed the student loan servicer’s assertion that it is unable to “reasonably prepare a response” due to the vague and ambiguous nature of the complaint. Rather, the court argues that the Bureau’s complaint provides enough “multiple specific examples” to warrant a response by way of an answer.
CFPB Releases New Overdraft Protection Study and Prototype “Know Before You Owe” Disclosures
On August 4, the CFPB concurrently announced the release of a new study titled “Data Point: Frequent Overdrafters” on the use of overdraft services by consumers, as well as four new “Know Before You Owe” overdraft disclosure prototype templates. The announcement highlights findings in the study regarding the frequency of use and the costs associated with optional overdraft services. Alongside the publication of the study, the Bureau published four prototype templates currently under testing. These templates—which are not yet effective—are meant to improve on existing model forms by more “clearly laying out the size of the fees and when they can be charged,” as well as clarifying “the institution’s overdraft policies” and explaining that the decision to opt-in to the overdraft services is optional and covers only one-time debit card and ATM transactions. The Bureau continues to test the prototypes and consider further changes. The 2010 model form continues to apply until further notice from the CFPB. These developments reflect the CFPB’s years-long interest in overdraft products and build upon a prior 2014 Data Point study of this issue, as previously reported in Infobytes.
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.)
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.)