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CFPB Monthly Complaint Snapshot Focuses on State-Level Consumer Complaints
On June 27, the CFPB released its monthly complaint report, highlighting complaints from around the country. According to the Bureau, it has handled over 1.2 million complaints from 2011 through June 1 of this year. The report shows nationwide complaint statistics and statistics for service members and older consumers. In addition, the report breaks down statistics on the state level covering financial products and services, company responses to complaints, as well as number of complaints. The vast majority of consumers report high company response rates to complaints averaging in the high 90 percent range, although the volume of complaints is trending upward. The top five products receiving complaints across the country in descending order are: (i) debt collection; (ii) mortgages; (iii) credit reporting; (iv) credit cards; and (v) bank accounts or services.
North Carolina Changes Retail Installment Sales Act Default Fee
On June 12, the General Assembly of North Carolina ratified Senate Bill 577, which amends the North Carolina Retail Installment Sales Act. Specifically, Senate Bill 577 modifies the late charge on an installment sale contract to be a flat fee of fifteen dollars, which is an increase from the prior limit of the lesser of five percent of the installment payment amount or six dollars. The amendment became effective on June 26 and applies to defaults from that day forward.
CFPB Sues Credit Repair Companies for $2 Million
On June 27, the CFPB filed two complaints in the District Court for the Central District of California against several credit repair companies and affiliated individuals. The CFPB alleged that these defendants violated the Consumer Financial Protect Act and the Telemarketing Sales Rule by charging consumers illegal fees and misleading consumers about services (see complaints here and here).
According to a CFPB press release, the defendants allegedly “[c]harged illegal advance fees” such as initial consultation fees, and set-up fees prior to providing certain services. Defendants also allegedly “[f]ailed to disclose limits on ‘money-back guarantees’” and “[m]isled consumers about the benefits of their services” by suggesting they could remove negative information from credit reports and “substantial[ly] increase” credit scores.
The CFPB submitted a proposed final judgment for each suit. In the first suit, the CFPB proposed a civil money penalty of over $1.5 million, and restrained defendants from working in credit repair services or maintaining an ownership interest in any company that provides credit repair services for a period of five years. In the second suit, the CFPB sought similar injunctive relief, and also proposed “equitable monetary relief in the form of disgorgement . . . in the amount of $500,000.”
CFPB Director Challenges House Financial Services’ Report on Bureau’s Role in Fraudulent Accounts Scandal Investigation
On June 14, CFPB Director Richard Cordray issued a letter to Rep. Jeb Hensarling (R-Tex.) in response to the House Financial Services Committee’s (Committee) June 6 interim majority staff report on the investigation of the role federal financial regulators played in detecting and remedying a major national bank’s practice of opening unauthorized bank accounts. As previously covered in InfoBytes, the Bureau issued a consent order to the bank last September over allegations that the bank employees’ improper sales practice of opening unauthorized accounts as part of an incentive compensation program was unfair and abusive. In his letter, Director Cordray defended the CFPB’s role in the investigation and detailed inaccuracies and errors in the Committee’s report.
The Committee’s report notes that immediately after the September 8 CFPB announcement, the House Financial Services Committee began a “comprehensive investigation” to answer two questions: (i) “how and why [the bank] allowed these fraudulent activities to occur at a disturbing scale across the [b]ank for well over a decade”; and (ii) “whether or not federal financial regulators were effective in detecting and remedying [the bank’s] fraudulent branch sale practices.” According to the report, “[o]ver the course of six months, the CFPB only produced 1,010 pages of records comprised almost entirely of records easily obtainable from [the bank] or the OCC”—both of which, the report contends, have cooperated fully with the investigation. In April 2017, the CFPB received a subpoena but allegedly provided records previously produced by the bank. Due to a lack of cooperation, the Committee staff recommended the possibility of issuing deposition subpoenas to CFPB employees to investigate Director Cordray’s alleged failure to respond, as well as the suggestion of bringing contempt proceedings against Director Cordray to enforce compliance with the subpoena.
Director Cordray responded that, among others things, the majority staff of the Committee refused to receive a September 2016 follow-up briefing from Bureau staff and failed to respond to his offer to publicly testify at a Committee hearing. Furthermore, Director Cordray states that the CFPB has submitted over 57,000 pages of records “in an effort to comply with the Committee’s broadly worded requests.” He notes the complaint about the documents in the CFPB’s production being “redundant of documents received from either [the bank] or the OCC, though the same point could be made in reverse,” and that his staff has repeatedly sought guidance from the Committee to narrow the scope but has yet to receive a response.
In response to the Committee’s query as to why it took more than a decade to uncover the bank’s practice of opening unauthorized accounts, Director Cordray responded that the Bureau opened its doors in 2011—more than 10 years after the bank’s activities commenced according to the Committee’s report—and wasn't fully operational until 2014.
Judge Issues Ruling Ordering Unused Consumer Redress Funds to be Deposited in the Treasury
On June 20, a federal judge in the U.S. District Court for the Southern District of New York ordered that leftover funds from a $50 million settlement must be transferred to the Treasury, ultimately ruling against a memorandum filed by the Attorneys General of Connecticut, Indiana, Kansas, and Vermont (State AGs) that sought to redirect the remaining $15 million to be used to “train, support and improve the coordination of the state consumer protection attorneys charged with enforcement of the laws prohibiting the type of unfair and deceptive practices alleged by the CFPB in this [a]ction.” (See previous InfoBytes summary here.) Notably, the judge stated, “the State AGs’ proposal does not reflect the [settling] parties' true intent . . . Nowhere in the Final Judgment or the Redress Plan is there any language supporting the State AGs’ view that leftover funds should broadly aid consumers.” The judge opines further that “[c]ondoning an unintended use of the settlement funds—in the absence of any other equitable relief reasonably related to the allegations of the Complaint—would be tantamount to misappropriating funds that otherwise should be in the public fisc.” The judge further noted that had the State AGs’ memorandum been granted, it would “permit State actors . . . to hijack a significant portion of the settlement funds under the guise of ‘consumer protection,’ all for the purpose of underwriting a project that principally benefits the States.”
PHH v. CFPB Update: PHH Counters CFPB’s Statute of Limitations Interpretation
On June 13, PHH Corporation sent a letter to the U.S. Court of Appeals for the District of Columbia Circuit responding to a June 7 letter from the CFPB that stated RESPA’s three-year statute of limitations is not applicable in its enforcement action against the company. In its letter, the CFPB cited a decision in Kokesh v. SEC where the U.S. Supreme Court ruled that a five-year limit applies to civil penalties, and that, furthermore, “[d]isgorgement in the securities-enforcement context is a ‘penalty’ within the meaning of §2462, and so disgorgement actions must be commenced within five years of the date the claim accrues.” The Bureau further supported its argument for a five-year limit by claiming that RESPA’s three-year statute of limitations provision applies only to “actions” brought in a “United States district court or any other court of competent jurisdiction,” and its administrative proceeding against the company for alleged mortgage kickbacks was not an “action” under RESPA.
In response, PHH countered that Section 2462 contains a “catch-all limitations period ‘[e]xcept as otherwise provided’ by Congress.” Thus, the D.C. Circuit panel was correct when it held that Congress “otherwise provided” a three-year statute of limitations under RESPA that applies to enforcement proceedings because in the “second part of Section 2614, the term ‘actions’ is not limited to actions brought in court.” PHH further asserts that Dodd-Frank “repeatedly uses the term ‘action’ to encompass court actions and administrative proceedings.”
As previously covered in InfoBytes, on May 24, the D.C. Circuit, sitting en banc, heard oral arguments on the constitutionality of the CFPB. It did not indicate that it was inclined to revisit the panel’s determination that the Bureau misinterpreted RESPA when applying it to PHH’s practices.
CFPB Seeks Comments on Proposed Amendments to Prepaid Rule, Releases Updated Small Entity Compliance Guide
On June 15, the CFPB announced a request for comment on proposed amendments to Regulation E, which concerns prepaid accounts under the Electronic Fund Transfer Act (EFTA) and the Truth in Lending Act (Regulation Z). According to the Bureau, the request aims to address prepaid companies’ concerns over “unanticipated complexities” regarding certain aspects of the rule. As previously covered in InfoBytes, in April the CFPB issued a final rule delaying the general effective date to April 1, 2018. The prepaid rule provides consumers, among other things, additional federal protections under EFTA on prepaid financial products, person-to-person payment products, and other electronic accounts with the ability to store funds. Specifically, the proposed amendments would impact error resolution requirements for unregistered accounts, enhance flexibility for credit cards linked to digital wallets, and open for consideration whether a further delay to the rule’s effective date is necessary due to the proposed amendments or if safe harbor provisions should be added for early compliance. The proposal also addresses amendments affecting the following: (i) the exclusion of loyalty, award, or promotional gift cards; (ii) “unsolicited issuance of access devices and pre-acquisition disclosures”; and (iii) submission of account agreements to the Bureau. Comments are due 45 days after the request is published in the Federal Register.
Separately, on the same day, the Bureau released an updated edition of its small entity compliance guide for the prepaid rule. The guide notes the new effective date, and also offers clarification on prepaid reload packs, the consistent use of fee names and other terms, foreign language disclosure requirements, URL names in short form disclosures, mobile accessible transaction histories, account agreement submissions to the Bureau, and clarification that stipulates “reversing a provisional credit does not otherwise trigger Regulation Z coverage under the Prepaid Rule.”
CFPB Withdraws CID, Petition to Enforce CID is Moot Due to Lack of Subject-Matter Jurisdiction
On June 8, the CFPB filed a petition to withdraw a 2015 CID issued to a financial services company concerning its structured settlement and annuity payment purchasing activities, and subsequently agreed to the dismissal of the petition to enforce the CID as moot due to lack of subject-matter jurisdiction. The action stems from a petition filed by the company to set aside the CID, arguing that structured settlements and annuity payment purchasing is not an extension of credit, nor qualifies as a consumer financial product. Therefore, the company claimed, its business activities do not fall under the CFPB’s UDAAP or Truth in Lending Act authority. The Bureau denied the petition, and in June 2016, it filed a memorandum in the U.S. District Court for the Eastern District of Pennsylvania for an order requiring the company to comply with the CID, asserting that “regulations authorize the Bureau to petition the district court in ‘any judicial district in which [that entity] resides, is found, or transacts business’ for an order to enforce the CID.” However, on June 5, the CFPB filed a notice to withdraw stating that “[b]ecause the CID is no longer active, the Bureau intends to soon dismiss the Petition,” and asked the court to “refrain from ruling on the petition.” The CFPB did not disclose a reason for its decision to withdraw the CID.
Notably, before the dismissal, the U.S. Chamber of Commerce (Chamber) filed an amicus brief opposing the CFPB’s petition. The Chamber opined that, should the CFPB be allowed to issue CIDs under a “virtually unlimited definition of the term ‘financial advisory services,’” under which it would include “advice with a financial element offered in connection with transactions unrelated to a consumer financial product,” it would expand the Bureau’s jurisdiction beyond the limits of Dodd-Frank’s prohibition on unfair, deceptive, and abuse acts and practices.
CFPB’s CARD Act Request for Information Garners Consumer and Industry Comments
As previously covered in InfoBytes, the CFPB issued a notice and request for information seeking public comments regarding the consumer credit card market. The request, which closed for public comment on June 8, received 32 public comments from consumer education groups as well as retail industry groups.
The Financial Services Roundtable and the Consumer Bankers Association (the Associations). On June 8, the Associations—one representing integrated financial services companies, and the other representing retail banking and personal banking services—submitted a joint comment letter addressing a number of the issues in the CFPB’s request. The Associations put forth the following recommendations, among others, for consideration:
- “With respect to deferred interest products, we encourage the Bureau to rely on the existing, robust regulatory regime and to not take further action on these products”;
- “hold third-party comparison sites making representations about credit cards responsible for their interactions with consumers”;
- “streamline processes for consumers to elect to receive electronic disclosures”;
- “credit card rewards programs have successfully developed under an effective self-regulatory construct, and that consumers with variable interest rate products are generally aware of the current interest rate environment, negating the need for additional regulations in both regards”; and
- “strong debt collection rules are important for consumers and issuers alike, and burdensome restrictions on communications should be avoided”.
Consumer Action (CA). Also on June 8, the CA—advocating for underrepresented consumers—submitted a comment letter to the CFPB request for information suggesting that the Card Act has been mostly effective “to keep credit card issuers in check” but that “some practices . . . have worsened over time.” Specifically, among other things, the CA provided the following recommendations:
- “retailers and cards that offer deferred interest not be allowed to apply interest until the end of the deferral period, and that retroactive interest be prohibited, and that the interest charged when a deferred interest period ends be on a going forward basis only”;
- “the clause alerting applicants that the terms, rates, and fees ‘are subject to change at any time for any reason’ remains in some card notices . . . While technically legal, this one-sided contract that penalizes consumers who [do] not perfectly abide by account terms and conditions yet gives card issuers a pass on committing to its end of the contract remains an unfair business practice and should be prohibited by the Bureau “;
- “consider requiring more prominent disclosure of a financial link between comparison sites and card issuers”;
- “true secured cards are remarkably risk-free. One danger is when the issuer does not report payment history to credit bureaus. Most consumers want a secured card to build credit and failure on the part of the issuer to report to credit bureaus means the customer is captive to the secured issuer. Users should be educated beforehand as to the proper use of a secured card so they can see it as a tool to help them graduate to an unsecured card eventually. For example, they should be aware that cash advances carry very high interest rates and start accruing interest on transactions immediately”; and
- “we also strongly support the Bureau’s planned prohibition on class-action bans in arbitration clauses and hope to see the Bureau release a final rule shortly.”
CFPB Encourages Alternatives to Deferred Interest Promotional Offers to Provide Transparency to Consumers
On June 8, the CFPB reported that it sent letters encouraging top retail credit card companies to consider consumer financing promotions that are more transparent than the often-used deferred-interest credit card. These deferred-interest cards offer no interest on the promotional balance, but only if it is paid off by the end of the promotional period. If any promotional balance remains when the promotional period ends, consumers are charged retroactive interest on the entire promotional balance from the time of purchase.
The CFPB suggests that a zero percent introductory interest rate is a better option for consumers who are sometimes confused by the retroactive interest in the deferred-interest products. Unlike with deferred interest, under 0% interest promotions, consumers are not assessed interest retroactively if the promotional balance is not paid in full by the end of the promotional period. As previously reported in InfoBytes, some consumers may have difficulty understanding the different credit terms when comparing deferred-interest promotions to zero interest promotions. According to the letters, because deferred-interest programs may be more difficult to understand than zero interest promotions, they require credit card companies to have robust compliance management systems and third party oversight measures to ensure consumers are fully informed of the true costs of the promotional financing.
In a blog post from June 8, the CFPB explains the differences between zero interest promotions and deferred-interest promotions, and offers examples of each promotion.