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Fed/CFPB OIG Releases Strategic Plan 2017-2020
On April 11, the Office of Inspector General (OIG) for the Fed and the CFPB published its Strategic Plan 2017–2020, providing an overview of the OIG’s organizational objectives for the next four years, as well as the indicators it will use to measure its performance as the “trusted oversight organization” of the Fed and the CFPB. According to a “Message From the Inspector General,” the Strategic Plan, is “the culmination of an extensive process that included a thorough functional assessment and organizational review of the OIG,” as well as an “extensive rebranding initiative.” The plan notes, among other things, that in order to “effectively engage all [its] stakeholders,” it is important that the OIG “successfully communicate [its] mission,” and “timely and effectively communicate [its] results.”
CFPB Director Withdraws Notification for Final Decision in Payday Lender Charges; Parties File Differing Opinions
On March 31, CFPB Director Richard Cordray issued an order directing the Bureau’s Office of Administrative Adjudication to withdraw a February 13 notification informing the parties that the administrative proceeding against an online payday lender and its CEO (Respondents) had been submitted for a final decision by the CFPB. The order noted that while the withdrawal “delay[s] [the] resolution of this appeal,” Director Cordray believed it to be appropriate in that it “help[s] minimize unnecessary or duplicative proceedings and . . . facilitate[s] a more efficient resolution of this matter.”
The March 31 order follows a March 9 order in which parties were directed to file statements indicating whether they objected to the withdrawal of the notification. The parties offered differing opinions in their responses. In their March 24 filing, Respondents agreed generally with the Bureau’s reasons for withdrawal but sought clarification on the timing of the “proposed re-notification in this matter” and, furthermore, stressed that that re-notification should only be made once the cases of PHH Corp v. CFPB, Lucia v. SEC, and Bandimere v. SEC have been resolved by their respective courts. A three-judge panel had previously ruled in PHH that the structure of the CFPB was unconstitutional and that the Bureau’s interpretations of the kickback prohibitions of the Real Estate Settlement Procedures Act (RESPA) and RESPA’s statute of limitations provisions were erroneous. The full court granted the CFPB’s petition in February 2017 and explicitly vacated the panel’s decision (see previously posted Special Alert). Conversely, the Enforcement Counsel’s filing “respectfully” objected to the withdrawal of the notice “because resolution of the PHH matter will not determine the resolution of this proceeding and . . . any delay would be inefficient and would exacerbate the harm to affected consumers.”
Last September, administrative law judge, the Hon. Parlen L. McKenna, recommended civil money penalties against Respondents totaling over $13 million as well as restitution of over $38 million to be paid to affected consumers. It further affirmed the CFPB’s allegations that the Respondents deceived consumers about the cost of short-term loans, thereby violating the Truth in Lending Act, the Electronic Fund Transfer Act, and the Consumer Financial Protection Act’s prohibition against deceptive acts or practices. Following the recommended decision, the Respondents filed a notice of appeal.
House Financial Services Committee Chairman Issues New Subpoena to CFPB
On April 4, House Financial Services Committee Chairman Jeb Hensarling issued a new subpoena to the CFPB, giving the Bureau a May 2 deadline to comply with its request for documents, which related to auto lending, payday lenders, and investigations into a company that allegedly charged higher interest rates to minorities on auto loans, as well as a national bank allegedly involved in the improper sales practice of creating deposit and credit card accounts without consumer consent. The subpoena also repeats some requests made by the Committee in previous subpoenas as a response to the Bureau’s failure to perform its legal obligations to produce the requested documents. As outlined in Schedule A’s second item of the April 4 subpoena, the Committee requests “all records relating to any instance whatsoever, from January 4, 2012 – present, in which any CFPB employee directed another federal government employee not to transmit to any Member, Committee, or Subcommittee of Congress records requested or subpoenaed by any Member, Committee, or Subcommittee of Congress.”
As previously covered in InfoBytes, over the past 17 months, GOP members of the Committee, who believe that the CFPB likely has and continues to violate the Administrative Procedure Act, have issued three investigative reports based on internal CFPB documents obtained by the Committee.
CFPB Issues Annual Consumer Complaint Report
On April 3, the CFPB published its Consumer Response Annual Report, providing a review of the CFPB’s complaint process and a description of complaints received during January 1 through December 31, 2016. According to the report, the Bureau handled 291,400 consumer complaints—a 7 percent increase from the total number of complaints in 2015. The top three categories, representing about 67 percent of complaints, were debt collection, credit reporting, and mortgages. The Bureau also received complaints related to bank services; credit and prepaid cards; consumer, student, and payday loans; and money transfers. Five years ago, the Bureau began accepting consumer complaints, and since then has handled, according to the CFPB, approximately 1,136,000 complaints.
CFPB Director Cordray Faces Tough Questioning During House Financial Services Committee Hearing
On April 5, CFPB Director Richard Cordray appeared before the House Financial Services Committee in order to “report on the Bureau’s activities and face questions from lawmakers about the harm those activities cause consumers.” As explained in a memorandum issued by the Committee in advance of the hearing, Section 1016 of the Dodd-Frank Act requires the Bureau Director to publish a semi-annual report on the Bureau’s activities and to testify on the report before the House Financial Services and Senate Banking Committees. The April 5 hearing explored the Bureau’s most recent two reports—Spring 2016 and Fall 2016.
Committee Chairman Jeb Hensarling (R-Texas) used Wednesday’s hearing to, among other things, make a case for the firing of the Director for cause. Describing the Bureau as an “unelected, unaccountable and unconstitutional” agency, the Chairman argued that “[f]or all the harm inflicted upon consumers, [Director Cordray] should be dismissed by the President.” The Chairman thereafter “call[ed] upon the president—yet again—to do just that, and to do it immediately.” In addition to debating the constitutionality of the agency, the Committee also spent time discussing the timing (and true extent) of the Bureau’s involvement in certain recent investigations and enforcement actions the CFPB has taken credit for.
Meanwhile, the Democrats on the Committee urged Cordray to stand firm amid efforts to oust him. In her opening statement, the Panel’s Ranking Member, Rep. Maxine Waters (D-Calif.) thanked the Director for his “sustained strong leadership” and for “doing exactly the job [he is] supposed to do,” and “doing it well.” Rep. Waters also characterized the Bureau as “an invaluable ally to consumers” whose “work must continue.”
As previously covered on InfoBytes, GOP committee members have been calling for the abolition of the CFPB, suggesting both that “President Trump should immediately fire CFPB Director Richard Cordray” and that “the agency must be functionally terminated,” so that “[c]onsumer protection can instead come through an accountable and constitutional process.” By contrast, Democrats on the committee have consistently urged the President to reject calls by GOP members to fire the CFPB Director noting, among other things, that an attempt by the President to fire Director Cordray “for cause” would be hard-pressed to withstand a legal challenge.
CFPB Releases Updated Supervision and Examination Materials
On March 31, the CFPB released updates to sections of its Supervision and Examination Manual as required by the updated Federal Financial Institutions Examination Council’s Uniform Interagency Consumer Compliance Rating System. The revised CFPB Supervision Examination Cycle Overview highlights the continuous exam cycle from pre-examination/scoping procedures to the monitoring and corrective actions stage, and provides additional details on its “prioritization” approach to examining, which considers the “large number, size, and complexity of entities falling under its supervisory authority.” Updates were also made to the Examination Process which offers further details on the exam cycle. The updated Scope Summary template provides examination background information on the entity as well as details regarding prudential and state regulators, communication plans, institution product lines to be reviewed, complaints, outstanding enforcement actions or other open matters, and risk summaries. Lastly, updates have also been made to the Examination Report Template—which provides the scope of review and consumer compliance rating based on the findings of the exam—and the Supervisory Letter Template—which references matters requiring attention or that need to be corrected based on the Bureau’s review.
CFPB Director to Testify Before Financial Services Committee on April 5 to Discuss Semi-Annual Reports
On March 31, the Financial Services Committee announced it will hold a hearing on Wednesday, April 5 at 10:00 a.m., entitled “The 2016 Semi-Annual Reports of the Bureau of Consumer Financial Protection.” According to the Committee Memorandum, the hearing—which will be held in room 2128 of the Rayburn House Office Building—will examine the Bureau’s Ninth and Tenth semi-annual reports covering the period of October 1, 2015 through March 31, 2016 and April 1, 2016 through September 30, 2016 respectively. Director Cordray, the only scheduled witness, will provide testimony on the reports.
CFPB Director Speaks at National Community Reinvestment Coalition Conference; Discusses Regulatory Review at Chamber of Commerce 11th Annual Capital Markets Summit
On March 29, CFPB Director Richard Cordray spoke at the National Community Reinvestment Coalition Conference in Washington, D.C. to discuss, among other things, the Equal Credit Opportunity Act and the difficulties faced by individuals who cannot obtain mainstream credit. As previously covered in InfoBytes, the CFPB is exploring the risks and benefits of using “alternative data” to assist consumers whose limited credit histories prevent them from accessing many lending opportunities. Cordray stated that one of the CFPB’s priorities “is [to increase] the availability of responsible financial products and services, especially for those who have been underserved or shut out.”
The next day, on March 30, Cordray spoke at the U.S. Chamber of Commerce’s 11th Annual Capital Markets Summit in Washington, D.C. In prepared remarks, Cordray discussed the regulatory compliance challenges and burdens that financial organizations face, as well as the CFPB’s efforts to assist with regulatory implementation, the development of clearer guidance, and methods to streamline and modernize regulations based on effectiveness. Cordray noted the CFPB’s efforts to improve and adapt regulations based on the needs of the industry. “We learn from the comments we receive and our final rules are helpfully informed by that input on a consistent basis,” Cordray stated. “But even after we issue a final rule, if the data shows over time that any of our substantive calls need to be reconsidered, we can and will face the issue frankly and address it. We will not let pride of authorship interfere with the serious task of policymaking in the interests of consumers and the American public.” As mandated by Congress, the CFPB must review any significant rules after five years have passed. The CFPB plans to review remittance rules followed by a review of the mortgage rules. Cordray also noted efforts to address ambiguities and conflicts in other areas such as debt collection and payday lending.
CFPB Proposes Amendment to Regulation B to Harmonize Regulation B with Other Mortgage Lending Regulations
On March 24, the CFPB announced the release of its proposal to amend Regulation B (12 CFR Part 1002), which implements the ECOA, a federal civil rights law that protects applicants from discrimination by lenders. According to the Bureau, the proposed amendment is intended to “provide additional flexibility for mortgage lenders concerning the collection of consumer demographic information.” Specifically, the regulation, as amended, would allow lenders to use the updated Uniform Residential Loan Application form adopted by Fannie Mae and Freddie Mac in 2016, rather than the 2004 version currently included in Regulation B, along with additional changes that would permit lenders to employ more uniform practices.
As explained in a March 24 CFPB blog post, a core justification for the proposed change is consistency and clarity with respect to other Bureau rules. While ECOA and Regulation B generally prohibit creditors from asking loan applicants about their race, religion, ethnicity, national origin, or gender, in some cases, such as mortgage loans, other regulations (i.e., Regulation C and the HMDA) require creditors to specifically ask for some of the very same information – including, for instance, race and ethnicity. To address this issue, the proposed amendments would allow institutions not subject to HMDA reporting requirements to choose on an “application-by-application basis” between two approaches to collecting personal demographic data from applicants: either the more limited, aggregate race and ethnicity categories required by Regulation B, or the disaggregated and more expansive categories required for HMDA-reporting institutions under revisions to Regulation C effective in 2018. The new rule would also create a safe harbor allowing for the collection (in certain circumstances) of data previously barred by Regulation B, establish consistent race and ethnicity categories that could be used in complying with both Regulation B and C.
Comments on the proposal will be due within 30 days of its publication in the Federal Register.
CFPB Issues Companion Guide to Your Money, Your Goals Toolkit, Targets “Justice-Involved” Individuals
Earlier this month the CFPB published its Focus on Reentry companion guide to the Your Money, Your Goals toolkit introduced in 2014. The companion guide, intended to assist organizations and their staff on how to address the unique financial challenges facing individuals pre- and post-release from incarceration as well as encourage financial empowerment and consumer financial protection education, also contains tools designed to aid “justice-involved” individuals. In particular, Focus on Reentry helps frontline staff teach these individuals to:
- Assess financial goals and understand their current financial situation to identify financial challenges to successful transition;
- Set “SMART” goals (Specific, Measurable, Able to be reached, Relevant, and Time bound) and identify steps to achieve them;
- Understand potential issues they may face when trying to secure documents related to identification to help ease the transition process;
- Identify and prioritize debt—both debt arising from the individual’s involvement in the criminal justice system (criminal justice debt) as well as consumer debt—in order to set debt management goals;
- Understand the process for accessing and reviewing credit reports and how to dispute errors to credit reporting agencies; and
- Understand individual rights to obtain and review criminal background screening reports and how to dispute and correct errors in criminal background checks.
In addition, Focus on Reentry provides information and resources on the impact of incarceration on student loans, access to financial aid, tax obligations, as well as many other categories.