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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.
CFPB Monthly Complaint Report Focuses on Credit Cards; 2016 Annual Report to Congress Highlights FDCPA Activities
On March 28, the CFPB released its monthly complaint report highlighting consumer complaints as of March 1 of this year. The report states that the Bureau has handled approximately 1,136,000 consumer complaints across all categories, of which 10 percent (116,200) relate to credit cards. A few of the most common findings raised by consumers are: (i) issues with fraudulent charges—both with respect to being billed for charges not initiated by them and experiencing difficulties having charges removed even after a dispute has been resolved in their favor; (ii) issues regarding reward program requirements and benefits; and (iii) issues regarding identity theft complaints, specifically with respect to “credit card accounts being fraudulently opened in their name even after an alert was placed on their credit file.” The report discloses that credit card complaints, along with complaints regarding debt collection practices, constituted the most prolific category of consumer complaints in February 2017. Credit reporting complaints and mortgage complaints are the second and third most common complaints, respectively. As previously reported in InfoBytes last month, student loan complaints continued to show the greatest increase year-over-year for the same three month time period of December to February—551 complaints from 2015/2016 versus 2,913 complaints in 2016/2017.
Furthermore, the report’s geographic spotlight this month, Massachusetts, represented 1.8 percent of the total number of complaints nationally handled by the CFPB, and while debt collection complaints were “significantly lower” than the national average (20 percent as compared to 27 percent), the rate of mortgage complaints was roughly at the national average.
Also this month, on March 6, the CFPB submitted to Congress its sixth annual report summarizing its efforts to administer the FDCPA and highlighting the work done by the CFPB and the FTC, both of whom “work closely to coordinate” FDCPA enforcement actions (see prior InfoBytes coverage on FTC letter summary). The report discusses consumer complaints and debt collection enforcement activity, amicus briefs filed in FDCPA-related cases, consumer education efforts, and initiatives regarding rulemaking, research, and policy. FDCPA examinations performed in 2016 “identified a number of violations of the law …including false representations made by debt collectors to consumers, unlawful fees charged by debt collectors, and illegal disclosure of debts to third parties.” Furthermore, the examinations “also found instances in which debt sellers sold accounts for collection that did not properly reflect that the accounts were discharged in bankruptcy, were fraudulent, or had already been paid . . . Additionally . . . [i]n the cases that were concluded in 2016, $39 million was paid in restitution for consumers who were impacted by illegal debt collection practices and $20 million in civil penalties.”
CFPB Fines National Credit Reporting Company $3 Million for Alleged Deceptive Practices
On March 23, the CFPB ordered a nationwide credit reporting company and its subsidiaries to pay $3 million for allegedly deceiving consumers about how credit scores they marketed and sold were used by lenders. The consent order claims the company developed its own proprietary credit scoring model (PLUS Score), which was used to generate credit scores from information in a consumer’s credit file. The company then allegedly deceptively marketed and sold the “educational” credit score as the same type of score lenders use to make credit decisions, when in fact lenders did not use the scores. Moreover, there were instances of significant discrepancies between the “educational” credit scores that the company sold to consumers and the actual credit scores used by the lenders. The Bureau also alleges the company—up until March 2014—violated the Fair Credit Reporting Act (FCRA) by requiring consumers to view advertisements before they could access their credit reports. Pursuant to the consent order, the company must pay a $3 million civil money penalty, truthfully inform consumers about the nature of the credit scores it sells, and develop and implement an effective compliance management system to ensure its advertising practices comply with federal consumer laws. As previously reported in InfoBytes, earlier this year the CFPB issued consent orders against two different nationwide credit reporting companies for similar allegations.
Fed/CFPB OIG Recommends CFPB Strengthen Conflicts-of-Interest Controls
On March 15, the Office of Inspector General for the Board of Governors for the Federal Reserve Board and Consumer Financial Protection Bureau (OIG) issued its findings in the evaluation report titled The CFPB Can Strengthen Its Controls for Identifying and Avoiding Conflicts of Interest Related to Vendor Activities (the Report), stemming from an evaluation of the risk of potential conflicts of interest when using vendors to support fair lending compliance and enforcement analysis. The Report covers the time period of June 2012 through January 2016. To assist the CFPB’s Office of Fair Lending and Equal Opportunity’s fair lending oversight function, the Bureau contracted with vendors to “conduct statistical analysis designed to assess an institution’s compliance with fair lending laws and to serve as an expert witness when needed.” The function of the evaluation was to assess whether the Bureau effectively identified and avoided the risk of potential conflicts of interest for vendors supporting this type of work. Notably, while the OIG concluded that the Bureau’s relationship with one vendor heightened the risk of possible conflicts of interest and increased the need for timelier vendor disclosures and communications—a vendor took nearly two years to disclose a relationship with a firm included on a CFPB task order but later confirmed no work was performed—no actual conflicts of interest were found in its evaluation. The OIG presented the following recommendations:
- Ensure vendors comply with existing documentation requirements;
- Clarify roles and responsibilities; and
- Improve the facilitation of vendor disclosure of potential conflicts or receive affirmation that conflicts do not exist at the start of every task order.
Furthermore, the OIG recommended evaluating the costs and benefits of performing more fair lending analysis internally, which may effectively mitigate such risks
CFPB Releases "Remittance Rule" Assessment; Seeks Public Comment
On March 20, the CFPB issued a request for comment on its plan for assessing the effectiveness of its May 2013 final rule governing consumer remittance transfers. According to a March 17 blog post on the CFPB’s website, the self-assessment—which is required under Section 1022(d) of the Dodd-Frank Act—will focus on, among other things: (i) “whether the market for remittances has evolved . . . in ways that promote access, efficiency, and limited market disruption”; and (ii) whether the Remittance Rule (and other CFPB regulatory activity) has “brought more information, transparency, and greater predictability of prices to the market.” In describing the approach it planned to take in conducting its evaluation, the CFPB explained that it would seek to “compare consumer outcomes to a baseline that would exist if the Remittance Rule’s requirements were not in effect.” Comments on the plan will be due 60 days following the notice’s publication in the Federal Register.