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CFPB Monthly Complaint Snapshot Highlights Consumer Loan Complaints
On June 28, the CFPB released its monthly complaint report focusing on consumer loans, including vehicle loans and leases, installment loans, title loans, and pawn loans. According to the report, of the 906,400 consumer complaints across all products the CFPB has received as of June 1, 2016, approximately 38,500 were in the consumer loans category. Findings regarding consumer loan complaints highlighted in the report include: (i) just over half of consumer loan complaints pertain to vehicle loans, with installment loans following at 31 percent; (ii) consumers most often complain about issues related to servicing the loan, lease, or line of credit; and (iii) additional common consumer loan complaints include encountering problems when shopping for a loan, when taking out a loan, and when consumers are unable to repay a loan.
This month’s report includes a “sub product spotlight” to highlight complaints specific to auto lending, which make up 60 percent of the 38,500 consumer loan complaints the CFPB has received since July 21, 2011. Consumer loan complaints specific to auto lending include, but are not limited to: (i) payment processing issues, such as consumers not having their accounts debited timely and correctly; (ii) confusion over fees and interest rates; (iii) repossession of vehicles without notification; (iv) misleading advertising at “Buy Here Pay Here” dealerships; and (v) insufficient warranty coverage, with consumers alleging that they believed they were required to purchase warranties that did not end up covering basic repairs as they expected.
In addition to a focus on consumer loan complaints, the report identifies Arkansas as its geographical spotlight. As of June 1, Arkansas consumers have submitted 4,200 of the 906,400 total complaints across all products. According to the report, mortgage-related complaints make up 19 percent of complaints from Arkansas, lower than the national average of 26 percent, while debt collection complaints account for 29 percent of Arkansas complaints, higher than the national average of 27 percent.
FDIC Conducts Survey on Banks' Small Business Lending Practices
On June 28, the FDIC announced that it is conducting a survey to collect information on banks’ small business lending practices. Selected at random, approximately 2,000 FDIC-insured banks will participate in the web-based small dollar lending survey. Intended to provide insight into various aspects of small business lending, the survey will collect data related to: (i) the general characteristics of banks’ small business borrowers; (ii) the types of credit offered to small businesses; (iii) commercial lending and its relative importance for different-sized banks and business models; (iv) geographical location, collecting data for banks in urban and rural communities; and (v) market areas for small business lending and perceived competition. In addition, the survey contains questions related to consumer transaction accounts, responding to a Congressional mandate to “learn more about bank efforts to bring unbanked individuals into the conventional finance system.” Institutions selected to participate in the survey received a letter from the FDIC in late June with directions on how to proceed. The U.S. Census Bureau is administering the survey on behalf of the FDIC. It is unclear how this survey relates to the CFPB’s forthcoming rulemaking on small business lending.
CFPB Releases Special Edition Supervisory Highlights with Focus on Mortgage Servicing
On June 22, the CFPB released its eleventh issue of Supervisory Highlights specifically to address recent supervisory examination observations of the mortgage servicing industry. According to the report, mortgage servicers continue to face compliance challenges, particularly in the areas of loss mitigation and servicing transfers. The report attributes compliance weaknesses to outdated and deficient servicing technology, as well as the lack of proper training, testing, and auditing of technology-driven processes. Notable findings outlined in the report include the following: (i) multiple violations related to servicing rules that require loss mitigation acknowledgment notices, observing deficiencies with timeliness and content of acknowledgement notices; (ii) violations regarding servicer loss mitigation offer letters and other related communications, including unreasonable delay in sending letters; (iii) failure to state the correct reason(s) in letters to borrowers for denying a trial or permanent loan modification option; (iv) failure to implement effective servicing policies, procedures, and requirements; and (v) heightened risks to consumers when transferring loans during the loss mitigation process. Although the report focuses largely on mortgage servicers’ continued violations, it acknowledged that certain servicers have significantly improved over the past several years by, in part, “enhancing and monitoring their servicing platforms, staff training, coding accuracy, auditing, and allowing for great flexibility in operations.”
In addition to outlining Supervision’s examination observations of the mortgage servicing industry, the report also notes that the CFPB’s Supervision and Examination Manual was recently updated to reflect regulatory changes, technical corrections, and updated examination priorities in the mortgage servicing chapter.
CFPB Amends Annual Dollar Thresholds in TILA Regulations
On June 17, the CFPB announced that it adjusted dollar threshold amounts for provisions in Regulation Z, which implements TILA, under the CARD Act, HOEPA, and the Dodd-Frank Act. The CFPB is required to make adjustments based on the annual percentage change reflected in the Consumer Price Index effective June 1, 2016. For 2017, the minimum interest charge will remain $27 for the first late payment and the subsequent violation penalty safe harbor fee for 2016 was amended to $38 for the remainder of 2016 and all of 2017. The CFPB is increasing the combined points and fees trigger-threshold for compliance with HOEPA to $1,029, and the amount threshold for high-cost mortgages in 2017 will be $20,579. To satisfy the underwriting requirements under the ATR/QM rule, a covered transaction will not be considered a QM unless the combined points and fees do not exceed 3% of the total loan amount for a loan greater than or equal to $102,894; $3,087 for a loan amount greater than or equal to $61,737 but less than $102,894; 5% of the total loan amount for a loan greater than or equal to $20,579 but less than $61,737; $1,029 for a loan amount greater than or equal to $12,862 but less than $20,579; and 8% of the total loan amount for a loan amount less than $12,862. The final rule is effective January 1, 2017, except that the amendment to the subsequent violation penalty safe harbor fee amount of $38 for the remainder of 2016 takes effect upon Federal Register publication.
CFPB Takes Action Against North Dakota Payment Processor for Alleged Unauthorized Withdrawal Practices
On June 6, the CFPB filed a complaint against a North Dakota-based third-party payment processor and two of its senior executives for alleged violations of the Dodd-Frank Act’s prohibition against unfair acts and practices. Acting on behalf of its clients, the payment processor transferred funds electronically through a network called the Automated Clearing House, and in the process, according to the CFPB, the payment processor “ignored numerous red flags about the transactions they were processing, including repeated consumer complaints, warnings about potential fraud or illegality raised by banks involved in the transactions, unusually high return rates, and state and federal law enforcement actions against their clients.” The CFPB contends that the defendants failed to: (i) heed warnings, including federal and state enforcement actions taken against the defendants’ clients, from banks and consumers regarding potential fraud or unauthorized debits; (ii) adequately monitor and respond to “enormously” high return rates; and (iii) investigate “red flags” throughout its clients’ application processes that “should have caused it to… perform enhanced due diligence prior to accepting a client for processing.” Regarding the individuals’ involvement in the allegedly unlawful activity, the CFPB’s complaint alleges that both engaged in unfair acts and practices by “actively ignoring” a number of red flags associated with the payment processor’s business activities. The CFPB’s complaint seeks monetary relief, injunctive relief, and penalties.
CFPB Releases Report on Supplemental Findings on Payday, Vehicle, and Installment Loans
On June 2, the CFPB released a report with various analyses of payday loans, payday installment loans, vehicle title loans, and deposit advance products. The report’s six chapters examine: (i) consumer usage and default patterns for vehicle title installment loans and payday installment loans; (ii) consumer account activity before and after the discontinuation of deposit advance products, analyzing whether consumers who used such products “overdrew their accounts or took out payday loans more frequently after banks stopped offering the products”; (iii) the impact of varying state laws on storefront payday lending in Texas, Colorado, Washington, and Virginia; (iv) the share of payday loans that are reborrowed across states, comparing it to varying limits on renewals and requirements for cooling-off periods between the loans; (v) borrower and default patterns for storefront payday loans for three alternative definitions of the loan sequence concept; and (vi) a series of simulations regarding the estimated impacts of certain requirements on the payday, payday installment, and vehicle title loan markets. On June 2, the CFPB simultaneously released its Proposed Rule on Payday, Title, and Installment loans; to review BuckleySandler’s full coverage on the proposal, please see the Special Alert: CFPB’s Proposed Rule Regarding Payday, Title, and Certain Other Installment Loans.
The CFPB’s recent supplemental report comes after its April 20 report titled “Online Payday Loan Payments” and its May 18 report titled “Single-Payment Vehicle Title Lending.”
CFPB Releases "Know Before You Owe" Auto Initiative
On June 9, the CFPB released an auto loan worksheet designed to help consumers shop for an automobile loan. As part of its Know Before You Owe auto initiative (also known as the Take Control of Your Auto Loan initiative), the online worksheet is intended to help consumers: (i) understand the aggregate amount of the loan – not just the monthly payment – including the interest rate, optional add-ons, and certain fees; (ii) negotiate and compare between loan offers; and (iii) be mindful of how additional financing features, services, or add-ons, such as guaranteed auto protection insurance, extended warranties, and credit insurance, can increase the upfront cost of a loan. In addition to the auto loan worksheet, the CFPB’s Know Before You Owe auto initiative also contains a step-by-step guide designed to help consumers navigate the auto lending process.
The CFPB simultaneously released a report titled “Consumer Voices on Automobile Financing.” The report covers research related to direct and indirect auto financing, but does not address financing offered by “Buy Here Pay Here” dealers or leasing. According to the report, as of April 20, 2016, the CFPB has received more than 2,000 consumer complaint narratives related to vehicle financing issues. The report identifies the following as common themes among consumer complaint narratives: (i) a lack of understanding regarding the potential financing options that are available, or a lack in confidence to explore options different from what was originally offered; (ii) difficulties in understanding and negotiating the loan terms, noting that “consumers reported that they did not fully understand the level of the interest rate they were paying until they started making payments”; (iii) failed promises of receiving refinancing or better loan terms in the future; (iv) challenges related to loans lasting “beyond the life of the vehicle”; (v) problems with add-ons, noting that consumers reported that the add-ons they had purchased “were difficult or impossible to use when needed”; and (vi) issues with credit inquiries and dealers submitting loan applications to lenders without consumer permission. The research and findings outlined in the CFPB’s report was used to develop the Take Control of Your Auto Loan initiative.
CFPB Updates eRegulations Platform
On June 6, the CFPB updated its eRegulations platform, a tool that allows users to search CFPB regulations, read the official interpretation of a rule alongside its text, and see a timeline of the rule and its amendments. The platform was updated to include Regulation C (Home Mortgage Disclosure), Regulation X (RESPA), and Regulation DD (Truth in Savings). Updates to the platform also include all amendments made to Regulation Z (Truth in Lending) through March 2016.
Update Regarding CFPB Proposed Rule on Arbitration Agreements
As previously announced, the CFPB published its proposed rule on arbitration agreements in the Federal Register on May 24. To clarify prior summaries, the proposed rule seeks to impose two restrictions on the use of pre-dispute arbitration agreements by covered providers of certain consumer financial products and services. First, the proposed rule would prohibit covered providers from using pre-dispute arbitration agreements to bar consumer class actions in court and would require providers to include a provision in their pre-dispute arbitration agreements reflecting this limitation. Second, the proposed rule would require covered providers to submit certain records related to arbitral proceedings to the CFPB if the covered provider uses pre-dispute arbitration agreements. Comments to the proposed rule must be received by the CFPB on or before August 22, 2016.
Republicans Attempt to Replace the Dodd-Frank Act with the Financial CHOICE Act
On June 7, House Financial Services Committee Chairman Jeb Hensarling (R-TX) released details of the Financial CHOICE (Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs) Act, a Republican proposal to dismantle the Dodd-Frank Act. According to Chairman Hensarling’s remarks delivered to the Economic Club of New York, “Dodd-Frank has failed.” The goals of the proposed plan are: (i) to promote economic growth through competitive, transparent, and innovative capital markets; (ii) to provide the opportunity for every American to achieve financial independence; (iii) to protect consumers from fraud and deception as well as the loss of economic freedom; (iv) to end taxpayer bailouts of financial institutions and too big to fail institutions; (v) to manage systemic risk; (vi) to simplify in order to prevent powerful entities from taking advantage of complexity in the law; and (vii) to hold Wall Street and Washington accountable. Importantly, Section Three (“Empower Americans to achieve financial independence by fundamentally reforming the CFPB and protecting investors”) proposes, among other things, to replace the current single director structure of the CFPB with a five-member, bipartisan commission subject to congressional oversight and appropriations. Section Three further proposes to repeal indirect auto lending guidance. As part of its goal to end “too big to fail” institutions and bank bailouts, Section Two of the Act proposes to retroactively repeal FSOC’s authority to designate firms as systematically important financial institutions. Finally, in an effort to “unleash opportunities for small businesses, innovators, and job creators by facilitating capital formation,” Section Six of the Act proposes to repeal the Volcker Rule, along with other sections and titles of Dodd-Frank that limit capital formation.