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CFPB Accepting Online Marketplace Lending Consumer Complaints
On March 7, the CFPB announced that it is now accepting consumer complaints regarding the online marketplace lending industry. The CFPB simultaneously released a consumer bulletin defining the online marketplace lending industry as an online platform used “to connect consumers or businesses who seek to borrow money with investors willing to buy or invest in the loan.” The bulletin recommends that consumers take certain steps before applying for a loan or refinancing certain debt. CFPB Director Cordray did not expand on plans for how the CFPB will address the complaints, beyond noting that, “[b]y accepting these consumer complaints, we are giving people a greater voice in these markets and a place to turn to when they encounter problems.”
CFPB Releases Supervisory Highlights, Winter 2016 Issue
On March 8, the CFPB released its tenth edition of Supervisory Highlights, summarizing supervisory observations in the areas of consumer reporting, debt collection, mortgage origination, remittances, student loan servicing, and fair lending. The report covers the CFPB’s supervision work in the last quarter of 2015, generally between September 2015 and December 2015. Noteworthy findings in the report include: (i) violations of the Dodd-Frank Act’s unfair practice provisions by student loan servicers who would automatically default borrowers and co-signers on a private loan if either declared bankruptcy; (ii) violations of the October 2013 Remittance Rule, including providers failing to give complete and accurate disclosures to consumers, failing to cancel transactions within the required timeframe, failing to promptly credit a consumer’s account when an error occurred, and either not communicating the results of error investigations within the required timeframe or at all, or communicating them to an unauthorized party; (iii) inaccuracies in checking account information reported to NSCRAs by banks and credit unions; and (iv) violations of the FDCPA, with debt collectors failing to honor consumers’ requests to stop making contact with them and threatening garnishment against student loan borrowers who were not eligible for garnishment under the Department of Education guidelines. In addition to summarizing supervisory observations, the report provides an overview of the public enforcement actions taken between September and December 2015. Regarding non-public supervisory actions in the areas of deposits, debt collection, and mortgage origination, the report states that the CFPB collected more than $14 million in restitution to approximately 228,000 consumers in the fourth quarter of 2015.
CFPB Adopts Procedural Rule Establishing Application Process for the Designation of Rural Areas
On March 3, the CFPB adopted a procedural rule to establish an application process for identifying an area as rural or underserved that the CFPB, pursuant its authority under the Dodd-Frank Act, had not yet designated as rural. In December 2015, Congress passed the FAST Act, which contained several provisions intended to provide regulatory relief to community banks, including implementing a process under which banks and other stakeholders could petition the CFPB for rural or underserved designations in certain areas for the purposes of Federal consumer financial law. The CFPB’s recently issued procedural rule establishes such an application process. Under the process, banks must submit an application—by mail, email or hand delivery—to the CFPB Rural Application Coordinator containing, among other things, the following: (i) identifying information for the proposed designated rural area; (ii) justification for the proposed designation, providing supporting information from the U.S. Census Bureau, the Office of Management and Budget, the Department of Agriculture, and the State Bank Supervisor; and (iii) the area’s population density, including comparative information regarding “the population density of any nearby area with a greater population density that has been designated by the Bureau as a rural area.” The CFPB will begin accepting applications on March 31, 2016.
CFPB Monthly Consumer Snapshot Highlights Complaints Related to Prepaid Products
On March 1, the CFPB released its most recent complaint report focusing on prepaid products. According to the report, as of February 1, 2016, consumers have submitted approximately 4,300 complaints specific to prepaid products. Findings related to prepaid products highlighted in the report include: (i) consumers are not able to access funds loaded to prepaid cards for extended periods of time; (ii) companies are refusing to re-issue cards with remaining balances to consumers before the originally issued card expires; (iii) consumers are facing various extra charges, such as replacement, monthly, inactivity, and PIN number change fees; and (iv) companies are freezing entire balances when a consumer files a claim to dispute an unexpected charge, making funds unavailable until the claim process is complete. The report also notes that “[c]onsumers who were victims of frauds or scams frequently complained that scammers instructed them to purchase prepaid cards in order to transfer funds to the fraud perpetrators.”
In addition to its focus on prepaid product based complaints, the report identifies the Houston, Texas metropolitan area as its geographical spotlight, noting that as of February 1, 2016, the CFPB has received approximately 63,200 industry-wide complaints from Texas consumers, with about 15,700 coming from Houston consumers alone. A review of the Texas complaints resulted in a highlight of the most-complained-about companies and the most-complained-about consumer financial products and services. Debt collection, mortgage, and credit reporting accounted for the top three most-complained about products in both the Texas sampling and for all consumer complaints submitted to the CFPB’s Consumer Complaint Database.
Special Alert: CFPB Enters into First Consent Order with Online Payment Platform for Misrepresenting Data Security Practices
On March 2, the CFPB took action against an Iowa-based online payment platform and entered into a Consent Order for deceptive acts and practices relating to false representations regarding the company’s data security practices in violation of 1031(a) and 1036 (a)(1) of the Consumer Financial Protection Act of 2010. The CFPB ordered the company to pay a $100,000 fine and to take certain remedial steps to improve their cybersecurity practices. Notably, this action is the result of the company’s failure to have adequate controls in place; it is not the result of a breach incident. Similar to other regulators, the CFPB will likely pay increasing attention to cybersecurity and data privacy issues as the understanding of its significance grows.
The Consent Order states that, despite representations to the contrary, the company (i) misrepresented the quality and efficacy of its cybersecurity and data privacy practices by stating that all personal data on its site was “safe” and “secure” and that its practices “exceeded” industry standards; (ii) did not properly encrypt consumer data; and (iii) failed to provide employees with sufficient cyber training.
Click here to view the full Special Alert.
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Questions regarding the matters discussed in this Alert may be directed to any of the persons listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.
- Elizabeth E. McGinn, (202) 349-7968
CFPB Releases Fact Sheet: Policy Priorities over the Next Two Years
On February 25, the CFPB released a fact sheet outlining its policy priorities over the next two years. The document lists the following nine near-term priority goals: (i) arbitration; (ii) consumer reporting; (iii) debt collection; (iv) demand side consumer behavior; (v) household balance sheets; (vi) mortgages; (vii) open-use credit; (viii) small business lending; and (ix) student lending. Regarding arbitration, the CFPB noted that it “will continue the rulemaking process and propose a rule consistent with its study that will further enable consumers to effectuate their rights and hold institutions accountable for unlawful conduct.” With respect to consumer reporting, the CFPB will focus on issues surrounding the accuracy of consumer reporting and institutions’ dispute resolution processes. In the debt collection space, the CFPB plans to initiate rulemakings on debt collector conduct (including issues relating to the substantiation of consumer debt and the disclosure of information to consumers) while simultaneously pursuing rigorous supervision and enforcement activity to ensure industry compliance. Regarding demand side consumer behavior, the CFPB will focus on financial education for consumers. With respect to household balance sheets, the CFPB will conduct research and data analysis on household financial health and decision making. For mortgages, the CFPB will focus on the implementation of existing rules as well as the supervision and enforcement of issues relating to equal and fair access to credit. In the open-use credit space, the CFPB plans to conduct small-dollar, installment lending, and overdraft market rulemakings while conducting complementary supervision and enforcement work to support its new rules. Regarding small business lending, the CFPB will (i) build a small lending team that will begin conducting research and outreach for a small business lending rulemaking; (ii) employ its consumer response team to build infrastructure to analyze small business complaints; and (iii) examine small business lenders for fair lending compliance. Finally, with respect to student lending, the CFPB will work on servicer alignment as well as supervision and enforcement of servicers’ legal obligations. In addition to these nine priority areas, the CFPB also indicated that it plans to continue to focus on well-established and ongoing work streams, such as fair lending oversight of indirect auto lenders and its rulemaking on prepaid cards.
CFPB Announces Actions against New York-Based Financial Institution and Debt Collection Law Firms
On February 23, the CFPB announced two separate actions, one against a New York-based financial institution and another against the same financial institution, two of its affiliates, and two debt collection law firms, alleging that the respondents’ debt sales and debt collection practices constituted unfair or deceptive acts or practices under the CFPA. In the first action, the CFPB asserted that, between 2010 and 2012, the financial institution “failed to identify and timely remit to Debt Buyers over 9,500 payments totaling $701,000 made by Consumers to Respondent relating to accounts Respondent sold.” The CFPB further alleged that, between February 2012 and June 2013, the financial institution overstated the APR information in sales files, ultimately providing debt buyers with inaccurate APR data. As a result, the Bureau claimed that consumers “likely made payments based on Debt Buyers’ misstatements about the amount owed on their Accounts, and were likely subjected to inaccurate credit reporting and to collection efforts by Debt Buyers when the Consumers had already paid off their Accounts.” In addition to $4.89 million in redress to impacted consumers and $3 million in civil money penalties to the CFPB, the consent order requires the financial institution to enhance its processes, systems, and controls so that they (i) ensure accurate documentation of the financial institution’s debt sales; (ii) prevent the financial institution from selling debt that is undocumented, unverifiable, or within 150 days of the expiration of any applicable statute of limitations; (iii) include provisions in the financial institution’s debt sales contracts that require debt buyers to send borrowers debt validation notices and prohibit debt buyers from reselling debt or collecting post-sale interest on debt except under certain limited circumstances; (iv) require that the financial institution provide consumers with information about their debt, including the name of the original creditor, the credit agreement, and recent account statements; (v) ensure that the financial institution timely forwards consumer payments on sold accounts; and (vi) ensure that the financial institution provides training to employees and service providers on the enhancements to its processes, systems, and controls.
In a separate action, the CFPB issued consent orders to the same financial institution, two of its affiliates, and two debt collection law firms, because the law firms altered affidavits, sworn statements, certifications of proof, and other such declarations (collectively “declarations”) after their execution and then filed those declarations with New Jersey courts. In May 2011, the financial institution discovered the law firms’ conduct and self-reported it to the New Jersey Courts Administration. In response, the Superior Court of New Jersey ordered the financial institution and its affiliates to refund $11 million to impacted consumers and to cease collection efforts on an additional $34 million in debts. Citing to its 2013 Responsible Business Conduct Compliance Bulletin, the CFPB has opted not to impose civil money penalties against either the financial institution or its affiliates. However, the Bureau is requiring, among other things, that the financial institution and its affiliates fully comply with the New Jersey state court order and enhance their oversight and compliance management systems surrounding the execution of declarations. In contrast, the consent orders that the CFPB entered into with the debt collection law firms impose civil money penalties of $15,000 on one firm and $65,000 on the other.
CFPB Issues Policy on No-Action Letters
On February 18, the CFPB finalized its policy on No-Action Letters, which was originally proposed in October 2014. The No-Action Policy is intended to create a process for companies to apply for a No-Action Letter (NAL) from the CFPB in “instances involving innovative financial products or services that promise substantial consumer benefit” where provisions of the statutes implemented or regulations issued by the CFPB are vague. According to CFPB Director Cordray, the new policy is “designed to improve access to consumer financial products and services that promise substantial consumer benefits.” Denial of applications will be made at the discretion of the CFPB staff, who will not be required to “provide specific reasons for declining to provide NALs.” According to the policy statement, the CFPB has “limited resources to devote to NALs” and anticipates receiving approximately “one to three actionable applications per year.”
FTC Reports to CFPB on 2015 Activities to Combat Illegal Debt Collection Practices
On February 17, the FTC sent the CFPB a letter summarizing its 2015 efforts to stop allegedly illegal debt collection practices. According to the letter, in 2015, the FTC’s FDCPA activities included “aggressive law enforcement activities and public outreach to address new and troubling issues in debt collection,” such as (i) coordinating the first federal-state-local enforcement initiative, Operation Collection Protection, that targets deceptive and abusive debt collection practices; (ii) prosecuting various cases involving the use of purportedly unlawful text messages to collect debts; (iii) publishing a list of every company and individual that has been banned from engaging in debt collection activities because of the FTC’s work; and (iv) hosting three Debt Collection Dialogues “to promote a more robust exchange of information between the debt collection industry and the state and federal governmental agencies that regulate their conduct.” The letter highlights various actions against debt collectors taken jointly by the FTC and the CFPB, and the offices of the New York and Illinois Attorneys General. Under the FDCPA, the FTC shares enforcement responsibilities with the CFPB. The FTC’s recent letter is intended to assist the CFPB in preparing its annual report to Congress about its administration of the FDCPA, as required by Dodd-Frank.
CFPB Announces Consumer Advisory Board Meeting
On Thursday, February 25, the CFPB will hold its next Consumer Advisory Board meeting in Washington, DC. According to the meeting’s agenda, after opening remarks from Director Cordray, Chris D’Angelo, Director Cordray’s Chief of Staff, will discuss the Bureau’s strategic outlook. Later in the afternoon, CFPB Assistant Director for Financial Education Janneke Ratcliffe and Senior Financial Education Research Analyst Genevieve Melford will speak on the topic of Measuring Financial Well-Being. The event is open to the public.