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Agencies Announce 2016 Consumer Credit, Lease Transaction Thresholds
On November 25, the Federal Reserve and the CFPB announced that the dollar thresholds in Regulation Z and Regulation M for exempt consumer credit and lease transactions will not change in 2016. Based on the annual percentage decrease in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) as of June 1, 2015, TILA and Consumer Leasing Act generally will apply to consumer credit transactions and consumer leases of $54,600 or less beginning January 1, 2016 – the same thresholds that applied in 2015. Regardless of the loan amount, private education loans and loans secured by real property remain subject to TILA. The agencies published notices of thresholds in Regulation Z and Regulation M in the Federal Register on November 27, 2015.
CFPB Monthly Complaint Snapshot Highlights Bank Account and Service Complaints
On November 24, the CFPB released its monthly complaint report, which focuses on bank account and service complaints. According to the report, the most commonly reported bank account or service complaints include (i) problems opening and managing an account; (ii) difficulties disputing transactions; and (iii) issues with depositing and withdrawing funds. Nationwide, the CFPB identified debt collection as the most-complained-about financial product or service, representing about 28% of complaints submitted. According to the report, complaints about prepaid products rose 193%, while payday loan complaints showed the greatest decrease. The report also identifies the most-complained-about companies. The CFPB acknowledged that Idaho showed the greatest increase in complaint volume and placed Connecticut in its geographic spotlight, noting that as of November 1, 2015, Connecticut consumers submitted more than 8,000 complaints, with mortgage-related complaints taking the lead.
Special Alert: CFPB Issues Guidance Regarding Preauthorized Debit Transactions Under the Electronic Fund Transfer Act and Regulation E
On November 23, 2015, the Consumer Financial Protection Bureau (“CFPB”) released Compliance Bulletin 2015-06 (“Bulletin”), which provides industry guidance on the Electronic Fund Transfer Act (“EFTA”) and Regulation E requirements for obtaining consumer authorizations for preauthorized electronic fund transfers (“EFTs”). The CFPB issued this Bulletin, in part, because it observed during its examinations that some companies are not fully complying with the EFTA and Regulation E. Principally, this Bulletin addresses two areas of concern: (i) obtaining the customer’s authorization for preauthorized EFTs over the telephone; and (ii) providing a copy of the authorization to the customer.
Regarding the first issue, the Bulletin reasserts and expands upon previous guidance provided by the Board of Governors of the Federal Reserve System. The CFPB acknowledges that companies may receive a consumer’s authorization over the telephone, provided that the requirements contained in the Electronic Signatures in Global and National Commerce Act (“ESIGN Act”) for electronic records and signatures are met. Specifically, the Bulletin states that Regulation E may be satisfied if the consumer signs or similarly authenticates the authorization orally, including by entering a code into his or her telephone keypad or by the company recording and retaining the consumer’s oral authorization, so long as in both circumstances the consumer’s intent to sign the electronic record is captured. Importantly, the CFPB confirms that the ESIGN Act’s limited restriction on the use of oral recordings as electronic records—which are not allowed where the law requires that information be provided to a consumer in writing—does not apply to the preauthorization requirements of the EFTA and Regulation E, as set forth in 12 CFR § 1005.10(b), because neither requires that companies provide a writing to consumers when obtaining such authorizations. The CFPB also reminds companies that the recording of consumer conversations must comply with applicable state law.
Next, the Bulletin summarizes the EFTA and Regulation E requirement that persons that obtain an authorization for a preauthorized EFT must provide the consumer with a copy of the terms of the authorization, in either written or electronic form. The copy should contain the “important terms” of the authorization. Per the Bulletin, “important terms” include the recurring nature of the preauthorized EFTs, and the amount and timing of the payments that the customer agreed to make. The CFPB also confirms that as an alternative to providing a copy of the authorization, the company may provide a confirmation form containing the same important terms. Finally, the CFPB notes that it “encourages” companies that obtain a consumer’s authorization to provide a copy of such authorization before the company initiates the first preauthorized transfer.
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Questions regarding the matters discussed in this Alert may be directed to any BuckleySandler attorney with whom you have consulted in the past.
CFPB Releases Tool to Help Consumers Decide When to Claim Social Security
On November 12, the CFPB released “Planning for Retirement,” an online tool intended to help older consumers make informed decisions regarding Social Security retirement benefits. On the same day, the CFPB published a report titled “Issue Brief: Social Security Claiming Age and Retirement Security.” According to the report, many consumers decide to collect Social Security benefits at the earliest possible age of 62 without (i) knowing the full retirement age range of 66 to 67, depending on the person’s birth year; and (ii) understanding the effects of collecting Social Security claims before the full retirement age, such as the substantial reduction of monthly benefits. The CFPB’s new interactive tool (i) uses Social Security Administration formulas to help consumers estimate how their age will affect their Social Security retirement benefits; (ii) provides claiming tips relevant to a consumer’s specific situation; and (iii) provides suggested action steps to help consumers plan their retirement.
CFPB Director Delivers Remarks on Financial Literacy at Annual ABA Convention
On November 10, CFPB Director Richard Cordray delivered remarks at the annual American Bankers Association convention. Cordray addressed efforts by the CFPB and financial institutions to collaborate in strengthening financial education, identifying the following areas of focus: (i) working with schools and teachers to provide young people with the knowledge and skills necessary to become financially successful adults; (ii) encouraging workplace financial education; and (iii) educating older Americans and those who care for them on how to avoid financial scams. Cordray called on community banks to implement financial education programs in school systems, urging bank leaders to “set the goal of making sure that financial education is required learning in all 50 states.” Cordray encouraged banks to lead by example in promoting financial education in the workplace, and to “make it a priority to educate their own employees and help them develop and use sound financial strategies, including savings for both emergencies and retirement.” Finally, Cordray applauded banks for launching the “Safe Banking for Seniors” campaign and urged them to do more to protect older consumers from financial exploitation, noting that bankers are often the first to spot red flags and should act quickly to report any suspected abuse.
D.C. District Court Rules in Favor of Anonymity When Challenging a CFPB Civil Investigative Demand
Recently, the District Court for the District of Columbia issued an opinion recognizing a company’s right to maintain privacy when challenging a CFPB Civil Investigative Demand (CID). John Doe Company No. 1 v. CFPB, No. 1:15-cv-1177 (D.D.C. Oct. 16, 2015). After receiving a CID from the Bureau, the Plaintiffs requested that the CFPB allow counsel to be present at a voluntary investigative hearing; the Plaintiffs’ request and subsequent petition to the CFPB were denied. On July 22, 2015, Plaintiffs filed a complaint against the CFPB seeking a temporary restraining order (TRO) and a motion to seal the case, arguing that sealing was appropriate because (i) CFPB investigations are normally nonpublic; and (ii) sealing the case would protect Plaintiffs from the harm that an ongoing investigation would cause if it were disclosed to the public. The court applied a six-factor test established by the D.C. Circuit in United States v. Hubbard to determine whether the court records should be released, considering the need for public access to the documents, the strength of the property and privacy interests involved, the possibility of prejudice against the Plaintiffs, and other factors. In a “compromise [to maximize] the amount of information available to the public while still protecting the privacy interest Plaintiffs assert,” the court ruled to unseal the case but ordered Plaintiffs to file redacted versions of all files pertaining to the case, omitting the names of Plaintiffs and “any other information reasonably likely to lead to the disclosure of Plaintiffs’ identities.”
CFPB Reports on Underserved Consumers' Use of Mobile Financial Services
On November 5, the CFPB published a report titled "Mobile Financial Services" to summarize the results of its June 2014 Request for Information on the opportunities and challenges associated with the use of mobile financial services (MFS) by traditionally underserved consumers. With 44% of unbanked individuals owning a smartphone, the report notes that MFS has the potential to be a promising tool for underbanked and unbanked consumers to manage their finances. According to the report, consumers using MFS save time and money because they can check their balances any time and have access to certain tools that help them manage their money. The report highlights mobile Remote Deposit Capture as particularly attractive to unbanked consumers because it allows them to take a picture of and deposit checks remotely, reducing the limitations of branch hours and locations. Additional key takeaways from the report include: (i) MFS would likely be most effective for underserved consumers if paired with consultative or assistance services; (ii) privacy and security concerns remain a significant risk; and (iii) digital access and digital financial literacy need improvement, such as enhancing affordable access to technology and educating consumers and intermediaries about safe and effective use of the technology.
CFPB Releases Supervisory Highlights Report
On November 3, the CFPB released its latest Supervisory Highlights report, which covers examination findings from May 2015 to August 2015. According to the report, which summarizes supervisory observations in the areas of consumer reporting, debt collection, mortgage origination, mortgage servicing, student loan servicing, and fair lending, recent non-public CFPB supervisory actions resulted in $107 million in restitution to more than 238,000 consumers. The report recognizes that certain efforts were made by institutions to improve compliance, including (i) mortgage servicers making improvements to their compliance audits and conducting information technology reviews; and (ii) student loan servicers alerting borrowers of unpaid balances remaining after borrowers attempt to pay off their loans but fall short. The report also discusses the CFPB’s revised exam appeals process, which includes changes to the supervisory appeals process originally outlined in Bulletin 2012-07. Among other things, the revised exam appeals process extends the expected time to issue a written decision on appeals from 45 to 60 days, and “[p]revents an institution from appealing adverse findings or an unsatisfactory rating related to a recommended or pending investigation or public enforcement action until the enforcement investigation or action has been resolved.”
CFPB Files Suit Against Student Financial Aid Company
On October 29, the CFPB filed a complaint in the U.S. District Court for the Southern District of California against a California-based student financial aid operation and its owner (Defendants). According to the complaint, the Defendants represented that by paying a fee and sending in an application, consumers were applying for financial aid or the Defendants would apply for aid on behalf the students. The CFPB alleges, however, that consumers did not receive the promised services in exchange for their payment and that the Defendants collected more than $4 million from at least 76,000 consumers from January 2011 through the filing of the complaint. The CFPB alleges that the Defendants violated the CFPA by (i) deceiving students to pay for services that the Defendants did not actually provide; (ii) using letterhead that falsely indicated affiliation with the government and university financial aid offices; and (iii) pressuring students to enroll in the program and pay a fee by creating false deadlines and making deceptive statements about the consequences of missing the deadlines. The CFPB also alleges that the Defendants failed to provide privacy notices to consumers as required by Regulation P. The complaint seeks a civil money penalty, restitution to harmed consumers, and a prohibition against future violations.
Illinois District Court Enters Final Judgment Against For-Profit College to Resolve CFPB Litigation
On October 28, the U.S. District Court for the Northern District of Illinois filed a default judgment and order against a for-profit college company to resolve litigation with the CFPB. In a September 2014 lawsuit, the CFPB alleged that the company engaged in unfair and deceptive practices by making false and misleading representations to students to encourage them to take out private student loans. The CFPB also alleged that the company violated the FDCPA by taking aggressive and unfair action to collect on the loan payments when they became past due. The court order requires the company to pay approximately $531 million in redress to student borrowers, which the company is unable to pay because it has dissolved and its assets have been distributed in its bankruptcy case. The CFPB indicated that it will continue to seek additional relief for students affected by the company’s practices despite the company’s inability to pay the judgment.