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CFPB Releases Annual Report on Student Loan Complaints
On October 14, the CFPB released its annual report of the CFPB Student Loan Ombudsman, which analyzes consumer complaints submitted from October 1, 2014 through September 30, 2015 and provides an examination of issues raised in its September student loan servicing report. The CFPB is predominantly concerned about the group of borrowers facing repayment issues with older federal student loans made by banks and private lenders under the Federal Family Education Loan Program (FFELP). According to the CFPB’s report, at least 30 percent of borrowers who participated in FFELP are either behind in their loan repayments or already in default. The report includes the following additional noteworthy data: (i) more than one in five of borrowers with federal loans made by private lenders are past-due, with more than 10 percent in forbearance; and (ii) 95 percent of borrowers with federal loans made by private lenders are not enrolled in income-driven repayment plans. The content of the report emphasizes the importance of the Department of the Treasury, Department of Education, and the CFPB’s joint statement to improve student loan servicing practices, promote borrower success, and minimize defaults.
Special Alert: CFPB Issues Guidance Regarding Marketing Services Agreements
On October 8, 2015, the Consumer Financial Protection Bureau (“CFPB”) published a compliance bulletin providing guidance to mortgage industry participants regarding the permissibility of marketing services agreements (“MSAs”) under the Real Estate Settlement Procedures Act (“RESPA”).The bulletin summarizes the CFPB’s “grave concerns” that settlement service providers have been improperly using MSAs to circumvent RESPA’s restrictions on the payment of kickbacks and referral fees in exchange for real estate settlement services.
According to the bulletin, while MSAs are purportedly designed to permit individuals or entities to pay service providers bona fide compensation for goods, facilities, or services actually provided—which is expressly permitted under RESPA—in some cases, MSAs are actually used as a cover for illegal referral fee arrangements. The bulletin further notes that even facially-compliant MSAs can be implemented in a manner that ultimately results in the impermissible exchange of compensation for referrals of settlement service business, often as a result of the significant financial pressures that exist for participants in the mortgage and settlement service markets. The CFPB’s guidance emphasizes the dangers posed to consumers by MSA arrangements that hide or indirectly or inadvertently facilitate the unlawful exchange of payment for referrals of settlement service business, including potential increases in mortgage pricing and negative impacts on consumers’ ability to freely shop for mortgages and mortgage-related settlement services.
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 our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.
- Joseph M. Kolar, (202) 349-8020
- John P. Kromer, (202) 349-8040
- Jeffrey P. Naimon, (202) 349-8030
- Clinton R. Rockwell, (310) 424-3901
- Steven VonBerg, (202) 524-7893
U.S. House of Representatives Passes Several Financial Regulatory Relief Bills, Including TRID Safe Harbor
On October 7, the U.S. House of Representatives (U.S. House) passed several pieces of bipartisan legislation aimed at providing regulatory relief to lenders and strengthening consumer protection. This legislation included H.R. 3192, the Homebuyers Assistance Act, which was approved by a 303-121 vote, which seeks to provide a formal four-month safe harbor for lenders who in “good faith” work to comply with the CFPB’s new TRID Rule, which went into effect on October 3. The U.S. House also unanimously approved H.R. 1553, the Small Bank Exam Cycle Reform Act, and H.R. 1839, the Reforming Access for Investments in Startup Enterprises (RAISE) Act. The Small Bank Exam Cycle Reform Act would allow well-managed banks with assets under $1 billion to qualify for an 18-month examination cycle, rather than the current 12-month cycle. The RAISE Act is intended to promote a liquid secondary market for shareholders seeking to sell private securities and encourage startups and private companies to raise capital to grow their businesses. This legislation will now go to the U.S. Senate for consideration.
Buckley Sandler Files Amicus Curiae Brief on Behalf of Industry Group in RESPA Case; Marks First Appeal Against CFPB Director Decision
On October 5, BuckleySandler attorneys filed an amicus curiae brief on behalf of the Consumer Mortgage Coalition (CMC) in the first case to come up on appeal to the District of Columbia Circuit since the CFPB was founded in 2011. In the CMC’s brief, BuckleySandler attorneys argued that the CFPB Director’s decision to ignore the decades-long interpretation of Section 8 of RESPA will harm consumers by eliminating an important form of risk retention, making the home mortgage closing process more difficult and expensive for consumers, and will particularly harm the country’s least affluent mortgage borrowers.
CFPB Considering Proposals to Limit Pre-Dispute Arbitration Agreements for Consumer Financial Products and Services, Convenes Small Business Review Panel Seeking Feedback
On October 7, the CFPB issued proposals to limit the use of mandatory pre-dispute arbitration agreements, which it contends are often used to evade class action litigation. Under the proposals, the Bureau would seek to prohibit the use of pre-dispute arbitration agreements in consumer financial contracts, unless the agreements explicitly state that the agreements are not applicable to cases filed as class actions, class certification is denied by a court, or class claims are dismissed by a court. While not prohibiting pre-dispute arbitration agreements in their entirety, for companies that elect to use arbitration agreements in consumer financial contracts, the proposals would require that companies submit to the CFPB arbitration claims filed by consumers and any monetary awards issued therefrom. Furthermore, the CFPB is considering publishing the information submitted by companies on its website.
The Bureau also stated that it will convene a Small Business Review Panel, representing the initial step of a potential rulemaking. The Panel is expected to provide feedback on the impact of the proposals set forth by the Bureau and offer possible alternatives to address arbitration agreements in consumer financial contracts.
CFPB Issues TRID FAQs to Help Borrowers Understand the New Mortgage Process
On October 5, the CFPB posted on its blog six FAQs to assist borrowers in understanding the TRID rule and how the new process attempts to make the mortgage process easier. The post comes in light of the TRID rule becoming effective on October 3 and addresses the new required federal disclosures for most mortgages, along with lenders’ requirement to provide a Closing Disclosure at least three business days before consummation. The FAQs also clarify instances where a second three-day review period is required once a Closing Disclosure is received.
Director Cordray Submits Letter to Trade Associations Regarding TRID Compliance
On October 1, CFPB Director Richard Cordray, on behalf of the FFIEC, responded to correspondence from the American Bankers Association and other trade associations seeking guidance as to their compliance with the Bureau’s Know Before You Owe TILA-RESPA Integrated Disclosure Rule, which will become effective on October 3, 2015. Per Director Cordray’s letter, the FFIEC’s member agencies’ examiners “will expect supervised entities to make good faith efforts to comply with the Rule’s requirements in a timely manner.” Moreover, examiners will take a number of factors into consideration in determining compliance with the Rule, including (i) an institution’s implementation plan; (ii) an institution’s training of its staff; and (iii) how an institution handles any early technical problems or other implementation challenges.
CFPB Takes Action against Indirect Auto Lender over its Debt Collection Practices
On October 1, the CFPB ordered an indirect auto lender and its auto title lending subsidiary to pay more than $48 million in restitution and consumer relief over allegations that both companies engaged in unlawful debt collection practices. The CFPB alleged that the companies used a variety of “deceptive” tactics to coerce borrowers into making payments on their remaining loan amounts. The CFPB further asserted that the companies provided inaccurate information in their advertisements to borrowers regarding monthly interest rates, and misled borrowers about the effect of changing payment due dates or the ramifications of extending loan terms, which resulted in additional accrued interest owed over the life of the loan. Under terms of the consent order, the companies agreed to, among other things, provide $44.1 million in restitution and loan balance reductions to affected borrowers and pay a $4.25 million civil money penalty.
U.S. House Financial Services Committee Pass Several Financial Regulatory Bills Seeking Regulatory Relief and Stronger Consumer Protection
On September 30, the U.S. House Financial Services Committee approved five pieces of legislation aimed at strengthening consumer protection, providing regulatory relief to publicly traded companies, and seeking expanded oversight of the CFPB. Approved in an overwhelming 56-3 vote, H.R. 957, the Bureau of Consumer Financial Protection-Inspector General Reform Act of 2015, creates an independent Inspector General for the CFPB to be nominated by the President and confirmed by the U.S. Senate. The committee also passed H.R. 2769 in a 50-9 vote. The Risk-Based Capital Study Act of 2015 mandates the National Credit Union Administration to conduct a study of appropriate capital requirements for federal and state credit unions prior to new rules becoming effective.
Buckley Sandler Webcast Recap: Strategies for Meeting the CFPB's Expectations for Consumer Complaint Management
On September 29, BuckleySandler hosted a webcast, “Meeting the CFPB's Expectations for Consumer Complaint Management,” presented by partner Jonice Gray Tucker and counsel Kari Hall. This recap covers highlights from their discussion, which included a discussion of the CFPB’s expectations and practical advice for managing consumer complaints in the evolving regulatory environment.
Background
The webcast began with a brief background on the CFPB’s approach to consumer complaints. In particular, the presenters touched upon how the CFPB has used complaints as a driving force in determining priorities in guiding supervisory work, identifying leads for enforcement, and in informing rulemaking efforts. The presenters also discussed how the Bureau may deal with deficiencies in consumer complaint management in examinations and ways in which the outgrowth of such deficiencies may lead to enforcement actions. In addition, the presenters highlighted key elements of effective complaint management programs.
Fundamental Issues in Consumer Complaint Management
The presenters continued with a discussion of threshold issues in developing and implementing a consumer complaint management system. In particular, the presenters focused on why complaint management is important, the challenges of defining what is or is not a complaint, and timelines for responding to complaints. The presenters pointed out that the CFPB expects capture of both written and oral complaints, as well as awareness and understanding of third-party service provider complaints.
CFPB Complaint Management Guidance to Date and Recent Complaint Developments
The presenters then covered the CFPB’s existing guidance on complaint management, as well as recent developments.
CFPB guidance includes:
- CFPB Supervision and Examination Manual
- Consumer Response Annual Report
- Company Portal Manual, Version 2.15 (August 2015)
- CFPB Supervisory Highlights
Recent developments include the publication of complaint narratives and the issuance of monthly complaint reports. Both CFPB initiatives are viewed as controversial by the industry because the Bureau does not verify complaint information or “normalize” the data to account for the fact that larger companies may receive more complaints than smaller companies.
Best Practices
The webcast concluded with a discussion of best practices for consumer complaint management. Among other things, the presenters discussed strategies that can be used to centralize the complaint management function; key issues to consider in connection with monitoring, tracking, and escalating complaints; issues that should be covered in policies, procedures, and training as well as mechanisms for maintaining an open dialogue with regulators and consumer advocates.