InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
CFPB Orders Mortgage Servicer to Pay $1.6 Million over Servicing Practices
On July 30, the CFPB ordered a Texas-based mortgage servicer to pay $1.5 million in restitution and $100,000 in civil money penalties for allegedly engaging in faulty servicing practices, according to a settlement announced by the CFPB. The CFPB alleged that, beginning in 2009, the mortgage servicing firm failed to honor “in-process” modifications—trial modifications that were pending when a loan was transferred to the company—until it determined that the prior servicer should have agreed to the trial modification. In addition, the CFPB alleged that the servicing firm provided inaccurate account statements to borrowers related to their loan balance, interest rates, payment due dates, and the amount available in escrow accounts. The CFPB further contends that, in certain instances, the servicing firm coerced consumers into waiving certain legal protections as a condition to being allowed to pay off delinquent payments in installments. Under the terms of the consent order, the servicing firm agreed to, among other things, (i) provide $1.5 million in restitution to consumers whose loan modifications were not acknowledged; (ii) pay a $100,000 civil money penalty; (iii) mitigate the impact of its allegedly unlawful practices by, for example, converting “in-process” loan modifications to permanent modifications and stopping foreclosure processes for certain borrowers; and (iv) honor loss-mitigation agreements entered into by prior servicers and “in-process” loan modifications and engage in outreach to contact borrowers and offer them loss-mitigation options.
CFPB Settles with Payment Processor and Mortgage Servicer over Deceptive Mortgage Advertisement Allegations
On July 28, the CFPB announced that a Colorado-based payment processor, along with a Virginia-based mortgage servicer, agreed to pay a total of $38.5 million to resolve allegations that both entities used misleading advertisements related to a mortgage payment program. The CFPB alleged that both entities advertised the “Equity Accelerator Program” as a program that would help consumers save on interest payments by making mortgage payments biweekly rather than monthly. However, according to the CFPB, the program failed to make the biweekly payments, and no more than a “tiny” percentage of consumers enrolled in the program benefitted from the promised savings. Under the terms of the consent orders, the payment processor agreed to provide $33.4 million in restitution to affected consumers and pay a $5 million civil money penalty. The mortgage servicer will pay a $100,000 civil money penalty. Both entities also agreed to ensure that any advertisements concerning the mortgage program’s benefits complied with federal law.
CFPB Files Complaint Against Student Financial Aid Consulting Company for Allegedly Illegal Sales and Billing Practices
On July 23, the CFPB announced that it had entered into a proposed consent order with a Sacramento-based company that provides fee-based student financial aid counseling and preparation services. The CFPB’s simultaneously filed complaint alleges that the company violated the Telemarketing and Consumer Fraud and Abuse Prevention Act by engaging in deceptive sales tactics through its websites and call center representatives. The complaint claims that from at least July 21, 2011 to present (recognizing that the company no longer operates one of the websites effective July 13, 2015), the company offered consumers certain services “as an upgrade from its ‘standard’ service level at ‘no additional cost.’” However, consumers were allegedly charged future annual fees of $67 to $85 for such upgrades. The Bureau also alleges that the company violated the Electronic Fund Transfer Act by enrolling consumers in automatic, recurring payments without their knowledge or consent: “The Company did not provide consumers a copy of the consumers’ authorization for electronic fund transfers in which the terms of the preauthorized transfers – including automatic, recurring charges going forward – were clear and readily understandable.” The proposed consent order would require the company to pay $5.2 million in consumer relief and cancel all automatic and recurring charges currently in place. Due to the company’s limited financial resources, the proposed order seeks a civil money penalty of $1.00.
CFPB Settles with Bank and its Two Affiliates for $18.5 Million over Alleged Faulty Student Loan Servicing Practices
On July 22, the CFPB announced that a major bank and its two affiliates agreed to pay $18.5 million to resolve allegations that the entities engaged in inadequate private student loan servicing practices. According to the consent order, the CFPB alleged that the bank and its affiliates (i) failed to provide clear information regarding the student-loan interest consumers paid; (ii) overstated the minimum amount due in student-loan billing statements; (iii) initiated collection phone calls to student loan borrowers that were non-compliant with certain provisions of the Fair Debt Collection Practices Act; and (iv) failed to provide students with defaulted student loans with information about the amount and source of the debt and the consumers' right to contest the debt's validity, as required by the Fair Debt Collection Practices Act. Under terms of the settlement, the bank agreed to provide $16 million in restitution to affected borrowers, improve its student loan servicing and collections practices, and pay a $2.5 million civil money penalty. The announcement comes as the CFPB, along with the Department of Education and Department of Treasury, concluded its comment period for public feedback on ways to improve borrower service, reduce defaults, develop best practices, implement consumer protections, and spur innovation in the student loan servicing market.
CFPB Reaches $700 Million Settlement to Resolve Credit Card Ancillary Products Investigation
On July 21, the CFPB announced a nearly $700 million settlement against a leading financial institution and its subsidiaries. According to the consent order, the Bureau alleges that the entities engaged in deceptive marketing, billing, and collection practices related to various credit card ancillary products, including debt protection and credit monitoring services. Specifically, the Bureau alleges that the institution or its vendors marketing practices, consisting of telemarketing calls, online enrollment, point-of-sale application, and direct enrollment at retailers, mislead consumers into enrolling for certain ancillary products. The Bureau further alleges that, in some instances, telemarketers failed to accurately disclose the cost and fees associated with the ancillary products. With respect to the unfair billing allegations, the Bureau contends that the institution or its vendors improperly charged consumers, without authorization, for services that were not rendered, and failed to provide full product benefits of the services marketed to consumers. In addition, the Bureau alleges that the institution misrepresented payment fee information to consumers by failing to disclose the actual purpose of the fee associated with making payments by phone on delinquent credit card accounts. Under terms of the settlement, the institution and its subsidiaries agreed to (i) provide $479 million in consumer relief related to its marketing practices; (ii) pay roughly $220 million in restitution related to its payments collection practices and for consumers not receiving the full benefits of services promised; and (iii) pay a $35 million civil money penalty.
In a parallel enforcement action, the OCC imposed a separate $35 million civil money penalty against the institution for engaging in similar practices, and requires the institution to strengthen its oversight of third-party vendors and develop a comprehensive risk management program for ancillary products marketed or sold by the bank.
Special Alert: CFPB Officially Delays TRID Rule Until October 3
The CFPB finalized a rule today that delays the effective date of the TILA-RESPA Integrated Disclosure (“TRID”) rule, including all amendments, from August 1 to October 3, 2015. This is consistent with the proposed rule issued last month, which we wrote about here.
The CFPB considered implementing a “dual compliance period” that would have permitted creditors to voluntarily comply with the TRID rule early, but it ultimately declined to do so, citing concerns that “dual compliance could be confusing to consumers and complicated for industry, including vendors, the secondary market, and institutions who act both as correspondent lenders and originators.”
In addition, although the CFPB declined to create a “hold harmless” or “safe harbor” period following the effective date, it stated that it “continues to believe that the approach expressed in Director Cordray’s letter to members of Congress on June 3, 2015,” which we wrote about, remains fitting:
[O]ur oversight of the implementation of the Rule will be sensitive to the progress made by those entities that have squarely focused on making good-faith efforts to come into compliance with the Rule on time. My statement . . . is consistent with the approach we took to implementation of the Title XIV mortgage rules in the early months after the effective dates in January 2014, which has worked out well.
The rule also implements two technical corrections to the requirements governing the “Calculating Cash to Close” and “Summaries of Transactions” tables in the Closing Disclosure. Specifically, the instructions for the “Adjustments and Other Credits” line are being amended to include the cost of any personal property excluded from the contract sales price. In addition, the instructions for calculating the “Closing Costs Paid at Closing” disclosure in the “Summaries of Transactions” table are being amended to account for general lender credits applied at closing.
For additional information and resources on the TRID rule, please visit our TRID Resource Center.
* * *
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.
- Clinton R. Rockwell, (310) 424-3901
- Jeffrey P. Naimon, (202) 349-8030
- John P. Kromer, (202) 349-8040
- Joseph M. Kolar, (202) 349-8020
- Jeremiah S. Buckley, (202) 349-8010
- Melissa Klimkiewicz, (202) 349-8098
CFPB and DOJ Reach $24 Million Settlement with Indirect Auto Lender to Resolve Discriminatory Pricing Allegations
On July 14, the CFPB and DOJ announced a $24 million settlement with an indirect auto lender to resolve allegations that the lender offered higher interest rates to minority borrowers compared to white borrowers with a similar credit risk profile. Specifically, both agencies contended that the lender allowed their partnering dealers excessive discretion to increase the lender’s base interest rate with a “dealer markup” on auto loan contracts, which resulted in discriminatory pricing. Under terms of the settlement, the lender agreed to, among other things, (i) pay $24 million in restitution to affected borrowers, (ii) impose dealer markup rate caps on auto loans, and (iii) improve its policies and procedures related to auto loan pricing and compensation program. Notably, the Bureau did not impose a civil money penalty due to the lender’s responsible conduct. The Bureau filed its consent order in an administrative enforcement action. In a separate announcement, the DOJ filed its complaint and consent order in federal court, which will require judicial approval. The lender was represented in the matter by BuckleySandler.
Special Alert: CFPB Launches First Monthly Complaint Report Providing Snapshot of Consumer Trends
On July 16, 2015, the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) launched the first in a new series of monthly complaint reports highlighting key trends from consumer complaints submitted to the CFPB. Importantly, its monthly report provides significant detail on the complaints the CFPB has received, including the names of the companies that received the largest number of complaints.
Currently, the most-complained-about companies are also the largest bank and nonbank financial institutions in the country. Since these institutions have the highest numbers of customers, it is only natural that they have received the highest number of complaints. On the same day as the monthly report’s release, CFPB Director Richard Cordray provided remarks at an Americans for Financial Reform event in Washington, D.C. Director Cordray noted that in future monthly reports, the CFPB hopes to “normalize” its consumer complaint data by accounting for financial institutions’ respective size and volume. To that end, the CFPB issued a Request for Information seeking input on ways to enable the public to more easily understand company-level complaint information and make comparisons. The comment period closes August 31, 2015.
The report also provides data on complaint volume, state and local complaint information, and trends relating to specific consumer financial products or services. In June 2015, for example, debt collection was the most-complained-about product or service with the 32% of complaints filed with the Bureau, while complaints relating to mortgages and credit reporting were next in line.
Going forward, each monthly report will spotlight a particular financial product and geographic area. In the first report, the CFPB closely examines debt collection complaints and complaints from consumers in Milwaukee, Wisconsin.
The CFPB began accepting complaints in July 2011 and launched its Consumer Complaint Database in June 2012, which is the nation’s largest public collection of consumer financial complaints. As of July 1, 2015, the CFPB has handled 650,700 complaints.
In its press release for the monthly report, the Bureau issued a reminder that it expects companies to respond to CFPB complaints within 15 days. The Bureau also expects companies to describe the steps they have taken or intend to take to resolve each consumer complaint. In fact, in its monthly report, the Bureau provided statistics on how often certain debt collection companies were “untimely” in responding to complaints.
Notably, the CFPB stressed that complaints inform the Bureau’s work and can directly feed into its supervision and enforcement prioritization process. “Consumer complaints are the CFPB’s compass and play a central role in everything we do. They help us identify and prioritize problems for potential action,” said CFPB Director Cordray. The publication of this monthly report, together with continuing consumer complaint initiatives from the CFPB, highlights the critical importance of developing an effective complaint management program.
* * *
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.
- Clinton R. Rockwell, (310) 424-3901
- Jeffrey P. Naimon, (202) 349-8030
- John P. Kromer, (202) 349-8040
- Joseph M. Kolar, (202) 349-8020
CFPB Readies Guidance to Help Prevent Elder Financial Exploitation
On July 13, CFPB Director Richard Cordray delivered remarks at the White House Conference on Aging, expressing the need to protect older consumers in light of recent studies that have found that financial exploitation is the most prevalent form of elder abuse. Accordingly, Cordray revealed that the Bureau intends to issue an advisory “later this year” to assist financial institutions with preventing, recognizing, and reporting elder financial abuse, adding that “[f]inancial institutions are especially well-positioned” to prevent fraud, scams, or theft that victimize seniors.
CFPB Director Set to Testify at Senate Banking Hearing on July 15
On July 15, CFPB Director Richard Cordray will deliver testimony before the U.S. Senate Committee on Banking, Housing, and Urban Affairs focusing on “The Consumer Financial Protection Bureau’s Semi-Annual Report to Congress.” The hearing is scheduled to begin at 10 a.m.