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CFPB Study: Over 26 Million Consumers Are Credit Invisible
On May 5, the CFPB released the results of its latest analysis of the credit reporting industry, finding that more than 26 million consumers are categorized as “credit invisible” (i.e., consumers without credit histories with a nationwide consumer reporting agency). The report also found that an additional 19 million consumers’ credit records (roughly 8 percent of the adult population) are unscored because of insufficient credit history or information not recently reported. Other notable findings of the study include: (i) almost 15 percent of Black and Hispanic consumers are more likely to be “credit invisible” compared to 9 percent of White consumers; and (ii) consumers in low-income neighborhoods are much more likely to be credit invisible or to have an unscored credit record. During a conference call to announce the results of the study, Kenneth Brevoort, Section Chief within the CFPB’s Office of Research, alluded to what the Bureau’s next steps may be in the area, stating that the Bureau wants “to have a better understanding of exactly what interventions are possible in the regulatory space or perhaps, industry initiatives that may improve the functioning of these markets for the consumers’ well-being.”
Federal Register Publishes CFPB Notice to Renew the Approval for the Existing Collection, "Consumer Leasing Act (Regulation M)"
On May 4, the Federal Register published the CFPB’s notice and request for comment, “Consumer Leasing Act (Regulation M) 12 CFR 1013.” The CFPB is requesting to renew the approval of Regulation M without change. Consumers depend on Regulation M to shop for and compare leases, and, under Regulation M’s recordkeeping requirement, federal and state enforcement agencies are able to determine whether consumers receive accurate and complete disclosures of loan costs. Comments regarding the renewal of Regulation M are due on or before July 6, 2015.
Spotlight on Vendor Management: "Brother's Keeper" Enforcement Pattern Becoming the Norm
Two regulatory enforcement matters announced in April offer a view into the current mindset of regulators in the ever-evolving world of vendor management. First, the Federal Communications Commission (FCC) announced a $25 million settlement with a telecommunications carrier related to the unauthorized release of personal information of more than a quarter-million customers. The identified cause of the data breach were employees of the carrier’s service providers based in Mexico, Columbia, and the Philippines, who confessed to selling customer information to unauthorized third parties. In holding the carrier responsible, the FCC issued its largest data security enforcement action to date. Although severe in its punishment, the FCC action did not break new ground, as regulators have shown an increasing willingness in recent years to assess monetary penalties against supervised institutions for legal violations committed by vendors.“This approach is entirely consistent with the FCC’s past enforcement actions related to data security breaches, as well as those of other regulatory bodies where consumer harm has resulted,” advises Elizabeth McGinn, Partner in the D.C. office of BuckleySandler. “In the current environment, virtually every regulator has made accountability a fundamental axiom of its vendor management guidance.”
In the second action, the Consumer Financial Protection Bureau (CFPB) announced that it had filed a lawsuit in the United States District Court for the Northern District of Georgia in connection with an allegedly illegal debt collection operation whereby a group of individuals and companies based in New York and Georgia attempted to collect debts that consumers did not owe or that collectors were not authorized to collect. Specifically, the collectors allegedly placed “robo-calls” to millions of consumers stating that the consumers had engaged in check fraud and threatening them with legal action if they did not provide payment information. The CFPB asserts that, as a result, the debt collectors received millions of dollars in profits from the targeted consumers.
In addition, several service providers were named as defendants in the case because, according to the CFPB, the illegal scheme depended upon the participation of the service providers. Specifically, the CFPB charged payment processors and a telephone broadcast provider hired by the debt collectors, because these service providers, in pertinent part, (i) “failed to conduct reasonable due diligence to detect unlawful conduct,” which helped to facilitate millions of dollars in ill-gotten profits, and (ii) transmitted robo-call messages created by the debt collectors that the service providers “knew or should have known … contributed to unlawful debt collection.”
“The CFPB is holding the vendors accountable in this case on the theory that the vendors had a duty to vet the business practices used by the debt collectors to determine if they were unfair or deceptive or violate the debt collections laws,” according to Moorari Shah, Counsel in BuckleySandler’s Los Angeles office. “Having to take responsibility for another entity’s wrongdoing is likely a wake-up call for many vendors, but the CFPB has now shown on several occasions that it intends to cast a wide net when it comes to protecting consumers from unwarranted harm, including over entities that may not have known they were subject to this type of supervision.”
The bottom line: Compliance continues to be a significant outsourcing challenge for regulated institutions and their service providers. Thorough due diligence and ongoing oversight are becoming an imperative to avoid guilt-by-association predicaments such as was the case in the recent FCC and CFPB actions.
McGinn and Shah suggest the following steps supervised institutions and service providers can take to adapt and comply with a rapidly changing regulatory and enforcement environment:
- Commit to developing or enhancing compliance management systems to:
- Establish compliance responsibilities;
- Communicate those responsibilities to employees;
- Ensure that responsibilities for meeting legal requirements and internal policies are incorporated into business processes;
- Review operations to ensure responsibilities are carried out and legal requirements are met; and
- Take corrective action and update tools, systems, and materials;
- Review written policies and procedures including responsibilities for documenting compliance-related activities and regular reporting to senior management and the board of directors;
- Monitor training for service provider employees to ensure that contractual responsibilities align with operational realities, including procedures to identify legal and regulatory issues for escalation and resolution;
- Conduct regular on-site compliance audits of service provider operations, and proactively address issues discovered when reviewing service provider controls, performance, and information systems; and
- Dedicate sufficient resources and personnel to vendor management and compliance activities especially with respect to pre-contract due diligence and ongoing monitoring during the term of the contract.
As data security, privacy, and vendor management issues continue to intersect, there are a number of new focal points that will be particularly relevant to service providers.
- Commit to developing or enhancing compliance management systems to:
CFPB and Maryland AG Bring RESPA Enforcement Action Against Title Company and Six Individuals
On April 29, the CFPB and the Maryland Attorney General announced a joint enforcement action against a Maryland title company and six individuals for participation in a mortgage-kickback scheme in violation of RESPA and state law. According to the complaint, between 2009 and 2014, the title company allegedly provided kickbacks and marketing services to loan officers in exchange for referrals of business. Under a proposed consent order, the title company will be prohibited from committing further violations of RESPA. In addition, five of the six individuals will be banned from the mortgage industry and ordered to pay a total of $662,500 in redress and penalties, while the regulators are proceeding in litigation against the sixth individual. The enforcement action follows a January enforcement action, where the CFPB and the Maryland Attorney General announced a joint enforcement action against two banks for their participation in this particular mortgage-kickback scheme.
CFPB Report Recaps 2014 Fair Lending Activities
On April 28, the CFPB published its third annual report to Congress on its fair lending activities. Among other developments, the report highlights the following key supervision and enforcement priorities taken by the Bureau in the past year: (i) A continued focus on discrimination in the mortgage lending industry, including redlining and underwriting disparities; (ii) Emphasis on the auto lending industry, which has resulted in guidance given to lenders on complying with Federal consumer financial laws, and action taken when lenders do not abide by those laws; (iii) Attention to the credit card market, including an enforcement action against a company for its alleged failure to provide certain consumers with debt relief offers because of national origin; and (iv) Assistance to consumers who receive disability income by issuing Bulletin 2014-03 to lenders, which outlines the rights of a consumer whose income is derived, in part or in whole, from a public assistance program. According to the report, the Bureau’s efforts in 2014 to protect consumers from credit discrimination lead to financial institutions providing approximately $224 million in monetary relief to over 300,000 consumers.
CFPB Publishes Information Regarding Servicemembers' Complaints
On April 27, the CFPB published a report regarding the trend of recent complaints submitted to the Bureau by Servicemembers entitled, A Snapshot of Complaints Received from Servicemembers, Veterans, and their Families. According to the report, between July 21, 2011 and December 31, 2014, the areas servicemembers reported to have the most problems with were debt collection, mortgage, and credit reporting. With debt collection making up 39% of the complaints, it is the most common type of complaint the Bureau receives from servicemembers: “[S]ervicemembers assert that the calculation of debt is inaccurate or unfair… [They] complain about telephone collections that are too frequent and that come at inconvenient times. They also complain about debt collectors calling their place of employment or third parties.” In addition to debt collection, mortgage, and credit reporting complaints, the report reveals the following products as problem areas for servicemembers: credit cards, bank accounts, consumer loans, and student loans. The Bureau’s report is an overview of the approximated 29,500 complaints the Bureau received from servicemembers since July 2011.
CFPB Sets Date for Student Debt Field Hearing
On April 29, the CFPB revealed via blog post that it will host a field hearing focusing on issues related to student debt. The hearing will be held in Milwaukee, Wisconsin and is scheduled to occur on Thursday, May 14. The hearing will feature remarks from CFPB Director, Richard Cordray, in addition to testimony from consumer groups, industry representatives, and members of the public.
CSBS Announces Multi-State Regulatory Groups' Annual Reports to State Regulators
On April 27, the Conference of State Bank Supervisors (CSBS) announced that three working groups of state regulators – the State Coordinating Committee (SCC), the Multi-State Mortgage Committee (MMC), and the Multi-State MSB Examination Task Force (MMET) – issued annual reports to state regulators regarding their 2014 operations and progress. Responsible for information sharing and examination work with the CFPB, the SSC report outlines the two agencies’ 9 joint examinations. The MMC – established as the “oversight body for multi-state mortgage supervision” in 2008 – is responsible for coordinated, multi-state mortgage exams, and its report covers the 6 joint mortgage examinations conducted with the CFPB in 2014. Finally, the MMET supervises the money services businesses; its report highlights 57 examinations conducted jointly with the CFPB in 2014.
CFPB and FTC Announce Settlement with National Mortgage Servicing Company
On April 21, the CFPB and the FTC announced a joint enforcement action against a national mortgage servicing company, ordering the company to pay roughly $63 million in relief and penalties for allegedly mishandling home loans for borrowers who were trying to avoid foreclosure. Both regulators allege that from 2010 to 2014, the servicing company failed to honor modifications made to loans it acquired from other firms. According to the complaint, the company allegedly insisted that homeowners make the higher monthly payments and also make payments before providing loss mitigation options. Moreover, the CFPB and FTC claim the company illegally harassed borrowers who fell behind, made false threats, and revealed debts to the borrowers' employers. The servicing company will pay $48 million in relief to eligible homeowners and a $15 million civil money penalty to the CFPB.
CFPB Tackles Payment Processor for Charging Servicemembers Hidden Fees, Orders Over $3 Million in Consumer Relief
On April 20, the CFPB announced an enforcement action against a Kentucky-based third-party processor of military allotments and its subsidiary – together “Respondents” – for allegedly charging servicemembers millions of dollars in hidden fees. According to the Bureau, servicemembers set up allotment arrangements with the Respondents, and the Respondents were to pay creditors – auto lenders, installment lenders, and retail merchants – on behalf of deployed servicemembers. The Bureau alleges that from 2010 to 2014, the company violated UDAAP provisions of the Consumer Financial Protection Act by failing to (i) adequately disclose information about various fees associated with the Respondents’ services; and (ii) inform servicemembers when they were being charged residual-balance fees. The consent order requires that the Respondents pay approximately $3.1 million in relief to the affected servicemembers.
