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On March 4, the Pennsylvania Department of Banking and Securities (DOBS) entered into a consent order with four payday loan companies for allegedly violating three Pennsylvania state laws: the Consumer Discount Company Act (CDCA), the Loan Interest Protection Law, and the Money Transmitter Act. From 2007 through January 2015, the companies allegedly acted together to sell short-term loans. According to the DOBS, the interest rate on some of the loans sold exceeded the statutory limit. The consent order also states that the company (i) was not licensed under the CDCA at the time of the marketing or selling of the loans; and (ii) did not have a money transmitter license. Immediately upon issuance of the order, the companies agreed to “cease and desist from engaging in the consumer discount business,” and within ninety days of the issue date of the order, the companies must remit to Pennsylvania consumers the balance of open and active accounts.
On February 23, CFPB Director Richard Cordray delivered prepared remarks at the National Association of Attorneys General Winter Meeting in Washington, D.C. In his remarks, Cordray indicated that the CFPB is keeping a watchful eye on the auto lending market, stating that auto lending practices are currently being supervised at the largest banks. Cordray further revealed that the CFPB intends to move forward with a proposed rule to oversee the larger nonbank auto lenders as well. Cordray also lobbied the attorneys general to use the CFPB’s government portal to analyze consumer complaints to assist in investigations, stating, “[w]e now have 22 attorneys general and 28 state banking regulators who are already signed up and accessing this information through the secure portal. I strongly urge the rest of you to join us and do the same.”
CFPB Initiative Results in Free Access to Credit Scores, Agency Pledges to Increase Credit Reporting Enforcement Authority
One year after launching an initiative to improve consumer access to credit reporting information, the CFPB announced on February 19 that at least 50 million Americans now have the ability to directly and freely access their credit scores. As a result of the CFPB’s credit score initiative, over a dozen major credit card issuers have elected to provide free credit reports to their cardholders, and more issuers are expected to follow suit. The initiative was launched to emphasize the significance of monitoring credit scores and to make it easier for consumers to keep themselves informed. CFPB Director Richard Cordray applauded the agency’s efforts to increase transparency in this arena in his prepared remarks for Thursday’s Consumer Advisory Board Meeting, stating that improving both the accessibility and accuracy of credit reports is vital to consumers and credit providers alike. Cordray also alluded that the CFPB intends to leverage its enforcement authority to more closely regulate the credit reporting industry, thereby placing creditors, debt collectors, and other businesses that furnish consumer credit information on high alert. “Using our supervision and enforcement authorities,” Cordray said, “we are already bringing significant new improvements to the credit reporting system − and we are only getting started.”
On February 18, Steven Antonakes, Deputy Director of the CFPB, delivered remarks before the Exchequer Club of Washington, D.C. regarding the CFPB’s risk-focused supervision program. In his remarks, Antonakes identified two key differences that distinguish the CFPB from other regulatory agencies: (i) there is a “focus on risks to consumers rather than risks to institutions;” and (ii) examinations are conducted by product line rather than an “institution-centric approach.” Antonakes further stated that the agency uses field and market intelligence, which includes both qualitative and quantitative factors for each product line, such as the strength of compliance management systems, findings from CFPB’s prior examinations, the existence of other regulatory actions, the consumer complaints received, and metrics gathered from public reports, to adequately assess risks to consumers from an institution’s activity in any given market. After the review period, an institution will receive a “roll-up examination report” or a “supervisory plan,” depending on size, that will summarize the findings of the review. If corrective action is warranted, a review committee will assess violation-focused factors, institution-focused factors, and policy-focused factors to determine whether the examination should be resolved through a supervisory action or a public enforcement action.
CFPB Orders Nonbank Mortgage Lender to Pay $2 Million Penalty for Deceptive Advertising and Kickbacks
On February 10, the CFPB announced a consent order with a Maryland-based nonbank mortgage lender, ordering the lender to pay a $2 million civil money penalty, in part for allegedly failing to disclose its financial relationship with a veteran’s organization to consumers. According to the consent order, the CFPB alleged that the lender, whose primary business is originating refinance mortgage loans guaranteed by the VA, paid a veteran’s organization a fee to be named the “exclusive lender” of the organization and that failing to disclose this relationship in marketing materials targeted to the organization’s members constituted a deceptive act or practice under the Dodd-Frank Act. The CFPB further alleged that, because the veteran’s organization urged its members to use the lender’s products in direct mailings from the lender, call center referrals, and through the organization’s website, the monthly “licensing fee” and “lead generation fees” paid to the veteran’s organization and a third party broker company as part of marketing and referral arrangements constituted illegal kickbacks in violation of RESPA. In addition to the civil penalty, the consent order requires the lender to end any deceptive marketing, cease deceptive endorsement relationships, submit a compliance plan to the CFPB, and comply with additional record keeping, reporting, and compliance monitoring requirements.
On February 8, New York DFS Superintendent Benjamin Lawsky announced that the DFS would begin (i) regularly examining insurance companies’ cyber security preparedness; (ii) enhancing regulations that will require insurance providers to meet higher standards of cyber security; and (iii) examining “stronger measures related to the representations and warranties insurance companies receive from third-party vendors.” Lawsky expects the targeted exams to begin in the “coming weeks and months.” The announcement was accompanied by the release of the state agency’s report on cybersecurity in the insurance industry.
On January 27, the CFPB issued Compliance Bulletin 2015-01 to remind supervised financial institutions of their obligations concerning the disclosure of confidential supervisory information (CSI) to the CFPB and to third parties. Specifically, the bulletin addresses the interaction between a financial institution’s obligations with respect to the CFPB and its contractual obligations under nondisclosure agreements (NDAs) with a third party that restrict the sharing of information. Such NDAs typically (i) restrict sharing protected information with any third party (which would include a supervisory agency) other than in connection with a subpoena or similar legal requirement and (ii) require the institution to advise the third party before it shares information as required by law (which again would include sharing protected information with a supervisory agency).
Supervised financial institutions and other persons, with limited exceptions outlined in the bulletin, are generally prohibited from disclosing CSI to third parties. According to the bulletin, a supervised financial institution should not rely on the provisions of an NDA to justify disclosing CSI in a manner not otherwise permitted, either through a valid exception or prior written approval from the CFPB. The bulletin appears to take the position that the fact that information has been shared with the CFPB is itself CSI.
The bulletin also warns supervised financial institutions that an NDA between an institution and a third party does not alter or limit the CFPB’s supervisory authority, and that the failure based on an NDA to provide CSI or other information required by the CFPB to conduct its supervisory activities is a violation of law for which the CFPB will pursue all available remedies.
In that supervised institutions such as banks and bank holding companies have been subject to the same issue for many years, this bulletin may be aimed at non-banks that are new to being subject to federal financial supervision. 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.
- Jeffrey P. Naimon, (202) 349-8030
- Jonice Gray Tucker, (202) 349-8005
- Andrea Mitchell, (202) 349-8028
- Valerie Hletko, (202) 349-8054
- Michelle Rogers, (202) 349-8013
- John P. Kromer, (202) 349-8040
- Joseph M. Kolar, (202) 349-8020
- Jeremiah S. Buckley, (202) 349-8010
On October 8, the CFPB published a rule proposing oversight of larger nonbank auto finance companies for the first time at the federal level. The proposed rule will “amend the regulation defining larger participants of certain consumer financial product and service markets by adding a new section to define larger participants of a market for automobile financing.” Under the new section, a market would be defined to include: (i) grants of credit for the purchase of an automobile, refinancings of such credit obligations, and purchases or acquisitions of such credit obligations (including refinancings); and (ii) automobile leases and purchases or acquisitions of such automobile lease agreements. Previously, on September 17, the CFPB released information regarding its resolve to supervise and enforce auto finance companies’ compliance with consumer financial laws, including fair lending laws. Comments on the proposed rule must be received on or before December 8, 2014.
On September 12, the CFPB finalized a rule that allows it to supervise larger participants in the international money transfer market. In particular, this rule, which finalizes the proposed rule the CFPB issued in January 2014, allows the CFPB to supervise nonbank international money transfer providers that provide more than $1 million in international transfers annually, for compliance with the Remittance Rule under the Electronic Fund Transfer Act. The final rule will be effective December 1, 2014.
The CFPB will seek to ensure that these providers comply with a number of specific consumer-protection provisions, including the following:
- Disclosures: The CFPB will examine providers to determine that consumers receive the Remittance Rule-required disclosures in English as well as in any other language the provider uses to advertise, solicit, or market its services, or in any language in which the transaction was conducted. These disclosures inform consumers of the exchange rate, fees, the amount of money that will be delivered abroad, and the date the funds will be available.
- Option to Cancel: The CFPB will examine transfer providers to ensure that consumers receive at least thirty minutes to cancel the transfer if it has not yet been received, and that consumers receive a refund regardless of the reason for the cancellation.
- Correction of Errors: The CFPB will insist that remittance transfer providers properly investigate certain errors, and, if a consumer reports an error within 180 days, the CFPB will examine providers to determine that they have investigated and corrected certain types of errors. The CFPB will also examine providers to ensure that they are held accountable for the actions of any agents they use.
The CFPB used the authority granted to it in the Dodd-Frank Act to supervise “larger participants” in consumer financial markets, and this is the Bureau’s fourth larger participant rule. The CFPB indicates that it will use the same examination procedures for nonbank providers as it does for bank remittance providers, and the CFPB intends to coordinate with state examiners in its supervision.
The CFPB estimates that nonbank international money transfer providers transfer $50 billion each year, and 150 million individual international money transactions occur each year through these institutions, with seven million U.S. households transferring funds abroad each year through a nonbank.
On August 1, the U.S. Senate passed by unanimous consent H.R. 4386, which will permit FinCEN, in fulfilling its responsibility to supervise registered money services businesses (MSBs), to rely on state agency examinations of MSBs. The bill also covers other non-bank financial institutions such as gaming establishments and jewel merchants. The bill passed the House by voice vote in May. The President, who sought this authority for FinCEN in budget requests, is expected to sign the bill.
- Jonice Gray Tucker to discuss “How the new administration sets the tone for 2021” at the American Conference Institute Legal, Regulatory and Compliance Forum on Fintech & Emerging Payment Systems
- Sherry-Maria Safchuk to discuss UDAAP in consumer finance at an American Bar Association webinar
- Jeffrey P. Naimon to discuss "What to expect: The new administration and regulatory changes" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Jonice Gray Tucker to discuss “The future of fair lending” at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Steven R. vonBerg to discuss "LO comp challenges" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "Major litigation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss “The False Claims Act today” at the Federal Bar Association Qui Tam Section Roundtable