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Regulators tackle company offering relief from student loans
On October 30, the CFPB, along with the Minnesota and North Carolina attorneys general, and the Los Angeles City Attorney (together, the “states”), announced an action against a student loan debt relief operation for allegedly deceiving thousands of student-loan borrowers and charging more than $71 million in unlawful advance fees. In the complaint filed October 21 and unsealed on October 29 in the U.S. District Court for the Central District of California, the Bureau and the states alleged that since at least 2015 the defendants have violated the Consumer Financial Protection Act, the Telemarketing Sales Rule, and various state laws by charging and collecting improper advance fees from student loan borrowers prior to providing assistance and receiving payments on the adjusted loans. In addition, the Bureau and the states claim the defendants engaged in deceptive practices by misrepresenting (i) the purpose and application of fees they charged; (ii) their ability to obtain loan forgiveness; and (iii) their ability to actually lower borrowers’ monthly payments. The defendants also allegedly failed to inform borrowers that they automatically requested that the loans be placed in forbearance and submitted false information to student loan servicers to qualify borrowers for lower payments. The complaint seeks injunctive relief, as well as damages, restitution, disgorgement, and civil money penalties.
On November 15, the court entered a preliminary injunction enjoining the alleged violations of law in the complaint, continuing the asset freeze, and appointing a receiver against the defendants.
Kraninger discusses semi-annual report at House and Senate hearings
On October 17, CFPB Director Kathy Kraninger testified at a hearing held by the Senate Banking Committee on the CFPB’s Semi-Annual Report to Congress. (Previous InfoBytes coverage here.) Pursuant to the Dodd-Frank Act, the hearing covered the semi-annual report to Congress on the Bureau’s work from October 1, 2018 to March 31, 2019. While Committee Chairman Mike Crapo (R-Idaho) praised recent key initiatives undertaken by Kraninger pertaining to areas such as innovation, small dollar lending underwriting provisions, and proposed amendments to the Ability to Repay/Qualified Mortgage Rule, he stressed the importance of reconsidering the fundamental structure of the Bureau. Conversely, Senator Sherrod Brown (D-Ohio) argued that Kraninger’s leadership has led to zero enforcement actions taken against companies for discriminatory lending practices, and that her initiatives have, among other things, failed to protect consumers. In her opening testimony, Kraninger reiterated her commitment to (i) providing clear guidance; (ii) fostering a “‘culture of compliance’” through the use of supervision to prevent violations; (iii) executing “vigorous enforcement”; and (iv) empowering consumers. Notable highlights include:
- Constitutionality challenges. The Bureau recently filed letters in pending litigation arguing that the for-cause restriction on the president’s authority to remove the Bureau’s single Director violates the Constitution’s separation of powers, and on October 18, the U.S. Supreme Court granted cert in Seila Law LLC v. CFPB, to answer the question of whether an independent agency led by a single director violates Article II of the Constitution. (InfoBytes coverage here.) Senator Brown challenged, however, Kraninger’s “credibility as a public official,” arguing that she changed her original position about not speaking on constitutionality issues.
- Supervision of student loan servicers. Kraninger addressed several Senators’ concerns about the Department of Education reportedly blocking the Bureau from obtaining information about the Public Service Loan Forgiveness Program for supervisory examinations, as well as and the need for a stronger response from the Bureau to obtain the requested information. Kraninger stressed that the CFPB will move forward with a statutorily required Memorandum of Understanding between the two agencies, and emphasized that the Bureau continues to examine private education loans and is collaborating with the Department of Education to ensure consumer protection laws are followed.
- Proposed revisions to Payday Rule. Several Democratic Senators questioned the Bureau’s notice of proposed rulemaking to rescind the Payday Rule’s ability-to-repay provisions. (Previously covered by InfoBytes here.) Specifically, one Senator argued that the Bureau has failed to “present any new research in defense of the change.” Kraninger replied that while she defends the Bureau’s proposal, “a final decision has not been made in this issue.” Kraninger also addressed questions as to why—if the Bureau does not believe there is a reason to delay the effective date of the Payday Rule’s payment provisions—the Bureau has not yet filed a motion to lift a stay and allow payment provision to be implemented. Kraninger indicated that the CFPB had not done so because the payday loan trade groups were also challenging the Bureau’s constitutionality (InfoBytes here).
- Clarity on abusive practices under UDAAP. Kraninger noted the Bureau intends to, “in the not too distant future,” provide an update as to whether more guidance is necessary in order to define what constitutes an abusive act or practice.
A day earlier, Kraninger also presented testimony at the House Financial Services Committee’s hearing to discuss the semi-annual report, in which committee members focused on, among other things, constitutionality questions and concerns regarding recent Bureau settlements. Similar to the Senate hearing, Democratic committee members questioned Kraninger’s change in position concerning the Bureau’s constitutionality, and argued that for her “to second-guess Congress’ judgment on [the] constitutionality of the CFPB and to argue against the CFPB structure in court is disrespectful to Congress.” With regard to recent Bureau enforcement actions, many of the committee members’ questions revolved around consumer restitution, as well as a recently released majority staff report, which detailed the results of the majority’s investigation into the CFPB’s handling of consumer monetary relief in enforcement actions since Richard Cordray stepped down as director in November 2017. (See previous InfoBytes coverage here.)
CFPB files deceptive and abusive allegations against foreclosure relief services company and principals
On September 6, the CFPB announced a complaint filed in the U.S. District Court for the Central District of California against a foreclosure relief services company, along with the company’s president/CEO (defendants), for allegedly engaging in deceptive and abusive acts and practices in connection with the marketing and sale of purported financial-advisory and mortgage-assistance-relief services to consumers. According to the complaint, since 2014 the defendants allegedly violated the Consumer Financial Protection Act (CFPA) and Regulation O by making deceptive and unsubstantiated representations about the efficacy and material aspects of its mortgage assistance relief services, as well as making misleading or false claims about the experience and qualifications of its employees. Additionally, the Bureau alleged the defendants’ representations about their services constituted abusive acts and practices because, among other things, consumers “generally did not understand and were not in a position to evaluate the accuracy of [the defendants’] marketing representations or the quality of the mortgage-assistance-relief services that [the defendants] sold.” Moreover, the Bureau claimed the defendants further violated Regulation O by charging consumers advance fees before rendering services.
In addition, the Bureau entered a proposed stipulated final judgment and order against the company’s principal auditor for providing “substantial assistance in furtherance of [the defendants’] unlawful conduct” in violation of the CFPA and Regulation O. The proposed judgment imposes a $493,403.04 civil penalty, of which all but $5,000 is suspended due to the auditor’s limited ability to pay. The auditor is also permanently banned from providing mortgage assistance relief services or consumer financial products and services.
CFPB settles with Illinois debt collector
On August 28, the CFPB announced a settlement with an Illinois-based debt collection company to resolve allegations that the company engaged in improper debt collection tactics in violation of the Consumer Financial Protection Act and the FDCPA. Among other things, the company allegedly engaged in deceptive acts and practices by (i) threatening consumers with arrest, lawsuits, liens on their homes, and wage garnishment that the company did not plan on initiating; (ii) misrepresenting to consumers that company employees were attorneys; and (iii) informing consumers that their credit reports would be negatively affected if they failed to pay even though the company does not report consumer debts to credit-reporting agencies. While the company neither admitted nor denied the allegations, it has agreed to pay $36,878 in redress to harmed consumers and a $200,000 civil money penalty.
Tribal nation reaches settlement with national bank over account operations
On August 22, a tribal nation issued a press release announcing a $6.5 million settlement with a national bank to resolve allegations related to the opening of deposit and credit card accounts for customers without consent. In 2018, the tribal nation’s suit was dismissed by a district court ruling (previously covered by InfoBytes here), which rejected the tribal nation’s claims under the Consumer Financial Protection Act, holding that the claims were barred by res judicata, as they had previously been litigated under the CFPB’s 2016 consent order and the tribal nation was in privity with the CFPB. (InfoBytes coverage of the CFPB action available here.) The tribal nation appealed the decision to the U.S. Court of Appeals for the 10th Circuit, and on August 20, an order granting a stipulation to dismiss the appeal with prejudice was entered by the court. While the stipulation does not provide any details, the tribal nation’s press release notes that the “settlement compensates the Nation, as well as avoids the uncertainty and expense of continued litigation.”
CFPB settles student-loan suit against defunct educational institution
On August 12, the CFPB announced a settlement with a defunct for-profit educational institution to resolve allegations that the defendant engaged in unfair and abusive acts and practices in violation of the Consumer Financial Protection Act through its private student loan origination practices. As previously covered by InfoBytes, the CFPB filed a lawsuit in 2014 alleging, among other things, that the defendant offered new students short-term zero-interest loans to cover the difference between the cost of attendance and federal loans obtained by students, but when the short-term loans came due at the end of the students’ first academic year, the defendant forced borrowers into “high-interest, high-fee” private student loans knowing that borrowers could not afford them. According to the Bureau, this practice resulted in a 64 percent default rate on the loans. The terms of the proposed settlement include a $60 million judgment against the defendant as well as an injunction prohibiting the defendant from offering or providing student loans in the future.
Earlier in June, the Bureau announced a settlement with a company that managed student loans for the defendant, which includes approximately $168 million in student loan forgiveness. (See previous InfoBytes coverage here.) The company has also agreed to permanently cease enforcing, collecting, or receiving payments on any of its loans.
Credit reporting agency agrees to multi-agency settlement over 2017 data breach
On July 22, the CFPB, FTC, and 48 states, the District of Columbia and Puerto Rico announced a settlement of up to $700 million with a major credit reporting agency to resolve federal and state investigations into a 2017 data breach that reportedly compromised sensitive information for approximately 147 million consumers. According to the complaints (see here and here) filed in the U.S. District Court for the Northern District of Georgia, the company allegedly engaged in unfair and deceptive practices by, among other things, (i) failing to provide reasonable security for the sensitive personal information stored within its network; (ii) deceiving consumers about its data security program capabilities; and (iii) failing to patch its network after being alerted in 2017 to a critical security vulnerability.
Under the terms of the proposed settlements (see here and here), pending final court approval, the company will pay up to $425 million in monetary relief to consumers and provide credit monitoring to affected individuals, as well as six free credit reports each year for seven years to all U.S. consumers. The company must also pay $175 million to 48 states, the District of Columbia and Puerto Rico, and a $100 million civil money penalty to the Bureau. The $425 million fund will also compensate consumers who bought credit- or identity-monitoring services from the company and paid other expenses as a result of the breach. The company must also, among other things, implement a comprehensive information security program that will require annual assessments of security risks and safeguard measures, obtain third-party information security assessments, and acquire annual certifications from the board of directors that the company has complied with the settlements.
CFPB's first in symposia series discusses 'abusive' standard
On June 25, the CFPB held its “Abusive Acts or Practices Symposium,” the first event in a symposia series covering a range of consumer financial services topics. The event had two panels of experts discussing unfair, deceptive, or abusive acts and practices (UDAAP)—the first was a policy discussion, moderated by Tom Pahl, CFPB’s Policy Associate Director, Research, Markets and Regulation; and the second, examined how the “abusive” standard has been used in practice in the field and was moderated by David Bleicken, CFPB Deputy Associate Director, Supervision, Enforcement and Fair Lending. Director Kraninger began the symposium noting that it will help to “inform the Bureau’s thinking as to whether the Bureau should use its rulemaking or other tools to provide clarity about the general meaning of abusiveness—and, if so, which principles should be applied to determine the scope of abusiveness.”
The policy panel focused on whether consumer harm was required for a practice to be considered abusive. One panelist noted that while the Dodd-Frank Act statutory definition of abusive does not specifically require proof of consumer harm, it would be surprising if consumer harm wasn’t a priority in weighing enforcement claims. As for what principles the Bureau should apply in determining the scope of abusive acts and practices, one panelist identified three: “fidelity, autonomy, and modesty,” meaning the Bureau should follow the statutory language, protect autonomy of consumer decision-making, and be careful not to tie its hands prematurely based on current market information.
The practitioners’ panel focused on whether there was even a need to clarify the abusive standard, as it is already statutorily defined. Most panelists agreed that a guidance document or policy statement would be an important first step for the Bureau in providing clarity to the industry. Specifically, the panelists noted that the industry has struggled with examples of how abusiveness is different from unfairness or deception, arguing the Bureau has been “inconsistent at times” in the application of the abusive standard. One panelist explained that the Bureau often brings abusive claims in connection with a claim of deception or unfairness, stating “while this may work for the Bureau’s litigation strategy the market looks to enforcement for guidance on the policy. Standalone abusiveness claims that show how abusiveness is different from deception and unfairness would provide direction to staff and industry.” Because the standard is unclear to industry, a panelist argued that many companies choose to limit products or offerings to avoid unknown compliance risks.
An archived copy of the webcast will be available on the Bureau’s website.
CFPB settles with defunct schools’ student loan management company
On June 14, the CFPB announced a settlement with a company that manages student loans for a defunct for-profit educational institution resolving allegations it provided substantial assistance to the institution in engaging in unfair acts and practices in violation of the Consumer Financial Protection Act (CFPA). As previously reported by InfoBytes, the Bureau filed suit against the now-defunct for-profit institution in February 2014. The Bureau’s complaint against the institution alleged that the institution offered first-year students no-interest short-term loans to cover the difference between the costs of attendance and federal loans obtained by students. The complaint asserts that the institution then forced borrowers into “high-interest, high-fee” private student loans without providing borrowers an adequate opportunity to understand their loan obligations, when their short-term loans became due. In the complaint in the current matter, filed the same day as the proposed stipulated judgment, the Bureau alleges that the management company: (i) was substantially involved in the creation and operation of the loan program, including raising money and overseeing the origination and servicing of the loans; and (ii) knew, or was reckless in not knowing, the risks associated with the loan program. The stipulated judgment requires the company to (i) cease enforcement and collection efforts on all outstanding loans associated with the program; (ii) discharge all outstanding loans associated with the program; and (iii) direct credit reporting agencies to delete consumers’ trade lines associated with the loan program. The company must also provide notice of these actions to affected consumers. The proposed judgment does not include a monetary penalty or require refunds to consumers.
CFPB symposium on “abusive” standard set for June 25
On June 11, the CFPB announced that its first symposium, regarding the meaning of “abusive acts or practices” under Section 1031 of the Dodd-Frank Act, will be held on June 25. As previously covered by InfoBytes, the CFPB announced a symposia series that will convene to discuss consumer protections in “today’s dynamic financial services marketplace.” The June 25 symposium will be a public forum with two panels of experts discussing unfair, deceptive, or abusive acts and practices (UDAAP). The first panel will be a policy discussion, moderated by Tom Pahl, CFPB’s Policy Associate Director, Research, Markets and Regulation. The second panel will examine how the “abusive” standard has been used in practice in the field and will be moderated by David Bleicken, CFPB Deputy Associate Director, Supervision, Enforcement and Fair Lending.
In addition to the June 25 symposium, the series will have future events discussing behavioral law and economics, small business loan data collection, disparate impact and the Equal Credit Opportunity Act, cost-benefit analysis, and consumer authorized financial data sharing.