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FFIEC and CFPB Announce Updates To Web-Based HMDA Database And Tools
On September 22, the FFIEC announced an update to its online database for analyzing HMDA data and the CFPB announced updates to the agency’s corresponding HMDA tools. Originally launched in September 2013, the tool focuses on the number of mortgage applications and originations, in addition to loan purposes and loan types, and allows the public to see nationwide summaries or employ interactive features to isolate the information for metropolitan areas. The updated database includes 2013 data of approximately 17 million records from 7,190 financial institutions. In both Director Cordray’s 2013 remarks and blog post, the CFPB appeared to indicate that HMDA data may be used to identify institutions that may be discriminating against protected classes of borrowers. On Monday, the Bureau encouraged the public to view the introductory video, maps and charts, data, and share their ideas and findings through its Twitter account.
CFPB Sues For-Profit College For Alleged Predatory Lending
On September 16, the CFPB filed a civil action against a for-profit college for allegedly engaging in an “illegal predatory lending scheme.” Specifically, the CFPB alleges that the school engaged in unfair and deceptive practices by: (i) inducing enrollment through false and misleading representations about job placement and career opportunities; (ii) inflating tuition to require students to obtain private loans in addition to Title IV aid; (iii) persuading students to incur significant debt through private loans that had substantially high interest rates (as compared to federal loans) and required repayment while students attended school; (iv) misleading students to believe that the school did not have an interest in the private loans offered; and (v) knowing its students were likely to default on the private loans made. In addition, the CFPB alleges that the school violated the FDCPA by taking aggressive and unfair action, including pulling students out of class, blocking computer access, preventing class registration, and withholding participation in graduation, to collect payments on the private loans as soon as they became past due. The CFPB is seeking to permanently enjoin the school from engaging in the alleged activity, restitution and damages to consumers, disgorgement, rescission of all private loans originated since July 21, 2011, civil money penalties, and costs and other monetary relief.
The CFPB’s lawsuit was filed after a similar action was filed against the school by the Massachusetts Attorney General (AG) alleging that the school engaged in unfair or deceptive acts or practices by: (i) aggressively enrolling students by misrepresenting, among other things, employment and career opportunities, the nature and quality of the education provided, credit transferability, the utility of its career services, and its financial aid; (ii) recruiting students that would not benefit from the programs and/or were legally unable to obtain employment in the field studied; (iii) offering private loans that were guaranteed and/or funded by the school and steering students to such loans; and (iv) engaging in harassing debt collection practices. The Massachusetts AG is seeking to permanently enjoin the school from engaging in the alleged conduct, restitution to students, civil penalties, and attorneys’ fees and other monetary relief.
CFPB Warns Credit Card Issuers Regarding Offering Promotional APRs
On September 3, the CFPB published Bulletin 2014-02 warning credit card issuers of the risk of engaging in deceptive or abusive acts and practices in connection with solicitations offering a promotional annual percentage rate (APR). In particular, the bulletin discusses the risk associated with balance transfer solicitations that fail to clearly disclose all material costs of the promotional APR offer, including the failure to disclose that consumers will lose their interest-free grace periods on new purchases if the entire statement balance—including the transferred balance—is not paid in full. The bulletin warns that, depending on the facts and circumstances, card issuers’ solicitations may be considered deceptive and/or abusive if they do not disclose that transferring an outstanding balance may result in additional interest charges for new purchases until a consumer’s grace period is restored by paying in in full. Furthermore, the bulletin notes that while Regulation Z does not require marketing materials to include additional disclosures alerting consumers to the potential effect of accepting a promotional APR offer, some offers may risk being deceptive or abusive even if Regulation Z is not violated. In a press release regarding the bulletin, Director Cordray stated, “[W]e are putting credit card companies on notice that we expect them to clearly disclose how these promotional offers apply to consumers so that they can make informed choices about their credit card use.” Finally, the bulletin states that the CFPB expects card issuers to incorporate adequate measures into their compliance management systems in order to prevent violation of Federal consumer financial laws, including the prohibition on deceptive, unfair, or abusive practices. These measures should include steps to ensure that all marketing materials clearly, prominently, and accurately describe the effect of promotional APR offers on the grace period for new purchases.
New York AG Sues Bank for Alleged Redlining
On September 2, the NY AG sued a regional bank claiming the bank engaged in unlawful discriminatory practices by intentionally avoiding offering mortgage loan products to predominately African-American neighborhoods in Buffalo. People of the State of New York v. Evans Bancorp, Inc. et al., No. 14-cv-00726 (W.D.N.Y. Sept. 2, 2014). In the complaint, the NY AG asserts that by creating a map of its lending area in Buffalo that included most of the city and its surroundings, but excluded certain African-American neighborhoods on the city’s east side, the bank engaged in redlining in violation of the Fair Housing Act, New York state human rights law, and city code. The suit also alleges that the bank did not market its loan products to minority customers and located bank branches and ATMs outside of minority neighborhoods. The NY AG further claims that the bank’s rates of lending and receiving applications from African-American borrowers allegedly lags behind comparable banks and that these purported discriminatory effects are due to the bank’s alleged redlining practices. The NY AG seeks injunctive relief, damages, civil penalties, punitive damages, fees and costs. In its release announcing the lawsuit, the NY AG stated that the suit is part of ongoing investigations by the AG into potential mortgage redlining across the state.
Interagency Guidance Regarding Unfair Or Deceptive Credit Practices
On August 22, the CFPB and the federal banking agencies (Fed, OCC, FDIC and NCUA) issued interagency guidance regarding unfair or deceptive credit practices (UDAP). The guidance clarifies that “the repeal of the credit practices rules applicable to banks, savings associations, and federal credit unions is not a determination that the prohibited practices contained in those rules are permissible.” Notwithstanding the repeal of these rules, the agencies preserve supervisory and enforcement authority regarding UDAP. Consequently, the guidance cautions that “depending on the facts and circumstances, if banks, savings associations and Federal credit unions engage in the unfair or deceptive practices described in the former credit practices rules, such conduct may violate the prohibition against unfair or deceptive practices in Section 5 of the FTC Act and Sections 1031 and 1036 of the Dodd-Frank Act. The Agencies may determine that statutory violations exist even in the absence of a specific regulation governing the conduct.” The guidance also explains that the FTC Rule remains in effect for creditors within the FTC’s jurisdiction, and can be enforced by the CFPB against creditors that fall under the CFPB’s enforcement authority.
CFPB Fines Online Mortgage Company And Its Owner For Alleged Deceptive Rate Advertising
On August 12, the CFPB announced a consent order with a nonbank mortgage lender, its affiliated appraisal management company (AMC), and the individual owner of both companies to resolve allegations that the lender deceptively advertised mortgage rates to consumers, improperly charged fees before providing consumers with Good Faith Estimates (GFE), and failed to disclose its affiliation with the AMC while allowing the AMC to charge inflated fees.
Allegations
As explained in the consent order, the lender primarily conducts business online through its own website, and also advertises its mortgages through display ads on independent websites and the website of an unaffiliated third-party rate publisher. The CFPB asserts that, over a roughly two-year period, a “systemic problem” caused the lender to list on the rate publisher’s website lower rates for certain mortgages than the lender was willing to honor, and that the lender supplied other rates to the rate publisher that were unlikely to be locked for the majority of the lender’s borrowers. The CFPB claims that the lender failed to perform systematic due diligence or quality control to ensure the accuracy of listed rates, even though the lender was made aware through consumer complaints that certain rates were inaccurate.
The CFPB also claims that, over a period of more than two years, the lender advertised in its display ads on independent websites rates that were based on (i) a consumer profile that included an 800 credit score, although most of the lender’s borrowers had scores below 800; and (ii) payment of high discount points, without adequate disclosure of the bases for the rates. In addition, the CFPB asserts that, over a nearly four-year period, the lender generated inaccurate personal loan quotes for certain consumers because the design of the lender’s website prevented those consumers from changing the model’s credit score from 800 to a more applicable lower score. The CFPB asserts these practices violated the Mortgage Advertising and Practices (MAP) Rule by misleading consumers.
The CFPB also alleges that the lender violated RESPA and TILA by overcharging for credit reports and by requiring consumers to schedule and give payment authorization information for appraisals before providing a GFE and receiving indication that the consumers intended to proceed with a loan from the lender, thereby restricting consumers’ ability to shop for alternatives. In addition, the CFPB claims that the lender violated RESPA by failing to properly disclose its affiliate relationship with the AMC and making numerous deceptive statements that led consumers to believe that the lender had no relationship with the AMC and that the AMC’s fees were reasonable third-party fees, and violated the MAP Rule by inflating prices for certain of the AMC’s services, including “appraisal validations.”
According to the CFPB, much of the alleged conduct was directed by, and provided a financial benefit to, the companies’ individual owner.
Redress, Penalties, and Corrective Actions
The consent order requires the lender to pay nearly $14.9 million to the CFPB, which will distribute the funds to consumers who: (i) viewed the lender’s misleading rates on the rate publisher’s website on or after July 21, 2011 and then took out a mortgage with the lender with higher than advertised rates; (ii) received misleading mortgage quotes on the lender’s website based on an inapplicable 800 FICO score on or after July 21, 2011 and then took out a mortgage with the lender at a rate higher than that quoted; (iii) on or after November 1, 2009 paid more than the actual costs of credit reports before the lender provided a GFE; (iv) paid an appraisal fee on or after January 1, 2011 without receiving a proper affiliated business disclosure; and (v) closed loans during or after December 2010 and paid for appraisal review fees.
The order also: (i) requires the lender to pay a $4.5 million penalty; (ii) regulates the way the lender is permitted to advertise interest rates; (iii) mandates numerous other corrective actions related to the alleged activity; and (iv) requires the lender to hire an independent consultant to assess the lender’s advertising and disclosure practices and report to the CFPB’s Enforcement Director.
Under the consent order, the individual owner is jointly and severally liable for the nearly $14.9 million redress judgment, and must pay a $1.5 million civil money penalty.
CFPB, State AGs Announce Joint Enforcement Action Against Military Consumer Lender
On July 29, the CFPB and 13 state Attorneys General announced a consent order that requires a consumer lender currently in Chapter 7 bankruptcy to provide $92 million in debt relief for about 17,000 U.S. servicemembers and other consumers harmed by the company’s alleged predatory lending scheme. The lender offered credit to consumers purchasing computers, videogame consoles, televisions, or other products, which typically were purchased at mall kiosks near military bases. In some cases the lender was the initial creditor, and in other cases, the lender provided indirect financing by agreeing to buy the financing contracts from merchants who sold the goods.
Allegations
The CFPB claims the lender “lured consumers with the promise of no money down and instant financing.” Then, according to the CFPB, the lender and its merchant partners artificially inflated the disclosed price of the consumer goods being sold to mask finance charges collected by the lender. The CFPB also asserts that the company withheld information on billing statements, failed to obtain required lending licenses, and illegally collected on loans that were void pursuant to state licensing and usury laws.
Specifically, the CFPB alleges the lender violated TILA by (i) failing to accurately disclose the finance charge and annual percentage rate for financing agreements where they served as the creditor; and (ii) failing to disclose or accurately disclose in periodic billing statements for open-end financing agreements the annual percentage rate, the balance subject to interest rate, how that balance was determined, itemized interest charges, the closing date of the billing cycle, and the account balance on that date.
In addition, the CFPB claims the lender violated the Consumer Financial Protection Act’s UDAAP provisions by purchasing deceptive financing agreements from merchants and thereby facilitating the merchant’s deceptive disclosures. The CFPB also asserts UDAAP violations for servicing and collecting on consumer financing agreements that state laws rendered void or limited the consumer's obligation to repay.
Debt Relief
The order requires that all efforts to collect on any outstanding financing agreements cease—approximately $60 million in contracts owed by about 12,000 consumers—and that the liquidating trust created as part of the company’s bankruptcy plan stop collections on approximately $32 million owed by more than 5,000 consumers. Servicemembers may keep the merchandise they purchased. In addition, the company must update credit reporting agencies and notify servicemembers and other consumers of debt status.
Penalty & Redress
The order also requires the company, through its bankruptcy trustee, to make a $1 penalty payment to the CFPB’s Civil Penalty Fund. The CFPB states that the bankruptcy prevents it from assessing a larger penalty, but the $1 payment may allow harmed consumers to be eligible for relief from the Civil Penalty Fund in the future, although that determination has not yet been made. The order also requires redress payments for excess finance charges. Due to the company’s inability to pay, the redress requirement will be suspended once the company complies with the debt relief provisions.
CFPB, FTC, And State Authorities Coordinate Action Against Foreclosure Relief Companies
On July 23, the CFPB, the FTC, and 15 state authorities coordinated to take action against foreclosure relief companies and associated individuals alleged to have employed deceptive marketing tactics to obtain business from distressed borrowers. The CFPB filed three suits, the FTC filed six, and the state authorities collectively initiated 32 actions. For example, the CFPB claims the defendants (i) collected fees before obtaining a loan modification; (ii) inflated success rates and likelihood of obtaining a modification; (iii) led borrowers to believe they would receive legal representation; and (iv) made false promises about loan modifications to consumers. The CFPB and FTC allege that the defendants violated Regulation O, formerly known as the Mortgage Assistance Relief Services (MARS) Rule, and that some of the defendants also violated the Dodd-Frank Act’s UDAAP provisions and Section 5 of the FTC Act, respectively. The state authorities are pursuing similar claims under state law. For example, New York Attorney General Eric Schneiderman announced that he served a notice of intent to bring litigation against two companies and an individual for operating a fraudulent mortgage rescue and loan modification scheme that induced consumers into paying large upfront fees but failed to help homeowners avoid foreclosure.
CFPB Sues Debt Collection Law Firm
On July 14, the CFPB sued a Georgia-based law firm and its three principal partners for allegedly using high-volume litigation tactics to collect millions of dollars from consumers who may not actually have owed the debts or may not have owed the debts in the amounts claimed. The suit relates to the firm’s attempts to collect, directly or indirectly, consumer credit-card debts on behalf of both credit-card issuers and debt buyers that purchase portfolios of defaulted credit-card debts. The CFPB alleges the defendants violated the FDCPA and engaged in unfair and deceptive practices by: (i) serving consumers with deceptive court filings generated by automated processes and the work of non-attorney staff, without any meaningful involvement of attorneys; and (ii) introducing faulty or unsubstantiated evidence through sworn statements even though some signers could not have known the details they were attesting to. The CFPB is seeking to permanently enjoin the firm from engaging in the alleged activity, restitution to borrowers, disgorgement, civil money penalties, and damages and other monetary relief.
CFPB UDAAP Action Targets Payday Lender's Collection Activities
This afternoon, the CFPB announced that a nonbank consumer lender will pay $10 million to resolve allegations that it engaged in certain unfair, deceptive, and abusive practices in the collection of payday loans. This action comes exactly one year after the CFPB issued guidance that it would hold supervised creditors accountable for engaging in acts or practices the CFPB considers to be unfair, deceptive, and/or abusive when collecting their own debts, in much the same way third-party debt collectors are held accountable for violations of the FDCPA.
Based on its findings during an examination of the lender, which was coordinated with the Texas Office of Consumer Credit, the CFPB alleged that the lender and its third-party vendors used false claims and threats to coerce delinquent payday loan borrowers into taking out an additional payday loan to cover their debt. The CFPB claimed that the lender trained its staff to “create a sense of urgency” for consumers in default, and that in-house and third-party vendor staff did so by (i) making an excessive number of calls to borrowers; (ii) disclosing the existence of the debt to non-liable third parties; and (iii) continuing to call borrowers at their workplaces after being told such calls were prohibited, or calling borrowers directly after they had obtained counsel.
The CFPB further alleged that some in-house staff also misrepresented the actions that third-party collectors would take after a loan was transferred for additional collection efforts, even though those actions were prohibited or limited by the lender’s own corporate policies and contracts with outside collectors. The in-house staff also allegedly falsely advised borrowers that they could not prevent the transfer of the delinquent debt to a third-party collector. In-house and third-party staff also allegedly falsely threatened delinquent borrowers with litigation or criminal prosecution, when the lender did not, as a matter of policy, pursue litigation or criminal prosecution for non-payment or permit its third-party collectors to do so.
The CFPB characterized certain of the acts as either unfair or deceptive, and stated that the lender’s efforts to create and leverage an artificial sense of urgency to induce delinquent borrowers with demonstrated inability to repay their existing loans to take out new loans with accompanying fees “took unreasonable advantage of the inability of consumers to protect their own interests in selecting or using a consumer financial product or service” and thereby qualify as abusive acts or practices.
The lender, in its own press release, pointed out that the CFPB’s allegations related only to collection practices prior to March 2012, and that a third-party review revealed that more than 96 percent of the lender’s calls during the review period met relevant collections standards. The lender added that it has policies that prevent delinquent borrowers from taking out new loans, and that an analysis of those policies revealed that 99.5 percent of customers with a loan in collections for more than 90 days did not take out a new loan with the lender within two days of paying off their existing loan, and 99.1 percent of customers did not take out a new loan within 14 days of paying off their existing loan. This data suggests that the CFPB’s exception tolerance for in-house collection operations is exceedingly thin.
The order requires the lender to pay $5 million in redress to eligible borrowers and a $5 million civil money penalty. The lender stressed that it cooperated fully with the CFPB, implementing recommended compliance changes and enhancements and responding to requests for documents and information. It committed to completing those corrective actions and agreed to certain reporting and recordkeeping requirements.
The action is at least the second public action taken by the CFPB against a payday lender. In November 2013 the CFPB entered a consent order to resolve so-called “robosigning” allegations against another lender. That action, which was resolved with a $5 million penalty and $14 million in restitution, also included allegations that the lender violated the Military Lending Act and engaged in certain unlawful examination conduct.