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On November 9, the CFPB released a report highlighting credit record trends for young enlisted servicemembers during the first year after separation. According to the CFPB, a large number of these servicemembers become delinquent on debt payments or have severe derogatories appear on their credit records around the time they leave active duty. The report analyzes a sample of 10,872 servicemembers and finds that, for servicemembers who serve at least 7 months, “delinquencies and defaults are between two and 10 times more like to appear on a credit record in the six months after separation as compared to the six months before.” In addition, servicemembers who have negative outcomes show declines in their credit scores just after separation, with recovery not occurring until at least one year after leaving the military. Credit score declines are most severe for those who serve between 7 and 35 months as well as “for those who exit with a Near prime credit score or below, as opposed to a Prime score or better.” Among other things, the report focuses on several categories of young veterans and identifies the following three types of credit accounts to be the most likely sources of delinquencies and defaults: auto loans, credit cards, and personal or retail installment loans. The report also addresses several credit outcomes: credit scores, third-party collections debt (medical and non-medical debt), 90-day delinquencies, and severe derogatory outcomes. While the report’s data does not specifically indicate reasons for a servicemember’s separation, the Bureau reports that part of the cause may be attributed to financial difficulties, and that assisting servicemembers make better financial decisions may increase retention for service branches.
On October 26, the CFPB announced a settlement with a ninth mortgage lender for mailing consumers advertisements for Department of Veterans Affairs (VA) mortgages that allegedly contained misleading statements or lacked required disclosures. According to the Bureau, the lender allegedly sent false, misleading, and inaccurate direct-mail advertisements for VA guaranteed mortgage loans to servicemembers and veterans in violation of the CFPA, the Mortgage Acts and Practices – Advertising Rule (MAP Rule), and Regulation Z. Among other things, the Bureau alleged the advertisements (i) stated credit terms that the lender was not actually prepared to offer, such as the interest rate and annual percentage rate applicable to the advertised mortgage; (ii) made misrepresentations about “the existence, nature, or amount of cash or credit available to the consumer in connection with the mortgage”; (iii) failed to include required disclosures; (iv) gave the false impression that the mortgage products would help eliminate or reduce debt; and (v) made misleading comparisons in advertisements involving actual or hypothetical loan terms.
The settlement imposes a civil money penalty of $1.8 million and bans the lender from future advertising misrepresentations similar to those identified by the Bureau. Additionally, the settlement requires the lender to use a compliance official to review mortgage advertisements for compliance with consumer protection laws, and to comply with certain enhanced disclosure requirements.
The latest enforcement action is part of the Bureau’s “sweep of investigations” related to deceptive VA-mortgage advertisements. Previously, the Bureau issued consent orders against eight other mortgage lenders for similar violations, covered by InfoBytes here, here, here, and here.
On July 16, the CFPB released a newly updated consumer complaint bulletin analyzing complaints the Bureau has received during the Covid-19 pandemic. The bulletin analyzes complaints mentioning coronavirus-related key words (such as Covid, coronavirus, pandemic, CARES Act, and stimulus) that were received as of May 31. Complaints related to Covid-19 accounted for 8,357 of the more than 187,000 complaints the Bureau has received in 2020. Highlights of the bulletin include: (i) mortgage and credit cards are the top complaint categories for Covid-19 complaints; (ii) after the emergency declaration, the weekly average complaint volume for prepaid cards grew 105 percent, while the volume for student loans decreased by 24 percent; and (iii) 10 percent of complaints submitted by servicemembers were Covid-19 related compared to six percent of non-servicemember complaints. As previous covered by InfoBytes, in May, the Bureau issued the first complaint bulletin analyzing approximately 4,500 Covid-19-related complaints received at that time.
Additionally, the CFPB announced new capabilities for the public Consumer Complaint Database, including the ability to (i) view complaints over time to review for trends; (ii) refine visualizations based on user selected criteria; and (iii) aggregate complaints by various categories, such as issues and products.
As part of the CFPB’s Consumer Financial Protection Week, the Bureau released several reports and tools, including a recently published study analyzing the impact of credit builder loans (CBLs) on consumer credit scores. The study, Targeting Credit Builder Loans: Insights from a Credit Builder Loan Evaluation (accompanied by a practitioner’s guide and research on CBLs), provides insight for community-based organizations and financial institutions on expanding financial inclusion through the use of CBLs, which are designed to assist individuals with no credit records or poor credit histories to build or repair their credit. According to the Bureau, the central feature of a CBL is that a borrower makes payments before receiving funds. When a CBL is opened by a borrower, the lender moves its own funds into a locked escrow account and the borrower makes installment payments, including interest and fees, typically over a period of six to 24 months. These payments appear on the borrower’s credit report, and the lender deposits the principal payments into the borrower’s savings account “after each payment or in entirety when the borrower completes the program.” According to the Bureau, a typical CBL ranges from $300 to $1,000. The Bureau’s study examined 1,531 credit union members who were offered CBLs. The research revealed that a CBL increased the likelihood of having a credit score by 24 percent for borrowers without an existing loan, and that borrowers without existing debt saw their credit scores rise by 60 points more than borrowers carrying existing debt. Additionally, the Bureau found an association between having a CBL and an increase in a borrower’s savings balance. The Bureau cautioned, however, that the study’s findings also indicated that CBLs appeared to cause a decrease in credit scores for borrowers with existing debt, suggesting that these borrowers experienced difficulty making payments on both their CBL and their existing debt obligations.
The Bureau also released the results from the Making Ends Meet survey, which provides insight into how U.S. consumers cope with financial shortfalls. The survey, conducted prior to the Covid-19 pandemic in May 2019, offers a nationally representative assessment of consumers with credit records. Among its findings, the report noted that 52 percent of survey respondents said they could cover expenses for two months or less without their main source of income, while 20 percent could cover expenses for only two weeks or less.
A report exploring the credit records of young servicemembers that compares servicemembers’ credit profiles to the credit profiles of civilians was also recently published, along with an online tool to help students make informed decisions about paying for college.
On July 13, the FTC released an interactive military dashboard (updated quarterly) that explores data received from active duty servicemembers, veterans, and all military (including military families and reservists) on issues they may experience in the marketplace. Government imposter was the top reported scam type for active duty military personnel, followed by unwanted telemarketing calls, business imposters, online shopping and counterfeit check scams. Other top report categories included identity theft, credit bureaus, third party debt collection, credit cards, mortgage lending, and creditor debt collection. Additionally, reports from the Consumer Sentinel Network showed that from 2015 through the first two quarters of 2020, the median fraud loss for veterans and retirees was $750. The FTC noted that it uses these reports as part of its law enforcement investigations and shares the reports with law enforcement users around the country.
On May 21, the CFPB issued a consumer complaint bulletin analyzing complaints the Bureau has received during the Covid-19 pandemic. The bulletin analyzes complaints mentioning “COVID, coronavirus, pandemic, or CARES Act” that were received as of May 11. Of the over 143,000 complaints the Bureau has received in 2020, 4,541 complaints were related to Covid-19. Highlights of the bulletin include: (i) overall, the Bureau had the highest complaint volumes in its history in March and April at 36,700 and 42,500, respectively; (ii) mortgage and credit cards are the top complaint categories for Covid-19 complaints; (iii) eight percent of complaints submitted by servicemembers were Covid-19 related compared to five percent of non-servicemembers; and (iv) after the emergency declaration, the weekly average complaint volume for prepaid cards grew 84 percent, while the volume for student loans decreased by 19 percent. Among other things, the bulletin includes breakdowns of complaint volumes by consumer financial products and examples of common issues from complaint narratives that mention a Covid-19 keyword.
On April 15, the CFPB issued a blog post providing resources for servicemembers, veterans, and military families impacted by the Covid-19 pandemic. The Bureau discusses military aid societies where servicemembers and military families can apply for emergency grants and zero-interest loans, and hardship duty pay and other allowances afforded to military families affected by the Stop Movement Order that halted domestic travel by military personnel. The Bureau also provides information for managing mortgage payments and student loans, and reminds active-duty servicemembers, military spouses and National Guard personnel and reservists on active duty for more than 30 consecutive days of their rights under the Servicemembers Civil Relief Act and the Military Lending Act. These will include being able to terminate contracts under certain conditions and to receive protections for many types of consumer credit and loans. The blog post also highlights recent changes made to existing programs due to challenges presented by Covid-19, including the expansion of online access for veterans to file benefit claims and the continuation of GI Bill program funding.
On April 3, the CFPB Office of Servicemember Affairs (OSA) released its annual report, which provides an overview of OSA’s activities in fulfilling its statutory responsibilities for fiscal year 2019 and covers the period between October 1, 2018 and September 30, 2019. OSA’s responsibilities include monitoring complaints from military consumers, and the report highlights issues facing military consumers based on approximately 34,600 complaints submitted by servicemembers, veterans, and their families (collectively “servicemembers”). Key takeaways from the report include the following:
- Education and empowerment. OSA examined financial issues that impact military consumers and provided various educational tools on topics including the Servicemembers Civil Relief Act, the Military Lending Act, mortgage lending and foreclosure protections, and credit reporting and monitoring. These tools include in-person outreach and digital education and engagement resources.
- Consumer complaints. Thirty-six percent of servicemember complaints focused on credit or consumer reporting. Complaints related to debt collection were the second most frequent issue, with most complaints alleging that debt collectors were attempting to collect debt that the servicemember did not owe. In particular, OSA expressed concern about complaints where “the debt collector ‘took or threatened to take negative or legal action.’” With respect to mortgage debt, many servicemembers reported challenges in the payment process, as well as difficulties in being able to afford mortgage payments. With respect to credit cards, the greatest concentration of complaints focused on problems with purchases on statements. Checking or savings account complaints centered on issues related to account management, and more than two-thirds of student lending complaints related to challenges dealing with lenders or servicers. With respect to auto lending, complaints focused on managing the loan or lease. Other complaint categories included money transfers/services and virtual currency, personal loans, prepaid cards, credit repair, and title loans.
- Agency coordination. During the reporting period, OSA coordinated several consumer protection activities with federal and state government agencies, including the Departments of Defense, Veterans Affairs (VA), Education, and Treasury, as well as the FTC, SEC, and state attorneys general. OSA also noted its participation in interagency working groups focused on helping servicemembers.
- Military consumer research. Coordinated research efforts into the financial well-being of veterans and the increased use of home loans guaranteed by the VA are highlighted.
On March 30, the DOJ’s Civil Rights Division released a statement encouraging landlords and property managers to provide flexibility for servicemembers who have had to quickly change housing plans and employment responsibilities. The Division explained that due to the Covid-19 outbreak, a March 13 Stop Movement Order halted domestic travel by military personnel. As a result, many servicemembers who had signed leases for housing in anticipation of a move to a new duty station will not be able to move until May 11, at the earliest. The statement continues that “[c]onsistent with federal and state law” property managers are urged “to afford the men and women of our armed forces maximum flexibility to adjust their residential lease obligations as needed to comply with military orders during this uncertain time.” The statement reminds property managers and landlords of “the responsibilities they have with respect to members of the National Guard and Reserve under USERRA, the SCRA and similar state laws,” adding that the Division “will act swiftly to bring violators to justice.”
Servicemembers with concerns regarding their civil rights should contact the DOJ or their nearest Armed Forces Assistance Program Office.
On November 25, the CFPB announced a settlement with two companies that originated and serviced travel-related loans for military servicemembers and their families. According to the consent order with the lender and its principal, the lender (i) charged fees to customers who obtained financing, at a higher rate than those customers who paid in full, but failed to include the fee in the finance charge or APR; (ii) falsely quoted low monthly interest rates to customers over the phone; and (iii) failed to provide the required information about the terms of credit and the total of payments in violation of TILA and the TSR. The consent order prohibits future lending targeted to military consumers and requires the lender and its principal to pay a civil money penalty of $1. The order also imposes a suspended judgment of almost $3.5 million, based on an inability to pay.
In its consent order against the servicer, the Bureau asserts the servicer engaged in deceptive practices by overcharging servicemembers for debt-cancellation products and, in violation of the FCRA’s implementing Regulation V, never established or maintained written policies and procedures regarding the accuracy of information furnished to credit reporting agencies. The consent order issues injunctive relief and requires the servicer to (i) pay a $25,000 civil money penalty; (ii) provide redress to consumers who were allegedly overcharged for the debt-cancellation product; (iii) pay over $54,000 in restitution to borrowers with no outstanding balance on their loans and issue additional account credits to borrowers with outstanding balances; and (iv) establish reasonable policies and procedures for accurate reporting to consumer reporting agencies.
- Steven R. vonBerg to discuss "Non-QM market overview & the impact of QM 2.0" at the IMN Non-QM Virtual Conference
- Buckley Webcast: Looking ahead — Tighter scrutiny of deposit and payment practices
- Jeffrey P. Naimon to discuss "What have you bought non-QM post-Covid?" at the IMN Non-QM Virtual Conference
- Garylene D. Javier to moderate "Innovation in an evolving privacy landscape" at the American Bar Association Business Law Section Consumer Financial Services Committee Winter Meeting