The Consumer Financial Protection Bureau (CFPB or Bureau) hit the ground running in 2015, and this promises to be a busy year for the Bureau. The CFPB's recent activity focuses on its supervisory authority. The Bureau issued guidance restricting disclosure of confidential supervisory information. Signs of a potential trend emerged as the Bureau – through an enforcement action – required a credit card company to become subject to CFPB supervisory jurisdiction. The Bureau also continues to address student lending issues, with an enforcement action that, among other things, will result in $480 million in loan forgiveness.
CFPB Warns Supervised Financial Institutions Against Disclosing Confidential Supervisory Information
On January 27, 2015, the CFPB issued a bulletin regarding confidential supervisory information obtained from supervised financial institutions, including nonbank companies.
The CFPB has supervisory authority over banks and credit unions with assets over $10 billion, and their affiliates. The Bureau is also the first federal agency with supervisory authority over certain nonbank financial companies such as mortgage lenders and servicers, payday lenders, and private student lenders, as well as certain large debt collectors, consumer reporting agencies, student loan servicers, and international remittance providers (collectively, supervised financial institutions).
Under the Bureau's regulations, supervised financial institutions may not disclose "confidential supervisory information" except in limited circumstances.
Confidential Supervisory Information includes:
- Examination and compliance reports, and any information contained in, derived from, or related to such reports (including an institution's supervisory Compliance rating);
- Any documents prepared by, or on behalf of, or for the use of the CFPB or any other Federal, State, or foreign government agency in the exercise of supervisory authority;
- Any communications between the CFPB and a supervised financial institution or a Federal, State, or foreign government agency related to the CFPB's supervision of the institution (including supervisory information requests from the CFPB to a supervised financial institution, along with the institution's responses);
- Any information provided to the CFPB by a financial institution to enable the CFPB to assess potential risks to consumers in the offering or provision of financial products or services, or to assess whether an institution should be considered a covered person; and
- Information that is exempt from disclosure under the Freedom of Information Act (FOIA).
NDAs do not protect information from disclosure to the Bureau:
The bulletin further states that provisions in non-disclosure agreements (NDAs) do not alter or limit the Bureau's existing supervisory authority or the supervised financial institution's obligations relating to confidential supervisory information. The Bureau cautions that NDAs should not be relied upon to attempt to limit the supervisory information disclosed to the CFPB or to justify disclosing confidential supervisory information to third parties outside of the scope of the exceptions above.
There are exceptions to the CFPB's broad prohibitions concerning the disclosure of confidential supervisory information; these exceptions include affiliates of the supervised financial institution, directors and officers of the institution and its affiliates, and legal counsel, certified public accountants, consultants, or service providers. Supervised financial institutions may also (in certain instances) disclose confidential supervisory information to third parties with the prior written approval of the Associate Director for Supervision, Enforcement, and Fair Lending. Under the Bureau's regulations, a supervised financial institution that receives a demand for confidential information, such as a subpoena or a FOIA request, must inform the CFPB's General Counsel of this demand.
CFPB Targets Subprime Credit Card Company's Fee Structures and Extends Supervisory Authority through Consent Order
On February 4, 2015, the CFPB ordered Continental Finance Company LLC, a subprime credit card company based in Delaware, to refund an estimated $2.7 million to approximately 98,000 consumers. The Bureau alleges that these consumers were charged illegal credit card fees under the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act, which prevents credit card companies from charging consumers fees that exceed 25% of the credit limit during the first year after opening an account (the so-called "fee harvester provision").
In addition, as part of the settlement, the company will be subject to the CFPB's supervisory authority for the first time. The Bureau's examinations have sometimes furnished facts that give rise to an enforcement action. Here, however, the Bureau is using its enforcement authority to require that a company become the subject of its supervision jurisdiction. This is likely the beginning of a trend as the Bureau continues to develop its enforcement doctrine.
Specifically, here, the Bureau's findings are as follows:
- Inaccurate fee information: Many consumers were charged a paper-statement fee, which was represented by the company as an "opt-in" fee but which required consumers to affirmatively opt-out.
- Credit card fees violated the CARD Act: For many consumers, the paper-statement fee exceeded 25% of the credit limit during the first year of opening the account. The Bureau alleges that consumers typically received a $300 credit limit and were charged an upfront fee of $75, as well as a $30 fee to increase the credit limit.
- Inaccurate account insurance information: Cardholder agreements at issue required cardholders with secured or partially secured cards to make a cash security deposit to open the account. The Bureau alleges that the company misrepresented that these deposits were "FDIC insured," and states that up to $1.8 million in consumer deposits were not FDIC insured.
Under the CFPB's consent order, the credit card company must make approximately $2.7 million in restitution to an estimated 98,000 consumers that the Bureau alleges were charged illegal credit card fees for paper statements. The Bureau also has imposed a $250,000 civil money penalty. Going forward, the company must, among other things, provide the Bureau with copies of all cardholder agreements and marketing materials, among other requirements.
CFPB's Debt Relief Agreement Highlights the Bureau's Focus on Student Lending
On February 3, 2015, the CFPB and the U.S. Department of Education announced more than $480 million in forgiveness for student loans offered through Corinthian College, Inc.'s Genesis loan program, in conjunction with the ECMC Group's acquisition of several Corinthian campuses. The loan forgiveness stems from the Bureau's ongoing lawsuit against Corinthian College, which, among other things, alleges that Corinthian utilized false and deceptive advertising to lure students into taking loans, and then engaged in illegal debt collection tactics in an effort to force students into paying back these loans while they were still in school.
On September 16, 2014, the Bureau filed a complaint against Corinthian. The CFPB asserts that under Corinthian's Genesis loan program, many student borrowers were required to make monthly loan payments while attending school. The CFPB's complaint states that these loans showed a high rate of default; more than 60% of Corinthian students defaulted on these high-cost loans within three years. The CFPB also claims that Corinthian charged interest rates that were more than double the interest rates for federal student loans.
The Bureau has agreed to release ECMC from potential liability as part of the settlement, which also provides that ECMC will:
- Provide more than $480 million in debt relief to students at Corinthian College;
- Not offer private student loan programs;
- Halt lawsuits, threats, and improper debt collection practices;
- Remove negative information from student borrowers' credit reports; and
- Implement consumer protections recommended by the Department of Education, such as flexible withdrawal policies and clear information on job prospects.
The Bureau's announcement highlights the CFPB's ongoing attention to the student lending market. On January 29, 2015, the CFPB, jointly with the Fed, FDIC, NCUA, and OCC, issued guidance on private student loans with graduated repayment terms. The Bureau also noted that it has requested information from student lenders and student debt servicers as part of an inquiry into the private student loan market.