Payday Lending: On November 20th, the CFPB announced an enforcement action against a payday lender, Cash America International, Inc. for allegedly robo-signing court documents in debt collection lawsuits and for violating the Military Lending Act by allegedly overcharging servicemembers and their families. The CFPB also alleges that Cash America impeded the CFPB’s routine examination of the company in July 2012. The enforcement action requires Cash America to:
- Refund consumers $8 million in addition to the $6 million Cash America has already voluntarily refunded;
- Dismiss pending collections lawsuits;
- Pay a $5 million civil money penalty; and
- Improve internal compliance systems.
- Fair Debt Collection Practices Act: On November 15th, the CFPB and the Federal Trade Commission (FTC) jointly filed an amicus brief on behalf of plaintiffs in a class action lawsuit under the Fair Debt Collection Practices Act (FDCPA) in the Court of Appeals for the Second Circuit (Sykes v. Mel Harris & Associates LLC, No. 13-2742). The plaintiffs allege that the defendant, a debt collection law firm, obtained default judgments against consumers through affidavits that falsely claimed that consumers had been served and by falsely claiming knowledge of facts relevant to the claim. In the brief, the CFPB and the FTC argue that the allegations are actionable under the FDCPA because, although the defendant’s actions were directed through the courts and not directly to the consumers, the defendant’s overall efforts were directed toward the consumers.
CFPB & Congress
- Auto Lending: On November 15th, Rep. Blaine Luetkemeyer (R-MO) sent a letter to Director Cordray to express his “continued concern over the compliance steps” for auto lenders that the CFPB outlined in a bulletin in March entitled, “Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act” (previously reported). Luetkemeyer discussed the “difference between disparate treatment targeting members of protected classes versus facially-neutral treatment that may inadvertently result in disparate impact.” Luetkemeyer stated that disparate impact theory “is not an appropriate way to enforce consumer protection laws against indirect auto lenders who, in many cases, never see a customer or have knowledge of a customer’s race” and, further, is not mentioned in the Equal Credit Opportunity Act.
Reform: The House Financial Services Committee reported out, along strict partisan lines, six bills related to the Consumer Financial Protection Bureau (CFPB). House Financial Services Committee Chairman, Jeb Hensarling (R-TX) stated, “The CFPB is effectively unaccountable to Congress since it’s exempted from the congressional budgetary and appropriations process, unlike many other agencies. There is thus no check to ensure the CFPB director is spending the people’s money effectively to promote consumer protection, much less effectively in a time of runaway debt and deficits.” The Committee reported out the following bills:
- H.R. 2385 – the CFPB Pay Fairness Act, which would adjust the pay rates of CFPB employees to match those of federal employees (31-23);
- H.R. 2446 – the Responsible Consumer Financial Protection Regulations Act, which would replace the position of CFPB director with a bipartisan five-member commission (31-21);
- H.R. 2571 – the Consumer Right to Financial Privacy Act, which would require the CFPB to notify and obtain permission from consumers before collecting their personal information (32-26);
- H.R. 3183 – to provide a consumer with a free annual disclosure of information the CFPB maintains on the consumer, (32-25);
- H.R. 3193 – the Consumer Financial Protection Safety and Soundness Improvement Act, which would authorize the Financial Stability Oversight Council chair to review CFPB regulations (32-25); and
- H.R. 3519 – the CFPB Accountability and Transparency Act, which would establish the CFPB as an independent agency subject to the annual congressional authorization and appropriations process (32-24).
- Debt Collection: On November 20th, the Senate Commerce, Science, and Transportation Committee held a hearing entitled, “Soldiers as Consumers: Predatory and Unfair Business Practices Harming the Military Community,” which examined both lending and debt collection practices targeted toward military service members. At the hearing CFPB Assistant Director for Servicemember Affairs Holly Petraeus and FTC Deputy Director of the Bureau of Consumer Protection Charles Harwood testified and agreed that addressing such issues requires both consumer education as well as law enforcement.
- Disparate Impact: On November 19th, the House Financial Services Committee Subcommittee on Oversight and Investigations held a hearing entitled, “Disparate Impact Theory,” to review the legal and theoretical underpinnings of disparate impact theory and to explore the consequences of its application in various contexts, such as housing and lending policy. Peter Kirsanow, lawyer and member of the U.S. Commission on Civil Rights, stated that the Fair Housing Act (FHA) does not authorize a disparate impact cause of action: “Despite others’ protestations, it simply is not the case that Congress intended the Fair Housing Act to include disparate impact. … As a result of [U.S. Department of Housing and Urban Development]’s regrettable arrogation of power, the ‘Affirmatively Furthering Fair Housing’ proposed rule is built upon sand. Rather than focusing on incidents of disparate treatment against members of protected classes, the proposed rule transforms people with middle-income levels or below into a protected class based simply on disparate impact.”
- Federal Reserve Chair: On November 21st, the Senate Banking Committee approved Janet Yellen, current Vice Chair of the Board of Governors of the Federal Reserve System, to be Chair of the Federal Reserve in a 14-8 vote. The full Senate vote on Yellen’s nomination is expected in December.
- Credit Card Rewards: On November 15th, Bloomberg reported on an e-mail exchange with Director Cordray in which Cordray reiterated that the CFPB will review credit card rewards programs and consider proposing new rules to regulate such programs. Cordray stated, “We will be reviewing whether rewards disclosures are being made in a clear and transparent manner, and we will consider whether additional protections are needed.” Bloomberg reported that, according to an anonymous “person involved in the work,” the CFPB’s interest in rewards programs originates not from an increase in consumer complaints about such programs but, rather, from the CFPB’s understanding that such programs represent the “decision point” for consumers when choosing between cards. The CFPB originally suggested that it would review credit card rewards programs in its October 2nd report on the CARD Act (previously reported).
Effect of Regulations: On November 22nd, the CFPB published a report entitled, “Understanding the Effects of Certain Deposit Regulations on Financial Institutions’ Operations: Findings on Relative Costs for Systems, Personnel, and Processes at Seven Institutions,” which outlines the findings of a series of studies involving case studies to learn both how banks’ operations comply with CFPB regulations. For example, the study documents how certain banks comply with:
- Authorization rights;
- Error resolution requirements;
- Disclosure requirements; and
- Marketing regulations.
- Mortgage Disclosures: On November 20th, the CFPB issued a final rule regarding application and closing disclosures related to the Truth in Lending Act and the Real Estate Settlement Procedures Act. The rule is a major component of the CFPB’s “Know Before You Owe” campaign, and requires lenders to utilize new disclosure forms that the CFPB claims will be more accessible to consumers and will provide for easier, more transparent comparison shopping. The rule has not yet been published in the Federal Register.
CFPB Information Collection: On November 21st, the CFPB published a notice in the Federal Register (78 FR 69753) that the Office of Management and Budget approved information collections that the CFPB proposed in a series of Federal Register items this year. The information collections relate to:
- The Homeownership Counseling Amendments to the Real Estate Settlement Procedures Act;
- The Mortgage Servicing Amendments (Regulations X and Y);
- The Appraisals for Higher-Risk Mortgage Loans Amendment;
- The Loan Originator Compensation Amendment;
- The Equal Credit Opportunity Act;
- The Electronic Fund Transfer Act; and
The Ability to Repay and Qualified Mortgage Standards Under the Truth in Lending Act.
The date on which the information collection for each of the aforementioned rules goes into effect is the date on which the respective rule goes into effect.
- Financial Education: On November 18th, the CFPB published the results of a study entitled, “Navigating the Market: A Comparison of Spending on Financial Education and Financial Marketing,” which evaluated “the information sources consumers are exposed to when they make financial decisions.” In the CFPB’s analysis of spending on financial education by federal, state, local, non-profit, and private entities, the CFPB found that the financial services industry spends approximately 25 times more money on marketing consumer financial products ($17 billion) and services than the overall U.S. economy spends on consumer financial education ($670 million).
Student Loans: On November 18th, CFPB Student Loan Ombudsman Rohit Chopra delivered the keynote address at a Federal Reserve Bank of St. Louis event entitled, “Generation Debt: The Promise, Perils, and Future of Student Loans.”
During his speech, Chopra discussed:
- Recent trends in debt and wages for young Americans;
- Similarities between the mortgage market and student loan market, including how reforms in the mortgage market could be applied to the student loan market; and
The role of financial regulators in addressing student loan concerns.
Chopra specifically addressed three principles guiding reforms in the mortgage market that regulators could potentially apply to the student loan market:
- Borrowers’ ability to repay;
- Appropriate alignment of participants’ incentives; and
- Debt servicing.