In another news-heavy cycle, the Bureau of Consumer Financial Protection (CFPB) released a report on year-end credit card borrowing, dropped a potentially major RESPA-based investigation on co-marketing practices, and reached two major settlements.
Outside the battles over leadership, there are a few other items worth noting in CFPB news, including a major settlement and a closely watched investigation that was dropped:
Credit Cards – The CFPB has released a report on year-end credit card borrowing. The quarterly consumer credit trends report focused on end-of-year credit card borrowing and the repayment of credit card balances in the new year. The CFPB noted that each year, consumer spending peaks during November and December, the holiday shopping season. Not surprising, general purpose credit card debt and retail store card debt exhibit year-end peaks, with monthly aggregate balances steadily rising before the end of the year and then falling gradually through March.
Credit card borrowing experiences vary across consumers with different credit scores and different credit card utilization rates, the CFPB found. Consumers with superprime credit scores and those with lower utilization rates exhibit the greatest seasonal rise and fall in balances, while balances for consumers with subprime credit scores exhibit relatively little seasonality.
Zillow investigation dropped – In early 2017, the CFPB advised online real estate titan Zillow that it was considering legal action arising out of Zillow’s practice of permitting mortgage lenders to pay a portion of a real estate agent’s Zillow advertising budget in exchange for touting the mortgage lender. Somewhat similar practices resulted in a RESPA-based enforcement action against a Los Angeles-based mortgage lender during the Rich Cordray era. Much to the industry’s surprise, however, the Mulvaney-led CFPB has dropped its investigation into Zillow’s co-marketing practices. The CFPB made no announcement of that decision, but Zillow itself released a public statement to that effect. Left unresolved by the no-action posture is whether the type of co-marketing practices adopted by Zillow are prohibited by RESPA’s anti-kickback provisions.
$335 Million Settlement With Major Bank – One of the nation’s largest banks avoided civil monetary penalties in a CFPB enforcement action. Instead, however, the bank will correct its actions going forward and will refund about $335 million to 1.75 million credit card customers who were allegedly overcharged on interest payments. According to the consent order, for nearly a decade, the bank did not conduct required re-evaluations that would have resulted in reduced annual percentage rates.
Under the Credit Card Accountability Responsibility and Disclosure Act of 2009 (the CARD Act), “[i]f a creditor increases the annual percentage rate applicable to a credit card account under an open end consumer credit plan, based on factors including the credit risk of the obligor, market conditions, or other factors, the creditor shall consider changes in such factors in subsequently determining whether to reduce the annual percentage rate for such obligor.” The amendment further required a creditor that previously increased the annual percentage rate (APR) on a credit card to review the account at least every six months to assess whether the factors that prompted the increase have changed, and reduce the account’s APR when indicated by the review. The amendment also required the card issuer to maintain reasonable methodologies for assessing the factors at issue in the review.
So how did the bank avoid civil monetary penalties? While it apparently failed to implement these CARD Act procedures, the bank discovered the errors in 2016 and reported them to the CFPB in early 2017. Further, it voluntarily initiated restitution shortly thereafter. In other words, the bank not only discovered the error on its own, it promptly reported and fixed the issue without prior threat of enforcement action by the CFPB. The consent order addresses all these actions, mandates a strict compliance plan for future conduct and formalizes the requirement that the bank provide complete redress to consumers. But it does not, as might otherwise have occurred, impose any civil monetary penalties.
FCRA Settlement – In a new settlement, South Carolina-based Security Group Inc. and its subsidiaries reached a $5 million deal with the CFPB over allegations the lenders violated the Consumer Financial Protection Act (CFPA), Fair Credit Reporting Act (FCRA) and Regulation V.
The CFPB consent order asserts that lenders made humiliating and harassing in-person collection visits to consumers’ homes and places of employment; harassing calls to consumers at their places of employment after having been asked by consumers, their colleagues and/or employers to stop; and continued calls to third parties (such as supervisors, landlords and family members) in a manner that disclosed or risked disclosing the existence of delinquent debt. In addition, the lenders regularly furnished inaccurate and incomplete information about consumers to credit reporting agencies, the CFPB claimed.
To settle the charges, the lenders agreed to refrain from future violations and submit a comprehensive compliance plan to the CFPB, correct inaccurate information furnished to credit reporting agencies within 90 days and pay a $5 million civil penalty.
To read the report End-of-Year Credit Card Borrowing, click here.
To read the major bank consent order, click here.
To read the Security Group consent order, click here.
Why it matters
The CFPB continues to pay close attention to its primary examination functions, and it is very much business as usual in some but not every regard. As in the Cordray era, the current CFPB continues to actively encourage self-policing and self-reporting. But its unexpected decision as to Zillow leaves both consumers and industry baffled about co-marketing arrangements that arguably provide a competitive advantage to certain brokers and mortgage lenders.