CFPB Issues Guide for Consumers Using Financial Advisers

On November 8th, the CFPB released a guide to help consumers select financial advisers.1 The guide, titled “Know Your Financial Adviser,” provides consumers with general advice and specific questions to ask when selecting financial advisers. The guide recommends that consumers proceed with caution before selecting financial advisers, such as by investigating the nature and extent of an adviser’s professional qualifications and whether the adviser is or has been subject to complaints, investigations, or sanctions. The guide also encourages consumers to seek information about how advisers will be paid for their work and whether conflicts of interest exist that may cloud their judgment. Finally, the guide urges consumers to beware of free educational seminars put on by advisers, which often amount to thinly disguised sales pitches for consumers to participate in high-risk or high-cost investments.

CFPB Issues Report on Empowering Low Income / Economically Vulnerable Consumers

On November 14th, the CFPB’s Office of Financial Empowerment issued a report which summarizes its work that seeks to empower low income and economically vulnerable consumers.2 Specifically, the report summarizes the CFPB’s findings from a forum it hosted last November at which it solicited input from more than one hundred representatives of the public and private sectors. The report notes the many barriers that low-income consumers face when seeking access to the banking system, obtaining credit on reasonable terms, and when trying to improve their credit scores. It also highlights the challenges associated with breaking down these barriers and in determining appropriate measures of successful financial empowerment. The report highlights approaches to these issues taken by Federal, State, and local governments. Finally, the report discusses plans for the Bureau to engage in further research.

CFPB Takes Action against Mortgage Insurer for Alleged Kickbacks

On November 15th, the CFPB filed a complaint and a proposed consent order against Republic Mortgage Insurance Corporation, a private mortgage insurance company (RMIC).3 The complaint alleges that RMIC violated Section 8 of the Real Estate Settlement Procedures Act by paying illegal kickbacks to mortgage lenders in exchange for referrals of private mortgage insurance business from the lenders. The CFPB alleges that RMIC carried out this kickback scheme “by purchasing captive reinsurance that was essentially worthless but was designed to make a profit for the lenders.”

RMIC has agreed to the following as a part of the proposed settlement:

  • The proposed order prohibits RMIC from entering into any new captive mortgage reinsurance arrangements with affiliates of mortgage lenders, and from obtaining captive reinsurance on any new mortgages, for a period of ten years. As pre-existing reinsurance arrangements come to a close, RMIC will forfeit any right to the funds not directly related to collecting on reinsurance claims. The proposed order will also prohibit RMIC from paying illegal kickbacks or otherwise violating the Real Estate Settlement Procedures Act.
  • RMIC will be subject to monitoring by the CFPB and required to make reports to the CFPB in order to ensure its compliance with the provisions of the order.
  • $100,000 in civil money penalties.

This action follows four similar actions announced by the CFPB earlier this year.4

CFPB Holds Auto Finance Forum

On November 14th, the CFPB held a forum at its offices in Washington, D.C., addressing fair lending issues in the indirect auto finance market. The forum included remarks by CFPB staff and other federal regulators, consumer advocates, and industry representatives. A majority of the discussion focused on possible alternatives to the current financing model in which auto dealers mark up the buy rate they receive from lenders. Since issuing its Bulletin 2013-025 on the issue in March, members of the auto industry have expressed concern that the CFPB will force the industry into a non-discretionary “alternative compensation mechanism,” such as one involving flat fees per loan, compensation based on a percentage of the amount financed, or some variation of the two.