CFPB & Congress

  • CFPB Reform: On February 27th, the House of Representatives passed H.R. 3193, which is now named “Consumer Financial Freedom and Washington Accountability Act.” The bill is a combination of five bills:
    • H.R. 2446, “Responsible Consumer Financial Protection Regulations Act” (Bachus, R-AL), which would replace the CFPB direction with a five-member commission appointed by the President and confirmed by the Senate;]
    • H.R. 2385, “CFPB Pay Fairness Act” (Duffy, R-WI), which would reclassify CFPB employees under the federal General Schedule;
    • H.R. 2571, “Consumer Right to Financial Privacy Act” (Duffy, R-WI), which would require the CFPB to obtain permission from consumers before collecting consumer personal information;
    • H.R. 3193, “Consumer Financial Protection Safety and Soundness Improvement Act” (Duffy, R-WI), which would strengthen the oversight authority of the Financial Stability Oversight Council (FSOC) in overseeing CFPB rulemakings; and
    • H.R. 3519, “The CFPB Accountability and Transparency Act” (Neugebauer, R-TX), which would subject the CFPB’s budget to the Congressional appropriations process.

The Senate is not expected to consider the bill and the White House has threatened to veto similar legislation.

CFPB  Enforcement

  • Student Loans: On February 26th, the CFPB filed a lawsuit against ITT Educational Services, a for-profit education provider, alleging that the organization engaged in predatory student lending by pushing students into high-cost private student loans that were very likely in the end to default.  CFPB Director Richard Cordray stated, “We are taking our first public enforcement action against a for-profit college” and that, “the agency intends to take further action against other for-profit colleges.”  In addition, the CFPB alleged that ITT:
    • Misled students with false promises of future employment practices upon graduation;
    • Rushed borrowers through financial aid applications without disclosing loan obligations; and
    • Was aware that most of its students would not be able to pay back its private student loans, projecting a default rate of 64%.

The CFPB is seeking restitution for victims, a civil fine, and an injunction against the company.  Director Cordray also mentioned that the CFPB intends to take further action against other for-profit colleges. In response, ITT criticized the CFPB for extending its jurisdiction into matters that are “well beyond consumer finance.”

  • RESPA: On February 24th, the CFPB ordered 1st Alliance Lending, LLC, a mortgage lender,  to pay an $83,000 civil money penalty for self-reported violations of RESPA by splitting real estate settlement fees in violation of the Real Estate Settlement Procedures Act (RESPA). In January 2013, 1st Alliance reported to the CFPB that it had been splitting fees connected with mortgage closings with affiliates of an undisclosed hedge fund, even after the affiliates had stopped financing 1st Alliance’s loans.  Director Cordray stated, “These types of illegal payments can harm consumers by driving up the costs of mortgage settlements. We will, however, also continue to take into account the self-reporting and cooperation of companies in determining how to resolve such matters.”

CFPB Supervision

  • Loan Servicing: On February 25th, Discover Financial Services revealed in its 10-K filing with the U.S. Securities and Exchange Commission (SEC) that the CFPB had demanded that Discover turn over documents and information regarding certain Discover Bank student loan-servicing practices.  Discover stated that it has committed “significant” resources to enhancing its compliance programs, but that changes in regulatory expectations, interpretations, or practices could increase the risk of enforcement actions, fines, penalties, and customer restitution.
  • Rulemaking: On February 27th, the House of Representatives passed H.R. 2804, the “All Economic Regulations are Transparent (ALERT) Act,” which would impose public disclosure requirements on each federal agency’s rulemaking process.  Specifically, the bill would require each agency to report, on a monthly basis, detailed information on rules the agency intends to propose or finalize in the following year.  The bill would prevent rules from taking effect without proper notice.  Finally, the bill would require each agency to list in its monthly report:
    • A summary of each rule;
    • The objectives of and legal basis for the rule;
    • The stage of the rulemaking process at the time of submission; and
    • Whether the rule is subject to periodic review because of its economic impact.

Rep. George Holding (R-NC) introduced the bill on July 24th, having criticized the WhiteHouse, which is required to publish the Unified Agenda of Federal Regulatory and Regulatory Actions twice per year, for failing to do so on time, “if at all.”

CFPB Litigation

  • Constitutionality: On February 11th, both state and private appellants filed opening briefs with the D.C. Circuit Court in a case (State National Bank, et al. v. Lew, et al, No. 1:12-cv- 001032) that, among other things, challenges the CFPB’s constitutionality. The briefs name as defendants a number of federal financial regulatory agencies, including the CFPB, Cordray, and Jacob Lew, both as Treasury Secretary and as ex officio Chairman of the Financial Stability Oversight Council (FSOC), which oversees the CFPB’s rulemaking. In the original complaint filed in August 2013, the plaintiffs challenged the constitutionality of CFPB Director Richard Cordray’s recess appointment and also alleged that the CFPB’s structure and authority violated the Constitution’s doctrine of separation of powers.

CFPB Outreach

  • Attorneys General: On February 26th, Director Cordray spoke at the National Association of Attorneys General, urging state Attorneys General (AG) to coordinate their consumer complaint functions with the CFPB’s.  Cordray explained that California, Virginia, Oregon, and Texas AGs have already partnered with the CFPB to receive complaint information through a secure government portal in order to understand what their constituents are saying about the problems they face in the consumer financial marketplace.  Cordray also indicated that the CFPB is interested in receiving input from state AGs in connection with its advance notice of proposed rulemaking regarding debt collection.  He noted that the experience and perspective of AGs play a large role in informing these initiatives.
  • Consumer Complaints: On February 20th, the CFPB published a blog post announcing that it had received its 300,000th  complaint since it began accepting complaints in July 2011. The CFPB explained in its post that it accepts complaints about a range of consumer financial products and services having to do with debt collection, credit reporting, payday loans, student loans, money transfers, mortgages, and bank accounts and services, and described how to submit complaints.
  • Consumer Savings: On February 25th, the CFPB published a blog post entitled, “Set a Goal, Make a Plan, and Save Automatically,” which explained how to use the CFPB’s “My New Money Goal” financial planning worksheet to set goals and make plans. The blog outlined three courses of action:
    • See where you are and set your goal;
    • Put it into action; and
    • Make it automatic.
  • Credit Scores: On February 27th, the CFPB released a report which called on the nation’s top credit card companies to make credit scores and related content available to their consumer customers for free.  The report found that accuracy issues in credit reporting were the most common credit reporting complaints the CFPB received from consumers. One way to fix this, according to Director Cordray, is to, Make consumers’ credit scores freely available on their monthly statement or online, which makes it easier for them to spot problems with their credit report.”
  • Financial Literacy and Education Commission: On February 25th, the CFPB held a field hearing with a Financial Literacy and Education Commission and the Departments of Labor and Treasury on workplace financial education in Atlanta (GA) in order to, “get public  input on promising practices for delivering financial education in the workplace.”  Director Cordray delivered opening remarks, followed by panel discussions with academic and business experts regarding improving employee’s financial capacity through workplace financial education.  In his remarks, Cordray stated, “We can insist that from this day forward, both the public sector and the private sector in the United States will commit themselves to the concept that American citizens need to be fully capable of economicself-governance.”
  • Lending Products: On February 26th, in a Q&A with state AGs, Director Cordray stated that issues relating to payday and title loans and other small-dollar lending products would be“very much on the [CFPB’s] plate” in 2014.  Cordray also stated that the scrutiny of such products, “could easily be expanded to things like pawnbroking and overdrafts.”

CFPB Operations

  • Advisory Board: On February 26th, the CFPB announced that the deadline for applying to its Credit Union Advisory Council (CUAC) and Community Bank Advisory Council (CBAC) has been extended by two weeks, and is now March 14, 2014.