In an important development in the federal court lawsuit by industry groups seeking to overturn the CFPB’s arbitration rule, the plaintiffs yesterday filed a motion for a preliminary injunction. The motion requests entry of an order “that (1) enjoins the 180-day implementation period, which commenced on the date the Rule became effective, so that—if the Rule ultimately is upheld—plaintiffs’ members will have the full 180-day implementation period established by the Rule to come into compliance; and (2) prohibits defendants from implementing or enforcing the Arbitration Rule pending the completion of judicial review.” The motion and supporting memorandum of law are available here.
The Conference of State Bank Supervisors has released a list of 33 companies that will serve as members of its Fintech Industry Advisory Panel.
According to the CSBS, the Advisory Panel’s purpose is “to support state regulators’ increased efforts to engage with financial services companies involved in fintech.” More specifically, over the next twelve months, Advisory Panel members will participate in at least two in-person meetings with members of the CSBS Emerging Payments and Innovation Task Force and other state banking commissioners “to identify actionable steps for improving state licensing, regulation, and non-depository supervision and for supporting innovation in financial services.” The Task Force consists of regulators from ten states, including the Superintendent of the New York Department of Financial Services.
The CSBS and the NY DFS have filed separate lawsuits challenging the OCC’s authority to grant special purpose national bank charters to nondepository fintech companies. The OCC has filed motions to dismiss both lawsuits.
The CFPB has released the sixth annual report of the CFPB Student Loan Ombudsman containing an analysis of approximately 12,900 federal student loan complaints, 7,700 private student loan complaints, and 2,300 debt collection complaints related to private or federal student loans handled by the CFPB between September 1, 2016 and August 31, 2017. The CFPB began taking complaints about federal student loans in February 2016. (The number of complaints handled by the CFPB continues to represent an exceedingly low complaint rate given the millions of federal and private student loans outstanding.) The report also provides examples of how consumer complaints have resulted in beneficial changes for borrowers and makes recommendations to policymakers and market participants.
In the section of the report analyzing complaint data, the CFPB highlights various issues raised by consumers, including the following:
- Federal student loans. The CFPB states that consumers submitted complaints “against over 150 companies covering nearly every aspect of the student loan repayment cycle.” Among the issues raised by consumers deemed “most significant” by the CFPB are: problems accessing federal student loan protections such as income-driven repayment (IDR) plans, including obstacles encountered when seeking to enroll in an IDR plan or attempting to recertify an IDR plan, and servicing-related problems experienced by “vulnerable” borrowers, such as disabled borrowers receiving Social Security disability payments and military borrowers.
- Private student loans. The CFPB discusses complaints involving limited options for payment relief during periods of financial hardship; difficulties accessing advertised loan benefits and protections such as interest rate reductions for on-time payments; inadequate information about cosigner release qualification; and the failure of servicers to allocate payments according to borrower instructions.
- Debt collection. The CFPB discusses complaints involving aggressive or hostile debt collector tactics and debt collector practices that delay the borrower’s ability to start a rehabilitation program and cure a default.
In the “Ombudsman’s discussion” section of the report, the CFPB touts its “efficient and thoughtful approach to handling consumer complaints” and observes that the functionality of its complaint system “is unmatched by any other federal or state agency complaint system.” The discussion focuses on three examples of how “individual consumer complaints led to increased scrutiny by a regulator or law enforcement agency with the authority, tools, and will to take action on behalf of borrowers, after these complaints were highlighted by the CFPB Student Loan Ombudsman.”
The three examples consist of:
- Military servicemember borrower complaints regarding SCRA benefits that resulted in enforcement actions by the DOJ and FDIC and the implementation of an automated process by the Department of Education (ED) for identifying borrowers eligible for SCRA interest rate reductions.
- Federal student loan borrower complaints about servicing practices related to the process of applying for and enrolling in IDR plans that resulted in the Ombudsman’s August 2016 report on challenges encountered by borrowers in pursuing rights to affordable payments under the Higher Education Act; CFPB examiners citing student loan servicers for unlawful practices in connection with IDR plan applications; and the ED’s strengthening of its contractual requirements relating to IDR plan applications for servicers handling federal student loans for the federal government.
- Private student loan borrower complaints about “auto-defaults” resulting in the Ombudsman’s highlighting problems relating to auto-defaults in its 2014 annual report; CFPB examiners citing student loan servicers for unlawful practices in connection with auto-defaults; and changes by industry participants relating to auto-defaults such as the removal or modification of contract provisions that could be interpreted to permit auto-defaults.
The report includes a recommendation for the adoption of “industrywide standards to strengthen servicing practices, coupled with robust oversight across federal and state agencies” as a way to “help shape a student loan repayment process that meets borrowers’ needs by ensuring that borrowers are treated fairly, that they can access the benefits and protections guaranteed under law or contract, and that they can successfully satisfy their student debt.”
The CFPB has released a set of “Consumer Protection Principles” for participants “in the developing market for services based on the consumer-authorized use of financial data.” According to the CFPB, the principles “do not themselves establish binding requirements or obligations relevant to the Bureau’s exercise of its rulemaking, supervisory, or enforcement authority” and “are not intended as a statement of the Bureau’s future enforcement or supervisory priorities.” Rather, the CFPB describes the principles as “express[ing] the Bureau’s vision for realizing a robust, safe, and workable data aggregation market that gives consumers protection, usefulness, and value” and are intended “to help safeguard consumer interests as the consumer-authorized aggregation services market develops.”
In November 2016, the CFPB issued a request for information about market practices related to consumer access to financial information. The RFI contained a series of questions about current market practice related to “consumer-permissioned access,” a term used by the CFPB to refer to consumer access to consumer financial account and account-related information, whether directly or through a third-party acting with the consumer’s permission. According to the CFPB, the principles were informed by the 72 comments it received in response to the RFI as well as other stakeholder feedback. In addition to the principles, the CFPB also released a separate document containing a discussion of “insights gained from that feedback.”
The principles address the following nine topics:
- Access. Consumers should be “able, upon request, to obtain information about their ownership or use of a financial product or service from their product or service provider” and to be “generally able to authorize trusted third parties to obtain such information from account providers to use on behalf of consumers, for consumer benefit, and in a safe manner.”
- Data Scope and Usability. The financial data subject to consumer and consumer-authorized access should include “any transaction, series of transactions, or other aspect of consumer usage; the terms of any account, such as a fee schedule; realized consumer costs, such as fees or interest paid; and realized consumer benefits, such as interest earned or rewards.”
- Control and Informed Consent. The authorized terms of access, storage, use, and disposal should be “fully and effectively disclosed to the consumer, understood by the consumer, not overly broad, and consistent with the consumer’s reasonable expectations in light of the product(s) or service(s) selected by the consumer” and for consumers to be able to “readily and simply revoke authorizations to access, use, or store data.”
- Authorizing Payments. Providers that access information and initiate payments should be able to reasonably require consumers to provide separate and distinct authorizations for these activities.
- Security. “All parties that access, store, transmit, or dispose of data use strong protections and effective processes to mitigate the risks of, detect, [should] promptly respond to, and resolve and remedy data breaches, transmission errors, unauthorized access, and fraud, and transmit data only to third parties that also have such protections and processes.”
- Access Transparency. Consumers should be informed of or able to readily ascertain the “identity and security of each [third party the consumer has authorized to access or use the consumer’s account information], the data they access, their use of such data, and the frequency at which they access the data is reasonably ascertainable to the consumer throughout the period that the data are accessed, used, or stored.”
- Accuracy. Consumers should have “reasonable means to dispute and resolve data inaccuracies, regardless of how or where inaccuracies arise.”
- Ability to Dispute and Resolve Unauthorized Access. Consumers should have “reasonable and practical means to dispute and resolve instances of unauthorized access and data sharing, unauthorized payments conducted in connection with or as a result of either authorized or unauthorized data sharing access, and failures to comply with other obligations, including the terms of consumer authorizations.” Consumers should not be “required to identify the party or parties who gained or enabled unauthorized access to receive appropriate remediation.”
- Efficient and Effective Accountability Mechanisms. Commercial participants should be “accountable for the risks, harms, and costs they introduce to consumers” and “likewise incentivized and empowered effectively to prevent, detect, and resolve unauthorized access and data sharing, unauthorized payments conducted in connection with or as a result of either authorized or unauthorized data sharing access, data inaccuracies, insecurity of data, and failures to comply with other obligations, including the terms of consumer authorizations.”
The CFPB’s discussion of the RFI comments and other feedback it received includes a description of the varying views expressed by stakeholders regarding the CFPB’s role in the aggregation services market. In the RFI, the CFPB cited to Section 1033 of the Dodd-Frank Act when describing the regulatory framework applicable to consumer-permissioned access to account information. Section 1033 requires that “[s]ubject to rules prescribed by the Bureau, a covered person shall make available to a consumer, upon request, information in the control or possession of such person concerning the consumer financial product or service that the consumer obtained from such covered person, including information related to any transaction, or series of transactions, to the account including costs, charges, and usage data.”
The CFPB states that a number of stakeholders, primarily account data holders, questioned Section 1033’s applicability to consumer-authorized data access, as opposed to consumer’s direct access, and encouraged the CFPB not to engage in Section 1033 rulemaking. The American Bankers Association, which submitted a comment letter in response to the RFI, was among the stakeholders expressing those views. Rather than using Section 1033, the ABA suggested that the CFPB should use other existing regulatory authority to address any regulatory gaps, such as by clarifying that data aggregators providing electronic fund transfer services are “service providers” under the EFTA and are liable for unauthorized electronic fund transfers. The CFPB noted that, because there was disagreement among stakeholders as to “how the relevant EFTA and Regulation E provisions apply to consumers when they are using aggregation services,” it had been urged to provide clarification.
The ABA had also commented that the CFPB should subject data aggregators to CFPB supervision by adopting a rule to define “larger participants in the market for consumer financial data.” In its discussion, the CFPB states that, in addition to account data holders, consumer advocates urged the CFPB to take steps to expand its supervisory authority to include aggregators and account data users.
The CFPB expressed a desire to continue its engagement with stakeholders to help it determine the best approach for ensuring appropriate consumer protections for users of aggregation services. Market participants and other stakeholders that want to engage with the CFPB on these issues may do so by sending an email to firstname.lastname@example.org.
The CFPB has published a notice in the Federal Register announcing that a meeting of its Consumer Advisory Board will be held in Tampa, Florida on November 2, 2017.
The notice states that the Board will discuss “Know Before You Owe: Reverse Mortgages, financial well-being, trends and themes, and payday, vehicle title, and certain high-cost installment loans.” Presumably, the loan discussion will focus on the CFPB’s final payday loan rule.
We note that the announcement of the event posted on the CFPB’s website indicates that Director Cordray will participate in the meeting.
In August 2017, we reported that the CFPB had given the mortgage industry a first look at the Internet-based platform it is developing for industry members to use to submit data under the Home Mortgage Disclosure Act (HMDA).
The CFPB recently provided an update on the status of the HMDA portal. The CFPB advised that it is demonstrating to the industry the platform’s functionality and user experience through webinars, industry conferences, and in-person user testing sessions. The CFPB noted that a video version of its demonstration of the platform will be made available soon and that the platform will be made available to the industry in the Fall of 2017. The industry must submit 2017 HMDA data to the CFPB through the portal by March 1, 2018.
The CFPB recently posted on its website updated versions of guidance in connection with the revisions to the Home Mortgage Disclosure Act (HMDA) rules that become effective on January 1, 2018, and also posted a new guidance item.
The CFPB updated the chart entitled Collection and Reporting of HMDA Information about Ethnicity and Race, and updated the Filing instructions guide for information collected in and after 2018.
In August 2017, the CFPB issued various technical changes to the revised HMDA rule. The revised materials incorporate changes made in the August amendments.
The CFPB also added a new chart entitled Reportable HMDA Data: A Regulatory and Reporting Overview Reference Chart. The new chart is a reference tool for data points required to be collected and reported under the revised HMDA rule, as amended by the August 2017 amendments
The federal banking agencies have issued guidance to financial institutions on the key data fields under the revised Home Mortgage Disclosure Act (HMDA) rules that will be used to test and validate the accuracy and reliability of the HMDA data.
In October 2015, the CFPB adopted significant changes to the HMDA rules that significantly expanded the amount of information that must be collected and reported. The changes are effective January 1, 2018.
The guidance issued by the federal banking agencies lists 110 data fields under the revised HMDA rules, and identifies 37 of such fields as Designated Key HMDA Data Fields. Among the new reporting data fields that the agencies identify as key fields are the applicant’s age and credit score, the origination charges, discount points, lender credits, interest rate, debt-to-income ratio, combined loan-to-value ratio, and the automated underwriting system result.
Despite the identification of certain data fields as key fields for examination purposes, examiners nevertheless may determine that additional HMDA data fields need to be examined.
Since last summer, Acting U.S. Comptroller of the Currency Keith A. Noreika and CFPB Director Richard Cordray have exchanged polar-opposite views on whether the CFPB’s final arbitration rule should be repealed. Both are seeking to persuade Senators who may still be undecided as the deadline for Congressional Review Act action draws closer.
The debate began in July, when, as we reported, Acting Comptroller Noreika and Director Cordray exchanged a series of letters in which Mr. Noreika raised OCC concerns about the arbitration rule’s impact on the safety and soundness of the U.S. banking system. Then, in late September, as we also reported, the OCC issued a report that contradicted key conclusions of the CFPB that supposedly supported the rule. The CFPB did not find any statistically significant evidence of increases in the cost of consumer credit associated with banning arbitration clauses in credit card contracts. However, the OCC, reviewing the same data, found “a strong probability of a significant increase in the cost of credit cards as a result of eliminating mandatory arbitration clauses.” In particular, it found that there could be as high as a three-and-a-half percent annual percentage rate increase for consumers who would be affected by the rule, which translates to a 25 percent increase in credit costs. In addition, the OCC stated that additional research would be required “to explore the potential effect on consumer payments, their ability to pay the higher cost and the potential for an increase in delinquencies, or changes in the availability of certain financial products intended to meet the financial needs of consumers.”
The Noreika-Cordray dispute has now escalated in the last few days. In a recent op-ed in The Hill, Acting Comptroller Noreika argued forcefully and persuasively that the Senate should vacate the final arbitration rule because the CFPB has failed to provide data that support the rule and also “failed to disclose the costs to consumers that will likely result from the rule’s implementation. Consumers deserve better, and so do small and regional banks.” On the same day, Cordray fired back, releasing a letter he had written to Senator Sherrod Brown that was highly critical of the OCC’s report and also argued that the rule does not threaten the safety and soundness of banks. Attached to the letter was a 7-page memo from the CFPB’s Office of Research concluding that the OCC report rested on “incorrect statistical inference and a failure to correctly consider the full body of evidence.” Yesterday, Director Cordray followed up with his own op-ed in The Hill calling the OCC’s data analysis “embarrassing” and characterizing Acting Comptroller Noreika’s safety and soundness concerns as “farfetched.” Referring to a federal court lawsuit recently filed by industry groups to overturn the rule, Director Cordray concludes his article by stating, “The fight thus will now be decided in the courts and need not be decided in the Senate.”
If this were a prize fight (in Philadelphia we like the Rocky analogy), the championship belt should go to Acting Comptroller Noreika. We are not professional statisticians, but to us it is just plain common sense that when 53,000 companies are expected to incur between $2.6 and $5.2 billion dollars in addition costs to handle 6,042 additional class actions spawned by the elimination of arbitration in the next five years and every five years thereafter — as the CFPB’s data clearly shows, consumers will pay more. That simple truth is obscured by the CFPB’s research report, which tries to justify its attacks on the OCC by referring to “noisy” data and “p values.”
And that is what the Senate needs to keep in mind as the deadline for the CRA vote approaches: consumers will pay more unless the CFPB arbitration rule is repealed. Contrary to Director Cordray’s remarks, the Senate vote is critical because tens of thousands of American businesses need clear and definitive guidance now on whether they need to prepare to be crushed by billions of dollars in defense costs that will go almost entirely to pay the fees of class action lawyers — while the average putative class member recovers an average of $32 if they are “lucky” enough to be in the 13% of class actions that returns anything to consumers. Acting Comptroller Noreika delivered the knockout punch when he concluded in his op-ed: “Instead of mandating only one way to resolve disputes, consumers and banks should continue to have the option to resolve contractual differences in the same manner they do today … Consumers know for themselves what their best options are, and their regulators need to know that too.”
Last week, the CFPB filed a lawsuit in Maryland federal court against two commonly-owned debt relief companies, their affiliated payment processor, and three individual principals for alleged violations of the Telemarketing Sales Rule and the Consumer Financial Protection Act.
According to the CFPB’s complaint, the defendants’ alleged unlawful conduct included the following:
- Violating the TSR and CFPA by falsely telling consumers that the companies’ debt relief services were approved by the FTC and that the companies were authorized to “review, consult, and prepare consumer protection documents” on the consumer’s behalf. In addition, the companies used direct mailers displaying a seal that “shared several similarities with the Great Seal of the United States,” thereby creating a false net impression that they were affiliated with the federal government.
- Violating the TSR by charging advance fees before performing any work or in excess of the amount permitted by TSR and by failing to make required disclosures.
- Violating the TSR and CFPA by deceptively marketing the companies’ debt relief programs, such as by falsely claiming that the programs would eliminate debt that the companies deemed invalid and increase consumers’ credit scores.