The CFPB has issued its Consumer Response Annual Report that provides an analysis of the approximately 320,200 complaints received by the CFPB between January 1 and December 31, 2017.  (In 2016, the CFPB received approximately 291,400 complaints.)

The report provides data on the most common types of complaints for each product and the handling of complaints.  Unlike prior annual reports, however, the new report contains no information on the median amount of monetary relief paid for different complaint types by companies that reported such amounts. (Companies have the option to report an amount of monetary relief.)

Of the 320,200 complaints received in 2017, approximately 81% were received through the CFPB’s website, 5% via telephone calls, 8% via referrals from other agencies and regulators, and the balance via mail, e-mail and fax.  Based on the CFPB’s breakdown of the number of complaints received in each category, credit reporting (100,000), debt collection (84,500), and mortgages (37,300) accounted for 69% of all 2017 complaints.

For credit reporting complaints, 55% involved incorrect information on credit reports and 20% involved the credit reporting company’s investigation.

39% of debt collection complaints involved continued attempts to collect debts not owed, 22% involved debt validation (such as not receiving enough information to verify the debt), 13% involved communication tactics, 11% involved taking or threatening illegal action, 10% involved false statements or representations, and 4% involved improper contact or sharing of information.

For mortgage complaints, 41% involved making payments (such as issues involving servicing, posting of payments, and escrow accounts), 37% involved problems relating to inability to pay (such as issues involving loan modifications, collections, or foreclosures), and 12% involved applying for a loan or refinancing an existing mortgage.

We recently blogged that the CFPB has apparently decided to put its monthly complaint reports on hold, having issued its last monthly complaint report in October 2017.


Alabama officially joined the data breach notification party last month when the state’s governor signed a data breach notification law that will take effect on June 1, 2018.  Although Alabama was the last state in the country to enact such a law, its new law will immediately take its place among the most stringent in the nation.

For a summary of the law’s provisions, see our legal alert.


The New Jersey Attorney General recently announced that the state’s governor will nominate Paul R. Rodriguez to serve as the Director of the New Jersey Division of Consumer Affairs, the state’s lead agency charged with protecting consumers’ rights, regulating the securities industry, and overseeing 47 professional boards.

According to the AG’s press release, Mr. Rodriguez’s selection is intended “to fill the void left by the Trump Administration’s pullback of the [CFPB]” and fulfills the promise of the state’s governor “to create a ‘state-level CFPB’  in New Jersey.”  Mr. Rodriguez will begin serving as Acting Director of the Division of Consumer Affairs on June 1, pending his approval as Director by the New Jersey Senate.

The New Jersey announcement is consistent with announcements by other state AGs that they intend to fill any vacuum created by a less aggressive CFPB under the Trump Administration.

Mr. Rodriguez currently serves as Acting Counsel to New York City Mayor Bill de Blasio.  Before joining the de Blasio administration, Mr. Rodriguez was an associate with a major New York City-based law firm where he worked in a variety of areas.

On May 7, 2018, in Arlington, Virginia, the FDIC will host a forum, “Use of Technology in the Business of Banking.”  Registration is required to attend.  The forum will also be webcast live and recorded for on-demand access after the event.

The FDIC’s notice states that panels at the forum  “will focus on emerging technologies that are transforming banking operations, the impact of emerging technologies on retail banking, including new and innovative delivery channels, enhanced customer experiences, economic inclusion; and consumer financial data access—balancing rights and security.”

It further states that the forum “will bring together representatives from banks that use or are considering using emerging technologies, representatives from firms offering emerging technologies, representatives from bank trade associations, thought leaders on the use of technology in the business of banking, leaders of consumer and community organizations, and representatives from federal and state financial regulatory agencies.”

Following a remand from the D.C. federal district court, Department of Education (ED) Secretary Betsy DeVos has issued an order restoring the Accrediting Council for Independent Colleges and Schools’ (ACICS) status as a federally recognized accrediting agency.

ACICS accredits for-profit colleges, whose access to federal student loan funds is contingent on becoming, and remaining, accredited by a “nationally recognized accrediting agency,” as determined by ED. Although not the sole basis for his decision, Secretary DeVos’ predecessor, John B. King, had revoked ACICS’ recognition in 2016 after concluding, with reference to schools such as Corinthian and ITT Educational Services, that ACICS lacked sufficient mechanisms to monitor the results of state and federal agency enforcement actions brought against schools and to deny accreditation to those schools found to have been engaged in fraudulent conduct or to have otherwise violated applicable law.

Secretary DeVos’ recent order means that ACICS’ status as a federally recognized accrediting agency is restored effective December 12, 2016 (the date Secretary King terminated ACICS’ recognition) and that ED will conduct a further review of ACICS’ petition for recognition. ACICS-accredited institutions now may have to decide whether to wait for the outcome of ED’s review or continue pursuing their in-process applications with other accreditors.

The review of ACICS’s 2016 petition will include consideration of material that the D.C. federal district court concluded had been improperly omitted during the 2016 proceeding as well as additional, related material ACICS wishes to submit. According to U.S. District Judge Reggie B. Walton’s March 23 opinion, ED had violated the Administrative Procedure Act in 2016 by failing to consider during ACICS’ recognition proceeding: (1) supplemental information, submitted by ACICS at ED’s request, largely concerning ACICS’ standards for “problem schools,” and (2) evidence of ACICS’ placement verification and data integrity programs and procedures.

After ED had terminated ACICS’ recognition in 2016, it directed ACICS-accredited institutions to find a new accrediting agency by June 12, 2018. Under the terms of Provisional Program Participation Agreements they signed with ED, ACICS-accredited institutions were required to submit an application to a new accrediting agency by June 12, 2017 and host a site visit by the new agency by February 28, 2018. ED was authorized to: (1) terminate federal student aid funding for new students if an institution failed to meet either deadline and (2) require a letter of credit or other financial guarantee (equal to at least 10% of the institution’s Title IV volume from the prior completed award year) if an institution failed to meet the second deadline or obtain an extension.

Judge Walton’s March 23rd ruling is another significant win for ACICS, which one year ago convinced the D.C. Circuit to affirm the federal district court’s denial of the CFPB’s petition to enforce a Civil Investigative Demand (CID) issued to ACICS. In that opinion, the D.C. Circuit concluded the CID failed to adequately describe the nature of the unlawful conduct under investigation. It did not reach the broader question of whether the CFPB had jurisdiction to investigate the accreditation process based on the possible connection to ACICS-accredited schools’ lending practices.

Arizona’s Governor recently signed into law legislation that directs the state’s Attorney General to establish a “regulatory sandbox program” for the purpose of “enabl[ing] a person to obtain limited access to the market in this state to test innovative financial products or services without obtaining a license or other authorization that would otherwise apply.”  Businesses that are already licensed “under state laws that regulate a financial product or service” can also participate in the program.

On Tuesday, April 10, 2018, I will moderate a panel at the LendIt Fintech conference during which the Arizona program will be discussed with Arizona Representative Jeff Weninger, who wrote the sandbox legislation, joined by former OCC Comptroller Thomas Curry and Cross River Bank CEO Gilles Gade.

Also, on June 13, 2018, Ballard Spahr will hold a webinar, “Playing in the Regulatory Sandbox: What It Means for Fintech Companies,” featuring Paul Watkins of the Arizona Attorney General’s office, together with Funding Circle General Counsel Conor French and Brian Knight of the Mercatus Center at George Washington University.  Click here to register.

Key definitions in the Arizona law include:

  • An “innovative financial product or service” means “a financial product or service that includes an innovation.”
  • “Financial product or service” means a “product or service that requires licensure under [specified Arizona laws] or a product or service that includes a business model, delivery mechanism or element that may otherwise require a license or other authorization to act as a financial institution or enterprise or other entity that is regulated by [specified Arizona laws].”
  • “Innovation” means “the use or incorporation of new or emerging technology or the reimagination of uses for existing technology to address a problem, provide a benefit or otherwise offer a product, service, business model, or delivery mechanism that is not known by the attorney general to have a comparable widespread offering in this state.”

Applicants for the program must provide specified information that includes the benefits and risks to consumers using the innovative financial product or service and must satisfy certain conditions, including that the applicant “has established a location, whether physical or virtual, that is adequately accessible to the attorney general, from which testing will be developed and performed and where all required records, documents and data will be maintained.”

If an applicant is approved for the program, the “sandbox participant” will have 24 months to test its innovative financial product or service.  Requirements and limitations that apply to approved participants include the following:

  • Participants generally may not enter into transactions with more than 10,000 consumers and participants testing consumer loans (as defined under specified Arizona law) may issue individual loans for an amount up to $15,000 but not issue more than $50,000 in aggregate loans per consumer.
  • Participants testing products or services as a money transmitter (as defined under specified Arizona law) may enter into a transaction with a consumer in an amount up to $500 but may not enter in more than $2500 in aggregate transactions per consumer
  • If a participant demonstrates adequate capitalization, risk management process and management oversight, the Attorney General can allow the participant to enter into transactions with up to 17,500 consumers and, if the participant is also testing products or services as a money transmitter, the Attorney General can allow the participant to enter into a transaction with a consumer in an amount up to $15,000 and up to $50,000 in aggregate transactions per consumer
  • Participants must comply with specified provisions of Arizona law, including consumer fraud provisions, and any additional state law requirements applicable to a financial product or service as determined by the Attorney General
  • Before providing an innovative financial product or service to a consumer, a participant must provide specified disclosures to the consumer and any additional disclosures required by the Attorney General

Participants are not exempt from compliance with federal law, including the enumerated federal consumer financial services laws as defined in the Consumer Financial Protection Act and the CFPA’s UDAAP prohibition.  However, the Arizona law provides that a participant “is deemed to possess an appropriate license under the laws of this state for purposes of any provision of federal law requiring state licensure or authorization.”  Also, while the program only covers transactions with consumers who are Arizona residents, the law authorizes the Arizona Attorney General to “enter into agreements with state, federal or foreign regulators that allow sandbox participants to operate in other jurisdictions and allow entities authorized to operate in other jurisdictions to be recognized as sandbox participants in this state.”




In addition to his scheduled appearance before the House Financial Services Committee this Wednesday, April 11, CFPB Acting Director Mick Mulvaney is scheduled to appear before the Senate Banking Committee this Thursday, April 12.

The hearings can be viewed on the Committees’ websites.  The official subject of both hearings is the CFPB’s recently-issued semi-annual report but Mr. Mulvaney is likely to be questioned about a wider range of issues and to engage in some sparring with Democratic members of the Committees.

On March 28, the Department of Justice (DOJ) brought another lawsuit against an auto finance company alleging the company violated the Servicemembers Civil Relief Act (SCRA) by repossessing vehicles owned by servicemembers without obtaining necessary court orders.

The case, brought against California Auto Finance, was preceded by an investigation that DOJ launched after receiving a single complaint from a servicemember. According to DOJ, the servicemember whose car was repossessed complained that the company had no process to determine customers’ military status.

Notably, the lawsuit filed in federal court does not allege other specific instances of improper repossession beyond the one alleged by the individual servicemember who complained. Rather, DOJ argues that because the company “had, and still has, no policies or practices in place to verify the military status of borrowers before repossessing their vehicles,” the company “may have repossessed motor vehicles, without court orders, from other servicemembers who had made a deposit or installment payment to [California Auto Finance] prior to entering military service and were in military service at the time of the repossession.” Per the complaint, this amounts to “a pattern or practice of violating Section3952(a)(1) of the SCRA, 50 U.S.C. § 3952(a)(1).”

Allegations that a defendant failed to perform an SCRA scrub have become a recurring feature of DOJ complaints in this area, although it’s worth noting that the statute itself does not require checking the Department of Defense’s Defense Manpower Data Center database to verify military status, as opposed to using other methods to determine whether a borrower might be a servicemember. Rather, this apparent requirement has evolved over the course of various consent orders.

DOJ is seeking monetary damages, civil monetary penalties, and injunctive relief to “prevent future repossession that violate the SCRA.”

This suit follows several others filed by DOJ in the past year claiming SCRA violations related to vehicle repossession and disposition. In February, for example, DOJ settled with the City and County of Honolulu, Hawaii and its general contractor for towing services after alleging  these entities violated the SCRA by auctioning or otherwise disposing of motor vehicles owned by servicemembers that were deemed abandoned without first obtaining court orders. Likewise, in October of last year, DOJ entered into a settlement with Westlake Services LLC over allegations that the company and a subsidiary had repossessed vehicles owned by SCRA-protected servicemembers without obtaining the required court orders. So, while military finance in general continues to be an active area of federal enforcement, repossession and disposition is emerging as a sphere of heightened regulatory risk. Here, DOJ bringing suit in response to a single servicemember complaint and a single alleged instance of wrongful repossession speaks for itself.


A federal district court in Kentucky recently handed the CFPB its second defeat in the agency’s lawsuit against Borders & Borders PLC and the law firm’s principals by denying the CFPB’s motion for reconsideration. Significantly, the court based its decision on grounds that are completely different than the basis for its original decision to grant the defendants’ motion for summary judgment.

As previously reported, the CFPB filed suit against the law firm and its principals in October 2013, claiming that they violated the referral fee prohibition under the Real Estate Settlement Procedures Act (RESPA) in connection with the establishment and operation of joint venture title insurance agencies (Joint Ventures) with the principals of real estate and mortgage brokerage companies. The CFPB asserted that Borders paid kickbacks to the principals of the real estate and mortgage brokerage companies that were disguised as profit distributions from the Joint Ventures, and that the kickbacks were for the referrals by the real estate and mortgage broker companies to Borders of consumers needing loan closing services.

Central to the CFPB’s position was its assertion that the Joint Ventures were not entitled to the affiliated business arrangement safe harbor under RESPA section 8(c)(4), which permits referrals and payments of ownership distributions among affiliated parties if the three statutory conditions of the safe harbor are met. The CFPB claimed that the Joint Ventures were not entitled to the safe harbor because they were not bona fide providers of settlement services within the meaning of RESPA.  Being a bona fide provider of settlement services is not one of the three statutory conditions.  It is a concept developed by the US Department of Housing and Urban Development, which had the responsibility for RESPA before the CFPB.

In its original decision, the court determined that a violation of the RESPA section 8(a) referral fee prohibition was established by the CFPB because the Joint Ventures referred loan closing business to the law firm, and the firm provided a thing of value to the Joint Ventures in connection with the assignment of title work to the companies. However, the court also determined that the three statutory conditions of the affiliated business arrangement safe harbor were met, so there was a safe harbor from the violation.  The court, apparently following the decision of the US Circuit Court of Appeals for the Sixth Circuit in Carter v. Welles-Bowen Realty, Inc., 736 F.3d 722 (6th 2013), refused to impose a bona fide settlement service provider condition on the ability to qualify for the affiliated business arrangement safe harbor.

The CFPB asked for reconsideration in August of 2017. In denying the CFPB’s motion for reconsideration, the court found that there was no underlying violation of the RESPA section 8(a) referral fee prohibition.  The CFPB had alleged that the nominal assignment of title work by the law firm to the Joint Ventures was a thing of value.  According to the CFPB, the law firm did most of the actual title work for the matters nominally assigned to the Joint Ventures.  The court determined that the nominal assignments of title work did not constitute a thing of value based on the following reasoning:

“The court continues to believe that this “nominal assignment” is insufficient to constitute a ‘thing of value’ because consumers were not obligated to follow the suggestion of Borders & Borders. Indeed, consumers had thirty days after the closing to decide whether to use the Title LLC suggested by Borders & Borders, or to use a different title insurance underwriter. If the consumer chose to purchase insurance from another underwriter, the JVP involved with the case received nothing. This potential benefit is insufficient to constitute a ‘thing of value’ because it is entirely conditioned on the third-party consumer’s choice.”

The court also concluded that even if the law firm provided a thing of value to the Joint Ventures when nominally assigning the title work, the safe harbor of RESPA section 8(c)(2) applied. RESPA section 8(c)(2) permits the payment of a bona fide salary or compensation for goods or facilities actually furnished or for services actually performed.  In this part of the opinion, the court discussed the PHH case against the CFPB and found it to be analogous.  In determining that the section 8(c)(2) safe harbor applied, the court reasoned as follows:

“Here, consumers made payments to the Title LLCs, which subsequently distributed profits to the JVPs in accordance with their ownership interest. However, these payments were not made in exchange for referrals, but in exchange for title insurance, which the consumers actually received. These payments are presumed to be bona fide because there is no evidence that the consumers paid above market value for the title insurance.”

In determining that the law firm did not provide a thing of value to the Joint Ventures, it appears that the court focused on the referral of title business itself as the alleged thing of value, and not the related CFPB assertion that the law firm actually performed most of the title work for the Joint Ventures. In determining that, even if there was a thing of value, the section 8(c)(2) safe harbor applied, it appears that the court focused on the title insurance received by consumers for the payment of premiums, and not the CFPB assertion that the Joint Ventures did not actually perform the title work.

While the CFPB can still pursue the case, we will have to wait and see if under the leadership of Acting Director Mulvaney the CFPB elects to continue its challenge to the Joint Venture arrangements.

The U.S. Department of the Treasury has issued a memorandum in which it makes recommendations to modernize the Community Reinvestment Act (CRA).  The memorandum was directed to the primary CRA regulators, consisting of the OCC, the Federal Reserve, and the FDIC.

In preparing the memo, Treasury obtained input from the primary CRA regulators and close to 100 stakeholders representing community and consumer advocates, academics and think tanks, financial institutions, trade associations, and law firms, among others.  The organizations and individuals who provided input to Treasury are listed in Appendix B to the memo.

Treasury began its memo with the observation that regulatory and performance expectations under the CRA have not kept pace with the substantial organizational and technological change experienced by the U.S. banking industry since the CRA’s enactment in 1977.  Treasury believes changes are needed to the CRA’s administration for the CRA to achieve its intended purpose in an environment that now includes interstate banking, mortgage securitization, and internet and mobile banking.  According to Treasury, its memo focuses on “regulatory and administrative changes that are consistent with the original intent of CRA, including common sense reforms that reduce the complexity and burden on banks, regulators, and community advocates.”

Treasury’s recommendations include:

  • Revisiting the approach for determining assessment areas to include not only areas where a bank is physically located, but also low- and moderate-income (LMI) communities outside of the bank’s physical footprint and in areas where the bank accepts deposits and does substantial business.  Treasury believes this framework would allow banks to receive credit for CRA activity within their branch and deposit-taking footprint, and also for investments in other LMI communities and identified areas.
  • Increasing clarity and flexibility in examination procedures, including:
    • Making changes to CRA eligibility determinations to: expand the types of loans, investments, and services eligible for CRA credit; establish clearer standards for eligibility for CRA credit, with greater consistency and predictability across each of the regulators; and simplify record-keeping procedures designed to make eligibility updates more regular and timely
    • In connection with revisiting CRA’s definition of assessment area, considering reforms to the process for establishing a bank’s performance context so as to make such determinations less subjective and more consistent
    • Establishing clear criteria for grading CRA loans, investments, and services so as to use less subjective evaluation techniques and make the actual “measurement” of CRA activity, like other regulatory standards, reportable in a clear and transparent manner
    • Establishing a modernized, forward-looking approach to the Service Test used in CRA examinations of large banks to recognize the reduced relevance of physical branches due to the ongoing adoption of alternative delivery channels
  • Improving the examination process, including:
    • Standardizing CRA examination schedules
    • Making changes concerning downgrades for violations of consumer protection laws, such as:
    • Adopting uniform guidance that considers whether there is a logical nexus between a bank’s CRA rating and evidence of discriminatory or illegal practices in the bank’s CRA lending activities while also giving consideration to the bank’s remediation efforts
    • Not delaying CRA performance evaluations due to pending consumer protection law investigations or enforcement actions
    • Having the FDIC and Federal Reserve adopt policies and procedures that are generally aligned with changes adopted by the OCC in November 2017 for evaluating various applications by banks with less than satisfactory CRA ratings
    • Clarifying that a community benefit plan is just one tool for demonstrating how a bank will meet community convenience and needs but is not required
    • Allowing banks to store the public file required by the CRA electronically on the bank’s website, with access to a physical copy of such information provided upon request
  • Taking various other steps, including:
    • Giving community development loans the same annual consideration as community development investments
    • Evaluating the approach used for bank affiliates to ensure that performance evaluations accurately reflect the overall bank’s CRA-eligible activity
    • Reviewing how certain public welfare investments are treated in a Comprehensive Capital Analysis and Review
    • Monitoring the impact of the emergence of nonbanks

Since the CRA is implemented through regulations issued by the OCC, Federal Reserve, and FDIC for the banks they supervise, the ball is now in those agencies’ courts to make specific regulatory proposals either individually or collectively.