NAFCU Compliance Blog

Obtaining A Consensual Security Interest For Credit Cards

Written by Stephanie Lyon, Regulatory Compliance Counsel

Last week, I had the pleasure of going through the CFPB's credit card agreement database to find my creditor's credit card agreement. This research project was not just for fun… I was specifically looking for similarities in the language financial institutions use to obtain a consensual security interest in their members' or customers' deposit accounts. Seeing just how different credit card agreements can be made me wonder what drive some of the disclosure language and format in this area. So let's review the regulatory requirements to obtain a consensual security agreement for credit cards.

To begin, Regulation Z has a general blanket prohibition against offsetting a member's deposit funds to cover the member's delinquent credit card. See, 12 C.F.R. § 1026.12(d)(1). This means that financial institutions cannot automatically take funds from their customer's deposit account if the customer is delinquent on their credit card.

However, the rule has an exception that permits creditors to obtain a consensual security interest. To ensure the consensual security is not a functional equivalent of a right of offset, the regulation requires the following things: (1) member must affirmatively agree to the security interest (i.e., the consensual requirement); (2) creditor must disclose security interest in account-opening disclosures; and (3) creditor must be able to evidence the member is aware and intended to provide the security interest. The regulation also suggests three ways of meeting the last requirement. Basically, the credit union can ensure its members are aware and intend to provide a security interest by doing something substantially similar to one or more of the following:

1. Obtain a separate signature or initials on the agreement indicating that a security interest is being given;
2. Place the security agreement on a separate page, or otherwise separate the security interest provisions from other contract and disclosure provisions; or
3. Make reference to a specific amount of deposited funds or to a specific deposit account number.

12 C.F.R. § 1026, Supp I, 1026.12(d)(2)—1. While the regulation provides examples of how to demonstrate awareness and intent, the appropriateness of the format a credit union chooses will be a question of fact. For example, in reviewing publicly available credit card agreements, it seems that many financial institutions are emphasizing the security lien provision by placing a text box or by highlighting/bolding the security lien provisions. While this is not a manner explicitly stated by Regulation Z, this could be one way to ensure the member is aware and consents to giving the credit union a security lien. As there has been litigation on the sufficiency of these methods, credit unions may want to consult their legal counsel or document providers to ensure the method selected will satisfy the security interest requirements of Regulation Z. For more information on the litigation side of things, see this article published in the 2016 January-February Edition of the NAFCU Journal.  

Another thing to note is that unlike the right of offset, credit unions that properly disclose the security interest as outlined above may have a security interest in after-acquired property. See, 12 C.F.R. § 1026, Supp I, 1026.12(d)(2)—2. Meaning, funds deposited after the credit card account is opened are not excluded from the credit union's security interest and these funds could be used to pay for a delinquent credit card.

Finally, credit unions wishing to obtain a security interest in currently opened credit cards may want to look at section 1026.9(c)(2)(i)(A) which requires a change in terms notice at least 45 days prior to the effective date of a significant change in account terms for credit cards. A “significant change in account terms” means “a change to a term required to be disclosed under [sections] 1026.6(b)(1) and (b)(2), an increase in the required minimum periodic payment, a change to a term required to be disclosed under [section] 1026.6(b)(4), or the acquisition of a security interest.” 12 C.F.R. § 1026.9(c)(2)(ii) (emphasis added).

CFPB Supervisory Highlights; More HMDA Guidance

Written by: André B. Cotten, Regulatory Compliance Counsel

Hello, Compliance Friends. We are counting down the days to San Diego. The NAFCU Compliance Team will be hosting our Regulatory Compliance School and Regulatory Compliance Seminar the week of October 9^th.

 On September 12, 2017, the CFPB issued its latest supervisory report sharing a plethora of observations from recent examinations and other supervisory activities. The report covers issues observed by the Bureau in the areas of automobile loan servicing, credit card account management, debt collection, deposits, and fair lending. Other topics, such as small-dollar lending, collection, mortgage origination, and mortgage servicing were also addressed. Today's blog will provide some of the highlights of the Bureau's findings.

Automobile Loan Servicing. In recent examinations, CFPB examiners reviewed how servicers are overseeing repossession agents and how repossessions are conducted. The Bureau's report alleges that some servicers are repossessing vehicles after the repossession was cancelled due to a formal extension agreement or the borrower has made a payment.

In these instances, the servicers wrongfully coded the account as remaining delinquent, customer service representatives did not timely cancel the repossession order after borrowers made sufficient payments or entered agreement with the servicer to avoid repossession, or repossession agents had not checked the documentation before repossessing and thus did not learn that repossession had been cancelled.

As a result of the examiner's findings, the servicers implemented a system that requires repossession agents to verify that the repossession order is still active immediately prior to repossessing the vehicle, for example, through a specially designed mobile application for that purpose.

Credit Card Account Management. The Bureau examiners noted that generally their supervised entities are complying with Federal consumer financial laws.

However, CFPB examiners observed that one or more credit card issuers violated Regulation Z by failing to provide the requisite tabular disclosures with the account opening materials provided to numerous cardholders. The entities in question acknowledged the violations with examiners and initiated a review to ensure that the errors were limited, the root causes were identified, and corrective actions were developed.

CFPB Supervision also reviewed the calls between customer service representatives and consumers. The review revealed customer service representatives routinely veering from or abandoning their scripts, which resulted in misrepresentation and higher fees for consumers. To mitigate the deceptive practice, entities established more effective controls over communications to consumers, ensured representatives informed consumers of free payment options prior to authorization of an expedited phone payment and reimbursed fees to consumers impacted by the deceptive representations about the costs and availability of pay-by-phone options.

Debt Collection. The CFPB examiners noted that some entities made false representations to consumers about the effect on their credit score of paying a debt in full rather than settling the debt for less than the full amount. As the CFPB explained in a 2013 bulletin, representations about the impact of paying a debt on a consumer's credit score may be deceptive. The bulletin states that "in light of numerous factors that influence an individual consumer's credit score, such payments may not improve the credit score of the consumer to whom the representation is being made. Consequently, debt owners or third-party debt collectors may well deceive consumers if they make representations that paying debts in collection will improve a consumer's credit score." As a result of these findings, the entities in violation amended training materials to reflect this Bureau's guidance.

Deposits. The CFPB continues to examine financial institutions for compliance with Regulation E as well as review for any unfair, deceptive, or abusive acts or practices (UDAAPs) in connection with deposit accounts.

The CFPB examiners noted that several institutions are engaged in unfair acts or practices by placing hard holds on customer accounts to stop all activity when the institutions observed suspicious activity. These holds resulted in the consumers' accounts being locked, resulting in payments not being honored, deposits being rejected, and the consumer lacking access to his or her funds for as long as two weeks. The examination also found that some institutions also failed to clearly, consistently, and promptly communicate the nature and status of these holds.

As a result, the CFPB directed the institutions to cease unnecessarily placing hard holds on consumer deposit accounts and to develop and implement policies and procedures to clearly, consistently, and promptly communicate with consumers with respect to hard holds place on their accounts.

In addition, the CFPB's Supervisory Highlights also addressed deceptive statements about overdraft protection products. Examiners identified institutions engaged in a deceptive act or practice by misrepresenting their opt-in deposit overdraft protection products when answering inbound telephone calls from consumers, including that:

• The overdraft protection product applied to check, automated clearing house (ACH), and recurring bill payment transactions;
• The overdraft protection product allowed a consumer to withdraw more money than the daily ATM cash withdrawal limit and be subjected to only one overdraft fee; and
• The overdraft protection product would take effect on the same day as enrollment.

Supervision directed the depository institutions in violation to cease misrepresenting features of their overdraft protections products.

Fair Lending. In general, the CFPB examiners found deficiencies in oversight by board and senior management, monitoring and corrective action processes, compliance audits, and oversight of third-party service providers.

The Bureau's review also revealed data quality issues, which were related to a lack of complete and accurate loan servicing records, made certain fair lending analyses difficult or impossible to perform. The examiners attributed these data quality issues to significant weaknesses in compliance management system related policies, procedures, and service provider oversight.

These are just some of the highlights from the CFPB's report. The full report is available here.

More HMDA Guidance

On September 28^th, the CFPB released HMDA implementation materials to support the recently issued 2017 HMDA rule. The Bureau has updated the 2018 Institutional Coverage Chart, the 2018 Transactional Coverage Chart and the Key Dates Timeline.

You can find the materials here on the CFPB's HMDA implementation webpage.

"You better watch out, You better Not Cry": CFPB Releases Bulletin on Detecting and Preventing Consumer Harm from Production Incentives

By André Cotten, Regulatory Compliance Counsel

Happy Holidays! My name is André Cotten, and I recently joined NAFCU as a Regulatory Compliance Counsel. Prior to NAFCU, I worked as a Senior Associate with PwC’s Financial Services Risk and Regulatory practice in the New York City office. I am loving my Regulatory Compliance Team, and I look forward to interacting with all of you.

We previously blogged about the NCUA’s Incentive Compensation Rule. The previous post discussed the 3 NCUA rules that limit incentive compensation practices: Section 701.21(c)(8) which restricts practices in connection with lending activities; Section 701.23(g) which places limits on compensation relating to the sale or purchase of eligible obligations; and Section 721.7 which addresses compensation related to incidental powers.

Today’s post expands on the regulatory guidance for incentives pursuant to the recently released bulletin from the Consumer Financial Protection Bureau (CFPB). On November 28, 2016, the CFPB issued a compliance bulletin providing direction on detecting and preventing consumer harm from production incentives. The Bureau discusses some specific instances of risks to consumers from incentives and the CFPB’s expectations.

Financial services companies routinely accomplish business objectives through programs that tie outcomes to certain benchmarks. If an incentive program is properly implemented and monitored, the incentives can benefit both the consumer and financial entity as well as the financial marketplace as a whole. For instance, financial services firms will be able to attract and retain top-performing talent, and consumers would benefit from enhanced customer service and exposure to products or services that are beneficial to their financial objectives.

Incentive programs are commonly found in the cross-selling of products and services to existing consumers, sales to new customers, sales at higher prices where pricing discretion exists, quotas for customer calls completed and collections benchmarks. Financial services firms may apply these production incentives to both employees and service providers. The risks these incentives may present to consumers are significant if poorly monitored. The CFPB bulletin also describes compliance management actions that its supervised entities should take to mitigate risks.

Risks to Consumers from Incentives

In light of the recent enforcement action against Wells Fargo, the CFPB is particularly keen to the culture of “unrealistic, high-pressure targets” that incentive programs can create. If incentive programs are not carefully and properly implemented and monitored, they may encourage overly aggressive marketing, sales, services and collections tactics.

Incentive programs without sound compliance monitoring may lead to blatant violations of Federal consumer financial law. Other risks to the financial services institution may include public enforcement, supervisory actions, private litigation, and reputational harm.

The CFPB Bulletin also listed some specific examples of problematic behavior related to incentive programs, which include:

• Sales goals may encourage employees, either directly or indirectly, to open accounts or enroll consumers in services without their knowledge or consent. Depending on the type of account, this may further result in, for example:
  • Improperly incurred fees;
  • Improper collections activities; and/or
  • Negative effects on consumer credit scores.

• Sales benchmarks may encourage employees or service providers to market a product deceptively to consumers who may not benefit from or even qualify for it;
• Paying compensation based on the terms or conditions of transactions (such as interest rate) may encourage employees or service providers to overcharge consumers, to place them in less favorable products than they qualify for, or to sell them more credit or services than they had requested or needed;
• Paying more compensation for some types of transactions than for others that were or could have been offered to meet consumer needs, which could lead employees or service providers to steer consumers to transactions not in their interests; and
• Unrealistic quotas to sign consumers up for financial services may incentivize employees to achieve this result without actual consent or by means of deception.

The CFPB’s Expectations

In short, the CFPB expects a robust, comprehensive compliance management system (CMS) that will utilize incentives to institute effective controls and oversight. The more strict controls will be necessary where incentives (i) apply to products or services less likely to benefit consumers or have a higher potential for consumer harm, (ii) reward outcomes that may not align with consumer interests, or (iii) involve a significant portion of an employee or service provider’s compensation. The CFPB does not mandate a particular CMS structure, and the Bureau recognizes that structures will vary based on the size and complexity of an organization.

A robust compliance program starts with the “tone from the top” set by the board of directors and management. The “tone from the top” is effectuated through policies and procedures, training, monitoring and corrective action. According to the CFPB Bulletin, a supervised entity’s corrective actions should include the termination of employees, severance of relationship with service providers, changes to the structure of incentives, additional training, and reimbursement of funds to all affected consumers.

For more information pertaining to the oversight of incentive programs, please review the CFPB’s Supervision and Examination Manual and Chapter 7 of the NCUA’s Examiner Guide.

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On Monday, December 5^th, the Federal Reserve released its latest issue of Consumer Compliance Outlook. This issue provides an overview of the Regulation E requirements for foreign remittance transfers. The publication also contains revised interagency questions and answers regarding community reinvestment, regulatory updates, and federal court opinions.

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Over the Thanksgiving holiday break, I received my second bar license and was admitted to practice law in my home-state of Mississippi.

CFPB Issues Supervisory Highlights Expressing Concerns with Automobile Loan Servicing, Debt Collection, Mortgage Origination and Fair Lending

Written by Benjamin M. Litchfield, Regulation Compliance Counsel

Greetings to all of you out there in regulatory compliance land. On October 31, 2016, the CFPB issued its latest voluminous supervisory report sharing multiple observations from recent examinations and other supervisory activities. The report covers issues observed by the Bureau in the areas of automobile loan servicing, debt collection, mortgage origination and fair lending. Other topics, such as student loan servicing, are also addressed. Provided below is a digest of some (but not all) of the Bureau’s many findings.

Automobile Loan Servicing.  In recent examinations of nonbank auto loan servicing companies, CFPB examiners identified unfair practices relating to repossession fees. The supervisory report alleges that certain nonbank servicing companies would often hold personal property seized as part of repossessing an automobile and refuse to return the property until after the borrower paid a fee for storing the property. Supposedly, if the borrower did not pay the fee, the companies would dispose of the property rather than returning it to the borrower.

Regardless of whether these companies had the contractual authority to engage in such practices, Bureau examiners felt these practices were unfair because the tactic was often used to leverage personal situations for collection purposes with extreme examples including retaining tools essential to the consumer’s livelihood and retention of personal possessions of negligible market value but of substantial emotional attachment or practical importance to the consumer. Examiners also found that some agreements, while disclosing that property would be stored, failed to disclose that a fee would be assessed for storage.

[Authors Note: Unlike the Federal Trade Commission, which promulgated a rule prohibiting certain unfair or deceptive credit practices after extensive public hearings, the Bureau continues to define unfair practices through examination and enforcement without providing credit unions with much guidance or prior notice. Even the FTC’s statements on unfairness and deception, which have defined which practices are prohibited under the FTC Act for decades, are mere guidance to the Bureau that it does not feel obliged to follow.]

Debt Collection.  Bureau examiners also identified several violations of the Fair Debt Collection Practices Act (FDCPA), including charging unlawful convenience fees, making several false representations, and unlawfully communicating with third parties in connection with the collection of a debt. [Author’s Note: While credit unions collecting debts on their own behalf are not considered “debt collectors” subject to the FDCPA, the CFPB has signaled its intention to use its UDAAP authority against so-called first-party debt collectors that engage in the types of acts or practices prohibited by the Act. In other words, the CFPB is trying to get all actors to follow a law that, by definition, credit unions are not required to follow.]

In recent examinations, the Bureau identified situations where debt collectors imposed convenience fees to process payments by phone or online that were not explicitly authorized by the loan agreement or permitted by law in violation of Section 808(1) of the FDCPA. Likewise, debt collectors are reported to have stated that all fees were “nonnegotiable,” which examiners felt amounted to a false representation of the types of compensation which may lawfully be received by a debt collector in violation of Section 807(2)(B) of the Act.

The supervisory report also highlights circumstances where debt collectors would use false representations or deceptive means to collect a debt in violation of Section 807(10) of the FDCPA. For example, the report alleges that debt collectors would place calls to consumers purporting to assess the consumer’s creditworthiness, credit scores, or credit reports, or stating that an immediate payment would need to be made in order to prevent any negative impact on the consumer’s credit. In addition, debt collectors are reported to have also impersonated consumers while using the original creditor’s consumer-facing automated telephone system to obtain more information about the consumer’s debt.

Finally, debt collectors are stated to have disclosed both the nature and purpose of collection calls to third parties when attempting to gather more information about the consumer in violation of Sections 804 and 805 of the FDCPA. These communications were often caused by inadequate identity verification during telephone calls. Collectors would also identify their employers to third parties without first being asked for that information by the third party in violation of Section 804 of the Act.

Mortgage Origination.  CFPB examiners also found deficiencies in mortgage origination compliance management systems which allowed for violations of Regulations G, N, X, and Z. One such purported violation was the reported failure of some financial institutions to verify income using reliable third-party records when conducting an ability to repay analysis. The report notes that examiners supposedly found that income disclosed on a mortgage application was not verified but instead was tested for reasonableness using an internet-based tool that estimates income based on zip code, job title, and years at the current occupation. [Author’s Note: Aside from the rather technical Regulation Z issues raised by the Bureau, this practice could also pose some rather obvious fair lending risks if credit eligibility is being determined, in part, by zip code which can be a proxy for race. #LowHangingFruit] Bureau examiners also identified instances where institutions failed to provide Loan Estimates within 3 business days in violation of the TILA-RESPA Integrated Disclosures Rule.

Fair Lending.  Bureau examiners also observed situations in which they felt that a financial institution’s treatment of limited-English-proficiency (LEP) and non-English-speaking consumers posed fair lending risk. One example offered by the report involves an institution that marketed only some of its available credit card products to Spanish-speaking consumers, while marketing several additional credit card products to English-speaking consumers. The institution lacked the appropriate documentation describing the business decisions that were made to market some but not all products to Spanish-speaking consumers which raised fair lending concerns for CFPB examiners. The report noted that some treatment of LEP and non-English-speaking consumers has led to enforcement actions by the Bureau and the Department of Justice in the past.

The supervisory report also notes that redlining will remain a supervisory priority for the Bureau. When assessing redlining risk, the Bureau will look to several factors including the unique attributes of the relevant geographic areas, lending patterns, peer and market comparisons, marketing, mapping, and additional evidence such as whistleblower tips. Rather than identifying instances of redlining, the supervisory report discusses ways in which credit unions can have a strong compliance program and outlines the Bureau’s approach to examining for illegal redlining. [Author’s Note: Even more information on redlining can be found in this interagency webinar that was held on October 4 and available on demand.]

These are just some of the highlights from the CFPB’s report. The full report is available here. As we can see, the Bureau remains laser-focused on third-party debt collection as it prepares for a possible rulemaking in this area and possible fair lending concerns involving the treatment of LEP and non-English-speaking consumers. If that is true, I may need a stronger prescription for my glasses.

Repossessions, Foreclosures, and the Servicemembers Civil Relief Act - A Primer and Some Resources

Written by Benjamin M. Litchfield, Regulatory Compliance Counsel

Happy Friday to all of you out there in regulatory compliance land. On July 26, 2016, the U.S. Department of Justice filed a lawsuit against a creditor for repossessing servicemembers’ motor vehicles without first obtaining court orders authorizing repossession. Among the allegations made by the Justice Department include charges that the institution did not have adequate procedures for determining the military status of members prior to exercising its contractual rights to seize collateral to satisfy delinquent loans. In addition to injunctive relief, the Justice Department also seeks monetary damages and civil penalties.

The Servicemembers Civil Relief Act (SCRA or Act) prohibits credit unions from repossessing personal property (including a motor vehicle) or foreclosing on a mortgage after a servicemember enters military service without first obtaining a court order if the servicemember made a deposit or installment payment before entering military service. See, 50 U.S.C. § 3952(a)(1)-(2). The Act also contains additional protections against foreclosure or sale for any existing obligation on real or personal property owned by a servicemember secured by a mortgage, deed of trust, or other security in the nature of a mortgage. See, 50 U.S.C. § 3953(a)(1)-(2). A knowing violation of either of these provisions is a misdemeanor and can result in a fine or imprisonment for up to a year, or both. See, 50 U.S.C. §§ 3952(b), 3953(d).

Furthermore, the protections of the Act are not necessarily limited to servicemembers. When a court grants a stay, postponement, or suspends an action taken by the credit union, the court may also grant similar relief to sureties, guarantors, cosigners, or any “other person who may be primarily or secondarily subject to the obligation or liability.” 50 U.S.C. § 3913(a). Dependents may also request a court to grant similar protections if “the dependent’s ability to comply with a lease, contract, bailment, or other obligation is materially affected by reason of the servicemember’s military service.” 50 U.S.C. § 3959. Finally, the Act also protects citizens of the United States serving with allied forces. See, 50 U.S.C. § 3914.

Unlike the Military Lending Act, a servicemember may waive any rights and protections provided by the SCRA. Waiver of protections against repossessions and foreclosures, however, must be made in writing, “executed as an instrument separate from the obligation or liability to which it applies,” and are effective only if made during or after the servicemember’s period of military service. See, 50 U.S.C. § 3918(a). What this appears to mean is that credit unions may not rely on a blanket waiver in a loan agreement but rather must secure a separate waiver from the servicemember during or after military service. As with any other disclosure, credit unions may wish to review the document to ensure that disclosures are provided in a clear and conspicuous manner to ensure that the servicemember makes a knowing and intelligent waiver of his or her SCRA rights. Furthermore, there may be state law requirements for such a waiver, or state court procedural requirements for the presentation and reliance on such a waiver. While not necessarily addressing this issue, some useful resources addressing clear and prominent disclosures can be found in my last blog on deceptive advertising.

Although not required by the SCRA itself, NCUA has recommended that credit unions establish internal controls to manage potential SCRA compliance risk. Some internal controls recommended by NCUA and other banking agencies include:

• Determining military status prior to initiating a civil action by reviewing information available on the Defense Manpower Data Center (DMDC) SCRA database (available here);

• Researching military status periodically;

• Maintaining up-to-date books and records that document military status;

• Providing comprehensive training to loan officers and collections departments on SCRA compliance; and

• Having a quality assurance process to ensure that employees are following the credit union’s policies and procedures.

One thing to note is that the DMDC’s SCRA database is separate from the MLA database which is used to perform a covered borrower check to determine compliance with the Department of Defense’s Military Lending Act Rule.

Additional information on SCRA risk management can be found in this 2012 webinar on the SCRA available through the Federal Reserve. Letter to Credit Unions 09-CU-12 (June 2009) also provides resources, including interagency SCRA Exam Procedures and a copy of the AIRES Questionnaire dealing with SCRA compliance, that may also be helpful. In addition to SCRA compliance risk, credit unions may also wish to consider any potential reputation risk that may result from taking action against an active duty member of the armed forces. This article by an enforcement specialist at the Federal Reserve Bank of Philadelphia provides a useful summary on how credit unions may identify, measure, and mitigate reputation risk.

I hope this blog has been helpful and that you enjoy your weekend.

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DoD Military Lending Act Interpretive Guidance Released

This blog was written before DoD issued its MLA interpretative guidance on August 26, 2016. The interpretative guidance can be found in the Federal Register. NAFCU's Regulatory Compliance team will update the association’s MLA Compliance Guide in advance of the effective date (October 3, 2016) to account for the new guidance.

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CFPB Updates TRID Webinar Question Index.  On Wednesday, July 27, 2016, the CFPB announced that it has updated its index of questions addressing the Bureau’s TRID Rule. The index now includes questions asked and answered during the March 1, 2016 and April 12, 2016 Outlook Live webinars hosted by the Federal Reserve. You can access that index here.

CFPB's Latest Monthly Complaint Report Demonstrates CFPB's Continued (and Growing) Focus on Debt Collection

Written by Shereefat Balogun, Regulatory Compliance Counsel

Yesterday, the CFPB released its latest Monthly Complaint Report, which provides a high-level snapshot of trends in consumer complaints. It is important to keep in mind that credit unions under $10 billion are not included in the Consumer Complaint Database, which forms the basis of the monthly reports. Notwithstanding, the reports can be a useful tool, as they can help credit unions evaluate which products and services are more problematic and thus, should be addressed in order to avoid or mitigate regulatory risks. Moreover, in light of the increased scrutiny of debt collection practices, credit unions are generally advised to monitor the various regulatory bulletins, reports and enforcement actions in this area in order to properly assess whether they are in compliance with FDCPA and Dodd-Frank.

As of March 1, 2016, the CFPB has handled about 834,000 consumer complaints; approximately 219, 200 of those complaints were related to debt collection. Some of the findings in the snapshot include:

• Debt collection represented 26% of total cumulative complaints, beating mortgage as the most-complained about product;

• The biggest debt collection complaint concerned attempts to collect on a debt that is not owed. This complaint accounted for 38% of debt collection complaints received.

• The second biggest complaint touched on communication tactics used by debt collectors. Specifically, consumers complained about frequent or repeated calls from debt collectors, reporting that they receive multiple calls weekly or daily. Additionally, consumers complained about receiving debt collection calls at work. Some consumers reported that their debt was disclosed to a supervisor or other third-party; while others reported that collectors made in person visits to their workplace. Also, consumers reported that requests to cease communications were not honored. This category of complaints represented 19% of debt collection complaints submitted.

• Consumers complained that they were not given enough information to verify whether or not they owed the debt in question.

For a few years now, debt collection has been the source of most complaints submitted to the bureau, and this report highlights that. It is clear that debt collection continues to be one of CFPB’s top priorities, and it does not appear that efforts in this area will slow down. Indeed, last week, the bureau issued its 2016 Fair Debt Collection Practices Act Report, which in addition to citing the general complaints reported in the Monthly Complaint Report, also: (i) summarizes the CFPB’s supervisory activities in the debt collection market; (ii) describes the bureau’s enforcement actions; and (iii) discusses developments in the CFPB’s rulemaking initiatives. In the report’s section on supervisory activities, the CFPB describes the following FDCPA violations found by its examiners:

• Failing to state in subsequent phone calls that the call was from a debt collector. The FDCPA requires debt collectors to state in subsequent communications that the communication is from a debt collector. (15 U.S.C. §1692e(11))
• Failing to implement consumer requests regarding communications, such as honoring a request to not be contacted at work. Generally, the FDCPA sets limits on a debt collector’s ability to communicate with members. For example, a debt collector, without prior consent of the consumer, is prohibited from communicating with a consumer in an attempt to collect a debt, at the consumer’s place of employment if the debt collector knows or has reason to know that the consumer’s employer prohibits the consumer from receiving such communication. (15 U.S.C. §1692c(a)(2)). Also under the FDCPA, when consumers notify a debt collector that they wish the debt collector to cease communication with them, the debt collector must generally honor that request.  (15 U.S.C. §1692c(c)).
• Use of false, deceptive or misleading representations regarding credit reporting. The FDCPA prohibits a debt collector from using any false, deceptive, or misleading representation in connection with the collection of any debt. For example, a debt collector may not make false statements about the amount of any debt; or make a representation that nonpayment of any debt will result in the arrest or imprisonment of any person or the seizure or garnishment of any property or wages of unless such action is lawful and the debt collector or creditor intends to take such action. (15 U.S.C. §1692e).

The report also describes fifteen debt collection enforcement actions filed by the CFPB in 2015. With respect to rulemaking, Director Cordray stated that the bureau “continues its effort to develop the first comprehensive federal regulations covering debt collection.  We are considering provisions to ensure that debt collectors have sufficient information to collect the debt, prevent unfair, deceptive and abusive acts and practices, inform consumers of their rights, and provide interpretation of some sections of the FDCPA.”  While Director Cordray did not offer a specific timeframe for rulemaking, he did indicate that the CFPB “is preparing to convene one or more Small Business Regulatory Enforcement Fairness Act panels before issuing a notice of proposed rulemaking.”

In short, these recent developments demonstrate that debt collection is still at the top of the CFPB's list. Accordingly, credit unions, particularly those with more assets of $10 billion or more, need to pay attention to its debt collection practices.

The CFPB’s Monthly Complaint Report can be found here.

You can view the CFPB’s Consumer Complaint Database here.

CFPB Issues Supervisory Highlights - Some Consumer Reporting, Debt Collection, Mortgage Origination, Remittances, Student Loan Servicing and Fair Lending Concerns Remain

Written by Benjamin M. Litchfield, Regulatory Compliance Counsel

Greetings compliance fans! On March 8, 2016, the CFPB issued its latest supervisory report sharing observations from recent examinations and other supervisory activities. The report covers issues observed by the Bureau in the areas of consumer reporting, debt collection, mortgage origination, remittances, student loan servicing, and fair lending.

Consumer Reporting. CFPB examiners found that one or more furnishers of information to consumer reporting agencies failed to have policies and procedures addressing the furnishing of information related to deposit accounts. For example, these furnishers would update their own systems when customers paid charged-off accounts in full but would not provide updated information to the consumer reporting agencies. The CFPB recently issued Compliance Bulletin 2016-01 (Feb. 3, 2016), reminding furnishers of their responsibilities under the Fair Credit Reporting Act (FCRA) and Regulation V regarding specialty consumer reporting agencies such as ChexSystems.

Debt Collection. CFPB examiners also determined that some debt collectors failed to honor written requests to cease communications. While credit unions collecting on their own debts are not considered “debt collectors” under the Fair Debt Collection Practices Act (FDCPA), the CFPB and NCUA have separately signaled that credit unions should still strive to comply with the requirements of the FDCPA to avoid any liability for committing unfair or deceptive acts or practices (UDAAPs). See, CFPB Compliance Bulletin 2013-07 (July 10, 2013) and NCUA Consumer Compliance Handbook, p. 98. Some debt collectors also made false, deceptive or misleading representations regarding garnishment when attempting to collect on student loan debt.

Mortgage Origination. In general, the Bureau noted overall compliance with its Title XIV rules (loan originator compensation, ability-to-repay, appraisals and valuations, high-cost mortgages and escrows for higher-priced mortgage loans). Some exceptions included the absence of written policies and procedures for loan originator activities under the loan originator rule and some deficiencies in compliance management systems. The loan originator rule makes it an independent regulatory requirement that credit unions establish policies and procedures reasonably designed to ensure and monitor the compliance with the prohibited payment, anti-steering, qualification and identification requirements of the rule. See, 12 C.F.R. § 1026.32(j). The CFPB maintains a landing page with resources that credit unions can use to comply with these rules, including compliance guides and quick reference charts, here.

Remittances. As the CFPB noted in its press release touting the Supervisory Highlights report, this is the first report on exams of financial institutions in the remittance market since the CFPB issued its remittance transfer rule. While the Bureau noted overall compliance with the remittance transfer rule, a few trouble spots identified by examiners included providing incomplete or inaccurate disclosures, failing to adhere to regulatory timeframes for refunding cancelled transactions, failure to communicate the results of error investigations, or failure to promptly credit consumer accounts. Like the Title XIV rules, the CFPB maintains a landing page with resources credit unions can use to help comply with the remittance transfer rule here.

Student Loan Servicing. In the report, the CFPB noted that supervising the student loan servicing market has been a priority for its Supervision program. CFPB examiners cited private student lenders for taking advantage of auto-default clauses in student loans where either the borrower or a cosigner declared bankruptcy. The effect of the auto-default clause was to place both the borrower and the cosigner immediately into default and make the loan payable in full immediately. The Bureau found this practice to be a UDAAP. In addition, CFPB examiners “determined that servicers committed unfair practices by failing to disclose a significant adverse consequence of forbearance.” Namely, the inability of some borrowers to take advantage of cosigner release clauses in student loan contracts following the borrower’s use of forbearance.

Fair Lending. The report also provided updates on the Bureau’s administration of its fair lending enforcement settlement agreements with Ally Financial, Inc. and Ally Bank, and with Synchrony Bank, formerly known as GE Capital Retail Bank.

As this report shows, the Bureau has been very aggressive in several key areas – particularly consumer reporting, loan servicing, mortgage origination, and debt collection. The Bureau has repeatedly emphasized these areas as focal points for its supervision and enforcement activities for the next two years.. One thing to keep in mind is that the Bureau repeatedly emphasized the requirement to furnish accurate information to consumer reporting agencies under the FCRA and Regulation V throughout the report and not just as part of the consumer reporting section. This signals that the Bureau is likely to remain laser-focused on the accurate reporting of consumer information likely as part of a larger effort to examine ways to bring financial services to unbanked and underbanked populations.

The full report is available here.

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Know the Changes: HMDA Reporting Procedures

Live Webcast: Wednesday, March 16 | 2:00 p.m. – 3:30 p.m. EST

Part of the HMDA Webcast Series

Major CFPB rule changes brought new HMDA reporting procedures your credit union must comply with. Join this webcast for a comprehensive overview of the final rule, revision of Regulation C, and data collection requirements. You’ll discover the new data credit unions are required to collect and report, when these requirements will be active, and more.

CFPB’s Policy Priorities Confirm Rulemaking Plans on Overdraft, Debt Collection and Interest in Small Business Lending

Written by Shereefat Balogun, Regulatory Compliance Counsel

On Thursday, February 25, 2016, the CFPB held a Consumer Advisory Board meeting which generally provided an overview of the bureau’s strategic outlook. The CFPB subsequently published a report outlining its two-year supervision and enforcement priorities. Many of the stated priorities are iterations of previous comments made by the bureau, and confirm impending rulemaking. Others provide insight on new areas of interest.  Credit unions under the bureau’s jurisdiction should note the following priorities as they set their compliance goals for the next two years:

• Arbitration: The CFPB indicated that it will continue the rulemaking process to regulate the use of arbitration clauses, especially those that limit a consumer’s right to bring a class action.

• Consumer Reporting: The bureau reported that it will continue to examine and investigate consumer reporting companies and furnishers of information, with a focus on accuracy and dispute resolution processes. The CFPB also stated that it may consider rulemaking around furnisher and consumer accuracy, dispute resolution, and related issues.

• Debt Collection: The CFPB confirmed that it will initiate the rulemaking process and finalize a rule that establishes guidelines to ensure that debt collectors treat consumers with respect, substantiate the debts they collect on, and “provide consumers with appropriate information about their rights and the debt collection process.”

• Mortgages: The CFPB has restated its commitment to ensure that the Home Mortgage Disclosure Act (HMDA) rule is successfully implemented, and that its supervisory and enforcement programs work to provide equal and fair access to mortgage credit. The CFPB also indicated a particular focus on implementing its mortgage servicing rules. Lastly, the bureau stated that it will begin to assess the effectiveness of significant rules that are already in place.

• Overdraft: The bureau makes clear that it fully intends to move forward with the rulemaking process related to overdrafts, with a purported goal of making the overdraft market “fairer and more transparent”.

• Small Business Lending: The CFPB confirmed its growing interest in small business lending, and lists its plan to build a small business lending team and begin “market research and outreach for a rulemaking on business lending data collection.” The bureau also indicated that it will continue to examine small business lenders for compliance with fair lending laws. As a reminder, Dodd-Frank amended the Equal Credit Opportunity Act (ECOA), requiring financial institutions to collect and maintain certain information in connection with credit applications submitted by women-owned, minority-owned or small businesses.

This is a few of the priorities listed in the report. NAFCU previously reported on the full list of priorities. Notably, the CFPB clarifies that, in addition to the stated priority goals, it will continue its ongoing efforts in its fair lending oversight of indirect auto lenders and rulemaking on prepaid cards. The bureau also advises companies to “continue their focus on complying with the law beyond the particular issues described in the goals, whether or not they see their particular industry or product mentioned explicitly among the shared cross-Bureau priorities.”

As a reminder, this will only be applicable to credit unions directly supervised by the CFPB- those with over $10 billion in assets. For those credit unions not subject to CFPB’s supervision, the priorities may nonetheless be a useful tool. The policy priorities can be found here. Credit unions are also advised to review NCUA’s Supervisory Priorities for 2016.

CFPB Releases Monthly Complaint Report and Notes Debt Collection, Mortgage, and Credit Reporting as Top Complaints; DMDC Extends MLA Database Deadline; Free Webcast - Breaking Down the NCCO Exam

Written by Shereefat Balogun, Regulatory Compliance Counsel

On January 28, 2016, the CFPB released its Monthly Complaint Report for December 2015, which provides a high-level snapshot of trends in consumer complaints. It is important to keep in mind that credit unions under $10 billion are not included in the Consumer Complaint Database, which forms the basis of the monthly reports. Notwithstanding, the reports can be a useful tool, as they can help credit unions evaluate which products and services are more problematic and thus, should be addressed in order to avoid or mitigate regulatory risks.

As of January 1, 2016, the CFPB has handled about 790,000 consumer complaints, including approximately 20,3000 complaints in December 2015. The Report notes that:

• Complaints related to prepaid products rose from 138 complaints between October- December 2014 to 459 complaints between October-December 2015, representing a 233% increase;

• For the 28^th consecutive month, the CFPB handled more complaints about debt collection than any other type of complaint. Debt collection complaints represented about 31% of complaints in December 2015.

• Debt collection, mortgage, and credit reporting complaints continue to be the top three most-complained-about consumer financial products and services, which together represented 68% of all complaints submitted in December 2015.

• Equifax, Transunion, and Experian were the most-complained-about companies for August-October 2015.

As stated previously, credit unions under $10 billion are not included in the Consumer Complaint Database.  Rather, the CFPB will forward any complaints from these credit unions to NCUA, and credit unions will need to follow NCUA's procedures for responding to member complaints.

You can view the CFPB’s Monthly Complaint Report here: http://files.consumerfinance.gov/f/201601_cfpb_monthly-complaint-report-vol-7.pdf

You can view the CFPB’s Consumer Complaint Database here: http://www.consumerfinance.gov/complaintdatabase/

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MLA Database Update. As NAFCU reported earlier this week, DMDC agreed to extend the deadline to seek direct access to the MLA database until February 15, 2016. Those credit unions who express interest in the direct connect option will receive a questionnaire in a response email. DMDC set a February 19, 2016 deadline for interested credit unions to complete and return this questionnaire. If you have any questions about this deadline or the database, please email Brandy Bruyere, NAFCU’s Director of Regulatory Compliance, [email protected].

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Free Webcast - Breaking Down the NCCO Exam

Live Webcast: Tuesday, February 9 | 3:00 p.m. – 4:00 p.m. EST

As a serious compliance professional, you either have, or are thinking about earning, your NAFCU Certified Compliance Officer (NCCO) designation. This challenging but comprehensive exam will prove that you have a solid understanding of the major regulations that govern credit union operations. Join this free webcast for an in depth look at how to best prepare for the NCCO exam and utilize the material. NAFCU’s very own Director of Regulatory Compliance and Director of Education will guide you through learning the best approach for earning this prestigious designation.

Debt Collection Practices and Operation Collection Protection

Written by Benjamin M. Litchfield, Regulatory Compliance Counsel

Greetings compliance fans! My name is Ben Litchfield and I recently joined NAFCU as a Regulatory Compliance Counsel. Prior to joining NAFCU, I worked in the Office of General Counsel at NCUA on various issues related to federally-insured credit unions. I look forward to working with you in the future and blogging about topics that are relevant to our members. This blog post covers some recent developments in an important, albeit unfortunate and sometimes overlooked, part of the lending lifecycle – debt collection.

FTC's Operation Collection Protection

On November 4, 2015, the FTC and other law enforcement authorities around the United States announced the first coordinated federal-state enforcement initiative targeting deceptive and abusive debt collection practices. They are calling this initiative “Operation Collection Protection.” (Sounds scary, doesn’t it?). Some of the practices being targeted by the FTC and its federal (including CFPB), state and local partners include:

• Harassing phone calls;

• False threats of litigation, arrest, and wage garnishment;

• Collection of phantom debts;

• Failure to provide consumers legally required disclosures and notices; and

• Failure to follow state and local licensing requirements.

In addition to its involvement in Operation Collection Protection, the CFPB has been very active in this area. In September, the Bureau took an administrative enforcement action against two of the nation’s largest buyers of defaulted loans, credit card accounts, car loans, and other debt. Some of the violations the CFPB alleged included:

• Failure to monitor portfolios of debt for accuracy;

• Calling consumers at unusual or odd hours;

• Calling consumers without prior express consent;

• False threats of litigation;

• Failure to require collections attorneys to provide account level review; and

• Using misleading collection affidavits.

While the Fair Debt Collection Practices Act (FDCPA) provides an exemption for creditors seeking to collect debts on their own behalf, NCUA “recommends” that federal credit unions (FCU) avoid the kinds of practices prohibited under the Act. See, NCUA Consumer Compliance Handbook, p. 98.  Additionally, the Federal Trade Commission (FTC), Consumer Financial Protection Bureau (CFPB), and NCUA have the authority to take enforcement actions to prevent unfair, deceptive, or abusive (UDAAP) debt collection practices committed by entities within their respective jurisdictions. Note though that to date, NCUA has not taken UDAAP enforcement action against an FCU, but many FCUs use third-party debt collectors who may be within the jurisdiction of the FTC or the CFPB.

Also, for state-chartered credit unions, things get a little more complicated because of specific language in the FDCPA and the Federal Trade Commission Act (FTC Act), which grant the FTC enforcement authority over state-chartered credit unions. As a result, the FTC has the ability to utilize its general enforcement authority under the FTC Act for debt-collection UDAAPs even where a party is collecting on its own debt.

The CFPB has signaled in previous guidance that it intends on using its UDAAP authority to prevent such acts or practices against creditors who commit the kinds of abusive acts prohibited by the FDCPA. Keep in mind though that the CFPB has primary enforcement authority over credit unions with assets over $10 billion.  

As a reminder, specific conduct prohibited by the FDCPA includes, but is not limited to:

• The use or threat of violence or other criminal means to harm the physical person, reputation, or property of any person;

• The publication of a list of consumers who allegedly refuse to pay debts, except to a consumer reporting agency;

• Causing a telephone to ring or engaging any person in telephone conversation repeatedly or continuously with intent to annoy, abuse, or harass any person at the called number;

• The use of false, deceptive, or misleading representations or means in connection with the collection of a debt;

• The collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law; or

• Accepting, depositing or threatening to deposit any postdated check or postdated payment instrument unless certain circumstances are met.

The FDCPA lists many other prohibited acts and practices and requires specific disclosures when communicating with a consumer about a delinquent debt. It is important to keep in mind, however, that these lists are not exhaustive. The FTC and CFPB could always identify additional conduct that they feel constitute unfair, deceptive, or abusive debt collection practices.

So Why Does This All Matter?

Operation Collection Protection and recent CFPB enforcement actions signal that federal regulators are likely to remain laser-focused on unfair, deceptive, or abusive debt collection practices. Some of these collection cases have even resulted in criminal charges for individual debt collectors. Given the high volume of consumer complaints involving debt collection, observance of proper debt collection procedures by credit unions and their vendors will likely remain a top priority for compliance officers.

I have included some compliance resources below that may be useful to you as well as some interesting reading material for when you just feel like curling up by the fire with a nice FTC or CFPB Consent Order. I hope this blog has been useful and that you have a great rest of your week.

Federal Laws and Guidance Documents

• Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq.

• CFPB Supervision and Examination Manual, pp. 667-676.

• Prohibition of Unfair, Deceptive, or Abusive Acts or Practices in the Collection of Consumer Debts, CFPB Bulletin 2013-07 (July 10, 2013).

• Service Providers, CFPB Bulletin 2012-03 (Apr. 13, 2012).

• Evaluating Third Party Relationships, NCUA Supervisory Letter No. 07-01 (Oct. 2007)

• FFIEC Social Media Guidance

News Articles

• FTC and Federal, State and Local Law Enforcement Partners Announce Nationwide Crackdown Against Abusive Debt Collectors, FTC Press Release (Nov. 4, 2015) (available at https://www.ftc.gov/news-events/press-releases/2015/11/ftc-federal-state-local-law-enforcement-partners-announce)

• CFPB Takes Action Against the Two Largest Debt Buyers for Using Deceptive Tactics to Collect Bad Debts, CFPB Press Release (Sept. 9, 2015) (available at http://www.consumerfinance.gov/newsroom/cfpb-takes-action-against-the-two-largest-debt-buyers-for-using-deceptive-tactics-to-collect-bad-debts/)

Recent Agency Enforcement Actions

• FTC v. BAM Financial, LLC (FTC Complaint for Permanent Injunction)

• FTC v. Kelly Brace, et al. (FTC Complaint for Permanent Injunction)

• FTC v. National Check Registry, LLC (Stipulation to Enter into a Final Order)

• FTC & CFPB v. Green Tree Servicing, LLC (Stipulated Order for Permanent Injunction)

• In re Encore Capital Group, Inc., 2015-CFPB-0022 (Consent Order)

• In re Portfolio Recovery Associates, LLC, 2015-CFPB-0023 (Consent Order)

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Programming Note:  NAFCU’s offices will be closing at 12:00pm EST on Wednesday, November 25th and remain closed until Monday, November 30th, in celebration of the Thanksgiving Holiday.

CFPB Issues Consent Order against Bank for Deceptive Marketing of Credit Card Add-On Products and Discriminatory Credit Card Practices

Written by Bernadette Clair, Senior Regulatory Compliance Counsel

Last week, the CFPB ordered Synchrony Bank, formerly known as GE Capital Retail Bank (“Bank”), to pay an estimated $225 million to consumers harmed by deceptive marketing of credit card add-on products and borrowers excluded from credit card debt relief offers because of their national origin. Of that amount, $56 million goes to approximately 638,000 consumers who were subjected to deceptive marketing practices, and the remaining $169 million goes to approximately 108,000 borrowers who were excluded from debt relief offers as part of a joint enforcement action by the CFPB and Department of Justice. The CFPB also assessed a civil money penalty of $3.5 million for the deceptive marketing practices. The CFPB’s press release is available here.

Deceptive Marketing. Similar to a CFPB order that we blogged about a couple of months ago against Bank of America, N.A. and FIA Card Services, N.A., the marketing practices cited in this order focus on credit card add-on products, specifically debt-cancellation products.  From the press release:

“The Bureau found that GE Capital’s telemarketers misrepresented these products to consumers in four main ways:

• Marketed the product as free of charge: Telemarketers led consumers to believe they would not have to pay for these products as long as they paid off the balance on their billing statement. In fact, consumers could only avoid the fee in very specific circumstances, such as if the account was not in use or if the customer had paid off the balance prior to GE Capital issuing its monthly billing statement.

 

• Failed to disclose consumers’ ineligibility: In calls with telemarketers, many consumers mentioned that they were retired or disabled, which would mean that they were not eligible for key benefits of the products. Even after hearing this, the telemarketers neglected to tell the consumers that they would not be eligible for key debt cancellation benefits, and the consumers bought the products without this important information.

 

• Failed to disclose that consumers were making a purchase: In many cases, the telemarketers did not make it clear that consumers were purchasing a product. Rather, they made it seem like the consumers were receiving a benefit, updating their accounts, or that the telemarketers were handling other administrative tasks. In these conversations, it was not obvious to consumers that they were buying something and would be charged a fee.

 

• Marketed products as a limited time offer: Many customer service representatives falsely told consumers that these debt cancellation products were a “limited time offer.” In reality, nothing about the availability      of these products was limited. However, leading consumers to believe they had a short timeframe to sign up may have created a false sense of pressure and pushed them to enroll in the products.”

Under the order, the Bank is required to submit a compliance plan to prevent future violations to its CFPB Regional Director before marketing, soliciting, or selling credit card add-on products by phone.  The order also requires the Bank to strengthen oversight over any third-party vendors used in connection with marketing or selling add-on products.  These requirements are similar to those contained in the order issued against Bank of America, N.A. and FIA Card Services, N.A. for deceptive marketing practices.

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Discriminatory Credit Card Practices. The CFPB also found that the Bank engaged in discriminatory practices related to credit card debt relief offers.  According to the order, the Bank offered two promotions to credit card customers with delinquent accounts that allowed the customers to settle their balance by paying off a portion of their debt. However, this offer was not extended to customers who indicated a preference to communicate in Spanish or who had a mailing address in Puerto Rico, even if the customers otherwise met the criteria for the offer. 

Pursuant to the order, the Bank must provide remediation of at least $169 million to affected consumers in the form of monetary payments, credits, and waivers on accounts, representing the value of the excluded offer, lost interest, and indirect damages.  Additionally, the Bank is required to work with credit reporting agencies to remove any negative information in consumers’ credit histories as a result of these violations. 

Although the CFPB assessed a civil money penalty for the deceptive marketing practices, it did not assess a civil money penalty for the discriminatory debt relief offer exclusions – the CFPB indicated that this was based on a totality of the circumstances, including the Bank’s self-policing, prompt reporting to the CFPB, self-initiated consumer remediation, and cooperation with the CFPB’s investigation.

For complete details, the CFPB’s order is available in its entirety here.

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Free Compliance Training. Another great perk of being a NAFCU member! Now you can access six full compliance webcasts and self-paced modules free, and experience the convenient benefits of NAFCU’s Compliance Webcast & Online Training Subscription firsthand. Log in now and select NAFCU Member Online Sampler (you may have to click the blue plus sign in the lower right corner first). If you don't have a login, you can sign up for a username and password. Let the new Compliance Webcast & Online Training Subscription make your compliance training easy now.

CFPB Updates Regulatory Agenda, Compliance Officers Get A Preview Of What Is To Come

Written by Eliott C. Ponte, Law Clerk

I believe the job of a compliance officer is a difficult job: compliance officers must have a working understanding of the vast regulatory landscape, and in addition, be aware of how the various regulators plan to shape the regulatory landscape in the near future.  To make your difficult jobs easier, I have blogged about five areas that the CFPB is planning to change in the near future after reading the CFPB’s recent blog post that highlights its new regulatory agenda.  To save you time, I have copied the relevant portion of the CFPB’s blog in the post below, and put my comments following their post. 

 

Payday Loans and Overdrafts

The CFPB stated the following on its blog:

“We’re researching and considering whether rulemaking is warranted in the areas of payday and deposit advance products, as well as consumer overdraft products. We held a field hearing in March 2014 in Nashville, Tennessee, and  also released a report that analyzed payday lending and found that four out of five payday loans are rolled over or renewed within 14 days. We’re also expecting to build on an Advance Notice of Proposed Rulemaking that we published in 2012 concerning prepaid cards by issuing a proposed rule to strengthen federal consumer protections for these products. We’ve been testing potential disclosures that we may propose to be used on the packaging of prepaid cards.

Payday regulations is not surprising because Director Cordray foreshadowed regulations during his remarks that accompanied a report on payday loans on March 25^th of this year.  The only notable difference is that the CFPB is now “officially” considering whether regulations governing payday loans are possible under its legal authority.  Unfortunately, it is not clear what the CFPB will do at the moment, but Payday regulations might include disclosures to payday borrowers, and/or lending practices in connection with payday loans.

In regards to overdrafts, the CFPB is also considering regulating (1) how consumers opt in to overdraft coverage for ATM and one-time debit card transactions, (2) overdraft coverage limits, (3) transaction posting order, (4) overdraft and insufficient funds fee structure, and (5) involuntary account closures.  This comes after a June 2013 CFPB whitepaper that summarized initial findings form an analysis of overdraft policies from supervisory data from nine large banks.  Unfortunately, it is not clear if the CFPB is interested in prohibiting specific acts or practices, or will be issuing sweeping regulation that affects everyone in the industry.

 

Mortgages

The CFPB stated the following on its blog:

“Our agenda includes a number of rulemakings mandated by the Dodd-Frank Act.  For example, we recently convened a small business review (SBREFA) panel to discuss potential amendments to the Home Mortgage Disclosure Act, some of which were mandated by Section 1094 of the Dodd-Frank Act.  We’re also focusing intensely on supporting the implementation process for our recent rulemaking to implement a Dodd-Frank Act directive to consolidate and streamline federal mortgage disclosures required under the Truth in Lending Act and Real Estate Settlement Procedures Act.  We’re also continuing work with stakeholders to address questions that have arisen with regard to the 2013 mortgage rules, including issuing additional clarifications and amendments as warranted.”

In its blog, the CFPB forgot to include the specific information required by Section 1094 of Dodd-Frank, which expands the scope of information required to be complied by the Home Mortgage Disclosure Act (HMDA).  The CFPB claims Dodd-Frank act requires the following additional information be collected:

1. the ages of loan applicants and mortgagors,
2. information relating to the points and fees payable at origination,
3. the difference between the annual percentage rate associated with the loan and benchmark rates for all loans,
4. the term of any prepayment penalty,
5. the value of the property to be pledged as collateral,
6. the term of the loan and of any introductory interest rate for the loan,
7. the presence of contract terms allowing non-amortizing payments,
8. the application channel, and
9. the credit scores of applicants and mortgagors.

In addition to these additional HMDA requirements, the CFPB is considering adding three additional information categories: (1) identifiers for loans, (2) parcels, and (3) loan originators.  As of now, it is not certain the CFPB will include these three additional reporting requirements in its notice of proposed rulemaking, but it seems more than likely it will.

 

Defining Larger Participants

The CFPB stated the following on its blog:

“We’re also continuing rulemakings to implement our supervisory program for certain nonbank entities by defining “larger participants” in various markets for consumer financial products and services. For example, we’re developing a proposal to identify “larger participants” in the market for auto lending. We’ve previously defined larger participants in the consumer debt collection, credit reporting, and student loan servicing markets and are now in the process of finalizing a rule defining larger participants in the international money transfer market.”

The CFPB is developing a proposal that would identify a market for auto lending and define "larger participants" of that market that would be subject to the CFPB's supervisory authority.  In doing so, the CFPB will seek to amend the regulation defining larger participants of certain consumer financial product and service markets by adding a new section to define larger participants of a market for auto lending.

 

Debt Collection

The CFPB stated the following on its blog:

“We’ve been doing research and outreach to assess issues in various other markets for consumer financial products and services over many months. In November 2013, we issued an advance notice of proposed rulemaking seeking comment, data, and information from the public about debt collection, which is the single biggest source of complaints to the federal government. We received more than 23,000 comments in response to the notice, and in our 2014 annual report on Fair Debt Collection Practices Act, reported that we received more than 30,000 consumer complaints in this area.”

According to the CFPB, the Federal government has received more consumer complaints about debt collectors than about any other industry.  The CFPB has already issued an advance notice of public rule making last year on this topic, and is now considering whether rules governing the collection of debts are warranted under the Fair Debt Collection Practices Act or other CFPB authorities. 

 

CFPB's ANPR on Debt Collection Practices; NCUA Update: Looking Ahead to 2014 Webcast

Written by JiJi Bahhur, Director of Regulatory Compliance

Earlier this month, the Consumer Financial Protection Bureau (CFPB) issued an Advance Notice of Proposed Rulemaking (ANPR) seeking to gather information and data about debt collection practices.  The ANPR requests information on a wide range of debt collection issues and practices, including accuracy of information used by debt collectors, procedures for ensuring consumers know their rights, and avenues of communication used by collectors to recover debts.

The CFPB began accepting debt collection complaints back in July, 2013, and also announced that it will begin adding these consumer complaints to its public Consumer Complaint Database.   It is quite apparent that the CFPB has consumer protection laws regarding debt collection practices on its radar and will continue to explore these practices in order to determine whether rulemakings or other actions are appropriate. 

To view the ANPR, click here.  Also, for a quick look at what types of questions the CFPB is seeking comment and information gathering on, take a look at the press release here.

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NCUA Update: Looking Ahead to 2014.  On December 10, 2013, NAFCU’s Regulatory Affairs team will provide a look ahead into the affairs of NCUA, including updates on loan participations, capital reform, examinations, stress testing, securitization, corporate stabilization fund, the NCUSIF, derivatives, NCUA restructuring and more!  You won’t want to miss this one!  And, it’s open to all!  To register, click here.