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  • CFPB Files Complaint Against Company that Allegedly Made False Loan Offers

    Consumer Finance

    On September 19, the CFPB announced it had filed a complaint in the U.S. District Court for the Southern District of New York against a New Jersey-based company and two associated individuals (defendants) that allegedly offered loans to consumers who were awaiting payouts from legal settlements or statutory- or victim-compensation funds. According to the complaint, the company engaged in deceptive acts and practices in violation of the Consumer Financial Protection Act by purportedly representing itself as a direct lender, when in actuality it did not provide loans to consumers, but instead brokered transactions while charging a commission for the service. Among other things, the defendants allegedly (i) misrepresented the annual percentage rates (APR) on the advances given to consumers, often representing that interest rates were as small as one to two percent when the actual APR was much higher; (ii) falsely claimed that it had offices in all 50 states and employed a staff of accounting, financial, and legal professionals; and (iii) misled consumers by stating in their marketing materials that consumers could receive loan proceeds within one hour, when the process took longer.

    According to the proposed final judgment and order, which must be approved by the district court, the defendants shall be banned from offering these types of loans or advances to consumers in the future. In addition, the company and the owner—who was responsible for decision-making and operations—are jointly liable for a $60,000 civil money penalty to the CFPB. The second individual—who was responsible for recruiting consumers through marketing materials and websites—must pay a $10,000 civil money penalty to the CFPB. The Bureau noted in the announcement that the low penalties take into account the defendants’ inability to pay greater amounts.

    Consumer Finance CFPB Enforcement Lending UDAAP CFPA

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  • CFPB Announces Final Rule Modifying ECOA Regulations, Seeks Public Comment on Proposed Disclosure of HMDA Data

    Agency Rule-Making & Guidance

    On September 20, the CFPB announced its Final Rule amending Regulation B, which implements the Equal Credit Opportunity Act (ECOA), as well as a notice of proposed policy guidance requesting public comment on modifications to loan-level HMDA data that will be made publicly available beginning in 2019.

    Amendments to Regulation B. The Final Rule, among other things, permits institutions not subject to HMDA reporting requirements to choose, on an “application-by-application basis,” between two approaches to collecting race and ethnicity data from applicants for certain dwelling-secured loans: either collect such data in the aggregate or use the disaggregated and more expansive categories required for HMDA-reporting institutions under revisions to Regulation C effective in 2018.  According to the Final Rule, this means that creditors that are not HMDA reporters could transition to using the 2016 Uniform Residential Loan Application, which was updated to comply with the upcoming changes to Regulation C. As previously covered in InfoBytes, the justification for the change was to provide consistency and clarity with respect to other Bureau rules.

    Proposed Policy Guidance Regarding Publicly Available Loan-Level HMDA Data. The CFPB has issued a notice of proposed policy guidance with a request for public comment concerning modifications that it intends to apply to publicly available loan-level HMDA data that financial institutions will be required to report in connection with the new HMDA data reporting requirements that become effective January 1, 2018. The CFPB is specifically seeking comment on whether certain data fields should be included or modified in the publicly available loan-level HMDA data; these fields include the universal loan identifier, application date, loan amount, action taken date, property address, age, credit score, debt-to-income ratio, and property value, among others. As previously covered in InfoBytes, the CFPB issued its final rule amending Regulation C in August. Comments on the proposed guidance are due 60 days after publication in the Federal Register.

    Agency Rule-Making & Guidance Consumer Finance CFPB ECOA HMDA Mortgages Regulation B Regulation C

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  • CFPB Takes Action Against Delaware Trusts, Debt Collector for Allegedly Filing Illegal Student Loan Debt Collection Lawsuits

    Consumer Finance

    On September 18, the CFPB announced it had filed a complaint in the U.S. District Court for the District of Delaware against a collection of 15 Delaware statutory trusts and their debt collector for, among other things, allegedly filing lawsuits against consumers for private student loan debt that they could not prove was owed or that was outside the applicable statute of limitations. According to the CFPB, between 2001 and 2007, the trusts bought and securitized more than 800,000 private student loans, while the trusts contracted with the debt collector to collect on delinquent and defaulted loans. The complaint alleges that the trusts and debt collector engaged in deceptive and unfair practices between November 2012 and the end of April 2016 by: (i) filing false and misleading affidavits, including more than 25,000 affidavits that were notarized by notaries who had not witnessed the documents being signed; (ii) filing at least 2,000 suits to collect loans without the necessary documentation to show that the trusts owned the loans or to prove that a debt was owed; (iii) filing at least 486 collection suits after the statute of limitations had expired; and (iv) in some instances, providing court testimony consistent with the false affidavit statements. As a result, the trusts and the debt collector allegedly obtained over $21.7 million in judgments against consumers and collected an estimated $3.5 million in payments in cases where they lacked the intent or ability to prove the claims, if contested.

    According to the proposed consent judgment, which must be approved by a judge in the district court, the trusts are required to pay at least $3.5 million in restitution to more than 2,000 consumers who made payments resulting from the improper collection suits, to pay $7.8 million in disgorgement to the Treasury Department, and to pay an additional $7.8 million civil money penalty to the CFPB. In addition, the trusts must: (i) hire an independent auditor, subject to the Bureau’s approval, to audit all 800,000 student loans in the portfolio to determine if collection efforts must be stopped on additional accounts; (ii) cease collection attempts on loans that lack proper documentation or that are time-barred; and (iii) ensure false or misleading documents are not filed and that documents requiring notarization are handled properly.

    A separate consent order issued against the debt collector orders the company to pay a $2.5 million civil money penalty to the CFPB.

    Consumer Finance CFPB Student Lending Debt Collection Enforcement

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  • CFPB’s Summer Edition of Supervisory Highlights Discloses Findings Across Many Financial Services Areas

    Consumer Finance

    On September 12, the CFPB released its summer 2017 Supervisory Highlights, which outlines its supervisory and oversight actions in areas such as auto loan servicing, credit card account management, debt collection, deposit account supervision, mortgage origination and servicing, remittances, service provider programs, short-term small-dollar lending, and fair lending. According to the Supervisory Highlights, recent supervisory resolutions have “resulted in total restitution payments of approximately $14 million to more than 104,000 consumers during the review period” between January 2017 and June 2017.

    As examples, in the area of auto loan servicing, examiners discovered vehicles were being repossessed even though the repossession should have been cancelled. Coding errors, document mishandling, and failure to timely cancel the repossession order were cited causes. Regarding fair lending examination findings, the CFPB discovered, in general, “deficiencies in oversight by board and senior management, monitoring and corrective action processes, compliance audits, and oversight of third-party service providers.” Examiners also conducted ECOA Baseline Reviews on mortgage servicers and discovered weaknesses in servicers’ fair lending compliance management systems. Findings in other areas include the following:

    • consumers were provided inaccurate information about when bank checking account service fees would be waived, and banks misrepresented overdraft protection;
    • debt collectors engaged in improper debt collection practices related to short-term, small-dollar loans, including attempts to collect debts owed by a different person or contacting third parties about consumers’ debts;
    • companies overcharged mortgage closing fees or wrongly charged application fees that are prohibited by the Bureau’s Know Before You Owe mortgage disclosure rules; and
    • borrowers were denied the opportunity to take full advantage of the mortgage loss mitigation options, and mortgage servicers failed to “exercise reasonable diligence in collecting information needed to complete the borrower’s application.”

    The Bureau also set forth new examination procedures for HMDA data collection and reporting requirements as well as student loan servicers, in addition to providing guidance for covered persons and service providers regarding pay-by-phone fee assessments.

    Consumer Finance CFPB Enforcement Auto Finance Credit Cards Debt Collection Fair Lending ECOA Compliance Mortgage Origination Mortgage Servicing HMDA Student Lending

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  • CFPB’s Project Catalyst Issues First “No-Action” Letter to Consumer Lending Firm

    Consumer Finance

    On September 14, the CFPB’s Project Catalyst initiative issued its first “no-action” letter to a consumer lending firm that provides an online lending platform that uses alternative data when making lending decisions. As previously discussed in InfoBytes, Project Catalyst explores innovation in the consumer financial services sector and examines the potential challenges facing consumers, entrepreneurs, and investors. With the issuance of the no-action letter—at the lender’s request—the CFPB indicated that it does not, at the present, intend to take enforcement action against the lender under the Equal Credit Opportunity Act. However, the letter does not waive the Bureau’s right to choose to “conduct supervisory activities or engage in an enforcement investigation” should the lender fail to comply with the outlined terms. Further, the letter stipulates that the Bureau has the right to evaluate other matters concerning the lender. According to a press release issued by the Bureau, the lender has agreed to “share certain information with the CFPB regarding the loan applications it receives, how it decides which loans to approve, and how it will mitigate risk to consumers, as well as information on how its model expands access to credit for traditionally underserved populations.”

    Earlier this year the CFPB issued a request for information seeking input about the use of alternative data, and it believes the information it will receive under the terms of the no-action letter will help to “further its understanding of how these types of practices impact access to credit generally and for traditionally underserved populations, as well as the application of compliance management systems for these emerging practices.” (See previous InfoBytes summary here.)

    Consumer Finance CFPB Alternative Data Credit Scores Fair Lending ECOA

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  • CFPB Announces September 28 Community Bank Advisory Council Meeting

    Consumer Finance

    On Thursday, September 28, the CFPB will hold its next Community Bank Advisory Council meeting in Washington, DC. According to the September 12 Federal Register publication providing notice of the meeting, the Council’s discussion topics will focus on “Know Before You Owe: Overdraft” services and other financial empowerment initiatives. As previously discussed in InfoBytes, on August 4 the CFPB announced the release of a study focused on the use of overdraft services by consumers, as well as four prototype overdraft disclosure templates currently under testing.

    Consumer Finance CFPB Community Banks Overdraft

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  • CFPB Issues Consent Order to Online Lead Aggregator, Settles Separate 2016 Lead Aggregator Action

    Consumer Finance

    On September 6, the CFPB ordered an online loan lead aggregator to pay $100,000 for its alleged involvement in selling leads to small-dollar lenders and installment loan purchasers who then extended loans that were void in whole or in part under the borrower’s state laws. The consent order alleges that the California-based company knew the state of residence for each lead sold, yet “regularly sold [l]eads for consumers located in states where the resulting loan was void or the lender had no legal right to collect the principal, interest, or fees from the consumer based on state-licensing requirements or interest-rate limits.” The order also claims that, because the company knows the identity of each purchaser prior to the sale of the loan, it should also know (i) whether the purchaser is likely to comply with the state laws, or (ii) whether the leads it sells will result in loans exceeding state usury interest rate limits or fail to be in compliance with the consumer’s state laws. Pursuant to the consent order, in addition to the $100,000 civil money penalty, the company must (i) “undertake reasonable efforts to ensure” leads do not result in loans that are void under the laws of the consumer’s state; (ii) obtain, among other things, copies of licenses required by each state for its end users “where the absence of such a license would render a loan void in whole or in part under the laws of that state”; (iii) implement procedures for reviewing loans that result from its leads to ensure compliance with privacy and other laws; (iv) establish a policy to prohibit lenders from making loans that are likely to result in loans that are void under the consumer’s state-licensing requirements or interest-rate limits and “refrain from conveying” leads for such loans; and (v) submit registration for the Bureau’s Company Portal.

    On the same day, the CFPB also entered into a $250,000 settlement with the company’s president and primary owner for his alleged actions cited in a 2016 complaint involving his role as the operator of a different online lead aggregator. (See previous InfoBytes summary here.) In addition to the civil money penalty, the president has agreed to (i) make efforts to guarantee that all loans offered to consumers are valid in the states where they live; (ii) ensure that there is no misleading, inaccurate, or false information contained in the consumer-facing content of all lead generators from which leads are accepted; and (iii) require all lead generators to “prominently disclose to consumers an accurate description” of how leads will be received, conveyed, and processed. The president has neither admitted nor denied the CFPB’s allegations.

    Consumer Finance CFPB Payday Lending Data Collection / Aggregation Enforcement Settlement

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  • CFPB, Federal and State Banking Agencies Issue Guidance for Financial Institutions on Providing Disaster Relief to Consumers

    Consumer Finance

    As previously reported in InfoBytes, several federal banking agencies have already issued guidance and resources for national banks and federal savings associations aiding consumers affected by recent disasters. On September 1, the CFPB issued a statement for CFPB-supervised entities on ways to provide assistance to consumers who may be at financial risk. The list includes:

    • offering penalty-free forbearance or repayment periods with disclosed terms;
    • limiting or waiving fees and charges, including overdraft fees, ATM fees, or late fees;
    • restructuring or refinancing existing debt, including extending repayment terms;
    • easing documentation or credit-extension requirements;
    • increasing capacity for customer service hotlines, particularly those that serve consumers in languages other than English; and
    • increasing ATM daily cash withdrawal limits.

    The statement further suggests that supervised entities should utilize existing regulatory flexibility if doing so would benefit affected consumers. Included are examples from Regulations B, X, and Z. Additionally, the Bureau stated it will “consider the circumstances that supervised entities may face following a major disaster and will be sensitive to good faith efforts to assist consumers.”

    The CFPB separately published a blog post for consumers containing a financial toolkit that includes links to disaster relief organizations, ways to secure financial needs, and information on forbearance options, insurance settlements, and contractor evaluations. The CFPB also issued a warning to consumers of the increased risk of scams and fraud.

    In related news, on September 6, the Federal Reserve Board, Conference of State Bank Supervisors, FDIC, and OCC issued a joint press release for financial institutions that may be impacted by Hurricane Irma. The agencies encouraged constructive cooperation with borrowers, noting that “prudent efforts to adjust or alter terms on existing loans in affected areas should not be subject to examiner criticism.” Guidance was also issued on matters concerning Community Reinvestment Act considerations, investments, regulatory reporting requirements, publishing requirements, and temporary banking facilities.

    Consumer Finance CFPB Federal Reserve CSBS FDIC OCC CRA Lending Mortgages

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  • CFPB, Treasury, and FinCEN Release Memorandum Emphasizing Financial Institutions’ Role in Preventing Elder Financial Exploitation

    Consumer Finance

    On August 30, the CFPB, Treasury Department, and Financial Crimes Enforcement Network (the agencies) issued a joint memorandum concerning elder financial exploitation (EFE). The agencies note that EFE—which is defined as “the illegal or improper use of an older person’s funds, property or assets”—has become the most common form of elder abuse in the U.S. The Memorandum on Financial Institution and Law Enforcement Efforts to Combat Elder Financial Exploitation emphasizes that financial institutions can play a key role in detecting, responding to, and preventing EFE, encourages collaboration with law enforcement and local adult protective service agencies to facilitate the timely response to reports, and outlines guidance relating to the filing of suspicious activity reports (SARs). According to the memorandum, “SARs can play an important role in the fight against EFE by providing information and references to any supporting documentation that can trigger an investigation, support an ongoing investigation, or identify previously unknown subjects and entities.” The agencies cautioned, however, that “access to SARs and their use is restricted under federal law” and that law enforcement agencies should contact FinCEN for assistance in SAR-related inquiries.

    Consumer Finance CFPB FinCEN SARs Agency Rule-Making & Guidance Treasury Department

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  • FTC Announces Two Separate Settlements to Resolve Allegedly Deceptive Telemarketing Schemes

    Consumer Finance

    On September 1, the FTC issued a press release announcing a settlement with a Utah-based operation and its owner (Defendants) to resolve allegations that the company had created merchant accounts to help telemarketers process consumer credit card transactions in violation of the Federal Trade Commission Act (FTC Act) and the Telemarketing Sales Rule (TSR). According to the complaint, Defendants nominated individuals to serve as “principals” of straw companies, which then were used to open merchant accounts to assist telemarketers who did not meet the requirements or standards for opening the accounts on their own. The telemarketers, in turn, allegedly deceived consumers by making false promises regarding business opportunities that they claimed would generate substantial income, and processed credit card payments from consumers using the straw company merchant accounts for the allegedly “worthless opportunities.” Under the terms of the order, Defendants are permanently banned from the payment processing business, including acting as an independent sales organization or sales agent, and must pay a judgment of more than $3 million. The FTC suspended the judgment due to the Defendants’ inability to pay, but noted that it “will become due immediately if [Defendants] are found to have misrepresented their financial condition.”

    Separately on August 31, the FTC announced that a default judgment had been issued in a pending action brought against the operators of a deceptive telemarketing scheme who allegedly targeted Spanish-speaking consumers by pretending to be affiliated with the Peruvian government and deceived consumers by giving the impression that the calls were from emergency responders or by people the consumers had provided as references. The allegations, which violated the FTC Act and the TSR, claimed that consumers were presented opportunities to participate in language courses at discounted prices and were misled about prizes they had won. When consumers declined to participate or cancelled delivery of the prizes, the telemarketers made “false and threatening” claims of “legal or financial consequences,” allegedly posing as lawyers or government officials. Under the terms of the default judgment, the telemarketers (i) are ordered to pay $6.3 million as equitable monetary relief; (ii) are banned from telemarketing activities; and (iii) prohibited from misrepresenting material facts.

    Consumer Finance FTC Enforcement Telemarketing Sales Rule FTC Act Settlement

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