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  • CFPB Fines National Credit Reporting Company $3 Million for Alleged Deceptive Practices

    Consumer Finance

    On March 23, the CFPB ordered a nationwide credit reporting company and its subsidiaries to pay $3 million for allegedly deceiving consumers about how credit scores they marketed and sold were used by lenders. The consent order claims the company developed its own proprietary credit scoring model (PLUS Score), which was used to generate credit scores from information in a consumer’s credit file. The company then allegedly deceptively marketed and sold the “educational” credit score as the same type of score lenders use to make credit decisions, when in fact lenders did not use the scores. Moreover, there were instances of significant discrepancies between the “educational” credit scores that the company sold to consumers and the actual credit scores used by the lenders. The Bureau also alleges the company—up until March 2014—violated the Fair Credit Reporting Act (FCRA) by requiring consumers to view advertisements before they could access their credit reports. Pursuant to the consent order, the company must pay a $3 million civil money penalty, truthfully inform consumers about the nature of the credit scores it sells, and develop and implement an effective compliance management system to ensure its advertising practices comply with federal consumer laws. As previously reported in InfoBytes, earlier this year the CFPB issued consent orders against two different nationwide credit reporting companies for similar allegations.

    Consumer Finance CFPB Consumer Reporting Agency Enforcement

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  • Fed/CFPB OIG Recommends CFPB Strengthen Conflicts-of-Interest Controls

    Consumer Finance

    On March 15, the Office of Inspector General for the Board of Governors for the Federal Reserve Board and Consumer Financial Protection Bureau (OIG) issued its findings in the evaluation report titled The CFPB Can Strengthen Its Controls for Identifying and Avoiding Conflicts of Interest Related to Vendor Activities (the Report), stemming from an evaluation of the risk of potential conflicts of interest when using vendors to support fair lending compliance and enforcement analysis. The Report covers the time period of June 2012 through January 2016. To assist the CFPB’s Office of Fair Lending and Equal Opportunity’s fair lending oversight function, the Bureau contracted with vendors to “conduct statistical analysis designed to assess an institution’s compliance with fair lending laws and to serve as an expert witness when needed.” The function of the evaluation was to assess whether the Bureau effectively identified and avoided the risk of potential conflicts of interest for vendors supporting this type of work. Notably, while the OIG concluded that the Bureau’s relationship with one vendor heightened the risk of possible conflicts of interest and increased the need for timelier vendor disclosures and communications—a vendor took nearly two years to disclose a relationship with a firm included on a CFPB task order but later confirmed no work was performed—no actual conflicts of interest were found in its evaluation. The OIG presented the following recommendations:

    • Ensure vendors comply with existing documentation requirements;
    • Clarify roles and responsibilities; and
    • Improve the facilitation of vendor disclosure of potential conflicts or receive affirmation that conflicts do not exist at the start of every task order.

    Furthermore, the OIG recommended evaluating the costs and benefits of performing more fair lending analysis internally, which may effectively mitigate such risks

    Consumer Finance CFPB OIG

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  • CFPB Releases "Remittance Rule" Assessment; Seeks Public Comment

    Agency Rule-Making / Guidance / Amendments

    On March 20, the CFPB issued a request for comment on its plan for assessing the effectiveness of its May 2013 final rule governing consumer remittance transfers. According to a March 17 blog post on the CFPB’s website, the self-assessment—which is required under Section 1022(d) of the Dodd-Frank Act—will focus on, among other things: (i) “whether the market for remittances has evolved . . . in ways that promote access, efficiency, and limited market disruption”; and (ii) whether the Remittance Rule (and other CFPB regulatory activity) has “brought more information, transparency, and greater predictability of prices to the market.” In describing the approach it planned to take in conducting its evaluation, the CFPB explained that it would seek to “compare consumer outcomes to a baseline that would exist if the Remittance Rule’s requirements were not in effect.” Comments on the plan will be due 60 days following the notice’s publication in the Federal Register.

    Agency Rulemaking & Guidance Consumer Finance Remittance CFPB

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  • House Financial Services Committee Holds Hearing to Consider the “Unconstitutional Structure of the CFPB”

    Agency Rule-Making / Guidance / Amendments

    On March 21, the Oversight and Investigations Subcommittee of the House Financial Services Committee held a hearing entitled “The Bureau of Consumer Financial Protection's (CFPB's) Unconstitutional Design.” The majority staff memorandum issued prior to hearing stated that its purpose was to: (i) “examine whether the structure of the [CFPB] violates the Constitution,” and (ii) consider potential “structural changes to the Bureau to resolve any constitutional infirmities.”

    Chairwoman Rep. Ann Wagner (R-Mo.) introduced the proceeding by describing the CFPB as a “an unconstitutional behemoth” with a 'Washington knows best' mindset,” that “side-steps accountability to Congress and the President.” Three of the four witnesses called to testify before the panel shared the general position that the CFPB is unconstitutional as currently structured. 

    • The Honorable Theodore Olson , a partner at Gibson, Dunn & Crutcher LLP and lead counsel for PHH in its suit against the CFPB, shared his personal opinion that the Bureau, “[m]ore than any other administrative agency ever created by Congress,” is “far outside of our constitutional structure, holds the potential for tyrannical governance, and obscures the lines of governmental accountability. [T]he CFPB’s structure is the product of aggregating some of the most democratically unaccountable and power-centralizing features of the federal government’s administrative state.” Particularly with respect to the President, Mr. Olson noted that “by preventing the President from removing the head of the Bureau except for very limited circumstances,” the President is effectively “stripped of the power to faithfully execute the laws in these circumstances.” 
    • Professor Saikrishna Prakash, a Law Professor at the University of Virginia School of Law questioned the Bureau’s constitutionality, characterizing the Director of the CFPB as “the second most powerful officer in the government for he serves under no one’s supervision, enjoys a vast budget not subject to the appropriations process, and exerts enormous influence over several prominent aspects of the economy.” 
    • Adam White, a Research Fellow with the Hoover Institution similarly urged Congress to reform the CFPB while also cautioning against allowing the “CFPB’s original structure to . . . become the new benchmark for the next generation of ‘independent agencies.’” 

    Meanwhile, offering several arguments in support of the Bureau’s current structure was Brianne Gorod – a public interest attorney who has helped prepare briefing in the PHH v CFPB matter on behalf of “current and former members of Congress, who were sponsors of Dodd-Frank” and “participated in drafting it,” and “serve or served on committees with jurisdiction over the [CFPB].” (See, e.g., Motion for Leave to Intervene in Support of the CFPB). Ms. Gorod argued, among other things, that “the President’s ability to remove the Director [of the CFPB] only for cause does not ‘impede the President’s ability to perform his constitutional duty[,]’” but rather, to the contrary, “provides the Executive with substantial ability to ensure that the laws are ‘faithfully executed.’” For this reason and others, Ms. Gorod argued that “the CFPB’s leadership structure . . . is consistent with the text and history of the Constitution, as well as Supreme Court precedent.”

    Agency Rulemaking & Guidance Consumer Finance CFPB House Financial Services Committee PHH v CFPB

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  • Federal Court in North Dakota Dismisses CFPB Complaint Against Payment Processor for Insufficient Factual Allegations

    Courts

    In an Order issued on March 17, a U.S. District Court for the District of North Dakota dismissed an enforcement action filed by the CFPB against a payment processor and its two top executives.  The Bureau had filed the lawsuit last year against a Fargo-based third-party payment firm, and its co-owners, alleging that the firm had “ignored” warnings from financial institutions of possible unauthorized debits and other possibly suspicious activity, including the possibility that the firm was processing electronic funds transfers on behalf of payday lenders in states where payday loans are illegal. 

    In granting Defendants’ motion to dismiss without prejudice, the Court held, among other things, that the CFPB had failed to “plead[] facts sufficient to support the legal conclusion that consumers were injured or likely to be injured” by the actions attributed to the defendants in the complaint.  As explained by the Court, "[a]lthough the complaint need not contain detailed factual allegations, it must contain 'more than an unadorned, the-defendant-unlawfully-harmed-me accusation.”  The Court emphasized both that (i) “[f]ormulaic recitations of the elements of a claim or assertions lacking factual enhancement are not sufficient,” and (ii) that “[t]he facts alleged in the complaint must be plausible, not merely conceivable.”  Applying this standard, the Court ultimately held that the CFPB’s complaint “d[id] not contain sufficient factual allegations to back up its conclusory statements regarding Intercept’s allegedly unlawful acts or omissions.”

    Courts CFPB Payment Processors Payday Lending

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  • CFPB’s Credit Union Advisory Council to Hold Public Meeting on March 30; Will Discuss Alternative Data and Consumer Access to Financial Records

    Agency Rule-Making / Guidance / Amendments

    In a Notice of Public Meeting published in the March 14 Federal Register, the CFPB announced that its Credit Union Advisory Council will hold a public meeting on March 30 from 3:15 to 4:45 pm EDT. According to the Notice, the Advisory Council plans to focus on “alternative data and consumer access to financial records.” Attendees should RSVP by noon on March 29.

    Agency Rulemaking & Guidance Consumer Finance CFPB Advisory Council

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  • Trump Administration Files Brief in PHH Corp. v. CFPB

    Agency Rule-Making / Guidance / Amendments

    On March 17, the Trump Administration’s Department of Justice (“DOJ”) filed its amicus brief in the D.C. Circuit’s en banc review of the CFPB’s enforcement action against PHH Corporation for alleged violations of the Real Estate Settlement Procedures Act (“RESPA”). In October 2016, a panel of the D.C. Circuit concluded that the CFPB misinterpreted RESPA and that its single-Director structure violated the constitutional separation of powers. The DOJ brief states that, “[w]hile we do not agree with all of the reasoning in the panel’s opinion,” the DOJ agrees with the panel’s conclusion that “a removal restriction for the Director of the CFPB is an unwarranted limitation on the President’s executive power” and that “the panel correctly concluded … that the proposed remedy for the constitutional violation is to sever the provision limiting the President’s authority to remove the CFPB’s Director, not to declare the entire agency and its operations unconstitutional.”

    Like the brief filed in this case by the Obama Administration DOJ before the change in administration, the current DOJ brief states that “[t]he United States takes no position on the statutory issues in this case, but in the event that the ultimate resolution of those issues results in vacatur of the CFPB’s order [against PHH], it is within this Court’s discretion to avoid ruling on the constitutional question.” However, the brief goes on to state that, because the issue is already before the en banc court and the “question is likely to recut in pending and future cases, it would be appropriate for the Court to provide needed clarity by exercising its discretion to resolve the separation-of-powers issue now.”

    Agency Rulemaking & Guidance Consumer Finance Federal Issues CFPB PHH v CFPB DOJ POTUS

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  • House Oversight Committee to Hold Hearing on March 21 Examining CFPB’s “Unconstitutional Design”

    Consumer Finance

    On March 16, the U.S. House of Representatives Subcommittee on Oversight and Investigations announced it will hold a hearing on Tuesday, March 21, at 10:00 a.m., entitled “The Bureau of Consumer Financial Protection’s Unconstitutional Design.” According to a March 16 Committee Memorandum, the hearing—which will be held in room 2128 of the Rayburn House Office Building—will examine, among other things, “whether the structure of the CFPB (Bureau) violates the Constitution as well as structural changes to the Bureau to resolve any constitutional infirmities.” The following witnesses are scheduled to testify:

    • The Honorable Theodore Olson, Partner, Gibson, Dunn & Crutcher LLP
    • Professor Saikrishna Prakash, James Monroe Distinguished Professor, University of Virginia School of Law
    • Mr. Adam White, Research Fellow, Hoover Institution
    • Ms. Brianne Gorod, Chief Counsel, Constitution Accountability Center

    Consumer Finance Federal Issues House Oversight Committee CFPB

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  • Credit Union Trade Association Submits Letter in Support of Proposed CFPB Exemption

    Federal Issues

    On March 5, Credit Union National Association (CUNA) President Jim Nussle submitted a letter to Rep. Roger Williams (R-Texas), supporting his introduction of H.R. 1264—the Community Financial Institution Exemption Act. The bill, referred to the House Financial Services Committee on February 28, provides an exemption from rules and regulations of the CFPB for community financial institutions with under $50 billion in assets. “The rules are, in large part, implemented to address abuses perpetrated by the large institutions and other previously nonregulated providers, and not small institutions like credit unions and small banks,” Nussle wrote. “While we believe that the statute presently provides the CFPB authority to exempt credit unions under $50 billion from its rulemaking, the bureau has been unwilling to effectively use the exemption authority.”

    Federal Issues CFPB credit union House Financial Services Committee

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  • House Democrat Wants CFPB to Probe Discrimination in Small Business Loans

    FinTech

    In a March 15 letter to CFPB Director Richard Cordray, Rep. Emanuel Cleaver (D-Mo.) called upon the Bureau to address potential abuses by FinTech companies that may be engaged in predatory small-business lending.  In so doing, he asked that the Bureau “investigate whether FinTech companies engaged in small business lending are complying with all anti-discrimination laws, including the Equal Credit Opportunity Act.” The letter also seeks responses to three questions: 

    • When does the CFPB anticipate finalizing regulation and guidance to fully implement Section 1071 of the ECOA (requiring financial institutions to collect and maintain loan data for women-owned, minority-owned and small business credit applicants)?
    • Has the CFPB engaged in any supervisory activities over FinTech small business lenders and, if so, did the CFPB identify any ECOA-related compliance issues?
    • Will the CFPB solicit complaints through its consumer complaint portal from consumers, particularly those from communities of color, who feel they have been discriminated against by a FinTech lender offering small business loans (and, if not, how can consumers formally submit a complaint)?

    FinTech CFPB Cordray ECOA Lending

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