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On March 21, Federal Trade Commission (FTC) Acting Chairman Maureen K. Ohlhausen and Commissioner Terrell McSweeny testified before the Senate Committee on Commerce, Science, and Transportation’s Subcommittee on Consumer Protection, Product Safety, and Data Security to describe the agency’s law enforcement work to combat fraud. The testimony noted that in the past year, the agency obtained judgments of more than $11.9 billion to consumers “harmed by deceptive and unfair business practices” and received more than three million consumer complaints. Commissioner Terrell McSweeny noted that the “top three categories of complaints were debt collection, impostor frauds, and identity theft,” and that for the first time “imposter scam complaints . . . surpassed the number of identity theft complaints.” FTC Acting Chairman Maureen K. Ohlhausen also presented testimony and emphasized two populations in particular—military consumers and small businesses—both of whom are attractive targets for fraudsters, and for whom the agency actively works with to provide fraud recognition tools to prevent future victims. Also discussed at the hearing was the creation of the Office of Technology Research and Investigation to help the agency “keep abreast of technology changes affecting consumers” as well as the agency’s fraud prevention and education outreach initiatives that impact “tens of millions of people and businesses each year.”
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.
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
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
On March 14, the FTC announced that it reached a settlement with a Los-Angeles-based auto dealership group over charges that the group engaged in deceptive and unfair sales and financing practices, deceptive advertising, and deceptive online reviews. The settlement, in the form of a stipulated final order, requires that the auto group pay more than $3.6 million in consumer remediation and is pending approval by the U.S. District Court for the Central District of California. The complaint, which was filed in September of last year, also alleged the defendants participated in deceptive and unfair practices related to add-on products that consumers did not authorize. Furthermore, the FTC claimed the defendants violated TILA and Regulation Z, as well as the Consumer Leasing Act and Regulation M, for “failing to clearly disclose required credit information and lease information in their advertising.” The proposed settlement order prohibits “the defendants from making misrepresentations relating to their advertising, add-on products, financing, and endorsements or testimonials,” and also bars “the defendants from engaging in other unlawful conduct when a sale is cancelled.”
On March 10, the CFPB announced the 30 organizations selected to join the Your Money, Your Goals Cohort. These organizations, selected from a pool of respondents to the Bureau’s October invitation to submit letters of interest, will receive training and technical assistance on how to use the program’s “financial empowerment materials” to better serve low-income and economically vulnerable populations.
On March 13, the FDIC announced enhancements to Money Smart for Older Adults, its financial education program geared toward preventing elder financial exploitation. The program, which the FDIC developed in partnership with the CFPB, was designed as a response to the growing concerns about financial abuse of senior citizens, which often goes unreported. Statistics provided by the National Adult Protective Services Association show that “only one in 44 cases of financial abuse comes to the attention of authorities, and 90 percent of victims are exploited by a relative, friend, or trusted acquaintance.” The program, which covers topics such as identity theft and scams that target homeowners, also provides tools to help better educate seniors on money management and financial awareness. The recently-announced enhancements include new information and resources aimed at preventing elder financial exploitation.
In a Decision and Order released last month, the CFPB denied a Petition to set aside or modify a civil investigative demand (CID) directed to a data provider (“Petitioner”). The order also directed Petitioner to produce responsive information within 10 calendar days.
The CFPB originally issued the CID on January 5 in connection with its efforts to gather information about Petitioner’s business, products, services, and operations. According to Petitioner, the stated purpose of the CID “purport[ed] to exercise jurisdiction over [Petitioner] under the Fair Credit and Reporting Act (‘FCRA’) or under ‘any other federal consumer financial law.’” On January 25, Petitioner moved to set aside or modify the CID arguing, among other things, that: (i) the Bureau lacks jurisdiction over Petitioner because Petitioner is neither a consumer reporting agency (“CRA”), nor a “covered person” or “service provider” under a “federal consumer financial law”; (ii) the CID’s Notification of Purpose is impermissibly vague in that it fails to adequately state the “nature of the conduct constituting the alleged violation” and/or “the provision of law applicable to such violation”; and (iii) the CID is “impermissibly overbroad and seeks information which cannot possibly be related to or reasonably relevant to the inquiry at hand (which itself remains unclear and undefined).”
Ultimately, the CFPB determined that none of three objections raised by Petitioner “warrant[ed] setting aside or modifying the CID.” In response to the argument that the CFPB lacks jurisdiction, the Bureau interpreted its authority under the Consumer Financial Protection Act to include investigative authority to issue CIDs to “any person” who may have information “relevant to a violation” of any federal consumer financial law, regardless of whether that person or entity is subject to CFPB authority. In response to Petitioner’s argument regarding the vagueness of the CID’s Notification of Purpose, the Bureau stated that the argument fails because “it is well settled that the boundaries of an agency investigation may be drawn ‘quite generally.’” Finally, as to Petitioner’s objection that the CID was overbroad and/or sought irrelevant information, the Bureau concluded that this was merely a restatement of the jurisdictional argument and fails for the same reasons. The CFPB explained that the question of whether Petitioner is properly subject to CFPB authority need not be answered at the outset of an investigation, because it is the type of question “the investigation is designed and authorized to illuminate.”
On March 10, in accordance with the rules of the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (CARD Act), that mandates the CFPB prepare a report every two years examining developments in the consumer credit card marketplace, the Bureau submitted a Request for Information to solicit feedback from the public. As previously covered in InfoBytes, the first review occurred in October 2013 and the second review in December 2015. In preparation for the next report, the Bureau is focusing on several aspects of the consumer credit card market, as follows:
- The terms of credit card agreements and the practices of credit card issuers
- The effectiveness of disclosure of terms, fees, and other expenses of credit card plans
- The adequacy of protections against unfair or deceptive acts or practices or unlawful discrimination relating to credit card plans
- The cost and availability of consumer credit cards, the use of risk-based pricing for consumer credit cards, and consumer credit card product innovation
- Deferred interest products
- Subprime specialist products
- Third-party comparison sites
- Secured credit cards
- Online and mobile account servicing
- Rewards products
- Variable interest rates
- Debt collection.
Comments are due by June 8, 2017.
On March 9, President Trump issued Proclamation 9577 announcing March 5 through March 11 as National Consumer Protection Week 2017. The President “call[ed] upon government officials, industry leaders, and advocates to educate our citizens about the protection of personal information and identity theft through consumer education activities in communities across the country.” As previously covered in InfoBytes, several events have been planned nationally to educate and empower consumers.