InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
Federal Reserve Board Reports on CFPB Consumer Protection Unit
This week, the Office of the Inspector General (OIG) for the Federal Reserve Board issued an evaluation of the CFPB’s Consumer Response Unit, which is responsible for managing the CFPB’s consumer complaint system. The report provides a concise overview of the CFPB’s consumer complaint process and includes the OIG’s evaluation of that process. Specifically, the OIG concludes that the CFPB’s consumer complaint process is reasonable, generally compliant with the Dodd-Frank Act, and consistent with industry best practices. However, the report also indicates that the CFPB Consumer Response Unit could improve its process by further addressing (i) inaccurate manual data entry of consumer complaints, (ii) inconsistent complaint management system data, (iii) lack of a finalized agency-wide privacy policy, (iv) lack of a comprehensive quality assurance program, and (v) lack of a centralized tracking system for quality assurance reviews.
OCC Refines Consideration of BSA/AML Examination Findings
On September 28, the OCC issued Bulletin 2012-30 to refine how examiners consider Bank Secrecy Act/Anti-Money Laundering (BSA/AML) examination findings in the FFIEC Uniform Ratings System and the OCC’s risk assessment system for national banks and federal savings associations, and in the Risk Management, Operational Controls, Compliance, and Asset Quality ratings and risk assessment system for federal branches and agencies of foreign banking organizations. To align OCC practices with those of other federal regulators, OCC examiners no longer consider BSA/AML findings when assigning consumer compliance ratings. However, the findings still are considered when assessing overall compliance risk. Additionally, the current practice of considering such findings in the safety and soundness context will continue, and serious compliance deficiencies create a presumption that a bank’s management component rating will be hurt. Similarly, current practices regarding consideration of findings with regard to foreign banks remain applicable.
California Governor Signs Two Auto Buy-Here-Pay-Here Dealer Bills, Vetoes A Third
On September 29, California Governor Jerry Brown signed AB 1447 and AB 1534, imposing new requirements on Buy-Here-Pay-Here automobile dealers (BHPH Dealers), defined as those dealers who assign less than 90% of their sale and lease contracts to an unaffiliated third party within 45 days of entering the contract unless they meet certain other criteria. At the same time, Governor Brown vetoed a third bill, SB 956, which could have had far reaching implications for BHPH Dealers, regulators and auto finance companies who purchase loan contracts from BHPH Dealers.
Among the new requirements affecting BHPH Dealers are:
- BHPH Dealers will be required to provide buyers and lessees with a 30-day/1,000 mile warranty covering certain components of the vehicle;
- When a covered warranty claim is made, the BHPH Dealer will be required to make the repairs at no cost to the consumer or refund the full amount of the purchase or lease, minus a reasonable amount for any damage to the vehicle after the lease or sale;
- Electronic tracking of a vehicle after sale to identify the location of the vehicle, except with the consumer’s written consent and for limited purposes will be prohibited;
- Use of starter interrupt technology must be disabled except in limited circumstances;
- Disclosure of the reasonable market value of a used vehicle must be posted on the vehicle, including what information was used to determine that value, and a copy of any information obtained from a nationally recognized pricing guide must be provided to potential purchasers of the vehicle; and
- Consumers can no longer be required to make required payments in person.
In what is likely to be considered positive news for indirect auto finance companies, whose business is limited to the purchase of retail installment sales contracts from auto dealers, Governor Brown’s veto of SB 956 will allow them to continue making those purchases without the added concerns they might have otherwise had. Some of those concerns, which have become moot for the time being, included:
- Confirming whether the dealer from whom the purchase was being made was in fact a BHPH dealer and, if so, whether they were appropriately licensed;
- Ensuring that the finance company did not purchase contracts in which the interest rate charged to the borrower exceeded amount permitted under the proposed law; and
- Providing an increased grace period than is otherwise applicable before repossession.
In vetoing SB 956, Governor Brown noted that the bill required BHPH Dealers “be regulated by the Department of Corporations under the California Finance Lender’s Law. I am not yet convinced the evidence merits the regulatory oversight of this bill.” However, Governor Brown also made clear that if added protections are necessary after implementation of the two bills signed into law on September 29, his office would work with the legislature to “find appropriate, measured solutions.”
CSBS Proposes Uniform Reporting of Authorized Delegates for Money Service Businesses
On September 28, the Conference of State Bank Supervisors (CSBS) proposed a system for state-licensed money service businesses (MSBs) to report information concerning authorized delegates through NMLS. Licensed MSBs are permitted to contract with third-parties-authorized delegates-to perform the function of receiving and dispensing funds on behalf of the MSB. Most state regulators require that MSBs report information regarding their authorized delegates. NMLS currently is expanding to allow state agencies to manage filings by non-mortgage companies, including MSBs. To date, nine states have started to manage or have announced their intent to manage MSB licenses through NMLS. An NMLS working group has determined that the reporting of authorized delegate information is not supported by NMLS' existing platform. The instant proposal (i) identifies new NMLS functionality to facilitate reporting of authorized delegate information, (ii) outlines policies to implement such reporting, and (iii) describes the process by which an MSB would report such information through NMLS. The CSBS has requested comment from licensees and regulatory agencies by November 1, 2012.
Sixth Circuit Allows Private FCRA Action To Proceed Against Bank
On September 27, the U.S. Court of Appeals for the Sixth Circuit revived an individual’s private action under FCRA against a bank, alleging that the bank failed to adequately investigate and respond to notices it received from several consumer reporting agencies regarding disputed car loan. Boggio v. USAA Fed. Savings Bank, No 11-4040, slip op. (6th Cir. Sep. 27, 2012). After experiencing credit problems caused by his ex-wife’s failure to make payments on a car she purchased during their marriage by signing both of their names to a check, the plaintiff wrote to several consumer reporting agencies to dispute his responsibility for the loan in light of the forgery, as well as the parties’ separation and divorce agreements that stated the ex-wife would be responsible for the car payments. The plaintiff alleges that the reporting agencies notified the bank of the dispute, which the bank refused to investigate without a police report or fraud affidavit from the plaintiff, as required by the bank’s fraud policy. The district court granted summary judgment in favor of the bank, holding that the bank reasonably investigated the notices it received from credit reporting agencies, and that the plaintiff had ratified the debt. On appeal, the circuit court reversed and remanded the district court’s decision, holding that there is a genuine dispute of material fact with regard to the sufficiency of the bank’s investigation. The court added that the plaintiff’s failure to comply with the bank’s fraud policy does not alter its finding of a genuine dispute of material fact, holding that FCRA does not permit the bank to require independent confirmation of the reporting agencies’ notices before conducting an investigation. The court also held that the dispute over ratification requires resolution by a trier of fact given the ambiguity of the separation agreement, among other issues.
CFPB Releases Five Year Strategic Plan
On September 25, the CFPB released a draft strategic plan for 2013-2018. The draft plan outlines the CFPB’s four strategic goals and desired outcomes, as well as its broad strategies for achieving those objectives. The CFPB states that it will strive to (i) “prevent financial harm to consumers while promoting good practices that benefit them,” (ii) “empower consumers to live better financial lives,” (iii) inform the public and policymaking with “data-driven analysis,” and (iv) advance the CFPB’s performance “by maximizing resource productivity and enhancing impact.” For each goal, the plan identifies metrics the CFPB will use to measure its performance. For example, to assess its progress in preventing financial harm to consumers and promoting good practices, the CFPB will consider, among other indicators, the number of fair lending supervision activities opened during the fiscal year and the percentage of fair lending cases filed that were “successfully resolved” through litigation, settlement, or default judgment. The CFPB has asked for comments by October 25, 2012.
FDIC Announces New Violations Classification System
On September 25, the FDIC issued Financial Institution Letter FIL-41-2012, which revises the classification system used to cite violations of consumer financial laws identified during compliance examinations. The new system features three levels of severity and will replace the current two-level system on October 1, 2012. The FDIC letter states that the change is intended to provide greater clarity regarding the severity of a violation by focusing on the most significant issues identified during an examination. For example, the new “Level 3/High Severity” classification will cover violations that result in significant harm to consumers or members of a community. These violations typically result in restitution in excess of $10,000 (in aggregate), and include any pattern or practice violations of anti-discrimination provisions.
CFPB Reports on Consumer Credit Scores
On September 25, the CFPB published a report on credit scores and consumer reporting agencies. As required by the Dodd-Frank Act, the CFPB compared credit scores sold to consumers to those sold to creditors to determine the impact of the different scoring models used by consumer reporting agencies. Using 200,000 credit files obtained from each of the major consumer reporting agencies, the CFPB found that for a substantial minority of consumers, the different scoring models yielded meaningfully different results, i.e., the consumer and creditor purchased different credit scores from the same reporting agency. In comparing different models across various demographic subgroups, the CFPB found that different credit scores did not appear to treat different groups of consumers systematically differently than other scoring models. The CFPB cautioned consumers against exclusively relying on credit scores they purchase as a guide to how creditors will view their credit quality. Additionally, the CFPB urged consumer reporting agencies to advise consumers that the scores they purchase could vary, sometimes substantially, from the scores used by creditors.
FDIC Names New York Regional Director
On September 26, the FDIC named John Vogel as New York Regional Director. The New York Region covers twelve northeastern states, as well as Washington, DC, Puerto Rico, and the U.S. Virgin Islands. Mr. Vogel has been with the FDIC since 1990 and previously served as New York Deputy Regional Director for Risk Management.
Three State AGs Join Challenge to Dodd-Frank Act and CFPB Appointment
On September 20, the Attorneys General (AGs) of Michigan, Oklahoma, and South Carolina joined an earlier-filed lawsuit in the U.S. District Court for the District of Columbia that challenges aspects of the Dodd-Frank Act, including the CFPB and its director. The AGs joined an amended complaint that seeks to challenge as unconstitutional the “formation and operation” of the CFPB, and that argues the President side-stepped constitutional checks and balances by refusing to submit his nominee for CFPB Director to the Senate. The AGs also charge that the “orderly liquidation authority” (OLA) for financial institutions provided to the Treasury Secretary by the Dodd-Frank Act violates the separation of powers doctrine, as well as the Fifth Amendment’s bar against the taking of property without due process. The AGs cite their state pension funds—each of which is invested in “a variety of institutions” subject to the OLA—as their basis for standing, claiming that the OLA exposes the states and their funds to “the risk that their credit holdings could be arbitrarily and discriminatorily extinguished.” Finally, the private plaintiffs that originally filed the suit also contest based on a separation of powers argument the “unconstitutional creation” of the Financial Stability Oversight Council.