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CFPB’s credit card late fee rule stayed
On May 10, the U.S. District Court for the Northern District of Texas entered an opinion and order granting the plaintiffs, comprising several trade organization, its motion for preliminary injunction and placed a stay on the CFPB’s credit card late fee rule. As previously covered by InfoBytes, a suit was filed against the CFPB by multiple trade organizations to challenge the Bureau’s final rule to amend Regulation Z and limit most credit card late fees to $8.
The court decided not to address the plaintiffs’ arguments regarding the CARD Act, TILA, and APA violations due to the Court of Appeals for the Fifth Circuit opinion that the CFPB's funding structure was unconstitutional; therefore, any regulations promulgated by the CFPB would be unconstitutional. For that reason, due to the CFPB’s unconstitutional structure found by the 5th Circuit, the District Court decided that all factors weighed in favor of issuing a preliminary injunction and thus staying the final rule.
HUD and mortgage lender reach agreement on Montana fair lending complaint
On May 13, HUD announced an agreement with a mortgage lender to resolve allegations of Fair Housing Act violations. According to the redacted agreement, a complaint was filed with HUD last August accusing the mortgage company of engaging in housing discrimination based on race, in violation of the Fair Housing Act. The complainants claim they faced discriminatory housing terms, were denied housing, and were subject to racially discriminatory notices and advertisements. The mortgage company denied all allegations of discrimination, asserted its commitment to fair housing and equal opportunity, and agreed to a Conciliation Agreement to resolve the matter without admitting any wrongdoing or liability.
The mortgage company agreed to a $65,000 settlement and will commit to upholding its fair lending policies, ensuring applicants on Native American reservations are able to obtain residential mortgage loans without fear of discrimination based on race, color or national origin. Respondent will also contribute at least $30,000 towards initiatives designed to enhance housing conditions, financial literacy, and homeownership education for Native Americans near reservations. During the three-year term of the agreement, HUD may review compliance and conduct fair housing tests, among other oversight methods. The terms of the agreement also required the mortgage company to submit a training curriculum on its fair lending training courses for new employees and perform annual trainings with current employees; additionally, the mortgage company must submit an annual report on the mortgage company’s progress and performance in complying with the public interest provisions of the agreement. The agreement has been approved by the regional director of the Office of Fair Housing and Equal Opportunity.
Student loan servicer and trust could pay more than $5M in enforcement action with CFPB
On May 6, the CFPB filed a complaint against a Pennsylvania-based student loan servicer and 15 student loan trusts for alleged failure to properly respond to various borrower requests in violation of the CFPA. The complaint alleged thousands of borrower requests went unanswered from 2015 to 2021. Many of these requests allegedly sought forms of payment relief including: (i) co-signer release; (ii) extension of forbearance or deferment; (iii) loan settlement or forgiveness; (iv) Servicemember Civil Relief Act benefits; and (v) other forms of payment or interest rate reduction.
The CFPB also released two proposed stipulated final judgment orders for the trusts and the servicer to resolve the claims. If agreed upon by the court, the trusts and servicer will have to pay civil money penalties of $400,000 and $1.75 million, respectively, in addition to providing close to $3 million in compensation to impacted consumers. Additionally, the orders required non-monetary relief, such as the approval of outstanding borrower applications, the rectification of credit reports, the suspension of debt collection efforts, and the implementation of a functional process.
CFPB reports that complex pricing leads to higher consumer costs
On April 30, the CFPB published a report titled Price Complexity in Laboratory Markets indicating that consumers may pay higher prices for products with complex pricing structures. The report drew on experiments conducted in “simple markets,” where participants engaged in transactions as buyers and sellers. According to the report, these experiments revealed that when product prices were divided into several sub-parts, making them more complicated, participants generally paid more compared to products with a single, comprehensive price.
The study involved participants acting in the roles of buyers and sellers, with transactions involving products priced either as a lump sum or split into eight or 16 separate charges. According to the report, the results showed that in situations with more fragmented pricing, the average selling price increased and buyers found it more challenging to compare prices between sellers. For products with 16 separate charges, the Bureau reported that sellers’ total asking price was typically 60 percent higher than products with one price. In a second experiment, the CFPB investigated the effects of increased competition on market outcomes, finding that increased competition “generally improved, but did not eliminate, the negative effects of price complexity.” The Bureau noted that the findings of this research align with existing studies and evidence suggesting that alleged "junk fees" can lead to higher overall prices than those typically found in a fair and competitive market.
Biden announces student debt cancellation for borrowers who attended “predatory” institutions
On May 1, the Biden Administration announced the approval of $6.1 billion in student debt cancellation for 317,000 borrowers who attended a system of art schools, which the Administration accused of engaging in deceptive practices and leaving students with significant debt and poor job prospects.
The U.S. Department of Education found the system of art schools and its parent company guilty of significant misrepresentations about the educational value and career prospects following graduation on websites, in print material, and through misleading information from school personnel to prospective students. The school advertised an employment rate of 82 percent within six months of graduation within the field of study; however, a review of the school's records by the Department of Education alleged that graduates were inaccurately counted as employed in their study fields, inflating the figures by as much as 25 percent. Additionally, the school advertised inflated average salaries based on the same incorrect data, with testimonies indicating that school officials fabricated graduates’ earnings. All campuses of the school system closed under separate ownership in September 2023.
DFPI annual report highlights consumer protection efforts and upcoming regulations
On April 25, the California DFPI released its Annual Report of Activity under the California Consumer Financial Protection Law (CCFPL), highlighting investigations, public actions, and consumer outreach efforts under the CCFPL. According to the report, the DFPI (i) experienced a 70 percent increase in CCFPL complaints, which predominantly involved crypto assets and debt collectors; (ii) opened 734 CCFPL-related investigations and issued 181 public CCFPL actions; (iii) launched the Crypto Scam Tracker and a new consumer complaints portal; and (iv) advanced two rules, including unlawful, unfair, deceptive, or abusive acts and practices (UUDAAP) protections for small businesses and new registration requirements (pending final approval by the Office of Administrative Law) for earned wage access, debt settlement services, debt relief services, and private postsecondary education financing products.
The report emphasized that the new regulations specified that optional payments, such as tips, collected by California Financing Law (CFL)-licensed lenders would be considered charges under the law. According to the DFPI, these updates will reinforce the CFL by blocking potential loopholes and ensuring compliance among CFL-licensed lenders. Once these regulations would be approved, DFPI will oversee these financial service providers. Upon adoption, DFPI says it will be a pioneer in defining “earned wage access” as loans and regulating income advance services and the treatment of tips as charges, all through regulatory measures rather than statutory enactment.
Student loan servicer to pay DFPI $27, 500 for untimely response to information request
On April 24, the California DFPI entered into a consent order with a federal student loan servicer (respondent) that allegedly failed to provide the DFPI with timely access to requested borrower data. In late April of 2022, the U.S. Department of Education announced a one-time revision of income-driven repayments to address past inaccuracies. To take advantage of this adjustment, the Department of Education required borrowers to submit a loan consolidation application by April 30, 2024. The DFPI requested information from respondent on student loan borrowers for the purpose of completing outreach to impacted borrowers ahead of the loan consolidation application deadline. Respondent provided this information 17 days after the deadline set by the DFPI.
To resolve DFPI’s allegations, respondent agreed to pay a penalty in the amount of $27,500.
CFPB publishes the mortgage servicer edition of its Supervisory Highlights
On April 24, the CFPB published its 33rd edition of its Supervisory Highlights which covers select examinations and violations regarding mortgage servicing from April 1, 2023, through December 31, 2023. This edition of Supervisory Highlights focused on alleged violations of law identified in CFPB examinations including (i) charging illegal junk fees including impermissible property inspection and late fees; (ii) UDAAP violations; and (iii) violations of Regulation X loss mitigation requirements. The Bureau made clear in its press release that it plans to continue its focus on combatting junk fees within and beyond the mortgage servicing space.
The CFPB highlighted several violations of law resulting from mortgage servicers’ payment processing practices including the charging of property inspection fees in connection with certain Fannie Mae loans in violation of investor guidelines. To rectify this, servicers addressed system errors causing the fees in question, enhanced oversight, and were instructed to compensate affected borrowers. Other payment processing-related violations identified by the Bureau included failure to adequately describe fees in periodic statements by using the term “service fee” to describe 18 different fee types and failure to make timely disbursements from escrow accounts in violation of Regulation X.
The Bureau also identified unfair practices relating to the charging of late fees in excess of the amount authorized in the loan agreement or after consumers had entered into loss mitigation agreements, which should have prevented late fees. Servicers identified as having engaged in such violations were required to refund the fees to consumers and improve internal processes in response to the findings.
The CFPB also identified violations of law relating to loss mitigation and loan modifications. Examiners noted that some servicers failed to provide a written notice confirming the receipt of loss mitigation applications and informing consumers of whether the application was complete or incomplete. Further, some servicers failed to provide timely and complete notices of loss mitigation options. Additionally, some servicers, in violation of Regulation X, failed to waive existing fees after borrowers had accepted Covid-19 hardship loan modifications.
Examiners also found that certain servicers committed deceptive practices by sending out delinquency notices incorrectly stating that consumers had missed payments and needed to apply for loss mitigation when those consumers were actually up to date on their payments, enrolled in trial modification plans, or had inactive loans (such as those already paid off or in the process of a short sale).
Finally, the Bureau identified violations of law relating to (i) live contact and early intervention requirements in connection with delinquency and (ii) failure to retain adequate records.
Fannie Mae to issue RFP for Title Acceptance pilot
On April 12, the FHFA announced plans to test a pilot program that would permit lenders to forego a lender’s title insurance policy or an attorney opinion letter for some refinance loans sold to Fannie Mae, aiming to lower closing costs for borrowers. Since the announcement, Fannie Mae has been working with the FHFA to develop a Title Acceptance pilot framework and has received interest from title, settlement service, and technology providers to join the pilot. In light of this, Fannie Mae declared its intention to release a Request for Proposal (RFP) by the end of the second quarter to identify and assess potential suppliers to participate in the pilot.
CFPB finalizes rule to change its supervision designation procedures for nonbanks
On April 16, the CFPB issued a procedural rule to change how the Bureau will designate nonbanks for supervision. Under the CFPA, the CFPB was authorized to supervise a nonbank covered person if the Bureau had reasonable cause to determine if the nonbank covered person was engaged in financial services-related conduct that posed a risk to consumers. In 2013, the CFPB issued a rule providing procedures to govern supervisory designation proceedings under this authority; in 2022, the CFPB published a final rule amending the procedural rule to allow it to publicize its resolution of any contested designation proceeding (covered by InfoBytes here). In late February 2024, the CFPB transitioned to a new organizational structure for its supervision and enforcement work, and this rule will reflect the technical changes of the new structure in the context of supervisory designation proceedings.
According to the Bureau, there were small differences between two separate provisions under the 2013 rule that allowed nonbanks to consent to the CFPB’s exercise of supervisory authority. The new procedural rule will combine these provisions and clarify a few points of distinction from the two original provisions, including (i) a consent agreement does not constitute an admission; and (ii) supervision durations following consent agreements can be negotiated on a case-by-case basis, instead of applying a default duration of two years.
Regarding the Supervision Director’s notice of reasonable cause, the rule will expand the possible methods of delivery to include other methods that are “reasonably calculated to give notice.” Additionally, the rule states that the initiating official may withdraw a notice, and that they may file a written reply to the notice recipient’s response, neither of which was not contemplated under the previous rule. The Bureau said these changes could allow for more transparency in the decision-making process.
Concerning a supplemental oral response, the Bureau noted under the previous rule, a respondent nonbank entity presented supplemental oral responses to the Associate Director for Supervision, Enforcement, and Lending. In light of the elimination of the Associate Director position pursuant to a recent reorganization that split the Division of Supervision, Enforcement, and Fair Lending into a Division of Enforcement and a Division of Supervision, the rule provided that the Director of the Bureau will assume the Associate Director’s adjudicative roles and supervision-related functions. Therefore, the Director will be responsible for issuing a decision and order subjecting an entity to the Bureau’s supervision or terminating a proceeding.
The rule further stipulated that (i) an additional time limit for mail and delivery services are no longer warranted, since email would be “generally instantaneous”; (ii) there will be a 13,000-word limit for the proceeding filings; (iii) any changes to time or word limits can be decided between the initiating official and the respondent with a notice to the Director and will be subject to change by the Director.
Regarding the confidentiality of proceedings, the rule maintained a process for the CFPB to decide whether to publicly release final decisions and orders, including orders entered as a result of respondent failing to file a response and therefore defaulting. The Bureau did note, however, consent agreements entered into between the initiating official and the respondent will not be subject to public release under the rule.
The rule also established an issue exhaustion requirement, requiring respondents to raise arguments they have in their written response to the Bureau to avoid waiving the argument in future proceedings. The Bureau will invite public comments which must be submitted 30 days after publication in the Federal Register, although the rule will be exempt from the notice-and-comment rulemaking requirements under the APA as a rule of agency organization, procedure, or practice. The rule will be effective upon publication to the Federal Register, and it will apply to proceedings pending on the effective date, unless the Director determined that it will be “not practicable.”