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Senate Banking Democrats urge CFPB to keep certain ATR/QM standards
On September 17, nine Democratic Senate Banking Committee members wrote to the CFPB in response to its Advanced Notice of Proposed Rulemaking (ANPR) soliciting feedback on amending Regulation Z and the Ability to Repay/Qualified Mortgage Rule (ATR/QM Rule) to minimize disruption from the so-called GSE patch expiration, previously covered by a Buckley Special Alert. The GSE patch confers Qualified Mortgage status for loans purchased or guaranteed by Fannie Mae and Freddie Mac (GSEs) while those entities operate under FHFA conservatorship. The letter urges the Bureau to ensure two things when reexamining the regulation: (i) borrowers maintain the same level of access to responsible, affordable mortgage credit; and (ii) all mortgage underwriting decisions are based on a borrower demonstrating an ability to repay and rely on documentation and use verified income. The Senators request that the CFPB use the ANPR “as an opportunity to ensure the ATR and QM regulations facilitate a mortgage market that provides access to safe, sustainable mortgage credit for all creditworthy borrowers.”
CFPB investigating bank’s account opening practices
In September, the CFPB published documents related to an investigation into whether a national bank opened credit card accounts without customer authorization in violation of various federal laws and regulations, including the Fair Credit Reporting Act and the Consumer Financial Protection Act’s ban on unfair or abusive practices. In March 2019, the Bureau issued a civil investigative demand (CID) to the bank seeking, among other things, “a tally of specific instances of potentially unauthorized credit card accounts,” as well as a manual assessment of card accounts that were never used by the customer. The bank argued in its petition to modify or set aside the CID that it had already provided information to regulators showing that it did not have a “systemic sales misconduct issue,” and cited to the OCC’s broad review into sales practice issues at mid-size and large national banks, which has not, according to the bank, identified systemic issues with bank employees opening unauthorized accounts without consumer consent. Among other things, the bank also contended that the CID was unduly burdensome—requiring manual account-level assessments—and said the CFPB should end its investigation because the facts “refute an investigation’s initial hypothesis.” The bank further argued that the inquiry into its sales practices should be conducted by CFPB supervisory staff instead of as an enforcement investigation, which would be “the proper mechanism for resolving any remaining issues when an investigation fails to uncover evidence warranting [e]nforcement action.”
Concerning the bank’s argument that the CID was unduly burdensome, the Bureau stated in its order denying the petition that the bank had failed to “meaningfully engage” with the Bureau during the course of the investigation in a way that merited modification to the terms of the CID. Moreover, with regard to whether the investigation should be conducted by supervisory staff, the Bureau countered that “[t]his is not a request properly made in a petition to modify or set aside a CID, for the same reasons that it is not proper to use a CID petition to ask that the Bureau close an investigation because (in the recipient’s view) it has already shown that it engaged in no wrongdoing.”
FTC supports CFPB on debt collection proposal
On September 18, the FTC issued its comment letter to the CFPB’s Notice of Proposed Rulemaking (NPRM) amending Regulation F, to implement the Fair Debt Collection Practices Act (FDCPA) (the “Proposed Rule”). As previously covered by InfoBytes, on May 7, the CFPB issued the Proposed Rule, which covers debt collection communications and disclosures and addresses related practices by debt collectors. The FTC is generally in support of the Proposed Rule, and the Commission voted unanimously to approve the submission of the comment. In addition to summarizing the FTC’s legal authority and efforts to protect consumers from unlawful debt collection practices (such as enforcement actions, workshops, and outreach) the comment letter addresses several topics covered in the Proposed Rule. In particular, the FTC supports the Proposed Rule’s provisions on passive collections, decedent debt, and time and place restrictions. Other highlights of the letter include:
- Validation notices. The FTC supports the proposed changes to validation notices, which mandate more information to be provided to the consumer about the debt and the rights the consumer has associated with that debt. The comment letter encourages the CFPB to consider the benefits and risks with regard to the safe harbor for emailed validation notices in initial communications, noting it is important that debt collectors use email addresses that are current and also, that the emails are not sent to unauthorized third parties.
- Time-barred debts. The FTC supports the proposed prohibition on collectors threatening or bringing legal action against consumers to collect on debts that they know or should know are time-barred. However, the comment letter notes that consideration should be given to whether requiring the showing that the collector knew or should have known about the age of the debt is a potential unnecessary additional burden on law enforcement agencies.
- Prohibitions on the sale or transfer of certain debts. The FTC supports the proposed prohibition on selling, transferring, or placing for collection a debt that the collector knows or should know has been paid or settled, discharged in bankruptcy, or has been the subject of an identity theft report. The comment letter requests that the CFPB consider adding to this prohibition additional categories of debt that are “more squarely associated with phantom debt collection, including, for example, debts that are counterfeit or fictitious.”
- Communications media. The FTC supports the proposed requirement that a debt collector include—in emails, text messages and other electronic communications—an option for the consumer to opt-out of communications through that particular medium. The comment letter encourages the CFPB to consider requiring collectors to provide a direct, simple, electronic mechanism to quickly exercise this opt-out right.
- Restrictions on disclosures to third parties. The FTC supports the proposed definition of “limited-content messages” but encourages the CFPB to consider ways to minimize the likelihood that third parties would recognize limited-content messages as being associated with a debt collection and notes that allowing for these messages during live calls poses heightened risk for disclosure of the debt.
- Telephone call frequency limits. The FTC supports the proposed restrictions on call frequency and notes that these protections should apply to calls that “may not cause a traditional ring,” including ringless voicemail messages. Additionally, the FTC supports the application of the protections to limited-content messages and location information calls to third parties.
CFPB will continue to publish consumer complaint data
On September 18, the CFPB announced changes to its Consumer Complaint Database (CCDB), stating that it would continue the publication of consumer complaints, data fields, and narrative descriptions. As previously covered by InfoBytes, in March 2018, the Bureau issued a Request for Information (RFI) seeking feedback on potential changes that could be implemented to the Bureau’s public reporting of consumer complaint information, including the data fields provided in the CCDB. In June 2018, then-acting Director, Mick Mulvaney, noted the Bureau was in the process of reviewing whether or not the CCDB would continue to be publicly available (covered by InfoBytes here.) The Bureau noted that it received nearly 26,000 comments from a wide array of stakeholders in response to the RFI and after considering all input, the decision was made to continue the “publication of complaints with enhanced data and context that will benefit consumers and users of the database while addressing many of the concerns raised.” Specifically, the CCDB will now (i) more prominently acknowledge that the CCDB is not a statistical sample of consumers’ experiences in the marketplace; (ii) highlight the availability of answers to common financial questions to help inform consumers before they submit a complaint; and (iii) highlight consumers’ ability to contact the financial institution directly. Additionally, in the coming months the Bureau plans to, among other things, explore the expansion of a company’s ability to respond publicly to individual complaints in the database and look for additional ways to put complaint data in context, such as incorporating product or service market share and company size.
Kraninger tells Supreme Court CFPB structure is unconstitutional
On September 17, the DOJ and the CFPB filed a brief with the U.S. Supreme Court arguing that the for-cause restriction on the president’s authority to remove the Bureau’s single Director violates the Constitution’s separation of powers. The brief was filed in response to a petition for a writ of certiorari by a law firm, contesting the May decision by the U.S. Court of Appeals for the Ninth Circuit, which held that (i) the Bureau’s single-director structure is constitutional, and that (ii) the district court did not err when it granted the Bureau’s petition to enforce a law firm’s compliance with a 2017 civil investigative demand (CID) (previously covered by InfoBytes here). The brief cites to a DOJ filing in opposition to a 2018 cert petition, which also concluded that the Bureau’s structure is unconstitutional by infringing on the president’s responsibility to ensure that federal laws are faithfully executed, but urged the Court to deny that writ as the case was a “poor vehicle” for the constitutionality consideration (previously covered by InfoBytes here).
In contrast to the December brief, the DOJ now asserts that the present case is a “suitable vehicle for resolving the important question,” noting that only the constitutional question was presented to the Court and the 9th Circuit has stayed its CID mandate until final disposition of the case with the Court. Moreover, the government argues that until the Court resolves the constitutionality question of the Bureau’s structure, “those subject to the agency’s regulation or enforcement can (and often will) raise the issue as a defense to the Bureau’s efforts to implement and enforce federal consumer financial law.” While the Bureau previously defended the single-director structure to the 9th Circuit, the brief notes that since the May decision was issued, “the Director has reconsidered that position and now agrees that the removal restriction is unconstitutional.”
On the same day, Director Kraninger sent letters (here and here) to House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Mitch McConnell (R-Ky.) supporting the argument that the for-cause restriction on the president’s authority to remove the Bureau’s single Director, violates the Constitution’s separation of powers. Kraninger notes that while she is urging the Court to grant the pending petition for certiorari to resolve the constitutionality question, her position on the matter “does not affect [her] commitment to fulfilling the Bureau’s statutory responsibilities” and that should the Court find the structure unconstitutional, “the [Consumer Financial Protection Act] should remain ‘fully operative,’ and the Bureau would ‘continue to function as before,’ just with a Director who “may be removed at will by the [President.]’”
CFPB requests comments on using Tech Sprints
On September 18, the CFPB published a notice in the Federal Register seeking comments on the use of Tech Sprints—forums which gather “regulators, technologists, financial institutions, and subject matter experts from key stakeholders for several days to work together to develop innovative solutions to clearly-identified challenges”—as a means to encourage regulatory innovation and collaborate with stakeholders on forming solutions to regulatory compliance challenges. The Bureau notes that Tech Sprints have been successfully used by the U.K.’s Financial Conduct Authority, which has organized seven Tech Sprints since 2016, resulting in a pilot project on digital regulatory reporting. The Bureau is interested in using Tech Sprints to, among other things: (i) leverage cloud solutions and other developments that may reduce or modify the need for regulated entities to transfer data to the Bureau; (ii) continue to innovate the HMDA data submission process; (iii) identify new technologies and approaches that can be used by the Bureau to provide more cost-effective oversight of supervised entities; and (iv) reduce other unwarranted regulatory compliance burdens. Comments must be received by November 8.
CFPB argues no “benign language” exception under FDCPA
On September 5, the CFPB filed an amicus brief in a case on appeal to the U.S. Court of Appeals for the Seventh Circuit concerning a debt collector’s use of language or symbols other than the collector’s address on an envelope sent to a consumer. Under section 1692f(8) of the FDCPA, debt collectors are barred from using any language or symbol other than the collector’s address on any envelope sent to the consumer, “except that a debt collector may use his business name if such name does not indicate that he is in the debt collection business.” In the case at issue, a consumer received a debt collection letter enclosed in an envelope stamped with the words “TIME SENSITIVE DOCUMENT” in bold font. The consumer filed a complaint against the defendant asserting various claims under the FDCPA, including that inclusion of “TIME SENSITIVE DOCUMENT” on the envelope was a violation of section 1692f(8). The defendant argued that an exception should be carved out for “benign” language in this instance, and the district court agreed, ruling that the language “‘does not create any privacy concerns for [the consumer] or expose potentially embarrassing information by giving away the fact that the letter is from a debt collector.’”
On appeal, the 7th Circuit invited the Bureau to file an amicus brief on whether there is a benign language exception to section 1692f(8)’s prohibition, and, if so, whether the phrase “TIME SENSITIVE DOCUMENT” falls within that exception. The Bureau asserted that there is no benign language exception, and stressed that while section 1692f(8) recognizes that debt collectors may be permitted to include language and symbols on an envelope that facilitate the mailing of an envelope, section 1692f(8), by its own terms, does not allow for benign language. Additionally, the Bureau commented that section 1692f’s prefatory text does not “provide a basis for reading a ‘benign language’ exception into section 1692f(8),” nor does the prefatory text suggest that the prohibition applies only in instances where it may be “‘unfair or unconscionable’” in a general sense. Moreover, if Congress wanted to allow for markings on envelopes provided they did not reveal the debt-collection purpose, then it would have done so, the Bureau argued, concluding that if the court did adopt a benign language exception, then whether “TIME SENSITIVE DOCUMENT” would fall within that exception would be a question of fact.
CFPB issues summer 2019 Supervisory Highlights
On September 13, the CFPB released its summer 2019 Supervisory Highlights, which outlines its supervisory and enforcement actions in the areas of automobile loan origination, credit card account management, debt collection, furnishing, and mortgage origination. The findings of the report cover examinations that generally were completed between December 2018 and March 2019. Highlights of the examination findings include:
- Auto loan origination. The Bureau noted that one or more examinations found that guaranteed asset protection (GAP) products were sold to consumers with low loan-to-value (LTV) loans, resulting in those consumers purchasing a product that was not beneficial to them. The Bureau concluded these sales were an abusive practice, as “the lenders took unreasonable advantage of the consumers’ lack of understanding of the material risks, costs, or conditions of the product.”
- Credit card account management. The Bureau found several issues with credit card account servicing, including violations of Regulation Z for failing to clearly and conspicuously provide disclosures required by triggering terms in online advertisements and for offsetting consumers’ credit card debt against funds that the consumers had on deposit with the issuers without sufficient indication that the consumer intended to grant a security interest in those funds.
- Debt collection. The Bureau noted violations of the FDCPA’s prohibition on falsely representing the amount due when debt collectors claimed and collected interest that was not authorized by the underlying contracts between the debt collectors and the creditors.
- Credit information furnishing. The Bureau found multiple violations of the FCRA, including furnishers failing to complete dispute investigations within the required time period and failing to promptly send corrections or updates to all applicable credit reporting agencies after a determination that the information was no longer accurate.
- Mortgage origination. The Bureau noted that creditors had violated Regulation Z by disclosing inaccurate APRs for closed-end reverse mortgages and also by using a unit-period of one month instead of one year to calculate the total annual loan cost (TALC) rate and the future value of all advances, leading to inaccurate TALC disclosures.
The report notes that in response to most examination findings, the companies have taken, or are taking, remedial and corrective actions, including by identifying and compensating impacted consumers and updating their policies and procedures to prevent future violations.
Lastly, the report also highlights the Bureau’s recently issued rules and guidance.
CFPB issues final No-Action Letter policy, sandbox policy, and trial disclosure policy
On September 10, the CFPB issued three final innovation policies, the No-Action Letter (NAL) Policy, Compliance Assistance Sandbox (CAS) Policy, and Trial Disclosure Program (TDP) Policy. Director Kraninger noted that the new policies will “improve how the Bureau exercises its authority to facilitate innovation and reduce regulatory uncertainty. . .contribut[ing] to an environment where innovation can flourish—giving consumers more options and better choices.” In September 2018, the Bureau published the proposed TDP policy (covered by InfoBytes here), and in December 2018, the Bureau published the proposed NAL and CAS policies (covered by InfoBytes here). Highlights of the final policies include:
- NAL. The NAL policy provides a NAL recipient reassurance that the Bureau will not bring a supervisory or enforcement action against the company for providing a product or service under the covered facts and circumstances. After an application is considered complete, the Bureau will grant or deny the request within 60 days. The Bureau intends to publish NALs on its website and, in some cases, a version or summary of the application. The Bureau may also publish denials and an explanation of why the application was denied. The policy notes that disclosure of information is governed by the Dodd-Frank Act, FOIA and the Bureau’s rule on Disclosure of Records and Information, which generally would prohibit the Bureau from disclosing confidential information.
- CAS. The CAS policy will evaluate a product or service for compliance with relevant laws and will offer approved applicants a “safe harbor” from liability for certain covered conduct during the testing period under TILA, ECOA, or the EFTA. The CAS was originally proposed as the “Proposed Sandbox Policy,” and included, in addition to the now listed carve-outs, exemptions by order from statutory provisions of ECOA, HOEPA, and the Federal Deposit Insurance Act (FDIA). The final CAS policy does not include the exemption program. The Bureau noted that, based on the comments received on the proposal, it will issue, at a later date, a new proposal to establish a program for exemptions by order through a separate notice-and comment rulemaking.
- TDP. The TDP policy creates the “CFPB Disclosure Sandbox,” which carries out the requirements of Section 1032(e) of the Dodd-Frank Act. The Bureau’s first TPD policy was finalized in 2013, allowing for approved company disclosures to be deemed in compliance with, or exempted from, applicable federal disclosure requirements during the testing period. Under the previous policy, the Bureau did not approve a single company program for participation. The updated TDP policy streamlines the application process, including providing formal determinations within 60 days of deeming an application complete. The policy provides procedures for requesting extensions of successful testing programs, as the Bureau expects most testing periods will start at two-years.
The Bureau also announced the first NAL issued under its new policy in response to a request by HUD on behalf of more than 1,600 housing counseling agencies (HCAs) that participate in HUD’s housing counseling program. The NAL states that the Bureau will not take supervisory or enforcement action under RESPA against HUD-certified HCAs that have entered into certain fee-for-service arrangements with lenders for pre-purchase housing counseling services. Specifically, the Bureau will not take such action against a HCA for including and adhering to a provision in such agreements conditioning the lender’s payment for the housing counseling services on the consumer making contact or closing a loan with the lender, even if that activity could be construed as a referral under RESPA, provided that the level of payment for the services is no more than a level that is commensurate with the services provided and is reasonable and customary for the area. The Bureau issued a template for lenders to seek a NAL for such arrangements, which includes certain anti-steering certifications that (i) the consumer will choose between comparable products from at least three different lenders; (ii) the funding is based on services rendered, not on the terms or conditions of any mortgage loan or related transaction; and (iii) no endorsement, sponsorship, or other preferential treatment will be conveyed to the lender for entering into the arrangement. According to the Bureau, the NAL, “is intended to facilitate HCAs entering into such agreements with lenders and will enhance the ability of housing counseling agencies to obtain funding from additional sources.” In addition to the template, the Bureau has made the HUD NAL application publicly available as well.
CFPB and state regulators launch American Consumer Financial Innovation Network
On September 10, the CFPB, in conjunction with state regulators, announced the American Consumer Financial Innovation Network (ACFIN) to enhance coordination among federal and state regulators to facilitate financial innovation. ACFIN has three stated objectives in its charter: (i) “[e]stablish coordination between Members to benefit consumers by facilitating innovation that enhances competition, consumer access, or financial inclusion”; (ii) “[m]inimize unnecessary regulatory burdens and bolster regulatory certainty for innovative consumer financial products and services”; and (iii) “[k]eep pace with the evolution of technology in markets for consumer financial products and services in order to help ensure those markets are free from fraud, discrimination, and deceptive practices.” The initial state members of ACFIN are Alabama, Arizona, Georgia, Indiana, South Carolina, Tennessee, and Utah, but the Bureau notes that all state regulators, including financial regulatory agencies, have been invited to join.