CFPB Report - December 18, 2015

CFPB Takes Action against Auto Dealer
On Thursday, December 17, 2016, the CFPB announced action against CarHop, one of the country's biggest "buy-here, pay-here" auto dealers, and its affiliated financing company, Universal Acceptance Corporation, for allegedly providing damaging, inaccurate consumer information to credit reporting companies. The parties also allegedly failed to provide accurate, positive consumer credit information to credit reporting companies. The CFPB claims the companies inaccurately reported information for more than 84,000 accounts on a widespread and systemic basis. The CFPB is ordering the companies to cease their activities and pay roughly $6.5 million civil penalty.
 
"Many consumers went to CarHop because they needed transportation and wanted to build up a good record of paying their bills," said CFPB Director Richard Cordray. "But CarHop and Universal Acceptance Corporation thwarted those expectations by inaccurately furnishing negative credit information. The CFPB will not stand for companies whose sloppy actions jeopardize consumers' credit."
 
CFPB Takes Action against Aggregators
On Thursday, December 17, 2015, the CFPB took separate actions against a company and an individual for allegedly reselling sensitive personal data to lenders and debt collectors, allegedly exposing millions of consumers to harassment and deceit. In a complaint filed in federal court, the CFPB claimed T3Leads bought and sold personal information from payday and installment loan applications without properly vetting buyers and sellers. It also alleges company owners unlawfully aided the T3Leads' violations. In addition to monetary relief, the CFPB seeks to require T3Leads to clean up its business practices. In a separate matter, the CFPB took action against Eric V. Sancho, who operated a company called Lead Publisher that sold leads to fraudulent debt collectors without regard for how they would use the data.
 
"These operators steered consumers toward bad deals and provided no protection from shady characters and unscrupulous lenders," said Director Cordray. "This is a reminder to the middlemen who traffic in personal information: if you ignore warning signs that those buying this data are violating the law, you risk the consequences for the harm you are doing to people."
 
CFPB Hires New General Counsel
On Wednesday, December 16, 2015, the CFPB announced Mary McLeod as the agency's new General Counsel, replacing Meredith Fuchs who announced her planned departure earlier this year. Fuchs has been serving a duel role of General Counsel and Acting Deputy Director. The CFPB plans to announce next steps on the Deputy Director position in the coming weeks.
 
McLeod headed the Office of the Legal Adviser of the U.S. Department of State since January of 2013. As the senior career attorney in the Office of the Legal Adviser, she counseled the Secretary and other senior officials on all aspects of the Department's legal work.
 
"I am very pleased to welcome Mary to the Consumer Bureau, as she brings a wealth of experience and tested judgment to our leadership team," said Director Cordray. "Meredith has been an invaluable asset to the Bureau since before we opened our doors, and she will be missed. I am deeply grateful for her contributions to all of her colleagues here and to the American public we serve."
 
CFPB Sues Debt Collector, Issues Compliance Bulletin
On Wednesday, December 16, 2015, the CFPB announced it had entered into a consent order with EZCORP, a small-dollar lender (e.g., payday, auto title), for illegal debt collection practices. Specifically, the Bureau alleged EZCORP violated the Electronic Funds Transfer Act and Dodd-Frank's ban on unfair, deceptive and abusive acts and practices (UDAAP) when it: 

  • Conducted in-person collections at consumers' homes and places of employment;
  • Contacted third-parties about consumers' debts;
  • Called consumers at their places of employment after being told to stop;
  • Falsely threatened to take legal action;
  • Conducted credit checks when it advertised that it would not do so for loan applicants;
  • Required debt repayment by pre-authorized checking account withdrawals;
  • Exposed consumers to account fees through early electronic withdrawal attempts contrary to loan agreements; and
  • Deceived consumers about their rights regarding electronic withdrawals and collection calls.

As a result of the consent order, EZCORP will refund $7.5 million to 93,000 consumers and pay a civil penalty fine of $3 million. EZCORP has also agreed to stop collecting or accepting payment on outstanding debt owed by approximately 130,000 consumers.
 
In conjunction with the announcement of the EZCORP consent order, the Bureau also issued a compliance bulletin on the In-Person Collection of Consumer Debt. The CFPB states that first-party and third-party debt collectors run a heightened risk of violating Dodd-Frank's UDAAP ban when conducting in-person collection activities. For instance, the Bureau noted a consumer could be harmed if a collector attempts a workplace visit and third parties become aware the consumer's debt is in collections. In addition to UDAAP violations, the Bureau noted third-party collectors and others subject to the Fair Debt Collection Practices Act (FDCPA) are more likely to run afoul of its prohibitions during in-person visits. For instance, consumers may view such visits as abusive or harassing collection tactics, which are banned by sections 806 and 808 of the FDCPA.
 
CFPB Warns Colleges about Credit Card Agreements
On Wednesday, December 16, 2015, the Bureau announced it had sent warning letters to 17 colleges directing them to improve disclosure of school-sponsored credit card agreements. The CFPB reported an investigation found the schools allegedly failed to make marketing agreements available to the public, as required by the CARD Act. The Bureau also released its annual report on college credit card agreements, highlighting trends in the marketing partnerships between colleges and financial institutions and concerns about transparency with college-sponsored financial accounts.
 
The Bureau noted four out of five colleges did not disclose their credit card marketing contracts on their website: Of 25 colleges sampled by the CFPB, 20 did not disclose their contracts on their website. Only seven of these 20 schools published information for the public on how to obtain the agreements—but only two of these schools ultimately provided the agreements upon request.  It also noted more than two-thirds of the schools did not provide access to agreements upon request: Of the 20 colleges that did not post agreements on their website, only three provided agreements upon request as required by law. In addition, the CFPB allegedly found that most of the schools that published specific instructions for requesting agreements failed to provide access to agreements, even when borrowers followed these instructions.
 
The report also stated:

  • College credit card agreements continue to decline: In 2009, some 1,045 agreements were in effect. Since the CARD Act went into effect, however, the number of agreements has decreased by nearly 70 percent, to the point that only 272 agreements were in effect by the end of 2014. Furthermore, credit card issuers paid over $84 million to colleges and universities in royalties and bonuses for agreements in 2009. That amount dropped to approximately $34 million in 2014.
  • College debit and prepaid card agreements are more common than credit card agreements: According to a report from the Government Accountability Office, there were at least 852 schools that had agreements with companies to market debit or prepaid cards to students in 2013. 

House Subcommittee Examines CFPB Data Collection
On Wednesday, December 16, 2016, the House Financial Services Subcommittee on Oversight and Investigations held a hearing examining the CFPB's data collection efforts. The Bureau was provided authority to collect data, such as consumer credit report information, credit card details, mortgage loan-level data, etc., via its enforcement, supervisory, and monitoring authorities under the Dodd-Frank Act.
 
In his opening statement, Subcommittee Chairman Sean Duffy (R-WI) condemned the Bureau for its mass data collection efforts and warned of its security vulnerabilities, citing a recent MIT study finding that just four pieces of transaction information is enough to identify in 90 percent of people. Full Committee Ranking Member Maxine Waters (D-CA), responded, "this hearing is simply another blatant attempt to mischaracterize the Bureau's data collection activities as harmful to consumers."
 
Witnesses included Former House Speaker Newt Gingrich, who is now affiliated with the U.S. Consumer Coalition, Wayne Abernathy of the American Bankers Association, Dr. Mark Calabria of the Cato Institute, and Mr. Deepak Gupta of Gupta Wessler PLLC, a former CFPB employee.
 
In his statement, Mr. Gingrich stated, "Today the Consumer Financial Protection Bureau is so far outside the historic American model of constitutionally limited government and the rule of law, that it is the perfect case study of the pathologies that infect our bureaucracies at the federal level. It is dictatorial.
 
It is unaccountable. It is practically unrestrained in expanding on its already expansive mandate from Congress. And it is contemptuous of the rights, values, and preferences of ordinary Americans."
 
Further, he noted, "The CFPB is prohibited in Section 1022 of Dodd-Frank from collecting personally identifiable information on Americans, but the Bureau is doing so anyway. And it is doing so at a massive scale that rivals the NSA's most controversial collection programs, but for much less compelling reasons."
 
Adding to the discussion, Mr. Abernathy warned of the extensive information gathering authority granted to the CFPB by the Dodd-Frank Act and recommended the transition to a bipartisan commission at the CFPB to provide needed oversight.
 
"With a commission structure, composed of a bipartisan council of policymakers, there is less room for abusing data, and less opportunity to do so as well. Under the light of the variety of viewpoints that comes with a council or a commission, you have different people posing different questions from differing backgrounds and insights, all more likely to poke and prod the data, and all of them likely to be intolerant of information legerdemain," said Abernathy.
 
CFPB Releases Annual Employee Survey Results
On Monday, December 14, 2015, the CFPB released the results of its annual employee survey, which was conducted between July and August of 2015, with more than 79 percent of the agency's employees responding.
 
Out of the 74 items included in the survey, the Bureau indicated 52 were rated favorably by 65 percent or more of respondents. Items pertaining to performance recognition and compensation were identified as "challenges" by the CFPB and received unfavorable responses by more than 35 percent of those surveyed. 
 

Deal Reached: Year-End Spending, Tax Packages
Late evening on Tuesday, December 15, 2015, the House and Senate leadership and appropriations committees, in coordination with the White House, announced a deal had been reached on a $1.15 trillion FY16 omnibus appropriations bill and a catchall tax package. After months of jockeying by several Senate Banking Committee and House Financial Services Committee Members to include financial services related policy-riders in the spending bill, the final package demonstrated the little bipartisan appetite to take on the Obama Administration and key critics of the banking sector.
 
While no financial regulatory relief was provided in the bill, there were a few items to cheer. First, the Cybersecurity Information Sharing Act (CISA), supported by CBA and many others in the financial services industry, was included. The bill will establish a portal for cyber threat information sharing at the Department of Homeland Security between the government and the private sector, provides liability protections for sharing such information, and requires that private companies scrub any personal information before sharing such information with the government.
 
The bill also included a provision applying the Federal Advisory Committee Act, which mandates open meetings for advisory committees to agencies, departments and bureaus, to the CFPB. In addition, the omnibus contained the Commercial Real Estate and Economic Development (CREED) Act, a bill to reinstate the 504 low-interest refinancing provisions under the Local Development Business Program at the U.S. Small Business Administration (SBA), which CBA supported. The package also provided $7.5 billion for the SBA's 504 program and up to $26.5 billion in 7(a) loan guarantees.

The tax package, dubbed the Protecting Americans From Tax Hikes Act, would extend numerous regularly renewed tax provisions and make other popular tax provisions permanent. Included were provisions to permanently extend the Subpart F exception for active financing income and to extend the exclusion from income for discharged debt on principal residences.

On Thursday, December 17, 2015, the House voted (318-109) to approve the tax package and followed with the passage of the omnibus (316-113) on Friday. The Senate cleared by a vote of 65-33 the combined measures. The President is expected to sign the legislation.

OCC Releases Semiannual Risk Perspective
On Wednesday, December 16, 2015, the OCC National Risk Committee released its Semiannual Risk Perspective, which identified strategic, underwriting, cybersecurity, compliance, and interest rate risks as the top supervisory concerns. In terms of strategic challenges, the OCC indicated many banks have had trouble increasing revenue in the slow-growth, low interest rate economic environment. The agency was concerned with easing of credit standards and practices, especially in indirect auto, commercial & industrial, and commercial real estate loans. According to the report, operational risk is created as banks adapt business models, transform technology, and respond to cyber threats. Compliance risk, as stated in the report, remains high as banks implement new regulations and policies, including the TILA-RESPA Integrated Disclosure (TRID), and manage Bank Secrecy Act risks, especially given the challenge of third party vendor management. Looking ahead, the OCC plans to focus on the following priorities over the next year:
 
Governance and oversight: Analyze the governance structure to assess risks posed by business model changes and whether there are any gaps that need to be addressed.
 
Credit and underwriting: Review commercial and retail credit underwriting practices and continue to assess banks' efforts to mitigate risk for home equity lines of credit approaching end of draw period.
 
Compliance: Develop and implement plans to assess compliance and implement new regulations, including TRID, Flood Disaster Prevention Act, and Servicemembers Civil Relief Act. Also, noting OCC will continue to "share information and coordinate examinations with the [CFPB] to assess overall compliance with consumer laws, regulations, and guidance."