CFPB Report December 20, 2013

CFPB and DOJ Issue Enforcement Action for Auto Lending Practices

On Friday, December 20, 2013, the CFPB and DOJ issued enforcement action against Ally Bank for auto lending practices, specifically discrimination in connection with dealer reserve compensation. Ally will pay $80 million to consumers, pay to hire a settlement administrator to distribute funds to victims, and monitor dealer reserve compensation to prevent discrimination or eliminate this compensation system altogether. Ally will also pay an additional $18 million to the CFPB’s Civil Penalty Fund to be distributed to consumers. CBA will review the consent order and provide updates. 

CFPB Sues Online Loan Servicer

On Monday, December 16, 2013, the CFPB filed a lawsuit against an online loan servicer, CashCall Inc., its owner, its subsidiary, and its affiliate, for allegedly collecting money consumers did not owe. The CFPB claims the defendants engaged in unfair, deceptive, and abusive practices, including illegally debiting consumer checking accounts for voided loans, an example cited by the Bureau as an “abusive” practice under the Dodd-Frank Act. 

The CFPB said its investigation of CashCall showed the loans violated either licensing requirements or interest-rate caps in at least eight states. Under the statutes in these states, any obligation to pay the loans was rendered void or otherwise nullified, in whole or in part, by law. The Bureau is seeking monetary relief for consumers, additional damages and penalties. The agency is also requesting CashCall adhere to all federal consumer financial protection laws.  

In a press release, CFPB Director Richard Cordray said, “Today we are taking action against CashCall for collecting money it had no right to take from consumers. Online lending is rapidly growing and deserves ample regulatory attention. The Consumer Financial Protection Bureau will take action against online lenders and servicers that engage in unfair, deceptive, or abusive practices.” 

CFPB Releases Report and Requests Disclosure of Campus Financial Agreements

On Tuesday, December 17, 2013, the CFPB called on financial institutions to publicly disclose campus financial agreements. In February, the Bureau inquired into financial products marketed to students. On September, 30, 2013, the CFPB hosted a public forum to present its initial findings, based on public comments and other market information. These initial findings included: 

  • Financial product marketing partnerships have shifted to student checking and debit and prepaid card products. These partnerships outnumber college credit card agreements.
  • Arrangements between financial institutions and institutions of higher education on many student banking products are not well-understood.

According to the results of a 2012 survey conducted by the National Association of College and University of Business Officers, the majority of college debit card arrangements are already available to the public. However, according to the CFPB, they are difficult to find and should be made public for interested parties. 

The CFPB also released its annual report on college credit card agreements, showing a 23 percent decline in college agreements from 2011 to 2012. The report found fewer college card agreements in effect and fewer new college accounts are being opened. The report also noted educational institutions are paid less by credit card issuers. 

CBA’s Campus Product Working Group will continue to monitor these issues. 

CFPB Launches Nationwide Education Campaign on New Mortgage Rules

On Wednesday, December 18, 2013, the CFPB introduced a campaign to educate consumers on the new mortgage rules taking effect January 10, 2014. Consumer education was among the priorities of the Bureau’s Mortgage Rule implementation plan, announced in February 2013. 

The campaign materials include: 

  • Guide for Housing Counselors: A quick reference for housing counselors, the guide is designed to outline new federal protections enabling borrowers to pursue all options before beginning the foreclosure process.
  • Mortgage Tips: Tips on new rights under the rules for homebuyers and homeowners at every stage of the mortgage process— from taking out a loan to paying it back.
  • Answers to Consumer Questions: The CFPB has published mortgage-related questions to AskCFPB, an interactive online tool designed to answer consumers’ most frequently asked questions in plain language.
  • Consumer Tools: The CFPB’s website offers a tool to help consumers find local housing counseling agencies.
  • Factsheets on the Rules: The CFPB has published a factsheet with an overview of all of the new consumer protections in the agency’s mortgage rules.

“Taking on a mortgage may be the largest financial obligation of a consumer’s lifetime,” Director Cordray said in a press release. “We want to make sure that potential homebuyers have the information they need to make responsible decisions and that current borrowers know about their new protections.” 

CFPB Files Complaint Against Non-Bank Loan Servicer

On Thursday, December 19, 2013, the CFPB, 49 states and the District of Columbia filed a proposed court order requiring Ocwen Financial Corporation, a non-bank loan servicer, and its subsidiary, Ocwen Loan Servicing, to provide $2 billion in principal reduction to underwater borrowers. The order maintains that Ocwen must also refund $125 million to the roughly 185,000 borrowers who have already been foreclosed upon and must adhere to significant new homeowner protections.

Specifically, the complaint, filed in the Federal District Court in the District of Columbia, says that Ocwen took advantage of homeowners with servicing shortcuts and unauthorized fees; deceived consumers about foreclosure alternatives and improperly denied loan modifications; and engaged in illegal foreclosure practices. 

In a press statement, Director Cordray said, “Deceptions and shortcuts in mortgage servicing will not be tolerated. Ocwen took advantage of borrowers at every stage of the process. Today’s action sends a clear message that we will be vigilant about making sure that consumers are treated with the respect, dignity, and fairness they deserve.”

Agencies Release Statement Regarding QM/Non-QM loans

On Friday, December 13, 2013, the Federal Reserve, FDIC, OCC and the National Credit Union Administration issued an inter-agency statement regarding Qualified Mortgage (QM)/non-QM loans, recognizing many institutions are implementing the CFPB’s ability-to-repay rule. In efforts to address industry concerns regarding safety and soundness, as well as the Community Reinvestment Act (CRA), the agencies emphasize “institutions may originate both QMs and non-QMs, based on their business strategies and risk appetites. Residential mortgage loans will not be subject to safety-and-soundness criticism based solely on their status as QMs or non-QMs.”

The agencies also clarified the “Bureau’s Ability-to-Repay Rule and CRA are compatible.” Therefore, the agencies do not expect the decision by an entity to make only QM loans, absent other factors, would adversely affect its CRA evaluations.

Update on Debit Interchange

Trades Groups File Reply Brief in Debit Interchange Case

On Monday, December 16, 2013, CBA and other trade associations filed a joint reply brief in response to the merchants’ opposition to the trades’ motion for leave to participate in oral argument in NACS v. Board of Governors of the Federal Reserve System. The merchants filed an opposition brief to the trades’ motion last week. Oral arguments are scheduled to begin in late January 2014. 

Trade Coalition Files Comment on Debit Interchange Survey

On Tuesday, December 17, 2013, CBA with several other trades, responded to the Federal Reserve Board’s (Fed) Request for Comment (RFC) on changes to the surveys on debit card interchange pursuant to §920(a) of Electronic Fund Transfer Act. In its letter, CBA urged the Fed to develop final 2013 surveys which completely and accurately capture issuer cost data related to electronic debit transactions without placing an undue burden on those required to complete the surveys. CBA recommended the Fed: 

  • Allow at least 90 days for respondents to complete the 2013 surveys;
  • Revise the 2013 surveys to omit misleading differentiation of payment card networks based on authentication methods supported;
  • Revise the 2013 surveys to promote complete and consistent responses from respondents while maintaining the successful individualized issuer follow-up protocols from the 2011 surveys; and
  • Revise the Issuer Survey to ensure full debit card cost data is captured accurately and completely, particularly the costs of authorization, clearing, and settlement, and to avoid insufficiencies and imprecision which may hinder the Board’s ability to conduct a comprehensive analysis.

This effort is the Fed’s third RFC on the ongoing interchange surveys.

Senate Judiciary Committee Holds Hearing on Arbitration Clauses

On Tuesday, December 17, 2013, the Senate Judiciary Committee held a hearing entitled: “The Federal Arbitration Act and Access to Justice: Will Recent Supreme Court Decisions Undermine the Rights of Consumers, Workers, and Small Business?” The hearing followed the CFPB’s Phase One findings of its arbitration study, made public at a Bureau field hearing in Dallas, TX on December 12, 2013. Sen. Al Franken (D-MN) presided and lead consideration of a bill he sponsored: The Arbitration Fairness Act (S. 878). “We need to restore Americans’ right to challenge unfair practices in court. I’ll continue to push for passage of my bill to do just that,” Sen. Franken said. Discussion focused on two recent court decisions on arbitration clauses, including American Express Co. v. Italian Colors Restaurant and AT&T Mobility v. Concepcion. 

The hearing included two panels of witnesses representing the federal government, consumers, academics, and industry. Leslie Overton, Deputy Assistant Attorney for the U.S. Department of Justice (DOJ), discussed concerns about plaintiffs abandoning claims because of pre-dispute arbitration agreements. Alan Carlson, the plaintiff in Italian Colors, testified, “to this day, I have not actually seen an arbitration agreement.” Archis Parasharami, a partner at Mayer Brown LLP, discussed an empirical studyhis firm conducted on arbitration agreements which concluded two key points: 1) most class actions are dismissed by courts; and 2) class actions usually result in little to no benefits to its class members.

Senate Passes Bipartisan Budget Deal

On Wednesday, December 18, 2013, by bipartisan vote of 64-36, the Senate passed the Murray-Ryan budget deal. The bipartisan effort helps avert another shutdown crisis for two years and rolls back some government spending cuts during sequestration. A summary of the agreement, as well as the full budget, are available here.

CBA Comments on Proposed Cybersecurity Framework

On Friday, December 13, 2013, CBA filed a joint comment letter with the Financial Services Sector Coordinating Council (FSSCC) submitted to the National Institute of Standards and Technology (NIST) in response to its proposed cybersecurity framework. CBA, a member of FSSCC , suggested the proposed framework may have privacy issues regarding the way institutions share information with NIST. CBA’s Privacy Working Group, which discussed the proposal and helped draft the letter, will remain engaged on this important issue.