CFPB Report - July 24, 2015

July 24, 2015

CFPB Files Action for Financial Aid Billing Practices
On Thursday, July 23, 2015, the CFPB filed a complaint and proposed consent order in federal court against Student Financial Aid Services, Inc. for illegal sales and billing practices. The Bureau alleges the company lured consumers with misleading information about the cost of subscription financial services and applied undisclosed and unauthorized automatic recurring charges. Under the proposed order, the company would halt illegal practices and pay $5.2 million.

"Student Financial Aid Services, Inc. made millions of dollars at the expense of consumers through its illegal recurring payment scheme," said CFPB Director Richard Cordray. "Our enforcement action will put money back in the pockets of consumers who were misled while seeking to access federal student aid."
 
CFPB Finalizes Two Month Extension of TRID
On Wednesday, July 22, 2015, the CFPB issued the final rule to extend the effective date of the TILA-RESPA Integrated Disclosure rule from August 1 to October 3, 2015. Several technical amendments were made at the same time.
 
CFPB Announces Antonakes Replacements
On Wednesday, July 22, 2015, the Bureau announced Meredith Fuchs would serve as Acting Deputy Director when Steve Antonakes vacates the role at the end of July. Antonakes currently serves as both Deputy Director for the Bureau and Associate Director for the Division of Supervision, Enforcement, and Fair Lending (SEFL). Earlier this month Fuchs announced her intention to step down as General Counsel, but she will continue to serve as General Counsel and Acting Deputy Director until a permanent replacement is selected for each position. David Bleicken, Deputy Associate Director for SEFL, will serve as Acting Associate Director for the division while a search for a replacement is conducted.
 
Bureau Takes Action Against Discover for Student Loan Servicing Practices
On Wednesday, July 22, 2015, the CFPB ordered Discover Bank to pay $18.5 million for alleged illegal private student loan servicing practices. The CFPB claimed Discover has been engaging in illegal debt collection procedures, overstating minimum amounts due on billing statements, and denying consumers information for their federal income tax benefits. The enforcement action includes a $2.5 million civil penalty, a refund of $16.5 million to consumers, and for Discover to improve its collection practices, billing, and student loan interest reporting.
 
"Discover created student debt stress for borrowers by inflating their bills and misleading them about important benefits," said Director Cordray in a press statement. "Illegal servicing and debt collection practices add insult to injury for borrowers struggling to pay back their loans. Today's action is an important step in the Bureau's work to clean up the student loan servicing market."
 
Senate Committee Passes Bill to Amend CFPB Oversight, Structure
This week, the Senate Appropriations Committee passed its Financial Services and General Government Appropriations bill. The legislation contains a community bank regulatory relief package offered by Senate Banking Committee Chairman Richard Shelby (R-AL) which passed out of the Senate Banking Committee by a partisan vote in May of this year. The amendment also includes a provision to increase oversight of the CFPB by bringing funding for the agency under the annual congressional appropriations process, instead of direct funding from the Federal Reserve. Additionally, the legislation changes the CFPB leadership structure from a sole director to a five-member commission.
 
Financial Services and General Government Subcommittee Chairman John Boozman (R-AR) supported the overall bill stating it properly addressed cybersecurity concerns and provided regulatory relief to community banks. Subcommittee Ranking Member Chris Coons (D-DE) voiced opposition to the bill, stating the total amount allocated undermines resources needed for federal financial regulators, including the Commodity Futures Trading Commission, Securities and Exchange Commission, General Services Administration and IRS, and the amount allocated would lead to significant sequester-like cuts. Sen. Coons offered an amendment increasing funding to these agencies and stripping the bill of Sen. Shelby's community bank regulatory relief package. Sen. Coons stated the bill would make it difficult to prevent another financial crisis. Both amendments failed.
 
Citibank Enters Consent Order for Credit Card Add-on Practices
On Tuesday, July 21, 2015, the CFPB announced it reached a consent order with Citibank regarding alleged illegal practices related to credit card add-on products and services. The consent order claimed Citibank deceptively marketed these products and services by misrepresenting costs and fees, benefits of the product, eligibility of coverage, and enrollment. Overall, the CFPB alleged 4.8 million accounts were affected. Further, the CFPB alleged Citibank engaged in unfair billing practices by charging customers for products they did not receive and failing to provide product benefits. Under the agreement, Citibank will reimburse $700 million to customers for approximately 8.8 million accounts and a pay $35 million civil penalty. The CFPB coordinated the action with the OCC, which separately ordered Citibank to pay $35 million in civil penalties and restitution.
 
CFPB Cautions Companies on Military Allotment Payment Practices
On Monday, July 20, 2015, the CFPB announced it had cautioned certain retail companies about misleading marketing to servicemembers. The letters advised the companies to review their websites and advertisements for potentially misleading information, particularly related to payments by military allotment. Active-duty servicemembers are not permitted to use allotments to pay for personal property such as vehicles, appliances, and consumer electronics.
 
"Companies that are still advertising repayment via military allotment may be violating the law," said Director Cordray in a press statement. "Companies should give consumers accurate and reliable information so they can make the best decisions for their own financial situations. We will continue our work protecting servicemembers and promoting a fair and transparent marketplace for all consumers."

DOD Finalizes Amendments to MLA
On Wednesday, July 22, 2015, the U.S. Department of Defense (DoD) issued the final Military Lending Act (MLA) rule amending its Limitations on Terms of Consumer Credit Extended to Service Members and Dependents regulation at 32 CFR Part 232. The final rule applies the protections of the Military Lending Act to all forms of payday loans, vehicle title loans, refund anticipation loans, deposit advance loans, installment loans, unsecured open-end lines of credit, and credit cards. The implementing regulation provides several restrictions applicable to active duty servicemembers and their families, including the extension of a 36 percent Military Annual Percentage Rate (MAPR) limit. The MAPR covers all interest and fees associated with the loan and includes charges for most ancillary "add-on" products such as credit default insurance and debt suspension plans. The final rule also prohibits creditors from requiring servicemembers to submit to mandatory arbitration. The changes to definitions of credit in the final rule bring any closed or open-end loan within the scope of the regulation, except for loans secured by real estate or a purchase-money loan, including a loan to finance the purchase of a vehicle.
 
The DoD made some adjustments to its initial proposal in response to industry concerns, including: 

  • A temporary exemption for credit extended in a credit card account under an open-end (not home-secured) consumer credit plan. The exemption for a credit card account expires, at minimum, in October 2017, and the rule permits that exemption to be extended for up to one year;
  • A qualified exclusion from the requirements relating to the computation of the MAPR for a credit card account for a "bona fide" fee, but eliminating the proposed condition that the bona fide fee be "customary." Under the final rule, an application fee, participation fee, transaction-based fee, or similar fee (other than a periodic rate) for a charge may be excluded from the MAPR to the extent that the fee is (i) a bona fide fee and (ii) reasonable for that type of fee; and
  • Until October 3, 2016, creditors can continue to use the method described in the existing rule for conducting a covered-borrower check, which involves the use of a covered borrower identification statement, as a safe harbor for compliance. After October 3, 2016, a creditor seeking a safe harbor for compliance with the rule may elect to use either of the new methods for conducting a covered-borrower check (e.g. checking against the DoD database) set forth in § 232.5(b). 

Accordingly, the rule will initially affect certain consumer lending products offered by depository institutions (e.g. small-dollar loans). Also, the ultimate effect of the final rule on credit cards will fall on interpretations of "bona fide" and "reasonable" fees. Lenders will have to adjust agreements to reflect the term differences between covered parties and non-covered parties (e.g. MAPR calculations and the removal of arbitration clauses).
 
The final rule will be effective beginning October 1, 2015, with staggered compliance dates beginning October 3, 2016.

OCC Approves OneWest CIT Merger
On Tuesday, July 21, 2015, the OCC announced the approval of the long awaited merger between OneWest Bank and CIT Bank.

Senate Pursues Long-Term Highway Bill, Controversial Offsets
This week, the Senate began its work on the must-pass reauthorization of the Highway Trust Fund, which expires at the end of the month. On July 15, 2015, the House approved by a vote of 312-119 a five-month patch at a cost of $8 billion, paid for with several tax compliance measures, among other savings. The Senate, however, is working towards a longer-term solution to reauthorize the highway programs for six years, paying for three years at a cost of $47.2 billion.
 
The currently debated spending offsets would include numerous non-transportation related savings and fees. More than one-third of the combined offsets, or $17.1 billion, is attributed to a drop in the dividend - from 6 percent to 1.5 percent - paid to Federal Reserve member banks with assets over $1 billion. Another $1.9 billion would come from the extension of a 10-basis point surcharge on guarantee fees for Fannie Mae and Freddie Mac mortgages.
 
On Wednesday, the Senate approved a procedural vote to move forward on H.R. 22, the vehicle for the highway bill. The Senate is expected to continue consideration of this legislation into next week.

Federal Reserve Releases Final Rule on the G-SIB Capital Surcharge
On Monday, July 20, 2015, the Federal Reserve issued a final rule imposing a capital surcharge on global systemically important bank holding companies (G-SIB). The eight banks, which include Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, State Street, and Wells Fargo, will be subject to a capital surcharge, ranging between 1.0 to 4.5 percent of risk-weighted assets.
 
"A key purpose of the capital surcharge is to require the firms themselves to bear the costs that their failure would impose on others," Federal Reserve Chair Janet L. Yellen said. "In practice, this final rule will confront these firms with a choice: they must either hold substantially more capital, reducing the likelihood that they will fail, or else they must shrink their systemic footprint, reducing the harm that their failure would do to our financial system. Either outcome would enhance financial stability."
 
Under the final rule, G-SIBs are to calculate the surcharge under two different methods and apply the higher of the two approaches. The first method follows the framework established by the Basel Committee, which is based firm size, interconnectedness, cross-border activity, substitutability and complexity. The second method follows a similar approach, but replaces substitutability with a firm's reliance on short-term wholesale funding. The Fed also released a white paper outlining how the capital surcharge was calibrated.
 
The surcharge will be phased in beginning on January 1, 2016, and becomes fully effective on January 1, 2019.

President Nominates Fed Board Member
President Barack Obama nominated Kathryn Dominquez for a seat on the Federal Reserve Board on Monday, July 20, 2015. "Dr. Dominguez has the proven experience, judgment, and deep knowledge of the financial system, monetary policy, and international capital markets to serve at the Federal Reserve during this important time for our economy. She brings decades of leadership and expertise from various roles, particularly from her years as a leading economist and academic," the President said in a statement. "I am grateful she has chosen to take on this important role, and I look forward to working with her."
 
Since 2006, Dr. Dominguez has served as a Professor of Public Policy and Economics at Michigan's Gerald R. Ford School of Public Policy and the Department of Economics at the University of Michigan.