CFPB Report - March 13, 2015

CFPB Holds Field Hearing on Arbitration
On Tuesday, March 10, 2015, the CFPB held a public field hearing in Newark, N.J., to discuss the use of arbitration agreements in consumer financial products and services; Dong Hong, CBA's Vice President and Regulatory Counsel, served as a panelist at the hearing. In conjunction with the field hearing, the CFPB issued its report on mandatory pre-dispute arbitration agreements, as required by section 1028 of the Dodd-Frank Act.

In his opening remarks for the field hearing, CFPB Director Richard Cordray said the study provides evidence that mandatory pre-dispute arbitration harms consumers by limiting access to class actions by consumers; consumers do not have an understanding of arbitration or whether they are in their agreements; and there is no evidence companies without arbitration clauses pass additional costs to consumers.

Industry commenters said:

  • Arbitration is good for companies and for consumers. It is often quicker, cheaper and more convenient than litigation. Consumers often fare better than those who are in litigation, and members of class action law suits often recover very small amounts.
  • The vast majority of consumer disputes are resolved without arbitration or litigation. There is a network of informal dispute resolution processes in place, including complaint resolution, that resolves most issues before anything reaches that level.
  • Many consumers are given a right to opt out. If consumers do not understand arbitration or do not understand they have a right to opt out, the CFPB can assist the industry in educating them.
  • The CFPB study did not look at the experiences of consumers who actually went through arbitration. Had they done so, they would have found that consumers are generally very happy with their experiences.
  • The Credit Union representative said that most credit unions do not choose to have arbitration in their agreements. He said he believes arbitration can be a very effective dispute resolution process, but he does not support making them mandatory.

Consumer advocates and plaintiff's attorneys stated:

  • Arbitrations are not shorter, cheaper or fairer.
  • Consumers have a constitutional right to go to court.
  • At the end of the day, the study confirms common sense. Individuals will not arbitrate when claims are too small to bother.
  • Companies use arbitration agreements to avoid liability.
  • Arbitration prevents the common law from developing doctrine in consumer protection common law.
  • Consumers do not factor dispute resolution processes when they choose a company with which to do business.

Following the panel, individuals in the audience were invited to make remarks. Every speaker supported the views of those who opposed arbitration agreements. We expect the CFPB will begin a rulemaking process to restrict or prohibit mandatory pre-dispute arbitration, though the timeframe is unknown.


CFPB Publishes Latest Supervisory Highlights
On Wednesday, March 11, 2015, the CFPB published the seventh edition of its Supervisory Highlights, summarizing examination findings from July 2014 to December 2014 in the areas of consumer reporting, debt collection, deposits, mortgage origination, and fair lending.

The report asserts that CFPB supervisory actions in the areas of payday lending, mortgage servicing, and mortgage origination resulted in remediation of $19.4 million to more than 92,000 consumers. While the CFPB noted improvement in many areas, the Bureau highlighted the following issues:

Consumer reporting

  • Failing to consistently forward all relevant information from consumer-supplied documents to resolve disputes; and
  • Deficiently updating public record information, resulting in reporting errors; and
  • Insufficiently establishing necessary policies and procedures for communication with consumers during a reinvestigation.


  • Failing to notify consumers that overdraft posting process switched from a ledger-balance to an available-balance method, which may be deceptive under UDAAP;
  • Changing overdraft fees without proper disclosure or ability for consumers to reasonably avoid the fees, which may be deceptive under UDAAP; and
  • Failing to properly disclose overdraft processing logic for electronic transactions and assessing the fees in an inconsistent manner, which may be deceptive and unfair under UDAAP.

Mortgage Origination

  • Compensating loan originators, specifically branch managers, based on the term of the transaction;
  • Preventing the borrower from receiving cash-back at closing when the amounts on HUD-1 exceeded the Good Faith Estimate (GFE) in violation of Regulation X.
  • Failing to accurately measure the three-day period for GFE in violation of Regulations X and Z;
  • Failing to include proper disclosures in social media advertising by loan originators creating their own content;
  • Failing to provide requisite denial notices under Regulation B and failing to notify applicants of action taken within 30 days after receiving a completed application; and
  • Implementing weak compliance management systems that allowed "numerous" violations of Regulations B. X, and Z to occur.

Fair Lending

  • Violating ECOA and Regulation B, due to failure to consider public assistance income or other Regulation B protected income.

Supervision Program Developments

  • February 2015: Credit Card Account Management examination procedures added to the Supervision and Examination Manual
  • January 27, 2015: "Treatment of Confidential Supervisory Information" bulletin
  • November 18, 2014: Bulletin outlining practices for mitigating prohibited discrimination against consumers receiving Social Security disability income
  • Examiner Commissioning Program


CFPB to Hold Field Hearing on Payday Lending
On Wednesday, March 11, 2015, the CFPB announced it will hold a field hearing on Payday lending on Thursday, March 26, 2015 in Richmond, VA. CBA does not expect a proposed rule will be presented in conjunction with this hearing, as a small business review panel (SBREFA) has not yet been held. The Bureau is likely to announce at the hearing the start of the SBREFA process and may release further data points on the issue.

This event is open to the public and requires an RSVP. The event will also be live streamed form the CFPB's website.


Fed Releases Stress Tests Results
On Wednesday, March 11, 2015, the Federal Reserve (Fed) released the results of the second component of its two-part annual stress tests on large financial institutions. The results of the first portion of the test released on March 5, 2015 found all 31 banks tested have the necessary capital to withstand a sharp economic downturn. The second test measured whether banks have appropriate processes in place for identifying and preparing for risks, and whether conditions warrant increased stock buybacks and dividends.

Overall, the Fed found "U.S. firms have substantially increased their capital since the first round of stress tests led by the Federal Reserve in 2009," but further improvements can be made. Specifically, the Fed approved the capital plans for 28 of the 31 banks tested. The capital plans of Santander and Deutsche Bank plans were rejected, while Bank of America received conditional approval with instructions to resubmit its plan by September 30, 2015. JP Morgan, Goldman, and Morgan Stanley received Fed approval after lowering their buyback and dividend estimates and resubmitting their plans in the past week. According to the Fed, the 31 firms tested represent more than 80 percent of domestic banking assets.


President Announces Student Loan Servicing Initiative, Studying Bankruptcy Options
On Tuesday, March 10, 2015, President Barack Obama delivered remarks at Georgia Tech on the topic of ensuring strong consumer protections for student loan borrowers. This included new standards to be put in place for servicers of federal student loans, and also rekindled the debate on bankruptcy treatment of student loan debt.

"So we're trying to tackle this problem from every angle," the President said. "But we're trying to make sure that across the board, more and more young people can afford to go to college, and then afterwards, aren't so burdened with debt that you can't do anything else. We want to make this experience more affordable because you're not just investing in yourselves; you're investing in your nation."

The President outlined his proposal for a "Student Aid Bill of Rights," with these principles:

  • Every student deserves access to a quality, affordable education at a college that's cutting costs and increasing learning.
  • Every student should be able to access the resources needed to pay for college.
  • Every borrower has the right to an affordable repayment plan.
  • And every borrower has the right to quality customer service, reliable information, and fair treatment, even if they struggle to repay their loans.

An action plan indicated the U.S. Department of Education will create a new student loan borrower complaint system for federal loans. The Department will also put in place stricter servicing requirements for federal loans.

In addition, the President raised the question of studying how a change in the bankruptcy code would affect student loan debt. He suggested this would apply to both federal and private student loans; this is a major shift from previous proposals from Democrats which have only called for discharging private loans more easily. The President would likely need to work with Congress to change the bankruptcy code.

On the same day, Sen. Dick Durbin (D-IL) announced he would introduce a version of the Student Loan Borrower Bill of Rights previously release in the last Congress. This legislation was eventually included in a bill by Sen. Tom Harkin (D-IA), the former Chairman of the Senate Committee on Health, Education, Labor, & Pensions, to reauthorize the Higher Education Act (HEA). Tom Harkin is no longer a member of the Senate, but the bill is seen as a starting point for the ranking member, Patty Murray (D-WA), as she begins working on Higher Education Act reauthorization.


NY AG Reaches Settlement with CRAs
On Monday, March 9, 2015, the Attorney General of the State of New York, Eric Schneiderman, announced a settlement with the three largest credit reporting agencies (CRAs) over how the agencies handle errors and treat medical debt.

Under the agreement, the CRAs will be more proactive in resolving disputes over information contained in their reports. Also, medical debts will not be put on consumers' credit reports until after a 180-day "waiting period" to allow insurance payments to be taken into account. In addition, all medical debts will be removed from a consumer's credit report after the debt is paid by insurance.

The settlement also requires the CRAs to institute several reforms over the next three years, including giving consumers the right to challenge inaccurate information in their credit reports by initiating a dispute.