CFPB Report - May 15, 2015

CFPB Holds Hearing, Seeks Info on Student Loan Servicing
On Thursday, May 14, 2015, the CFPB announced a new public survey on student loan servicing practices and held a field hearing in Milwaukee, to discuss some of its recent market observations. The Bureau highlighted concerns it previously raised regarding student loan servicing, evaluating an array of issues from the way borrowers communicate with their servicers to what happens if a cosigner passes away or files for bankruptcy. The CFPB also announced a request for information (RFI) on student loan servicing, in accordance with a March 10, 2015, Executive Memorandum directing certain executive agencies to undertake steps to improve student loan borrowers' experience with repayment. Comments on the RFI must be submitted by July 13, 2015.
 
Ted Mitchell, Under Secretary for the U.S. Department of Education, was present for the field hearing and emphasized the Department's collaboration with the Bureau given their overlapping jurisdiction on student loan policy. He said federal loan servicers should be "aiming for a zero default rate for student loan borrowers" given the income driven repayment options available to them. He hopes to work with the U.S. Department of the Treasury to use IRS data so borrowers do not have to recertify eligibility for this benefit each year. Secretary Mitchell would also like to see federal loan servicing contract incentives more closely align with the goal of zero default.
 
In his opening remarks at the field hearing, CFPB Director Richard Cordray said, "At every stage of the process of paying back their student loans, borrowers have told us they are wrapped in mounds of red tape, particularly for private student loans. From the beginning, when they first graduate and start making their initial payments, consumers can experience problems with payment posting, problems with attempted prepayments, and problems with partial rather than full payments." He added, "We have also heard from borrowers who complain about inconsistency, noting that they often get widely different information, protections, and rights depending on what type of loan they have."
 
A panel of industry representatives, financial aid administrators, and consumers groups took part in a panel discussion including:

  • Justin Draeger, President and CEO, National Association of Student Financial Aid Administrators (NASFAA);
  • Timothy Fitzgibbon, Senior VP, National Council of Higher Education Resources (NCHER);
  • Dick George, President and CEO, Great Lakes Higher Education Corporation;
  • Chuck Knepfle, Director of Financial Aid, Clemson University;
  • Deanne Loonin, Student Loan Borrower Assistance Project Director, National Consumer Law Center (NCLC); and
  • Jennifer Wang, Policy Director, Young Invincibles.

The representative from NASFAA discussed the role of schools in counseling students, and suggested students need more information about how servicers are treating loans. NCHER emphasized defaults could be prevented if lenders and servicers could communicate more easily via cell phones and text, which would require an update of the Telephone Consumer Protection Act (TCPA). Great Lakes identified the most vulnerable population of borrowers as those who do not finish college, and oftentimes fall out of communication with their loan servicer. The representative from Clemson said, "There is no need for the student to know who their servicer is," and advocated for a more direct borrower relationship with the Department of Education. Comments from NCLC focused on student loan debt collection issues, especially for private loans. The Young Invincibles shared the results of a study it recently conducted on student loan servicing.
 
CFPB Releases Advisory on Garnishment of Federal Benefits
On Wednesday, May 13, 2015, the CFPB posted a consumer advisory indicating "federal benefits get special protections," citing Social Security (SS) and Veterans Administration (VA) benefits, but excluding Social Security and Social Security Disability Insurance. Specifically, when a debt collector wins a judgment against a debtor, the bank holding the assets can only freeze a certain amount of SS and VA benefits. The same protections apply for benefits loaded onto a prepaid card.
 
CFPB Takes Action Against Mobile Service Providers
On Tuesday, May 12, 2015, the CFPB filed proposed orders in separate federal courts against Sprint and Verizon which, if approved, would provide $120 million in redress to wireless customers who were allegedly billed for unauthorized third-party charges. The CFPB alleges the companies operated billing systems allowing third parties to "cram" unauthorized charges on customers' mobile-phone accounts and ignored complaints about the charges. The CFPB filed the actions in conjunction with the state attorneys general of New York and New Jersey and the Federal Communications Commission (FCC).
 
In December 2014, the CFPB filed suit in the Southern District of New York against Sprint. On Tuesday, May 12, 2015, the Bureau filed a complaint and a proposed consent order in the District of New Jersey to address Verizon's alleged conduct. The CFPB charges Sprint and Verizon, as payment processors for third parties, with violating the Dodd-Frank Act's prohibition on unfair practices by allowing third parties to illegally charge consumers, automatically billing consumers for illegitimate charges without their consent, ignoring consumer complaints about unauthorized charges, and disregarding red flags about third party vendors.
 
"Sprint and Verizon had flawed billing systems that allowed merchants to add unauthorized charges to wireless customer bills," said Director Cordray in a press release. "Consumers bore the brunt of those charges and ended up paying millions of dollars while the companies reaped profits. Today's actions will put $120 million back into the pockets of harmed consumers and require these companies to improve their billing practices going forward."
 
CFPB Files Lawsuit on Mortgage Misrepresentations
On Monday, May 11, 2015, the CFPB filed a lawsuit in federal district court against Nationwide Biweekly Administration, Inc., Loan Payment Administration LLC, and the companies' owner, Daniel Lipsky, alleging Nationwide misrepresented the interest savings that consumers would achieve through a biweekly mortgage payment program and misled consumers about actual program costs. The complaint alleges the company collected approximately $49 million in setup fees between 2011 and 2014 after consumers were promised substantial and immediate savings on their mortgages. The Bureau claims the alleged practices violate the Telemarketing Sales Rule and the CFPB's prohibition against unfair, deceptive or abusive acts or practices.
 
"These companies and their owner, Daniel Lipsky, took advantage of consumers with false promises of savings on their mortgage," said Director Cordray in a press release. "Homeowners deserve accurate information in the financial marketplace. Today we are taking action to end these illegal and deceptive practices, and to hold these companies accountable for their actions."
 
CFPB Provides Guidance on Mortgage Discrimination
On Monday, May 11, 2015, the CFPB issued a bulletin intended to help mortgage lenders avoid illegal discrimination against applicants whose income includes vouchers from the Section 8 Housing Choice Voucher (HCV) Homeownership Program – a possible violation the Equal Credit Opportunity Act and its implementing regulation, Regulation B.
 
The CFPB indicated some financial institutions were excluding or refusing to consider income derived from the HCV program during the loan application and underwriting process, while others are only permitting the vouchers to be used for certain mortgage loan products or delivery channels.

Lawmakers Hold Forum on Predatory Practices, Economic Injustice
Sen. Elizabeth Warren (D-MA), Reps. Elijah Cummings (D-MD) and John Sarbanes (D-MD) held a forum on Tuesday, May 12, 2015, in conjunction with the Middle Class Prosperity Project titled: "Access and Opportunity: Predatory Financial Practices and Economic Injustice." Panelists included representatives from Securityplus Federal Credit Union, Maryland CASH Campaign, Center for Financial Services Innovation, Center for Responsible Lending, and Belair-Edison Neighborhoods, Inc. The forum addressed access to financial services for the middle class, predatory practices of alternative financial services providers, stakeholder engagement, postal banking issues, and Community Reinvestment Act modernization.

Chairman Unveils Broad Regulatory Reform Bill
On Tuesday, May 12, 2015, Senate Banking Committee Chairman Richard Shelby (R-AL), unveiled a broad regulatory reform proposal which touches nearly all financial sectors, including retail banking and consumer finance. The discussion draft sought to initiate a conversation with Members of the Senate Banking Committee and determine whether bi-partisan consensus can be reached on various components of the bill – several of which passed the House previously with broad bipartisan support.
 
Committed to a bipartisan process, the Chairman included ideas vetted during the hearing process or introduced in past Congressial sessions with bipartisan support. However, Democrats quickly expressed frustration because they were not included in the drafting process and needed time to review the 200 page bill.
 
The discussion draft changes the designation of systemically important financial institutions from a bank holding company (BHC) with $50 billion in assets, to $500 billion in assets and provides for an inflation adjustment. The Federal Reserve Board of Governors and Financial Stability Oversight Council (FSOC) would be required to evaluate BHCs with more than $50 billion and less than $500 billion in assets for systemic designation based on certain criteria. The draft also attempts to reduce regulatory burdens unintentionally impacting consumer access to credit. Among other things, the bill includes the following provisions:

  • Exception to annual written privacy notice requirement under the Gramm-Leach-Bliley Act;
  • Requires the CFPB to establish an application process for determining designations of a "rural area;"
  • Creation of an "Examination Ombudsman" at the FFIEC;
  • Provides a qualified mortgage safe harbor for certain mortgage loans held on portfolio;
  • Amends the Truth in Lending Act to exclude from the computation of points and fees an escrow for future payment of insurance;
  • Requires banking agency to study recent regulatory changes to mortgage servicing assets; and
  • Requires federal financial regulators to consider Dodd-Frank rules under current Economic Growth and Regulatory Paperwork Reduction Act review.

In an effort to increase support from Democrats, Chairman Shelby provided an extra week to review the bill before holding a vote of the Senate Banking Committee during a mark-up on May 21, 2015. A section-by-section of the bill summary can be found here.

National Fair Housing Alliance Sues Fannie Mae for Fair Housing Violations
On Wednesday, May 13, 2015, the National Fair Housing Alliance (NFHA) and other affiliated organizations filed a lawsuit against Fannie Mae for allegedly maintaining foreclosures better in white neighborhoods than middle and working class African American and Latino neighborhoods, in violation of the Fair Housing Act. NFHA is alleging Fannie Mae engaged in this practice in 34 metropolitan areas.

House Small Business Committee Considers Value of Marketplace Lenders
On Wednesday, May 13, 2015, the House Small Business Committee held a hearing entitled: "Bridging the Small Business Capital Gap: Peer-to-Peer Lending," According to the Committee, the hearing aimed to examine the rise of peer-to-peer lending platforms seeking to satisfy the demand for debt capital not being met by banks and other conventional lenders. Witnesses included a finance professor at MIT, co-founder and managing director of Funding Circle, and co-founder and CEO of LendIt, the first and largest conference for the online lending industry.
 
"While access to capital has always been a concern for small firms, as we all know, the Great Recession and recent reforms to our financial markets have made access to capital even more difficult. However, recently there has also been an influx of alternative lending options to assist small businesses in getting the financing they so desperately need," said Chairman of the House Small Business Committee Steve Chabot (R-OH).
 
Although such alternative lenders are able to meet credit demand in ways traditional banks cannot, lawmakers were concerned they may fall outside the financial regulatory structure designed for traditional depository institutions.

House Financial Services Subcommittee Studies Impact of Dodd-Frank
On Wednesday, May 13, 2015, the House Financial Services Subcommittee on Oversight and Investigation held a hearing on "The Dodd-Frank Act and Regulatory Overreach." Witnesses from the University of Virginia Law School, Americans for Financial Reform, and the Mercatus Center at the George Mason University provided testimony.
 
"Fewer people have returned to the work force than in any other modern recovery. Our community banks are closing every week, main street lenders are being slowly euthanized and the number one cause that I hear from people in Wisconsin is the excessive regulatory burden imposed by this administration. Dodd Frank is a major cause of that burden," said Subcommittee Chairman Sean Duffy (R-W).
 
Republican members focused on flawed monetary and housing policies as the root causes of the financial crisis. Witnesses from the University of Virginia Law School and George Mason University emphasized Dodd-Frank was far too reactionary, and did not take into consideration many of the existing financial regulations already in place. The witness for the American Action Forum emphasized that the benefit of preventing future financial crises far outweigh the costs potentially incurred by consumers and the over-all economy.

MLA Amendment Offered to the National Defense Authorization Act
An amendment to H.R. 1735, the National Defense Authorization Act for Fiscal Year 2016, was considered on Thursday, May 14, 2015. Offered by Reps. Denny Heck (D-WA) and Steve Stivers (R-OH), the amendment would require a report after the Military Lending Act rulemaking on compliance mechanisms for covered borrowers. It also would require the Defense Manpower Data Center (DMDC) to report to Congress on the system's reliability and any plans to strengthen capabilities. In addition, a working group would be established to consult with private-sector users of DMDC to address issues of common concern.
 
CBA sent a letter in support of the bipartisan effort to address the significance of having a reliable database to fulfill the requirements of the MLA.

House Holds TRID Hearing
The Housing and Insurance Subcommittee of the House Financial Services Committee held a hearing on Thursday, May 14, 2015, entitled: "TILA-RESPA Integrated Disclosure (TRID): Examining the Costs and Benefits of Changes to the Real Estate Settlement Process." Witnesses included representatives from the American Bankers Association, Land Title Guaranty Company, Housing Finance Policy Center at the Urban Institute and National Association of Realtors. They discussed with lawmakers the importance of a hold-harmless period through the end of the year following the August 1, 2015 effective date.
 
CBA sent a letter earlier this month supporting legislation which would provide a hold-harmless period through December 31, 2015, allowing stakeholders to make a good-faith effort to comply without fear of potential enforcement actions or lawsuits.

House Financial Services Committee Holds Data Security Hearing
On Thursday, May 14, 2015, the House Financial Services Committee held a full committee hearing entitled: "Protecting Consumers: Financial Data Security in the Age of Computer Hackers." Members used the hearing to discuss H.R. 2205 Data Security Act of 2015, bipartisan legislation introduced by Reps. Randy Neugebauer (R-TX) and John Carney (D-DE). Witnesses included representatives from Financial Services Roundtable, Retail Industry Leaders Association, Electronic Transactions Association, PCI Security Standards Council, and Open Technology Institute.
 
Committee Chairman Jeb Hensarling (R-TX) stated: "Consumers shouldn't be left to simply hope and pray their personal information will be safe every time they swipe their debit or credit card or enter their information online. They deserve protection." Ranking Member Maxine Waters (D-CA) noted, "Any federal preemption should complement states' protections," and added state attorneys general "play an important role in enforcement and notification standards."
 
Members recognized the strength of the data security standard contained within H.R. 2205, noting it is modeled after the Gramm-Leach-Bliley Act (GLBA) and much stronger than a reasonable standard contained within other data security bills. Some Democrats expressed concern that a single federal standard would preempt states with even stronger data and notification standards. Many on both sides of the aisle questioned witnesses about the evolving nature of payment technology, including chip and PIN, tokenization, and encryption. Moreover, lawmakers were interested in a detailed description of the process once a breach occurs to determine which entities bear the brunt of the fraud and card reissuing costs.