CFPB Report - October 2, 2015

Director Cordray Testifies Before House Financial Services Committee
On Tuesday, September 29, 2015, CFPB Director Richard Cordray appeared before the House Financial Services Committee to offer the Semi-Annual Report of the Bureau of Consumer Financial Protection. In his testimony, he noted the recent growth in the mortgage market as well as in other consumer credit markets. He also touted the success of the Bureau's enforcement actions, which have brought $11 billion in relief for more than 25 million customers.
During opening statements, Chairman Jeb Hensarling (R-TX) placed blame on the CFPB for the recent rise in bank consolidation and resulting reduction in market competition. Citing the lack of accountability at the CFPB, Chairman Hensarling also noted the Director alone will make decisions on how consumers can access short-term, small-dollar loans, resolve conflicts using arbitration, and finance the purchase of an automobile. In her opening statement, Ranking Member Maxine Waters (D-CA) applauded Director Cordray on the restitution provided to harmed consumers via the civil penalty fund as well as the CFPB's work on issues such as payday loans, debt collection, red-lining and the complaints portal.
Rep. Randy Neugebauer (R-TX), Financial Institutions Subcommittee Chairman and lead sponsor of the CBA-supported Financial Product Safety Commission Act (H.R. 1266), called attention to the expansion of the agency's scope and the need for a healthy debate about the agency and potential reforms. In reference to H.R. 1266, Rep. Brad Sherman (D-CA) cited concern about Director Cordray's successor potentially undoing the Bureau's work of the past four years.
Director Corday faced several questions regarding the Bureau's position on the TILA-RESPA Integrated Disclosure (TRID) rulemaking process and October 3, 2015 implementation deadline. In response, he stated the CFPB and several other regulators would provide written guidance on their sensitivity to good-faith compliance efforts. He reiterated that any action on TRID in the first few months of its implementation would be "diagnostic" not "punitive" in nature.
Republicans on the committee grilled Director Cordray on the use of proxy methodology that overestimates racial disparities in the auto lending market and serves as the basis of the CFPB's enforcement actions related to dealer reserve. Specifically, Director Cordray avoided directly answering questions from Chairman Hensarling about his knowledge of a CFPB staff memo on the overstatement of racial disparities in the Bureau's proxy methodology and his awareness of other more accurate methodologies, ultimately responding, "Accurate is in the eye of the beholder."
Additional discussion focused on the CFPB's actions on arbitration, short-term small dollar lending, overdraft, data collection, and student lending.
House Financial Services Committee Approves CFPB Commission Bill
On Wednesday, September 30, 2015, the House Financial Services Committee approved five bills, including the CBA-supported Financial Product Safety Commission Act of 2015 (H.R. 1266) – by a vote of 35-24. Democrat Reps. Kyrsten Sinema (AZ) and David Scott (GA) voted in support.
In advance of the committee's consideration of the bill, CBA President & CEO Richard Hunt was joined by trade heads from the American Bankers Association, the American Land Title Association, the Credit Union National Association, the Independent Community Bankers Association, and the National Association of Federal Credit Unions in an op-ed placed in The Hill Wednesday, entitled: "CFPB should be bipartisan commission." Additionally, CBA led a letter to the leadership of the committee in support of H.R. 1266, signed by 24 trade associations.
During committee debate, Chairman Hensarling noted the bipartisan nature and merits of the bill, stating: "and with H.R. 1266 introduced by Chairman Neugebauer, Ms. Sinema, Mr. Scott and others, the CFPB will be governed by an accountable, bipartisan board. This is the very same structure that Democrats Elizabeth Warren, then-Chairman Frank, our current Ranking Member, and many others originally supported." Ranking Member Waters expressed her opposition to the bill, describing it as an "unrelenting effort to undermine the widely successful CFPB." She further noted that Congress "considered and rejected" the proposal during debate on the Dodd-Frank Act.
Chairman Randy Neugebauer (R-TX) offered H.R. 1266 for a vote, citing the need to change the CFPB's governance structure to promote greater deliberation, stability, transparency and accountability at the Bureau. The bill would transition the CFPB's governance from a sole director to a bipartisan commission once three commissioners are confirmed by the Senate and would ultimately allow for five commissioners.
Rep. Stephen Lynch (D-MA) defended the current structure of the CFPB with quotes from former Rep. Barney Frank (D-MA), former Sen. Chris Dodd (D-CT), and Sen. Elizabeth Warren (D-MA). While Rep. Lynch ultimately acknowledged the merits of the commission bill, he remained sensitive to the number of bills debated in the committee aimed at stripping power from the Bureau.
Rep. John Delaney (D-MD) offered, then withdrew, an amendment to require five commissioners to be confirmed before the governance structure transitions to a commission and to allow the current director to be deemed a commissioner. While he expressed concern about the transition, he stressed the importance of a commission to ensuring the continuity and longevity of the Bureau and preventing it from being politicized.
The committee also approved (56-3) H.R. 957, a bill to establish an independent inspector general for the CFPB.
Fifth Third Reaches Settlement on Auto, Credit Card Practices
On Monday, September 28, 2015, the CFPB, in conjunction with the U.S. Department of Justice (DOJ), announced a settlement with Fifth Third Bank regarding auto lending and credit card practices. In terms of the auto settlement, the CFPB enforcement exam period began in January of 2013 when Fifth Third allowed dealers discretion to have a 2.5 percent markup. The CFPB and DOJ concluded Fifth Third's policy violated the Equal Credit Opportunity Act (ECOA) by charging minorities higher mark ups than whites. Ultimately, the higher markup increased the payment and resulted in minorities paying more than $200 in additional cost over the life of the loan. Pursuant to the order, Fifth Third is required to: 

  1. Reduce dealer discretion of the markup rate to 1.25 percent above the buy rate for loans five years or less, and 1 percent for longer term loans;
  2. Pay a total of $18 million in damages, with $12 million allocated to a settlement fund and $5 to $6 million already paid in remediation to consumers; and
  3. Hire a settlement administrator to determine how to distribute the funds.

Notably, the CFPB did not compel Civil Money Penalties because, according to the Bureau, Fifth Third has taken proactive steps to address risks associated with fair lending and discretion.
Regarding the credit card settlement, the CFPB took action against Fifth Third for deceptive acts and practices in the marketing and sales of its add-on credit product, "Debt Protection" credit card. The CFPB indicated it was the eleventh action against a financial institution for credit card add-ons. After the investigation, the CFPB found Fifth Third's telemarketers misrepresented costs and fees for coverage, misrepresented or omitted information about eligibility; and engaged in illegal enrollment practices. Specifically, the CFPB asserted Fifth Third failed to tell some cardholders they would be charged a fee after enrolling; and disseminating "fulfillment kits" containing misinformation about the product's costs, benefits, exclusions, terms, and conditions.
The order requires Fifth Third pay $3 million to approximately 24,500 customers and $500,000 in civil money penalties to the CFPB.
Bureau Releases Student Loan Servicing Report, Joint Agency Principles
On Tuesday, September 29, 2015, the CFPB released a report outlining servicing problems reported by federal and private student loan borrowers. The report built off of the CFPB's recent request for information into student loan servicing practices, to which CBA's General Counsel Steve Zeisel summited comments. The report found many federal and private loan borrowers are experiencing problems accessing repayment options or other repayment alternatives to avoid default. Specifically, the report calls attention to poor customer service, servicing errors, and problems associated with servicing transfers. Further, the CFPB focused its attention on co-signer policies, particularly those related to the death or bankruptcy of a co-signer.
"With one out of four student loan borrowers struggling to repay their loans or already in default, cleaning up the servicing market is critical," said Director Cordray. "Today's report underscores the need for market-wide student loan servicing reforms to halt harmful practices and boost assistance for distressed borrowers."
CBA President & CEO Richard Hunt responded, "Our banks are committed to helping America's students succeed, and their robust underwriting standards, plus strong servicing programs to assist their borrowers throughout the life of the loan, are helping families meet their obligations."
In addition, the CFPB along with the U.S. Department of Education and U.S. Department of Treasury announced a Joint Statement of Principles on Student Loan Servicing. The principles recommend: 1) the creation of consistent, industry-wide standards for the entire servicing market; 2) holding servicers accountable; 3) providing access to clear, timely information; and 4) improving publicly available data.
Consumer Protections, Level Playing Field Urged for Online Lenders
On Wednesday, September 30, 2015, CBA and the American Bankers Association filed comments with the Treasury Department on online marketplace lending. Treasury sought input from the public as marketplace lending becomes more widespread.
The trades argued online marketplace lending fundamentally resembles traditional banking, "just [in] a new delivery channel for a product that has existed for thousands of years." As a result, the groups called for consistent consumer protections, a level playing field for banks and nonbanks and a regulatory approach focused on activities, not delivery channels.
Joint Trades Call on CFPB to Release Proposed Consumer Survey
On Wednesday, September 30, 2015, CBA and other banks and credit union trades sent a letter to the CFPB to release and accept comments on a draft survey as part of its proposed study of overdraft protection services. On September 9, 2015, the CFPB published a notice in the Federal Register seeking approval for a web-based consumer survey on overdraft services. The survey is likely to be the Bureau's last data collection effort before it initiates a rulemaking process on the issue. This is the first direct consumer survey the agency has conducted on overdraft services.
The survey will target 8,000 consumers and explore their "comprehension and decision-making in response to revised overdraft disclosures." It also will evaluate "financial product usage, behavioral traits, and other consumer characteristics that may interact with a consumer's experiences with overdraft programs and related disclosure forms." According to the Bureau, the survey will include a representative sample of U.S. adults holding checking accounts and oversample respondents who are more likely to have experience with overdraft fees.
CFPB Takes Action on Debt Collection 
On Thursday, October 1, 2015, the CFPB announced it had taken action against indirect auto finance company, Westlake Services, LLC, and its auto title lending subsidiary, Wilshire Consumer Credit, LLC, for alleged illegal debt collection tactics. According to the consent order, the Los Angeles-based companies will pay $44.1 million in redress to harmed consumers as well as a $4.25 million civil penalty. They must amend their debt collection practices, provide truthful loan information and protect the privacy of consumers.
The Bureau claims the companies violated the Federal Debt Collection Practices Act, Truth in Lending Act and Dodd-Frank when using a variety of deceptive or unfair tactics in contacting borrowers regarding loans, including:

  • Pretending to call from a repossession company;
  • Faking calls from pizza delivery services, flower shops, or family and friends;
  • Threatening to refer borrowers for investigation or criminal prosecution;
  • Tricking borrowers whose vehicles had been repossessed;
  • Calling consumers' employers, friends, and family members without permission; and
  • Paying a repossession company to make collections calls to consumers.

The CFPB also said the companies violated federal consumer financial laws when they deceived borrowers about the effects of due date changes or extensions to loan terms, and hid the true cost of credit.
"There's no excuse for lying to your customers, and today's action will provide millions of dollars in relief for borrowers caught up in Westlake and Wilshire's deception," said Director Cordray. "Consumers struggling to pay their bills deserve to be treated with respect, not subjected to illegal threats and deceptive phone calls. We will continue to clean up the debt collection market and root out these illegal and inexcusable practices."

Congress Averts Government Shutdown, PassesShort-Term Funding Bill
This week, Congress avoided a government shutdown when it passed a short-term Continuing Resolution to fund the government before the Wednesday, September 30, 2015 deadline. However, a spending fight will continue over the next few months as Congress works to pass a long-term funding measure. Additional deadlines on debt limit, transportation and infrastructure funding, and tax extenders still loom, providing an opportunity for Congress to pass a large omnibus spending package.
Amidst last week's debate to defund Planned Parenthood and the announced resignation of House Speaker John Boehner (R-OH), both chambers swiftly acted to move a clean funding bill. The stop gap measure funds the government through December 11, 2015, and increases SBA 7(a) lending authority from $17.5 billion to $18.5 billion for both FY2014 and FY2015.

Court Denies Dismissal of Operation Choke Point Lawsuit
On Friday, September 25, 2015, U.S. District Court Judge Gladys Kessler denied federal regulators' requests to dismiss a lawsuit filed by Community Financial Services Association of America (CFSA), a payday lending organization. The FDIC, OCC and Federal Reserve filed the motion to dismiss the lawsuit, which - according to CFSA - aims to end "the improper regulatory overreach to shut down lawful industries." CFSA claims the regulators exceed their statutory authority, and seeks declaratory and injunctive relief to prevent the agencies from further action.

OCC Releases Supervision Operating Plan for 2016
On Friday, September 25, 2015, the OCC released its bank supervision operating plan for FY2016, outlining the agency's supervision priorities as related to national banks and federal savings associations. The OCC notes initiatives for FY 2016 for the Office of the Chief National Bank Examiner include examining emerging risks and providing timely policy guidance, enhancing analytical tools to measure and monitor bank performance and compliance with new regulatory requirements, as well as conducting outreach sessions with the industry to present OCC perspectives on emerging issues.

DOJ, Eagle Bank Settle to Resolve Redlining Allegations
On Tuesday, September 29, 2015, the U.S. Department of Justice (DOJ) announced a consent order alleging Eagle Bank and Trust Company engaged in "redlining" in predominantly African-American neighborhoods in the St. Louis area. The FDIC originally referred the case to DOJ in March of 2013. A subsequent DOJ investigation concluded, between 2006 and 2012, Eagle Bank met the credit needs of borrowers in predominantly-white census tracts, and avoided serving the similar credit needs of majority-African-American census tracts. According to the complaint, Eagle Bank's policies were intended to deny and discourage, or have the effect of denying or discouraging, equal lending to the residents of majority-African-American census tracts due to the racial composition of those areas.
As a result of the settlement, Eagle Bank will open two new locations to serve the residents of African American neighborhoods in northern St. Louis. Eagle Bank will also invest at least $975,000 to provide banking and borrowing opportunities to residents and businesses in those areas. This includes an $800,000 investment in a special financing program to increase the amount of credit the bank extends to areas of St. Louis where residents are predominantly African American. It also includes $75,000 for consumer education and credit repair programs, and $100,000 for outreach to potential customers and promotion of their products and services.

Prudential Regulators Announce EGRPRA Meeting
The OCC, Federal Reserve, and FDIC announced the next Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) outreach meeting will take place in Chicago on Monday, October 19, 2015, and will address twelve regulations under review. The meeting will be available via webcast. The final outreach meeting will be held in the Washington, D.C. area on December 2, 2015.

Federal Reserve Approves M&T Bank, Hudson Bank Merger
On Wednesday, September 30, 2015, the Federal Reserve announced approval of M&T Bank Corporation's acquisition of Hudson City Bancorp, Inc. The original proposals for the acquisition were published in the Federal Register on October 2, 2012. Upon approving the proposals, M&T would become the 25th largest depository organization in the United States, with consolidated assets of approximately $132.5 billion.
As CBA reported last week, the CFPB and DOJ entered into a consent order with Hudson City for alleged redlining practices, requiring the company to pay $25 million in direct loan subsidies to qualified borrowers in the affected communities, $2.25 million in community programs and outreach, and a $5.5 million penalty.

Education Department Releases Student Lending Recommendations
On Thursday, October 1, 2015, the U.S. Department of Education released a new report outlining a series of statutory, regulatory, and administrative recommendations aimed at safeguarding student borrowers. The report was developed in consultation with the U.S. Department of the Treasury and the CFPB. While much of the report focused on federal student loans, it offered the following recommendations: 

  • Allow private student loans that lack sufficient repayment flexibility to be dischargeable in bankruptcy;
  • Prohibit the practice of placing borrowers in default because of circumstances outside their control — for example, if a cosigner dies or declares bankruptcy; and
  • Improve the transparency of co-signer agreements. 

In response to the Department's press release, CBA President & CEO Richard Hunt stated, "Our banks are committed to helping America's students succeed by helping them work through problems that may arise. For example, our member banks relieve co-signers of responsibility for loans when the student borrower dies, and none demand immediate repayment when a co-signer dies."