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Promontory Sightlines: Consumer Financial Protection Developments


October 2, 2012

Dear Friends,

The smooth functioning of consumer financial markets depends upon credit reporting, but the companies fulfilling that role have traditionally operated without supervisory oversight — until now. The Consumer Financial Protection Bureau began its supervision of consumer-reporting companies on Sept. 30.

The CFPB in July issued what it said was the “first in a series” of rules under which it would use its authority in the Dodd-Frank Act to define — and supervise — nonbank “larger participants” in consumer financial services markets other than mortgages, education lending, and payday lending. Consumer-reporting companies are the first to come under the bureau’s supervision through its exercise of that authority. Other companies contemplating whether they, too, might be deemed a “larger participant” in a consumer financial services market are now looking at the treatment of the consumer reporters with keen interest.

The three national consumer-reporting companies, or repositories, are likely to be the focus of the bureau’s initial examinations, but the reach of the CFPB’s program is much broader. Companies with $7 million in annual revenues from consumer reporting are subject to examination, and the bureau has estimated its rules cover at least 30 companies, accounting for 94% of the revenues in the market. The bureau’s list includes “specialty reporting companies” — businesses that provide information used to make decisions about specific consumer products, such as checking accounts and payday loans. Credit-score developers, too, could be considered larger participants, as could consumer-reporting agencies selling information to resellers — an activity not covered by the Fair Credit Reporting Act.

The CFPB’s examination procedures for consumer reporting, issued earlier this month, provide valuable information about its supervisory efforts. Though designed for a market of nonbanks, the thematic approach of the procedures is, quite frankly, bank-like. We expect initial examinations to focus on compliance-management systems.

These companies should expect to document their organizational structure, internal controls, policies and procedures, training programs, computer systems, audit and compliance monitoring, and relationships with affiliates and service providers. Companies that review, document, and, as necessary, upgrade compliance management in advance of their first examination will be in the best position to meet the CFPB’s expectations. Companies should also have a dedicated compliance department and a chief compliance officer who has substantial authority within the organization.

The CFPB’s examination modules emphasize compliance with provisions of the FCRA, including the accuracy and contents of reports, the handling of complaints, file and score disclosures, identity-theft protections, and prescreening. These obligations should be familiar to consumer-reporting companies.

The CFPB also made clear that it will look for unfair, deceptive, or abusive acts or practices. The procedures specifically address consumer advertising and telemarketing practices, which seem likely to be a focus in UDAAP examinations. Companies should consider whether current or past conduct and business practices might raise red flags as potentially unfair, deceptive, or abusive.

The CFPB’s larger-participant rule and examination procedures on consumer reporting contain elements that signal its efforts will be broad and robust. The procedures, for example, direct examiners to perform transaction testing using sampling procedures and review relevant consumer complaints.

The exam procedures may also have ramifications for credit providers and other companies that furnish information to consumer-reporting companies. Transaction-level testing and complaint reviews at consumer reporters may inform the CFPB’s assessment of how a company is complying with the FCRA requirements on furnishers. For example, testing or complaints that raise questions about the accuracy of information could mean that the provider’s next FCRA examination includes close scrutiny of its policies and procedures for furnishing information to consumer reporters.

We will continue to monitor how the CFPB exercises its authority in these areas as its supervision program expands and matures.

Yours truly,

David Stein, Director
+1 202 384 1183

David Stein

David Stein is a director at Promontory Financial Group, and assists clients with regulatory and compliance issues, focusing on consumer financial services. During his 13-year career as a regulatory attorney and manager with the Federal Reserve Board and the Consumer Financial Protection Bureau, David had responsibility for crafting regulations and developing regulatory policy across a broad range of consumer financial services issues.


Amy Friend
Managing Director
email | +1 202 384 1056

Amy Friend

BJ Sanford
Managing Director
email | +1 202 384 1020

BJ Sanford

Catherine West
Managing Director
email | +1 202 384 1169

Catherine West


Please click here to continue receiving Consumer Financial Protection Developments.


Card Companies Enter into Consent Orders

American Express on Oct. 1 agreed to refund $85 million to 250,000 customers for what the CFPB said in a press release were illegal card practices at three American Express subsidiaries. The CFPB said the Federal Deposit Insurance Corp. and the Utah Department of Financial Institutions discovered the practices during an examination, and subsequently transferred “portions of the investigation” to the CFPB after it opened last year. The company will pay an additional $27.5 million in civil money penalties, including $14.1 million to the CFPB; $9 million to the Federal Reserve Board; $3.9 million to the FDIC; and $500,000 to the Office of the Comptroller of the Currency. The CFPB said the investigations of the subsidiaries found deceptive practices, unlawful late fees, unlawful discrimination, failure to report disputes to consumer-reporting companies, and deceptive representations about debt collection. The CFPB’s press release includes links to the consent orders and stipulations, as well as a fact sheet. The Federal Reserve issued its own announcement, as did the OCC and the FDIC. American Express’s press release is here.

On Sept. 24, the CFPB and the FDIC announced that Discover Financial Services had agreed to refund $200 million in fees paid by customers for credit-protection add-ons. Discover will also pay a civil fine of $14 million. “Discover’s telemarketing scripts contained misleading language likely to deceive consumers about whether they were actually purchasing a product,” the CFPB’s press release said. The agencies also released the joint consent order, order for restitution, and order to pay civil money penalty, which included their findings of fact.

Study on Consumer Reporting

The CFPB on Sept. 25 released a Dodd-Frank-mandated study on consumer reporting that found one in five consumers purchasing a credit score would receive one that is “meaningfully different” from the score sent to lenders. The study found that the differences could pose financial harm to consumers, who would be unlikely to know about discrepancies. The 42-page study includes the data and analysis supporting the findings.

State AGs Join Dodd-Frank Challenge — on OLA, Not CFPB

Oklahoma’s and South Carolina’s attorneys general on Sept. 21 announced that their states are joining part of a lawsuit, led by a Texas community bank and the Competitive Enterprise Institute, challenging the constitutionality of the Dodd-Frank Act. “The state attorneys general are challenging Title II of the act that gives singular power to the Treasury Secretary to liquidate banks with only 24 hours’ notice and no notice for creditors,” the press release from Oklahoma AG Scott Pruitt said. Pruitt’s release noted that the private plaintiffs are also challenging Title X, which provided for the establishment of the CFPB, but did not indicate that he is joining that challenge.

FTC Streamlines Investigations

The Federal Trade Commission on Sept. 20 announced several rules aimed at streamlining investigations. One of the changes involves discovery periods and requires all parties to meet with FTC officials, within 14 days of the issue of a subpoena or civil investigative demand, if there are any problems with the electronic delivery of documents. Another change lets parties discard documents related to an investigation after a year elapses without communication between the party and an FTC staff member. The FTC also changed a rule on how it evaluates complaints about attorneys who practice before the commission.

Help for Remittance-Rule Compliance

The CFPB in a Sept. 26 blog post announced a number of resources to help the financial services industry comply with the Dodd-Frank Act’s electronic fund transfer requirements that go into effect on Feb. 7, 2013. Its initiatives include a list of countries to which an exception to the rule’s disclosure requirements applies, an Oct. 16 educational webinar, and an upcoming small business guide. The bureau also has a Web page that links to the text of the final rule and includes 12 model forms for use in connection with it.

FDIC’s Biennial Look at Unbanked and Underbanked Households

The FDIC’s biennial National Survey of Unbanked and Underbanked Households found that 28.3% of U.S. households are either underbanked or unbanked, an increase of 0.6 percentage points from the 2009 reading. "The results of the 2011 National Survey of Unbanked and Underbanked Households indicate that insured financial institutions have an important chance to grow their customer base by expanding opportunities that bring unbanked and underbanked individuals into mainstream banking,” said FDIC acting chairman Martin J. Gruenberg in the FDIC’s Sept. 12 press release. The full report is available here.

CFPB’s Semiannual, Annual Reports

CFPB director Richard Cordray on Sept. 13 appeared before the Senate Banking Committee to present the bureau’s semi-annual report covering the first half of 2012. He told the panel that the CFPB’s “careful process is that before we propose a rule, a team of attorneys, economists, and market experts evaluates its potential impacts, burdens, and benefits for consumers, providers, and the market.” Separately, the CFPB put out an annual report for the House Appropriations Committee, that was similar to the semiannual report but included more information on its budget and capital-investment strategy.

New CFPB Personnel, Advisory Board

An Aug. 28 CFPB press release announced a number of senior personnel changes:

• Kelly Thomson Cochran is now Acting Assistant Director of Regulations;

• Chris Lipsett joins the CFPB as Senior Counsel in the Office of the Director;

• Stephen Van Meter is now Deputy General Counsel;

• Delicia Reynolds Hand joins the CFPB as Staff Director for the Consumer Advisory Board and Councils.

Separately, it named 25 people to its new Consumer Advisory Board. The appointees include “experts in consumer protection, financial services, community development, fair lending, civil rights, and consumer financial products or services,” the CFPB said in the press release. The Advisory Board held its first meeting on Sept. 27 in St. Louis.

Financial Fraud Task Force Secures Guilty Plea in Foreclosure Scam

The Department of Justice announced on Aug. 28 that a Las Vegas man pleaded guilty to operating a fraudulent foreclosure rescue scam in which he told underwater homeowners he would secure them TARP-funded principal reductions. The release noted that the prosecution was conducted by the Financial Fraud Enforcement Task Force created in November 2009.

FTC, DoJ, and CFPB File Supreme Court Amicus Brief on FDCPA

The FTC announced on Aug. 16 that it had joined the DoJ and the CFPB in filing a joint amicus brief urging the U.S. Supreme Court to overturn a Tenth Circuit decision. The Tenth Circuit held that a plaintiff — upon losing her case — was responsible for paying the legal costs of the debt collector she had sued under the Fair Debt Collection Practices Act, even though she brought the case in good faith. The brief argued that the Tenth Circuit’s decision was “inconsistent with the terms” of the FDCPA.

Interagency Proposal Addresses Higher-Risk Appraisal Requirements

The Federal Reserve, OCC, Federal Housing Finance Agency, the National Credit Union Administration, the CFPB, and the FDIC on Aug. 15 issued a joint proposed rule to adjust the appraisal requirements for higher-risk mortgage loans. The rule would require lenders to “use a licensed or certified appraiser who prepares a written report based on a physical inspection of the interior of the property.” The purpose and results of the appraisal would have to be disclosed to applicants. The Fed’s press release is here and the Federal Register notice is here. Separately, the CFPB issued a release announcing that it had proposed a rule to “require mortgage lenders to provide home loan applicants with copies of written appraisals and other home value estimates developed in connection with the application.” The proposed rule is here; a plain-language summary is here.

An Aug. 13 CFPB blog post announced the launch of a joint initiative with Cornell University that leverages the Web and social media to solicit public feedback via the project’s Web site, The post noted, “ is not a government website. It is operated by students and staff at Cornell, with the goal of making it easy for people to participate in the rulemaking process. They are researching how to remove barriers to public participation, and we are excited to be partnering with them.”

CFPB Proposes Rules on Mortgage Servicing, Origination

The CFPB on Aug. 10 released its new mortgage servicing standards proposals, continuing a process that began with the release of its planned rule proposal outline in April. The new rules were proposed under both the Truth in Lending Act and the Real Estate Settlement Procedures Act and provide for, among other things, clear monthly statements; better disclosures of ARM adjustments and foreclosure alternatives; prompt crediting of payments and error correction; direct access to servicer personnel; and prohibiting foreclosure sales before reviewing loan-modification applications. The formal notice of provisions amending TILA (Regulation Z) is here; provisions amending RESPA (Regulation X) are here. The CFPB also posted an easily digestible factsheet on the amendments, as well as a more detailed summary. Other items included a summary of findings on the design and testing of servicing disclosures and the final report of the Small Business Review Panel’s assessment of the proposals.

A week later, the bureau announced proposed rules that would require lenders to offer no-point, no-fee loan options and require an interest-rate reduction when borrowers pay upfront points or fees. “Consumers have a hard time comparing loans when they are dealing with a bewildering array of points and fees,” said CFPB Director Richard Cordray in the bureau’s press release. “We want to provide consumers with clearer options and enable them to choose the loan that they believe is right for them.” The proposal also included changes to existing rules regarding loan-originator qualifications and compensation. The formal proposal is here; summary overview here. The CFPB also posted the Small Business Review panel’s final report on the loan origination standards rulemaking.

10-Q Disclosures by Private Mortgage Insurers

Radian Group said in its most recent Form 10-Q that it received a Civil Investigative Demand from the CFPB “to determine whether mortgage lenders and private mortgage insurance providers engaged in acts or practices in violation of the Dodd-Frank Act, RESPA and the Consumer Financial Protection Act.” American International Group, Genworth Financial, MGIC, and PHH Corp. all made similar disclosures in their most recent quarterly filings.

FTC Finds FCRA Violation

The FTC announced on Aug. 8 that employment background screening company HireRight Solutions has agreed to pay $2.6 million to settle allegations that the company “violated the Fair Credit Reporting Act by failing to use reasonable procedures to assure the maximum possible accuracy of information it provided, failing to give consumers copies of their reports, and failing to reinvestigate consumer disputes, as required by law.”

Philly Fed Study on Open-Loop Prepaid Cards

On Aug. 7, the Federal Reserve Bank of Philadelphia published a study on open-loop prepaid cards. Open-loop cards, as the study defined them, “are prepaid cards that carry one of the major payment card network brands and can be used to make purchases at any merchant that accepts that card brand.” These cards are still less widely used than traditional credit and debit cards, but they are emerging as a mainstream method of disbursing funds and making payments. Various government benefits — such as Social Security disability and food stamps — are paid out via this type of card; in 2009, U.S. consumers used them to make 6 billion transactions. The authors pointed to several compliance issues associated with the cards, such as the structure and level of fees card issuers charge and money-laundering concerns. The study noted that “U.S. Prepaid transactions are growing substantially faster than transactions on debit and credit cards.”

Senators Inquire about Medical Debt and Credit Scores

Sens. Jeff Merkley (D-OR), Charles Schumer (D-NY), Robert Menendez (D-NJ), and Sherrod Brown (D-OH) on Aug. 3 sent CFPB director Richard Cordray a letter asking the bureau to address medical debt and its impact on consumers’ credit scoring. The Senators’ letter raised the specific concern that creditworthy consumers are often unaware of what medical debts they owe to whom, and their credit scores are damaged before they can make payments.

SCRA Enforcement Action for Capital One

The OCC and DoJ announced an enforcement action and settlement in connection with Capital One’s alleged violations of the Servicemembers Civil Relief Act, including “wrongful foreclosures, improper repossessions of motor vehicles, wrongful court judgments, improper denials of the 6 percent interest rate the SCRA guarantees to service members on some credit card and car loans and insufficient 6 percent benefits granted on credit cards, car loans and other types of accounts,” the DoJ release said. Under the terms of the settlement, Capital One agreed to pay at least $12 million to resolve the charges, subject to increase if additional violations turn up as a result of the independent audits required by the enforcement action. The OCC’s release indicated that under the terms of the consent orders, Capital One will be required to retain an independent firm to perform a look-back review for the period from July 15, 2006, to July 25, 2012. Full text of consent order against Capital One, N.A. is here; consent order against Capital One Bank (USA), N.A. is here.

CFPB Extends Comment Periods

An Aug. 31 CFPB blog post announced that the bureau has extended the comment period for proposed changes to the definition of “finance charge” and proposed changes to the coverage test for high-cost mortgage protections, both to November 6, 2012, from Sept. 7, 2012.

CFPB Examining Gift Cards and Unclaimed Property Laws

On Aug. 16 the CFPB announced that it is exploring whether unclaimed property laws with regard to gift cards in Maine and Tennessee contradict federal laws on gift card expiration dates. Federal law mandates at least five years before expiration; Maine and Tennessee permit certain types of gift cards to fall under the purview of abandoned property after two years. Official Federal Register notice is here.

HMDA Data Available

A Sept. 18 interagency release from the regulators and Federal Financial Institutions Examination Council announced that data on mortgage transactions for HMDA-covered financial institutions is now available.


Promontory's Consumer Protection Group includes:


Konrad Alt, Managing Director
+1 415 986 4160

Jeff Brown, Managing Director
+1 202 384 1040

Jeanine Catalano, Special Adviser
+1 415 321 6408

Michael Dawson, Managing Director
+1 202 384 1080

Susan Eckert, Director
+1 202 384 1125

Jennifer Faulkner, Director
+1 202 384 1126

Amy Friend, Managing Director
+1 202 384 1056

David Gibbons, Managing Director
+1 847 615 1728

Jonathan Gould, Director
+1 202 384 1018

Austin Hong, Director
+1 202 384 1030

Chris Lewis, Director
+1 415 321 6406

Simon McDougall, Managing Director
+44 207 377 2367

BJ Sanford, Managing Director
+1 202 384 1020

David Stein, Director
+1 202 384 1183

Catherine West, Managing Director
+1 202 384 1169


Please click here to continue receiving Consumer Financial Protection Developments.

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