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Promontory Sightlines: Consumer Financial Protection Developments

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June 28, 2013

Dear Clients and Friends,

Financial institutions facing unprecedented regulatory interest in consumer protection are working overtime to better manage compliance risk, but mapping requirements and creating checklists are no longer enough to satisfy regulators and meet business objectives. Companies seeking to create a long-term competitive advantage through customer fairness should consider appointing a chief customer experience officer to emphasize the importance of active engagement in the customer experience throughout the entire product life cycle.

Most firms have spent decades investing in quality customer service, and have a strong starting point in valuing the customer experience. The more immediate challenge is to determine who can catalyze the effort to make the customer’s voice heard in every corner of the firm — from the board room to the branches, call centers, and back offices.

Developing a holistic understanding of how the company’s products, services, employees, and business partners are meeting customer-fairness goals is a full-time job. Putting this responsibility in the right hands is essential to navigating evolving consumer-protection expectations and deriving economic returns from strong customer relationships. The chief customer experience officer, or CXO, can meld an operational understanding of the firm’s business with insight into how ordinary customers interact with the firm and use its products and services. The CXO should be a senior executive with the leverage to bring the customer’s perspective to every critical decision the company makes. Ensuring that the consumer’s voice is heard can help shape better outcomes for customers in subtle ways, even where the CXO’s message does not always win the day.

The CXO can also spearhead the work of translating the principled aspirations of the C-suite to the everyday actions of rank-and-file employees, and lead efforts to educate staff and engage stakeholders, including business partners, regulators, and advocacy groups, in an ongoing conversation about the firm’s expectations of fair treatment of customers.

A CXO can provide focused leadership for:

  • Developing a customer-fairness statement
  • Defining standards and metrics for measuring how well the company’s products and services meet customer-fairness goals
  • Integrating customer fairness into respected career paths inside the firm, as well as in promotion and compensation decisions
  • Researching how customers select and use the firm’s offerings, and interact with the firm’s representatives in all aspects of the business
  • Making sure the company’s disclosures about offerings are timely and clear
  • Monitoring complaints to identify issues warranting further review
  • Surveying how employees assess efforts to ensure customer fairness
  • Supporting development of new products and services

The CXO would, in effect, be the standard-bearer for ensuring fair and transparent treatment of customers in the traditional first line of defense: the business units. As a partner to the Chief Compliance Officer, the CXO can reinforce the firm’s values and facilitate coordination among the operating divisions and compliance staff, which is essential in an effective compliance risk management program.

Responding to regulatory expectations that demand more than technical mastery requires bringing the customer’s experience into all conversations about how to run the business. Vesting in a single executive the responsibility for establishing, measuring, and reinforcing actions consistent with the firm’s standards can be a key ingredient in a strategy that meets regulatory expectations and produces stronger businesses.

Yours truly,

Linda Gallagher
Managing Director and Global Head
of the Consumer Protection Practice

lgallagher@promontory.com
+1 202 370 0411

Matthew Ondus
Director
mondus@promontory.com
+1 202 370 0395
P-R Stark

P-R Stark

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CFPB, FTC Take Actions on Misrepresentations to Service Members

The Consumer Financial Protection Bureau announced in a June 27 press release and blog post that it has ordered U.S. Bank and its nonbank partner company, Dealers’ Financial Services, to return $6.5 million to service members to whom the companies allegedly misrepresented the true cost of some auto-loan products. The bureau said U.S. Bank failed to properly inform service members about fees and the schedule of payments associated with loans disbursed through the Military Installment Loans and Educational Services (MILES) program. DFS was said to have misrepresented the costs of add-on products: gap insurance and vehicle service contracts. “One of the first ways the Consumer Bureau heard about potential problems with the MILES program was from a service member’s father. Harry, from Massachusetts, wrote to us about his son’s auto loan through our online ‘Tell Your Story’ feature,” CFPB Director Richard Cordray disclosed in a press call.

The Federal Trade Commission announced it has levied against Mortgage Investors Corp. its largest fine ever for alleged violations of Do Not Call provisions of the Telemarketing Sales Rule — $7.5 million. The commission said Mortgage Investors called more than 5.4 million service member numbers on the Do Not Call Registry to offer adjustable-rate mortgages, which the company deceptively marketed as low-interest, fixed-rate loans. 

CFPB Issues Final Rule on Nonbank Authority

The CFPB announced on June 26 that it issued its final rule to “[establish] procedures to bring under its supervisory authority certain nonbanks whose activities it has reasonable cause to determine pose risks to consumers.” The rule outlines the procedures used to notify nonbanks they are being considered for supervision and lays out a mechanism for the nonbank to provide a response to the notice. The full text of the final rule is here.

CFPB Describes Factors Influencing Its Enforcement Discretion

The CFPB issued a June 25 bulletin outlining “some of the factors the Bureau will consider in determining whether and how much to take into account self-policing, self-reporting, remediation, and cooperation” when conferring favorable consideration during enforcement investigations. Nevertheless, “the fact that a party may argue it has satisfied some or even all of the elements set forth in this guidance will not foreclose the Bureau from bringing any enforcement action or seeking any remedy if it believes such a course is necessary and appropriate,” it said.

CFPB Revises Mortgage Rules

The CFPB announced June 24 that it issued proposed clarifications and revisions to its January 2013 mortgage rules. Among other things, the revisions would: Outline procedures for obtaining follow-up information on loss-mitigation applications, facilitate servicers’ offering of short-term forbearance plans, and facilitate lending in rural or underserved areas.

Supreme Court to Hear NRLB, Fair-Lending Cases

The U.S. Supreme Court announced June 24 that it has agreed to review a federal appeals court decision that President Obama violated the Constitution when he made three recess appointments to the National Labor Relations Board last year. The case — National Labor Relations Board v. Noel Canning — will be decided in the court’s next term. The decision is likely to have implications for the Consumer Financial Protection Bureau, as Director Richard Cordray was appointed at the same time as the three appointees to the NLRB. A separate document on questions presented said the parties should be prepared to answer “whether the president’s recess-appointment power may be exercised when the Senate is convening every three days in pro forma sessions.”

On June 15 the Supreme Court announced that it will also hear Mount Holly v. Mount Holly Gardens Citizens, a fair-lending case that is expected to decide whether Fair Housing Act suits under the disparate impact doctrine are cognizable.

FTC Adds Defendants in Rate-Scam Suit; Moves to Curtail Scammers’ Payment Methods

The FTC said June 21 that it added eight defendants to a suit brought last year that targeted deceptive robocalls by firms promising to lower consumers’ interest rates on credit cards in exchange for upfront fees. The FTC initially brought the suit in November 2012 against Treasure Your Success; the amended complaint added several counts against the new defendants, including billing consumers without their authorization.

The commission on May 21 put out a press release announcing it had filed a notice of proposed rulemaking to solicit public comment on a proposal that would “curtail the use of four payment methods favored by con artists and scammers.” The payment methods include debiting consumer bank accounts through remotely created unsigned checks and payment orders, and cash-to-cash money transfers.

CFPB Updates Proposed Trial-Disclosures Policy

On June 19 the CFPB announced on its blog that it has updated its proposed policy on trial disclosures. “Under the proposal, we may permit a company to use a new disclosure or delivery method that, on a time-limited trial basis, is exempt from certain existing Bureau rules,” the post said. “Data from the trial program would then help us determine if the proposed innovation works better than the status quo.” Under revisions to the proposal, companies may now conduct iterative testing, submit collaborative proposals, and consult with the bureau prior to formal submission.

New FTC Chairwoman Names Senior Staff; Revises Red-Flags Guidance

FTC Chairwoman Edith Ramirez on June 15 named seven senior staff members at the agency, including Jessica Rich, who will head the Bureau of Consumer Protection, and Deborah Feinstein, the new director of the Bureau of Competition.

The FTC announced June 12 that it had revised guidance to identify businesses responsible for complying with the Red Flags Rule, which requires the companies to monitor and respond to warning signs of consumer-identity theft. The guidance tells companies “how to develop, implement, and administer an identity theft prevention program,” the commission said.

CFPB Releases Overdraft Report

The CFPB announced June 11 that it has released a report that criticized the banking industry for its practices regarding overdraft fees: “Our findings with respect to the number of consumers who are incurring heavy overdraft fees or account closures and the wide variations across institutions indicate that certain practices and procedures merit further analysis to determine whether they are causing the kind of consumer harm that the federal consumer protections laws are designed to prevent,” the report said. The CFPB posted a transcript of Director Richard Cordray’s press call. “I think it is important to note that nothing in this report implies that banks and credit unions should be precluded from offering overdraft coverage,” he said.

CFPB Publishes Examination Guidelines

The CFPB announced that it has published guidelines on how it intends to examine banks’ compliance with new mortgage rules issued in January on appraisals, escrow accounts, and loan-originator compensation and qualifications. “The CFPB recognizes that the easier we make it for financial institutions and mortgage companies to follow the new regulations, the better off consumers will be,” said CFPB Director Richard Cordray in the press release. “By releasing details of what our examiners will be looking for well in advance of the effective date of most of the rules, we are giving industry more time to adjust.” The bureau posted separate documents covering exam procedures for the Truth in Lending Act and the Equal Credit Opportunity Act.

FDIC Takes UDAP Action on Prepaid Cards; CFPB Takes First Action under “Abusive” Standard

The Federal Deposit Insurance Corp. on May 31 announced settlements with First California Bank and Achieve Financial Services for engaging in unfair and deceptive practices in the marketing and servicing of the AchieveCard — a prepaid, reloadable MasterCard. “A number of the representations and omissions on Achieve's website were deceptive, such as advertising free online bill pay, promoting certain features and services of the AchieveCard that were not available to cardholders, and charging fees that were not clearly disclosed,” said the agency’s press release, which contained links to the consent orders.

The CFPB on May 30 filed a complaint against Florida-based American Debt Settlement Solutions in federal district court for allegedly charging about $500,000 in “illegal upfront fees for debt-relief services that rarely, if ever, materialized.” The full complaint is here. It is the bureau’s first action against a company for “abusive practices.”

CFPB, CSBS Hammer out a Framework; FTC Updates CFPB

The CFPB and the Conference of State Bank Supervisors on May 21 announced “a framework which establishes a process for coordination on supervision and enforcement matters.” The framework will apply “in situations where the CFPB and state regulators share concurrent supervisory jurisdiction,” they said.

The FTC announced it had issued a May 9 annual letter to the CFPB on enforcement and other activities regarding TILA, ECOA, consumer leasing, and electronic funds transfer. The 14-page letter, a copy of which was also sent to the Federal Reserve Board, gives a full accounting of its administrative and enforcement actions under those laws.

DOJ and CFPB Partner on Charges against Bogus Debt-Relief Firm

The Manhattan U.S. Attorney on May 7 announced the first-ever criminal charges based on a CFPB referral, against Mission Settlement Agency, for allegedly tricking more than 1,200 debt-ridden individuals into paying over $6.6 million in fees for bogus debt-settlement services. The Department of Justice’s charging document is here. The CFPB announced it filed separate civil charges against Mission. A copy of its complaint is here. The CFPB also posted Director Richard Cordray’s press remarks: “Partnerships like the one between the Consumer Bureau and the Department of Justice are integral to our success and mission,” he said. “We will be looking for more such occasions to coordinate and collaborate.”

Introducing Linda Gallagher

Promontory is pleased to welcome Linda Gallagher as managing director and global head of its consumer protection practice. Linda has more than 30 years of bank holding company and financial services experience, specializing in regulatory matters. She has worked with a wide range of diversified and global financial services companies and has led enterprise-wide compliance efforts and consumer compliance/protection readiness assessments, including those for the CFPB. You can read the press release announcing her arrival here.

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Promontory's Consumer Protection Team includes:

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P-R Stark
 

Konrad Alt
Managing Director
kalt@promontory.com
+1 415 986 4160

P-R Stark

Michael Dawson
Managing Director
mdawson@promontory.com
+1 202 384 1080

P-R Stark

Linda Gallagher
Managing Director and Global Head
of the Consumer Protection Practice

lgallagher@promontory.com
+1 202 370 0411

P-R Stark

Simon McDougall
Managing Director
smcdougall@promontory.com
+44 207 377 2367

P-R Stark

BJ Sanford
Managing Director
bsanford@promontory.com
+1 202 384 1020

P-R Stark Julie Williams
Managing Director and
Director of Domestic Advisory Practice

juwilliams@promontory.com
+1 202 384 1087
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Promontory Financial Group, L.L.C.
801 17th Street, N.W.
Suite 1100
Washington, DC 20006

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