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Promontory Sightlines: Consumer Financial Protection Developments

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June 26, 2014

Policymakers created the Consumer Financial Protection Bureau to represent a singular perspective in the regulation of financial products and services: the consumer's. But analyzing the frequency of debt-collection calls — a key issue in one of the bureau's pending rules — reveals some of the limitations of that perspective.

The Federal Trade Commission said earlier this year that debt collection is second only to identity theft among consumer complaints, and accounts for 10% of complaints overall. Frequent or repeated collection calls are typically a leading subcategory of those complaints; combined data from the CFPB and FTC showed that 30% of debt-collection complaints in 2013 were about frequency.

Given the importance that the CFPB attaches to complaint data, it is hardly surprising that the agency has highlighted call volume as a critical consumer experience issue in reports and its advance notice of proposed rulemaking. Nor is it surprising that a joint comment letter from eight consumer groups called on the bureau to issue a rule that would limit collectors to three calls, and one actual contact, per week.

This kind of rule would undoubtedly clarify the line between responsible and illegal conduct and increase pressure on firms engaging in close-to-the-edge collection tactics — such as the nonbank collection agency recently cited in the CFPB's Supervisory Highlights for making as many as 20 calls to the same consumer over a two-day period. But it is far from clear that a strict limitation on call volumes would improve the consumer experience broadly, particularly if, as the bureau's recent supervisory action suggests, these tactics are already illegal. Many supervised creditors and third-party collectors already limit call frequency to some degree due to restrictions on harassment in the Fair Debt Collection Practices Act and elsewhere.

Imposing a limit on collection calls in response to the volume of complaints about repeat or excessive calls may overlook an important underlying cause: Consumers with debts in collection usually have more than a single account in collection at once. For a consumer with four or five accounts in collection — a typical number, according to estimates — a three-call limit would still allow 12 to 15 calls a week. Even if each collector in this example abided by the proposed call limit, the collector who made the 11th or 15th call in a week may be more likely to trigger a complaint, even though its action is equally justified and no less compliant than that of the collector who made the first or second call.

Consumers filing formal complaints about frequent or repeat calls may not disclose that they have multiple accounts in collection and may not accurately identify how many calls the particular collector against which the complaint is lodged has made. Nor are collectors well-equipped to police industrywide behavior, since any one collector calling about a delinquent debt is unlikely to know how many other accounts in collection a consumer might have at any given time.

Imposing a strict limit on call frequency is an obvious response to high volumes of complaints about frequent or repeat collection calls. But if the common consumer perception about excessive debt-collection calls results as much from having multiple accounts in collection as from irresponsible actors, adopting consumers' reported complaints as the basis for regulation may offer limited relief, because it does not — and cannot — address fundamental lack of coordination among different parties collecting debt.

Yours truly,

P-R Stark
Senior Principal
prstark@promontory.com
+1 202 370 0392

P-R Stark

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CFPB Releases New Credit Card Add-On Product Order; Also Cites Credit Discrimination

The CFPB on June 19 announced a consent order with GE Capital (now Synchrony Bank) requiring the firm to pay $225 million in relief to consumers harmed by deceptive marketing and discriminatory credit card practices.

CFPB Releases Guide on Elder Abuse

On June 19 the CFPB released a guide for assisted-living and nursing facilities to promote better recognition, recording, and reporting of financial exploitation and scams targeted at older Americans. The guide includes a model response protocol, an overview of recommended facility policies and staff training, and a description of common types of scams. The bureau's guide can be found here.

Cordray Says Disparate-Impact Methodology Is Forthcoming

CFPB Director Richard Cordray testified June 18 before the House Committee on Financial Services about the bureau's recently released semiannual report. Beyond his brief introductory remarks, he said the bureau:

  • Plans to issue a white paper laying out its methodology for identifying disparate impact in indirect auto finance
  • Is considering whether to issue advisory opinions
  • Has delayed the proposal for new prepaid card regulations until the end of summer.

Title XIV on the Agenda for Consumer Advisory Board

The June 18 meeting of the CFPB's consumer advisory board addressed mortgage rules under Title XIV of the Dodd-Frank Act. "Our goal … is not some one-sided aim to maximize consumer protection or industry deterrence at all costs," said bureau Deputy Director Steve Antonakes in prepared remarks. "We are seeking an appropriate balance where incentives for homeowners, creditors, and servicers are aligned." The meeting was the first to be held under a new policy to open all the sessions to the public.

CFPB Adopts Final Rule on C&D Orders

On June 18 the CFPB published a notice in the Federal Register that it has adopted its interim final rule regarding the issuance of temporary cease-and-desist orders, effective July 18, 2014. The bureau adopted the interim final rule with no changes. Temporary cease-and-desist orders take effect upon service and remain effective unless modified or terminated by the CFPB or a judge.

FTC Settles with Texas Credit-Repair Outfit

On June 18, the FTC announced a $400,000 settlement with Texas-based credit-repair outfit RMCN Credit Services and its husband-and-wife ownership team. The FTC charged that the firm improperly required consumers to pay upfront fees before providing its services and made "numerous false statements to credit bureaus disputing the accuracy of negative information in consumers' credit reports."

Mortgage Servicing Probe Settled

On June 17, the CFPB, DOJ, Department of Housing and Urban Development, and 49 state attorneys general announced they have filed a proposed federal court order requiring SunTrust Mortgage Inc. to pay $540 million in relief to underwater and foreclosed-upon homeowners and $10 million to compensate the federal government for losses caused by these practices. The firm will also pay a $418 million penalty to the DOJ. The charges address systemic mortgage servicing misconduct, such as robo-signing, improperly denying loan modifications, and engaging in illegal foreclosure practices. The complaint is available here.

New York AG Announces Progress on Credit Screening for Low and Moderate Income Applicants

New York Attorney General Eric Schneiderman announced on June 16 that Capital One Financial Corp. has agreed to adopt new policies to govern its use of data from the credit-screening firm ChexSystems. Such data will continue to be used to screen for past fraud, but not to predict credit risk associated with individual applications. "Equal access is the least we can do to ensure that all New Yorkers have access to widely used services such as our nation's banking system," Schneiderman said. "I commend Capital One for stepping up and working with us to help eliminate an unnecessary barrier to opening a checking or savings account. I would hope other banks will step up and join us to do the same."

ESMA, EBA Release Joint Guidelines on Handling Consumer Complaints

On June 13, the European Securities and Markets Authority and the European Banking Authority jointly published their final guidelines on handling consumer complaints in the securities and banking sectors. "In addition to strengthening consumer protection — a key statutory objective for ESMA and for the EBA — the guidelines will also allow firms, some of which sell products from more than one sector across the EU, to streamline and standardise their own complaints-handling arrangements," said an EBA press release.

New Jersey Title Company Pays $30K over Kickbacks

The CFPB announced on June 12 that it has entered into a consent order with New Jersey-based Stonebridge Title Services that requires the company to pay $30,000 for giving illegal kickbacks to over 20 independent salespeople who referred title-insurance business to the firm. A copy of the consent order is available here.

CFPB to Study Mobile Financial Services

The CFPB said on June 11 that it is launching an inquiry to explore how mobile financial services affect unbanked and underserved customers. CFPB Director Richard Cordray highlighted two areas of focus in prepared remarks for the field hearing: "the ways mobile devices can give access to consumers who do not have easy means to obtain or use current financial products and services," and "how mobile devices can offer everyone opportunities for real-time money management." The bureau's request for information can be found here.

CFPB Expands eRegulations Tool to Include Reg Z

CFPB Deputy Director Steve Antonakes said at a June 9 American Bankers Association conference that the bureau has recently expanded its eRegulations tool to include Regulation Z in addition to Regulation E. "We are providing an intuitive, easy-to-navigate electronic version of the Bureau's regulations implementing the Truth in Lending Act, which will make it easier to understand, use, and implement the recently adopted mortgage rules as well as many other requirements," he said. 

Protections for Service Members Remain a High Priority for OCC

Barry Wides, the deputy comptroller for community affairs at the Office of the Comptroller of the Currency, said in a June 9 speech to the Veterans Association of Real Estate Professionals that the agency considers compliance with the Servicemembers Civil Relief Act a "high priority" and detailed some of the agency's recent efforts in this area.

CFSA Sues Regulators over Operation Choke Point

Payday-lending trade association the Community Financial Services Association of America and its largest member company, Advance America, filed a lawsuit June 5 against prudential banking regulators alleging "abuse of regulatory power" in connection with the Operation Choke Point initiative. "The Defendant regulatory agencies, with active support from the Department of Justice (DOJ), are engaged in a concerted campaign to drive them out of business by exerting back-room pressure on banks and other regulated financial institutions to terminate their relationships with payday lenders," said the CFSA's press release.

FTC Settles Deceptive-Advertising Charges with Heritage Homes

The FTC announced a June 6 settlement with Pennsylvania-based Heritage Homes Group to resolve charges of deceptive mortgage advertising; the firm allegedly misled consumers into thinking that they could finance a home without down-payment or closing costs, when they were in fact required to pay a "good faith deposit," settlement costs, and an annual fee. The settlement imposes a $650,000 civil penalty, which was suspended due to inability to pay.

AMG Services' Lending Practices Ruled Deceptive

A June 4 FTC press release noted U.S. District Judge Gloria M. Navarro's May 28 ruling that payday lender AMG Services' failure to disclose charges and imposition of inflated fees were deceptive, because these practices had the effect of obscuring the true costs of their payday loan offerings.

FTC Releases Summary of 2013 Consumer Enforcement Activities

On June 3, the FTC issued a summary of its 2013 enforcement and related activities regarding the Truth in Lending Act, Consumer Leasing Act, Electronic Fund Transfer Act (TILA/CLA/EFTA summary here), and the Equal Credit Opportunity Act (summary here). These summaries were prepared at the request of the CFPB, which used them in preparation of its previously released semiannual report to Congress.

FTC Charges Bogus Debt-Relief Firm

The FTC announced on June 3 that it has charged Irvine, California-based DebtPro 123 LLC with selling bogus debt-relief services through telemarketing calls, website ads, promotional videos, and marketing companies that acted as lead generators. "Although consumers hired the defendants in hopes of improving their financial situation, their debt often increased, causing them to lose their homes, have their wages garnished, lose their retirement savings, or file for bankruptcy," the complaint said.

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Promontory's Consumer Protection Team includes:

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Konrad Alt

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

Michael Dawson

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

Linda Gallagher

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

lgallagher@promontory.com
+1 202 370 0411

Stuart King

Stuart King
Managing Director
sking@promontory.com
+44 207 997 3402

Simon McDougall

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

BJ Sanford

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

Julie Williams Julie Williams
Managing Director and
Director of Domestic Advisory Practice

juwilliams@promontory.com
+1 202 384 1087
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Promontory Sightlines Consumer Financial Protection Developments

EDITOR IN CHIEF

P-R Stark

GLOBAL HEAD OF THE
CONSUMER PROTECTION PRACTICE

Linda Gallagher

FOUNDER AND CEO

Eugene A. Ludwig

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