Promontory Sightlines: Consumer Financial Protection Developments


September 29, 2014

The comment period closed last week on the Consumer Financial Protection Bureau’s proposal to publish consumer accounts of complaints lodged against providers of financial products and services — an initiative as controversial as any the regulator has undertaken.

In its current form, the bureau’s online complaint database contains statistics identifying the market and firm, as well as the general nature and resolution status of issues. But if the proposal were adopted, consumers would have the option of putting into the database their descriptions of what they say went wrong. The CFPB would give the firm that offered the product or service the opportunity to provide a response that would be posted with the complaint. The published complaint would be stripped of identifying information, and would not be verified beyond confirming a relationship between the consumer and the identified firm.

The bureau’s intent in providing complaint narratives is to give the public more information for evaluating products and providers — and to share a data set about consumer behavior that the bureau believes can be put to productive use by companies, regulators, researchers, and entrepreneurs.

But providers of financial products and services have noted that there are some trade-offs to the hoped-for benefits, and some question whether publishing unvetted complaint narratives is helpful in finding the best and fairest possible resolution of customer complaints. Beyond balancing privacy concerns and tight deadlines in preparing a response, companies are left with the lose-lose proposition of facing off against their own customers in a forum that is both public and adversarial.

The bureau will weigh the benefits and the costs as it crafts a final rule. One commenter proposed categorizing complaints by whether the information submitted by the consumer had been reviewed for accuracy; another suggested removing resolved complaints on a quarterly basis. The extent to which these types of suggestions will be accommodated is uncertain, but what is clear is that this is a core issue for the bureau. Director Richard Cordray has indicated his commitment to giving a voice to individuals who perceive that they’ve been wronged by a financial institution; he has called the narratives the “heart and soul” of complaints.

CFPB’s emphasis on consumer complaints as one source of its supervision and enforcement priorities has already driven some firms to improve their capacity to receive, investigate, and analyze customer contacts. Whatever the rule’s final form, it will bring with it the prospect of greater publicity of consumer complaints. That should spur companies to redouble their efforts to get consumers to bring grievances directly to them. Companies can improve the customer experience throughout the complaint process, and reduce the number of complaints that make it into the CFPB database, by:

  • Expanding the ways in which customers can initiate complaints
  • Empowering front-line staff to resolve a wider range of issues on first contact
  • Enabling submission of supporting documentation
  • Providing customers real-time information about the processing of their complaint
  • Improving the information provided to customers in resolving the issue

Firms should also develop a strategic approach to the potential release of complaint narratives that includes:

  • Evaluating current processes for investigating and resolving CFPB and other agency complaints
  • Rethinking what actions to take in attempting to resolve consumer complaints, and deciding if those actions should vary depending on whether the consumer submitted the complaint directly or to the CFPB
  • Defining the circumstances in which the firm will post a public reply in the CFPB database, and preparing replies to articulate the firm’s position
  • Developing a strategy for communicating with the public about the CFPB complaint database and more broadly about their own complaint-management activities
  • Creating a rapid-response team for media and other inquiries arising from the CFPB database

Yours truly,

Linda Gallagher
Managing Director and Global Head of the
Consumer Protection Practice
+1 202 370 0411

Linda Gallagher

GAO Report Suggests Improvements to CFPB Data-Collection Efforts

A Sept. 22 Government Accountability Office report on the CFPB’s consumer-data collection efforts said that the bureau needs to do additional work in several areas to reduce the “improper collection, use, or release” of that data. The GAO suggested that the bureau establish written procedures for data intake and processing, implement certain privacy controls and information security practices, and consult with the Office of Management and Budget regarding credit-card collection and data-sharing arrangements with the Office of the Comptroller of the Currency.

FFIEC Announces Availability of 2013 HMDA Data

On Sept. 22, the Federal Financial Institutions Examination Council announced the availability of Home Mortgage Disclosure Act data for 2013. The data covers lending activity of 7,190 U.S. financial institutions, including disclosure statements and loan/application registers for each institution, aggregate data for each metropolitan statistical area, and nationwide summary statistics. The CFPB also announced that it updated its Web-based HMDA database to include the 2013 data set.

CFPB Proposes to Oversee Nonbank Auto-Finance Firms; DOJ Issues Civil Subpoenas

The CFPB on Sept. 17 proposed to oversee larger nonbank automobile-finance companies at the federal level for the first time. The bureau will rely upon the “larger participants” provision of the Dodd-Frank Act to supervise companies that make, acquire, or refinance 10,000 or more auto loans or leases in a year, according to the bureau’s press release. The CFPB simultaneously released a supervisory highlights report detailing auto-lending discrimination the bureau has uncovered over the past two years at previously supervised indirect auto lenders. CFPB Director Richard Cordray in a Sept. 18 field hearing on auto finance again suggested that one way to prevent discrimination in auto lending is to “eliminate dealer discretion to mark up interest rates, which some lenders are doing while finding other ways to compensate dealers appropriately.” He also raised the possibility of a “more intrusive way to proceed” that involves “developing and implementing more intensive compliance management systems that inevitably involve lenders more directly in evaluating and correcting the practices of their dealer networks.” Separately, two auto lenders disclosed in recent regulatory filings that they had received subpoenas from the Justice Department seeking documents related to the origination and securitization of subprime-auto-loan contracts, in connection with potential violations of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. Meanwhile, the Federal Reserve Bank of New York’s latest household debt and credit report, released Aug. 14, found that auto-loan originations are “at the highest level in eight years and auto-loan balances, which include leases, have increased for the 13th consecutive quarter.”

FTC and CFPB Target Online Payday Lending Schemes

The Federal Trade Commission announced on Sept. 17 that the U.S. District Court for the Western District of Missouri at the commission’s request temporarily halted the operations of an online payday lending scheme. The FTC alleged that several companies owned by two people allegedly “bilked consumers out of tens of millions of dollars by trapping them into loans they never authorized and then using the supposed ‘loans’ as a pretext to take money from their bank accounts.” The FTC’s action followed a similar lawsuit the CFPB filed in the same court.

New York Courts Adopt Debt-Collection Rules

New York Chief Judge Jonathan Lippman announced on Sept. 16 the formal adoption of rules intended to prevent the entry of unwarranted credit-card default judgments in New York. Under the new rules, creditors will be required to submit affidavits in support of default judgments, including an affirmation that the statute of limitations has not expired, and must properly serve borrowers at their current addresses. The full text of the rule is available here.

NYDFS Investigating Hard-Money Lenders

The New York Department of Financial Services on Sept. 16 announced an investigation into potential predatory practices by hard-money lenders — providers of loans secured by borrowers’ homes or other real estate. “Hard money lenders do not typically evaluate a borrower’s ability to repay and likelihood of default, and there are concerns that some lenders may intentionally structure loans with the expectation of foreclosing on and taking possession of the property,” said the office’s press release.

CFPB Sues For-Profit College Chain for Deceptive Claims and Illegal Debt Collection

The CFPB announced on Sept. 16 that it is seeking more than $500 million in a suit against for-profit college chain Corinthian Colleges. The bureau claimed the company illegally lured students to take out private tuition loans by advertising bogus job prospects and career services, and used illegal debt collection tactics while students were still enrolled in school. The damages the bureau seeks include the rescission of all private loans taken out through Corinthian programs after July 2011. The bureau’s complaint is here; it also posted a Q&A document intended for Corinthian students here.

CFPB Finalizes Money-Transmitter Rule

On Sept. 12 the CFPB finalized a rule — first proposed in January — to allow it to supervise certain nonbank international money-transfer providers. “The CFPB is finalizing that rule today largely as proposed,” said the bureau’s press release. A fact sheet on the rule is here.

FTC Settles Charges of Deceptive Advertising by Refi Lead Generator

The FTC announced on Sept. 12 that Colorado-based Intermundo Media will pay a $500,000 civil penalty to resolve charges that it, using the name “Delta Prime Refinance,” ran deceptive Internet ads that falsely claimed the company could refinance consumers’ mortgages for free.

CFPB Updates Compliance Guide for Integrated-Disclosure Rule

The CFPB in September updated its small entity compliance guide to the TILA-RESPA integrated-disclosure rule with more information on how to find additional resources on the rule, clarification on questions related to the loan estimate and seven-day waiting period, and clarifications to the “Timing for Revisions to Loan Estimate” section. The Federal Reserve has scheduled an Oct. 1 webinar on the rule devoted to “addressing specific questions related to rule interpretation and implementation challenges that have been raised to the Bureau by creditors, mortgage brokers, settlement agents, software developers, and other stakeholders.”

Maloney Urges CFPB to Act Immediately to Curb Overdraft Fees

Rep. Carolyn Maloney (D-NY) on Sept. 10 sent a letter to CFPB Director Cordray urging him to “act immediately to curb abusive overdraft fees” through both a “reasonable and proportional” limit on the fees and expanded opt-in requirements.

Waters Proposes Credit-Reporting Reforms; FICO’s Revised Methodology

Rep. Maxine Waters (D-CA) released a draft proposal on Sept. 10 to amend the Fair Credit Reporting Act in an effort to improve the consumer reporting system. The proposed changes include shortening the amount of time that adverse information stays on a credit report, and requiring creditors and lenders to maintain records on the data they provide to consumer reporting agencies. A summary of the proposal is here.

FICO announced on Aug. 7 that it had revised its scoring methodology to differentiate between medical and nonmedical collection-agency accounts, to ensure that medical collections have a lower impact on the score. Other changes included “a more refined treatment of consumers with a limited credit history.”

Fed, CFPB Raise Dollar Thresholds for Regs Z and M

The Federal Reserve Board and the CFPB announced on Sept. 9 increases in Regulation Z (Truth in Lending Act) and Regulation M (Consumer Leasing Act) dollar thresholds for exempt consumer credit and lease transactions. Reg Z and M protections will now apply to consumer credit transactions and leases of $54,600 or less, an increase of $1,100 from 2014. The new thresholds take effect on Jan. 1, 2015.

Mortgage Lenders Told to Get Ready for 2015

CFPB Deputy Director Steven Antonakes told attendees of the American Mortgage Conference on Sept. 8 that mortgage lenders should already be working on changing business operations and technology platforms for the August 2015 implementation date of Know Before You Owe mortgage-disclosure forms. “We want to make sure that everyone understands they need to be focusing on August 2015 now,” Antonakes said. “We have allowed 21 months for industry to implement these changes but we are now nearly halfway through that time.” Separately, the bureau on Aug. 21 announced the participants of its mortgage eClosing pilot program.

CFPB Warns Card Companies about Promotional Rates

The CFPB issued a Sept. 3 bulletin warning credit card companies against marketing promotional interest rates, deferred-interest features, balance transfers, and convenience checks with methods that might be deceptive or abusive. Solicitations “risk being deceptive if the marketing materials do not clearly and prominently convey that a consumer who accepts such an offer and continues to use the credit card to make purchases will lose the grace period on the new purchases if the consumer does not pay the entire statement balance, including the amount subject to the promotional APR, by the payment due date,” the bureau said in the bulletin. “A credit card issuer may risk engaging in abusive conduct if it fails to adequately alert consumers to this relationship.”

Staff and Board Changes at CFPB

On Aug. 28, the CFPB announced three senior appointments and new advisory board and council members. Patricia McClung, formerly a senior policy adviser at the Federal Housing Administration, was named the bureau’s new assistant director for mortgage markets. Janneke Ratcliffe joined the CFPB as assistant director for financial education; she was previously executive director at the Center for Community Capital at the University of North Carolina at Chapel Hill. Will Wade-Gery was named assistant director for card and payment markets; he had been serving as acting assistant director in the same position. The same release also identified members of its consumer, community bank, and credit union advisory councils.

CFPB Signs MOU to Share School Complaints

An Aug. 26 CFPB blog post announced that the bureau signed a joint memorandum of understanding with the U.S. departments of Defense, Education, and Veterans Affairs to outline “a comprehensive strategy to strengthen our enforcement and compliance work” in regard to service members and veterans attending college. The agreement includes provisions to establish a point of contact for sharing information, share complaints about schools, and alert each other of suspected fraud or deception.

CFPB and FTC Enforcement Actions on Debt Collection and Settlement

On Aug. 25, the CFPB announced a consent order against Global Client Solutions, a debt-settlement payment processor, for allegedly making it possible for debt-settlement companies to charge illegal upfront fees. The order includes $6 million in restitution and a $1 million civil money penalty. The complaint is here.

The FTC announced on Aug. 7 that two separate debt-collection firms settled charges of unfair and deceptive collection tactics. The Memphis-based Regional Adjustment Bureau was to pay a $1.5 million civil penalty for “repeatedly calling consumers and accusing them of owing debts that they did not owe, contacting consumers at work while knowing that their employers did not allow the calls, making unauthorized withdrawals from consumers’ bank accounts, and disclosing confidential information about debtors to third parties.” New York-based Credit Smart, LLC was to pay $490,000 for advertising phony debt-relief programs and attempting to collect on invalid debts.

Education Dept. Tells Lenders to Use DOD Database

The Department of Education sent a “Dear Colleague” letter to Federal Family Education Loan lenders and servicers on Aug. 25 authorizing them to use new procedures to verify borrowers’ eligibility for benefits under the Servicemembers Civil Relief Act. Servicers are instructed to use the Defense Department's Defense Manpower Data Center database to verify date of military service and “apply the interest rate limitation to the accounts of eligible borrowers without a request from the borrower.”

Fed Repealing Regulation AA

The Federal Reserve announced on Aug. 22 that it has proposed to repeal its Regulation AA —which gives the board authority to write rules that address unfair or deceptive acts or practices — pursuant to the Dodd-Frank Act, which eliminated the section of the FTC Act that gave the board the rulemaking powers in question. The CFPB, OCC, Federal Reserve, Federal Deposit Insurance Corp., and the National Credit Union Administration said in a joint press release that they still “have supervisory and enforcement authority regarding unfair or deceptive acts or practices, which could include the practices previously addressed in the former credit practices rules.”

CFPB Finalizes Five-Year Extension to Remittance-Rule Exception

The CFPB announced Aug. 22 that it had revised its remittance rule to extend by five years the period in which banks and credit unions can rely on an existing exception to a requirement that they provide exact disclosures of third-party fees and exchange rates in certain circumstances. The final rule is here.

FTC Seeks to Shut Down Debt-Relief and Credit-Repair Scam

The FTC asked a federal court to shut down a debt-relief and credit repair scam in which consumers were told that the program on offer was administered and funded by the federal government and endorsed by President Obama, the agency announced on Aug. 22.

FTC, CFPB File Amicus Brief on FDCPA

The FTC and CFPB announced they had filed a joint amicus brief on Aug. 21 in the matter of Hernandez v. Williams, Zinman & Parham, P.C., which concerns the interpretation and application of the Fair Debt Collection Practices Act. The agencies argued in the brief that “each debt collector that contacts a consumer — not just the first debt collector that attempts to collect a particular debt — must send a notice that complies” with the FDCPA’s requirement that debt collectors furnish consumers with a notice containing their debts and rights either in the initial communication or within five days of it.

CFPB Orders Auto-Finance Company to Pay $2.75 Million for Erroneous Credit Reporting

On Aug. 20, the CFPB said it ordered subprime-auto-finance company First Investors Financial Services Group Inc. to pay $2.75 million for inaccurate submissions to credit reporting agencies for at least three years. According to the bureau, the company knew that flaws in a vendor-provided system resulted in submitting inaccurate information about payments and delinquencies and failed to correct the issue. The consent order is here. “You cannot pass the buck on this responsibility,” said bureau Director Cordray in a press call. “Using a flawed computer system purchased from an outside vendor does not get you off the hook for meeting your own obligations.”

CFPB to Scrutinize Servicing Transfers

The CFPB issued a bulletin on Aug. 19 warning mortgage servicers that it will scrutinize the way firms manage risks to consumers that arise in connection with transfers of residential mortgage servicing rights. “At every step of the process to transfer the servicing of mortgage loans, the two companies involved must put in appropriate efforts to ensure no harm to consumers. This means ahead of the transfer, during the transfer, and after the transfer,” said CFPB Director Cordray in a press release. “We will not tolerate consumers getting the runaround when mortgage servicers transfer loans.”

FTC Approves Final Orders Settling Charges against Fandango, Credit Karma

The FTC announced Aug. 19 it approved final orders settling allegations that Fandango Inc. and Credit Karma Inc. made deceptive representations about their data security practices and left consumers’ personal information vulnerable to interception by third parties.

CFPB Halts USA Discounters Service Member Scam

On Aug. 14, the CFPB said it halted a scam run by retail chain USA Discounters Ltd., in which thousands of service members paid for legal protections they already had, and services that were never provided. The company will refund service members $350,000, as well as pay a $50,000 civil penalty. The consent order is here.

HUD Settles Discrimination Charges with Freedom Mortgage

The U.S. Department of Housing and Urban Development announced on Aug. 13 that it reached a $104,000 settlement agreement to resolve allegations that mortgage lender Freedom Mortgage Corp. “discriminated against loan applicants with disabilities by requiring them to provide medical or other documentation regarding their disability.”

Manhattan DA Indicts Three Payday Lenders

Manhattan District Attorney Cyrus Vance announced on Aug. 12 that his office indicted three individuals and 12 companies they operated for engaging in a conspiracy to make multiple payday loans to Manhattan residents. The charges include 38 counts of first-degree criminal usury and one count of fourth-degree conspiracy.

Education Dept. Broadens Access to Direct PLUS Loans

The Education Department on Aug. 8 published in the Federal Register its proposed regulations to broaden access to Direct PLUS student loans. Under the new proposal, loan applicants with a total delinquent balance of $2,085 or less would not be considered to have adverse credit histories. “We estimate an increase of approximately 370,000 PLUS loan applicants who will pass the adverse credit history check under the proposed regulations,” the department said.

OCC Issues Guidance on Consumer-Debt Sales

The OCC on Aug. 4 issued guidance outlining its supervisory expectations of banks selling debts to third-party collectors. The OCC noted that banks can benefit from debt sales, but said doing so “can significantly increase a bank’s risk profile.” It said the increased risk “most often arises from poor planning and oversight by the bank, and from inferior performance or service on the part of the debt buyer, and may result in legal costs or loss of business.”

European Supervisory Authorities Remind Firms of Consumer-Protection Responsibilities

The joint committee of the European Supervisory Authorities announced on July 31 that it put out a “reminder” to financial institutions “about their responsibility to comply with rules governing conflicts of interest, remuneration, provision of advice and suitability and appropriateness of products.”

Most Overdraft Fees Incurred on Transactions of $24 or Less, CFPB Finds

The CFPB released a report on July 31 finding that the majority of overdraft fees on checking accounts are incurred on transactions of $24 or less. “If a consumer borrowed $24 for three days and paid the median overdraft fee of $34, such a loan would carry a 17,000 percent annual percentage rate,” the bureau said in its press release.

Mortgage Servicers Not Keeping Pace with HAMP, Says SIGTARP Report

The office of the special inspector general for the Troubled Asset Relief Program in its latest quarterly report on July 30 noted an “alarming trend” in which mortgage servicers were not keeping pace with applications for trial mortgage modifications under the Home Affordable Modification Program.

House Passes Amendment to Title X

The House of Representatives on July 30 passed H.R. 5062, a bill that would amend the Consumer Financial Protection Act of 2010 (Title X of the Dodd-Frank Act) to “specify that privilege and confidentiality are maintained when information is shared by certain nondepository covered institutions with Federal and State financial regulators, and for other purposes.”

Promontory's Consumer Protection Team includes:

Konrad Alt

Konrad Alt
Managing Director
+1 415 986 4160

Michael Dawson

Michael Dawson
Managing Director
+1 202 384 1080

Linda Gallagher

Linda Gallagher
Managing Director and Global Head
of the Consumer Protection Practice
+1 202 370 0411

Stuart King

Stuart King
Managing Director
+44 207 997 3402

Simon McDougall

Simon McDougall
Managing Director
+44 207 377 2367

BJ Sanford

BJ Sanford
Managing Director
+1 202 384 1020

Julie Williams Julie Williams
Managing Director and
Director of Domestic Advisory Practice
+1 202 384 1087
Promontory Sightlines Consumer Financial Protection Developments


P-R Stark


Linda Gallagher


Eugene A. Ludwig

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