Consumer Finance Law Blog

CFPB to Hold Field Hearing on Prepaid Cards

Kristin A. McPartland — Thu, 17 May 2012 16:18:16 -0500

The CFPB announced today that it will hold a "field hearing" in Durham, North Carolina on the topic of prepaid cards on Wednesday, May 23, 2012. Director Richard Cordray will present remarks and the CFPB will hear testimony from consumer and civil rights groups, industry representatives, and members of the public.

The CFPB has not yet issued a proposed rule defining "larger participants" for prepaid cards but specifically identified prepaid cards as a market under consideration in its Notice and Request for Comments published on June 29, 2011, along with Debt Collection; Consumer Reporting; Consumer Credit and Related Activities; Money Transmitting, Check Cashing, and Related Activities; and Debt Relief Services. The CFPB proposed a rule defining larger participants in Debt Collection and Consumer Reporting on February 17, 2012 but has not yet issued a rule on larger participants for prepaid cards. This field meeting, therefore, may provide insight into the CFPB's direction on supervision and examination of prepaid card market participants.

FTC Advisory Opinion Affirms Broad Consumer Rights Under Holder Rule

Sharon Kim Schiavetti — Thu, 10 May 2012 19:25:55 -0500

Earlier today, the Federal Trade Commission (FTC) issued an advisory opinion affirming broad consumer rights under the Holder in Due Course Rule ("Holder Rule"). The National Consumer Law Center (NCLC), joined by Public Citizen, the Center for Responsible Lending, the National Association of Consumer Advocates, and the federation of state Public Interest Research Groups, requested this opinion.

Promulgated in 1976, the Holder Rule protects consumers who enter into credit contracts with a seller of goods or services by preserving their right to assert claims and defenses against any holder of the contract, even if the seller subsequently assigns the contract to a third-party creditor. In particular, the Holder Rule requires sellers that arrange or offer credit to finance consumers' purchases to include in their credit contracts the following disclosure:

ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED . . . . RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER.

Thus, according to the Rule, a creditor or assignee of the contract is subject to all claims or defenses that the consumer could assert against the seller. As a result, consumers are permitted to assert a seller's misconduct in two situations: (1) to defend against a creditor's lawsuit for amounts owed, and (2) to maintain a claim against the creditor for a refund of money. The only limitation included in the Rule is that a consumer's recovery "shall not exceed amounts paid" under the contract.

Some courts have barred consumers from affirmative recoveries unless rescission is warranted under state law. In light of this practice, NCLC and the other entities sought affirmation by the FTC of consumers' broad rights under the Holder Rule. The FTC's opinion letter affirms that the Rule unambiguously places no limits on a consumer's right to an affirmative recovery of payments already made under a credit contract. According to the FTC, this interpretation gives full effect to its original intent of the Rule to hold sellers and creditors responsible for misconduct and to shift seller misconduct costs away from consumers. The advisory opinion provides a good reminder for companies offering credit to check contractual terms to ensure they meet federal requirements and to evaluate current practices.

Written by Christie G. Thompson and Sharon Kim Schiavetti

FTC, CFPB, and DOJ File Brief Supporting Fair Credit Reporting Act

Christie L. Grymes — Tue, 08 May 2012 12:45:43 -0500

Today the Federal Trade Commission ("FTC"), Consumer Financial Protection Bureau ("CFPB"), and Department of Justice ("DOJ") filed a brief supporting the constitutionality of the Fair Credit Reporting Act ("FCRA"). FCRA limits the use of credit report information, protecting the privacy of the information, and establishes procedures for correcting mistakes in credit reports. The brief addresses a provision of FCRA (§ 1681c) that bars a credit reporting agency ("CRA") from disclosing individuals' arrest records or other adverse information that is more than seven years old.

The government filed the brief in King v. General Information Services, Inc., which is pending in the Eastern District of Pennsylvania District Court. The defendant argues that the FCRA provision is an unconstitutional restriction of free speech. Contrary to that position, the government argues that the provision satisfies the applicable Central Hudson test for restrictions on commercial speech and should not be invalidated, despite the U.S. Supreme Court's recent ruling in Sorrell v. IMS Health Inc. The brief concludes, "The law directly advances the government’s substantial interest in protecting individuals’ privacy and is no more extensive than necessary to protect that interest while also accommodating businesses’ competing interest in obtaining complete information about people to whom they are considering offering a loan, an insurance policy, or a job."

The brief demonstrates the cooperation expected between the FTC and CFPB as they jointly enforce FCRA. In July 2011, the FTC issued "40 Years of Experience with the Fair Credit Reporting Act," a staff report "to share [the FTC's] extensive experience with the CFPB and the public through a summary of its key interpretations and guidance" developed through its 40 years of enforcing FCRA. Companies subject to FCRA should continue to watch for coordination between the agencies as the enforcement roles evolve.

CFPB Extends Time For Comments on Overdraft Programs

Kristin A. McPartland — Fri, 27 Apr 2012 16:07:25 -0500

The CFPB has extended the amount of time for comments on overdraft programs from the end of April to June 29, 2012. The original Notice and Request for Information, published on February 22, 2012, asked for information from the public, including consumers, overdraft program processors, and financial institutions, on how overdraft programs work, including information on:
• How consumers utilize overdraft programs,
• The information provided to consumers that inform their everyday banking decisions,
• Alternatives consumers have for meeting short-term shortfalls,
• How recent regulations and changes in bank products and terms have impacted overdraft incidence, and
• The costs financial services providers incur to provide banking and overdraft services.
The CFPB has already received over 200 comments to date but this extended period of time provides financial service providers and others with an opportunity to review the existing comments and submit their own.

CFPB Takes First Step in Arbitration Clause Study

Kristin A. McPartland — Thu, 26 Apr 2012 17:24:44 -0500

The CFPB announced on April 24th that it is taking the first step in conducting a study into the impact of arbitration and arbitration clauses on consumers as used by consumer financial services companies.

The study will result in a report to Congress addressing the use of arbitration agreements in connection with the offering or providing of consumer financial products or services. As a preliminary step to undertaking the study, the CFPB has published a Notice and Request for Information seeking suggestions from the public to identify the appropriate scope of the Study and appropriate methods and sources of data for conducting the study.

The CFPB's Request asks for information on the following topics:
• The prevalence of arbitration clauses in consumer financial products and services;
• What claims consumers bring in arbitration against financial services companies;
• If claims are brought by financial services companies against consumers in arbitration;
• How consumers and companies are affected by actual arbitrations; and
• How consumers and companies are affected by arbitration clauses outside of actual arbitrations

The CFPB's request also includes, for each of the above-mentioned points, questions regarding what method of study the Bureau should use, what data the Bureau should seek and from which entities, whether particular markets should be a focus and, if so, which markets. Comments are due on June 23, 2012.

The upcoming study reflects an increasing scrutiny on arbitration clauses and companies using arbitration agreements should watch the developing study closely.

CFPB Warns that Banks and Nonbanks Could Be on the Hook for Vendor's Misconduct

Christie L. Grymes — Mon, 16 Apr 2012 11:39:54 -0500

On Friday, the Consumer Financial Protection Bureau ("CFPB") issued a bulletin warning that it will seek to hold supervised banks and nonbanks liable for their vendors' misconduct. Banks and nonbanks often hire service providers to process credit cards, handle data, operate call centers, or address customer service issues. The CFPB also emphasized that it has supervisory and enforcement authority over a "supervised service provider," defined under Dodd-Frank as "any person that provides a material service to a covered person in connection with the offering or provision by such covered person of a consumer financial product or service," and could go after those entities directly.

The CFPB advises companies to take the following steps to ensure service providers' compliance:

Conduct thorough due diligence to verify that the service provider understands and is capable of complying with federal consumer financial law;
Request and review the service provider's policies, procedures, internal controls, and training materials to ensure that the service provider conducts appropriate training and oversight of employees or agents that have consumer contact or compliance responsibilities;
Include contract provisions establishing clear expectations about compliance, as well as appropriate and enforceable consequences for violating any compliance-related responsibilities, including engaging in unfair, deceptive, or abusive acts or practices;
Establish internal controls and ongoing monitoring to determine whether the service provider is complying with federal consumer financial law; and
Take prompt action to address fully any problems identified through the monitoring process, including terminating the relationship where appropriate.

The Federal Trade Commission, Consumer Product Safety Commission, and other agencies have taken similar approaches, sometimes pushing the limits of their statutory authority. Although strong provisions in vendor contracts can provide some protections in a commercial dispute, companies should not ignore or blindly delegate other responsibilities and expect to rely on the contract to avoid regulatory scrutiny.

CFPB's Proposal for Truth in Lending (Regulation Z) Rule Garners Attention in New York Times Article

Kristin A. McPartland — Sat, 14 Apr 2012 09:30:08 -0500

A New York Times article on Friday questioned the CFPB's approach to credit card fees, stating that "[i]n one of the first tests of its willingness to show its muscle, [the CFPB] declined on Thursday to put up a fight." Analyzing the CFPB's Truth in Lending (Regulation Z) proposal released on Thursday, April 12th, the article noted that the CFPB proposed to eliminate an earlier Federal Reserve expansion of a Credit Card Act provision designed to limit upfront credit card fees.

The Credit Card Act, which previously fell under the purview of the Federal Reserve, included rules limiting credit card issuers from charging fees equal to more than 25 percent of the credit extended in the first year the account was opened. The Federal Reserve then expanded the rule to include fees on upfront charges. The CFPB, faced with a preliminary injunction issued by the Federal District Court for South Dakota barring the rule on upfront fees from taking effect, issued Thursday's proposed rule and asked for comments on whether the rule should be revised to exclude its application to fees charged before an account is opened. Consumer protection advocates cited in the New York Times article argued that the CFPB should fight hard against the upfront fees while others commented that this may be a case of the agency "pick[ing] its battles."

Comments on the proposal are due on June 11th.

CFPB Releases Annual Report on Consumer Complaints

Kristin A. McPartland — Wed, 11 Apr 2012 17:06:28 -0500

The Consumer Financial Protection Bureau (CFPB) released its Consumer Response Annual Report on April 6th, outlining its efforts from July 21 to December 31, 2011 in handling consumer complaints. As the report describes, the CFPB began accepting consumer complaints about credit cards on July 21, 2011, began handling mortgage complaints on December 1, 2011, and began accepting complaints about bank products and services, private student loans, and other consumer loans on March 1, 2012. The CFPB anticipates accepting complaints about non-depository institutions later in 2012. The report includes tables outlining the most common types of complaints which include, for credit cards, billing disputes (13.7%), identity theft/fraud/embezzlement (10.9%), and APR or interest rate (10.2%) complaints. The CFPB collected 9,307 credit card complaints from July 21 to December 31, 2011. It also collected 2,326 mortgage complaints in December 2011, with the most common complaints involving problems when a consumer is unable to pay (38.2%), is making payments (21.5%) or is applying for the loan (10.1%).

The CFPB reported that approximately 75 percent of complaints received were sent to companies for review and response and companies responded to approximately 88 percent of complaints forwarded. Companies reported closing over 55 percent of complaints with relief, which is defined as "objective, measurable, and verifiable monetary value to the consumer," and approximately 31 percent of cases were closed without monetary relief. When a company responds that a complaint is "closed with relief" or "closed without relief," consumers are given the option to dispute the response. Nearly 40 percent of consumers did not dispute the company's response and approximately 13 percent did dispute the response. The remainder of closed complaints were still pending with consumers at the time the period closed.

The CFPB's Consumer Response team reviews and investigates complaints and complaints may be used to identify product- and issue-specific trends. The Consumer Response team may also refer complaints to the Division of Supervision, Enforcement, and Fair Lending and Equal Opportunity for further action, which could include investigations or enforcement actions. As a result, companies should pay careful attention to complaints received through the CFPB's system and complaint trends may indicate future Bureau direction.

Congress Has More Questions for Cordray

Christie L. Grymes — Mon, 09 Apr 2012 11:16:44 -0500

Following his testimony on March 29 before the Financial Services Committee of the U.S. House of Representatives, the chairs of two of the Committee's Subcommittees have requested additional information from Richard Cordray, Director of the Consumer Financial Protection Bureau ("CFPB"). In a letter to Mr. Cordray, the Chairman of the Subcommittee on Oversight and Investigations, Representative Randy Neugebauer (R-Tex.), and the Chairman of the Subcommittee on Financial Institutions and Consumer Credit, Representative Shelley Moore Capito (R-W.Va.), have requested information about how the CFPB's approach for rulemaking. The authors want "an assurance that the CFPB will conduct rigorous, transparent cost-benefit analysis whenever it drafts a new rule."

Specifically, the letter asks about the following:

Whether the CFPB believes that the Dodd Frank Act imposes a statutory obligation for the CFPB to quantify the costs and benefits of a rule or to state why it could not quantify those costs and benefits. Further, if the CFPB can determine the costs and benefits, whether it would commit to adopting a rule only if the economic benefits outweigh its costs.
Whether the CFPB will commit to request comments regarding the adequacy of data, methodologies, and assumptions used by the CFPB in carrying out any cost-benefit analysis in support of a proposed rule.
Whether the CFPB is an "independent regulatory agency" for purposes of Executive Order 12866, which imposes requirements for rulemaking activity, but excludes independent regulatory agencies from certain provisions. The letter also requests information about whether and how the CFPB would implement E.O. 12866 and subsequent executive orders.
Which rules would constitute "significant rules" and, therefore, require evaluation five years after the rule's effective date.
What policies and procedures the CFPB has in place to ensure that certain information about a "major" rule gets submitted to Congress.

Similar to several comments from Republicans during Mr. Cordray's testimony, the letter characterizes his recess appointment as "controversial" and questions the CFPB's legal authority to act. Mr. Cordray has seemed unaffected by such comments as the CFPB moves forward with its non-bank supervision program, focus on payday loans, and several rulemaking activities.

CFPB and FTC Issue Annual Reports on the Fair Debt Collection Practices Act

Kristin A. McPartland — Wed, 21 Mar 2012 13:14:49 -0500

The FTC and CFPB have issued reports on their FDCPA enforcement actions and other FDCPA related activities in 2011. The FTC previously had responsibility for issuing annual reports on FDCPA enforcement but the Dodd-Frank Wall Street Reform and Consumer Protection Act transferred reporting responsibility to the CFPB. The CFPB, however, has only just begun its program to administer and enforce the FDCPA. Thus, the FTC styled its report as a letter, dated March 13, 2012, to the CFPB and outlined its recent enforcement activities, while the CFPB's report, released March 20, 2012, focused on its initial steps.

The FTC’s letter reported on seven debt collection cases that it brought or resolved, including settlements obtained in its two recent civil penalty cases. The FTC’s letter also discussed its recent efforts against companies collecting debts related to payday loans and collectors engaging in egregious debt collection practices. In addition to enforcement activities, the letter discussed the FTC’s policy statement regarding decedent’s debts, its amicus briefs arguing against a class action settlement in the Vassale v. Midland Funding, LLC case and urging the Supreme Court to deny certiorari in Fein, Such, Kahn & Shephard, PC v. Allen after the Third Circuit rejected the law firm’s argument that communications to a consumer’s attorney are categorically excluded from the FDCPA.

Notably, the FTC also addressed “gag clauses” in private FDCPA settlements. Stating that Commission staff “recently have become aware that many collectors appear to be routinely including provisions in settlement agreements with consumers that prohibit the consumers from cooperating with or sharing information with the FTC and other law enforcement agencies,” the FTC’s letter stated regardless of enforceability in the courts, the “mere presence” of gag clauses may deter consumers from “providing critical information to the FTC…about possible unlawful debt collector conduct.” As a result, the FTC “believes that gag clauses should not be included in private FDCPA settlements.”

The CFPB’s report outlined the launch of its consumer complaint collection system and described the trend of complaints received by the FTC, noting that complaints about debt collection remains higher than any other specific industry and that complaints about third-party debt collectors rose both in absolute terms and as an overall percentage of complaints. The CFPB’s report discussed its supervision program, which will include many creditors who collect their own debts or hire third party debt collectors, their service providers for collection services, and, once the CFPB’s “larger participant” rule is finalized, larger nonbank debt collectors. The report states that the examination process “will be on ongoing process of pre-examination scoping and review of information, data analysis, onsite examinations, and regular communications with supervised entities, as well as follow-up monitoring.” The “scoping” process is described as a way to focus on risks to consumers and to direct resources to areas of higher risk.

The CFPB’s report described FTC enforcement actions and stated that the Bureau “currently is conducting non-public investigations of debt collection practices to determine whether they violate the FDCPA or the Dodd-Frank Act” but that the Bureau has not yet taken enforcements actions under the FDCPA.

The FTC’s letter and the CFPB’s report are available online.

CFPB Proposes New Rule on Privileged Information

Kristin A. McPartland — Tue, 13 Mar 2012 16:36:51 -0500

The Consumer Financial Protection Bureau (CFPB) published a proposed rule today, clarifying that legally privileged information will retain its privilege even if submitted to the Bureau. The rule also provides that the CFPB’s provision of privileged information to another Federal or State agency will not waive any applicable privilege.

The proposed rule states that “[o]nce effective, the rule is intended to govern all claims by third parties in Federal or State court that any person has waived any applicable privilege by providing information to the Bureau, even if the submission of such information to the Bureau occurred prior to the date the rule became effective. Furthermore…the Bureau is prepared to take all reasonable and appropriate steps to assist supervised entities in rebutting any claims made in Federal or State court, both before and after the rule’s effective date, that supervised entities have waived any privilege by providing privileged information to the Bureau.”

The confidentiality issue had posed a potential roadblock to the CFPB’s supervision of bank and nonbank firms since the CFPB may seek to review confidential legal memos, including internal or outside counsel assessments of consumer protection practices, to evaluate corporate compliance. Banks had pushed back against sharing otherwise privileged documents on the concern that production of those documents might later lead to discovery by third parties, which could create a litigation risk.

The new rule seeks to allay these concerns and sidestep a potential conflict as the Supervision program gets underway. The rule is open for public comment for 30 days.

FTC Issues Annual Financial Acts Enforcement Report to Federal Reserve

Sharon Kim Schiavetti — Fri, 10 Feb 2012 16:19:16 -0500

On February 10, 2012, the Federal Trade Commission issued its annual financial acts enforcement report to the Federal Reserve Board. The report highlights the Commission’s enforcement and compliance activity in 2011 regarding the following consumer protection laws: the Equal Credit Opportunity Act; the Electronic Funds Transfer Act; the Consumer Leasing Act; and the Truth in Lending Act. This information will be used by the Federal Reserve in preparing its 2011 Annual Report to Congress. Key provisions are summarized below.

Regulation B (Equal Credit Opportunity Act)
In April 2011, the Commission returned approximately $1.5 million to Hispanic consumers allegedly injured by the discriminatory practices of Golden Empire Mortgage, Inc. The mortgage company had allegedly violated the Equal Credit Opportunity Act, Regulation B, and other laws by unjustifiably charging Hispanic consumers higher prices for mortgage loans than similarly situated non-Hispanic white consumers. In addition to payment for consumer redress, the settlement bars the company from engaging in discriminatory and otherwise noncompliant credit transactions.

Regulation E (Electronic Fund Transfer Act)
Seven cases in 2011 involved the Electronic Funds Transfer Act (EFTA) and Regulation E issues. Five of those arose in the context of negative option plans. Under these plans, consumers agree to receive goods and services from a company for a trial period at no charge or at a reduced price. The company obtains, sometimes deceptively, the consumer's credit or debit card information during this initial transaction. If the account is not cancelled by the end of the trial period, the consumer incurs automatic charges for the continued shipment of goods or provision of services. The EFTA and Regulation E prohibit these recurring charges without the consumer’s written authorization for preauthorized electronic fund transfers. The Commission litigated two of these cases and settled a third last year.

Regulation Z (Truth in Lending Act)
In 2011, the Commission aggressively prosecuted those companies engaged in forensic mortgage loan audit scams. Mortgage assistance relief providers offer to review or audit the mortgage documents of distressed homeowners to identify violations of the Truth in Lending Act (TILA) and other laws. The companies falsely claim that identifying such violations will give the consumers leverage over their lenders and servicers so as to avoid foreclosure. Two of these fraudulent operations were shut down by the Commission's enforcement efforts and resulted in settlement judgments of over $11 million. In addition, the Commission issued a new rule last July, called the Mortgage Acts and Practices - Advertising Rule, that bans deceptive claims about consumer mortgages in advertising or other types of commercial communications. The rule lists nineteen examples of prohibited deceptive claims, including misrepresentations about the existence, nature, or amount of fees or costs to the consumer associated with the mortgage. The rule went into effect on August 19, 2011.

Future Activities and the Dodd-Frank Act
The Commission reiterated its commitment to coordinated law enforcement and rulemaking efforts with the Consumer Financial Protection Bureau (CFPB), as outlined in the agencies' Memorandum of Understanding and discussed further here. In addition, the Commission identified the following enforcement priorities for 2012:

Payment Cards. The implementation of new requirements and regulations for payment card networks and certain non-bank entities.

Motor Vehicles. The issuance of rules prohibiting unfair and deceptive acts and practices in connection with motor vehicle dealers. The Commission held three public roundtables last year to assess possible new initiatives in this area.

Mortgage Disclosures. The possible development with the CFPB of streamlined mortgage disclosures and a new mortgage shopping form.

All affected companies and businesses are strongly advised to review the full report and submit any comments directly to the Federal Trade Commission.

This blog post was written by Christie L. Grymes and Sherrie Schiavetti.

CFPB Requires Money Transfer Providers to Disclose Fees to Consumers

Lee Istrail — Mon, 23 Jan 2012 16:09:50 -0500

On January 20, the Consumer Financial Protection Bureau (CFPB) adopted a final rule regarding the disclosures that US consumers must receive when they transfer money to foreign countries. The rule generally requires that before a consumer makes an international transfer, companies offering remittance services in the regular course of business must disclose all associated fees, including the exchange rate, and the amount of money to be delivered to the recipient. In addition, after the transaction is completed, companies must tell the consumer which date the funds will arrive, and provide a receipt or proof of payment which contains the same information that appeared in the initial disclosure.

The new rule also gives consumers 30 minutes (sometimes more) to cancel a transaction, in which case consumers are entitled to a refund.

The rule applies not only to companies whose principal business is money transfer, but also to banks, thrifts, and credit unions which regularly offer money transfer services. The CFPB has issued a request for public comment on several aspects of the rule, including a proposal that an entity that makes no more than 25 remittance transfers in the prior year not be subject to the rule. Comments will be due 60 days after the request for public comment is published in the Federal Register.

The passage of the Dodd-Frank Act gave the CFPB authority to issue rules governing money transfer companies, debt collectors, payday lenders, and a host of other non-depository financial institutions that had previously been subject to more limited federal regulation. One can expect that the CFPB, with its recently appointed head, Richard Cordray, will continue to issue rules that cover these types of companies.

Cordray Gets Recess Appointment to Head CFPB

Christie L. Grymes — Thu, 05 Jan 2012 10:41:01 -0500

President Obama has made a recess appointment of Richard Cordray to head the Consumer Financial Protection Bureau ("CFPB"). The President had nominated Cordray as the Director in July, but Senate Republicans blocked Cordray's confirmation last month. Yesterday's recess appointment circumventing Senate approval has already triggered criticism from Republicans, who have claimed that the President "arrogantly circumvented the American people" and called the appointment an "extraordinary and entirely unprecedented power grab."

Now that the CFPB has a director, it can exercise authority under the Dodd-Frank Act to regulate financial institutions beyond the banking industry, such as payday lenders, nonbank mortgage lenders, and certain student loan providers. Without a director, CFPB only had authority to supervise banks. In a post on the CFPB's blog yesterday, Cordray noted that such nonbank entities "led a race to the bottom that pushed aside responsible businesses, including community banks and credit unions, and greatly harmed consumers." He stated that oversight of these entities is a "top priority" and that the CFPB will announce more information about its oversight program in the coming weeks. The CFPB also has several other deadlines in the next year, including issuing a proposed rule on information sharing with state regulators and supervisors by July 21, the anniversary of the CFPB's official start date.

Cordray most recently served as the CFPB's top enforcement official. Prior to that appointment, he was the Ohio Attorney General, was a litigator with the law firm Kirkland & Ellis for over ten years, and clerked for Supreme Court Justices Byron R. White and Anthony M. Kennedy. As Ohio Attorney General, he brought several lawsuits against global banks, mortgage servicers, credit rating agencies, subprime lenders, and other financial institutions.

The recess appointment could come under fire in a legal challenge. The President has authority to make a recess appointment when the Senate has been out of session for more than three days. Republicans and other opponents have argued that Cordray's appointment is unconstitutional because Congress has technically remained in session and not gone on a recess. Rather, the Senate has conducted pro forma non-business sessions that last about 30 seconds per day. Democrats first used this procedure to block President George W. Bush from using his recess appointment authority during his second term. The White House and Director Cordray, however, intend to move forward with full steam.

CFPB Issues Three Interim Final Rules on Consumer Financial Protection Laws

Sharon Kim Schiavetti — Mon, 19 Dec 2011 14:24:39 -0500

The Consumer Financial Protection Bureau (CFPB) continues to flex its regulatory muscles under the Dodd-Frank Act. Last week the CFPB divested the Federal Trade Commission of its rulemaking authority from various consumer protection laws, as discussed here. Today, the CFPB issued three additional interim final rules transferring “consumer financial protection functions” previously granted to other Federal agencies. Again, these rules duplicate existing regulations, making only technical and non-substantive changes, and do not impose any new substantive obligations on regulated entities.

Proposed "Regulation C": Home Mortgage Disclosure Act (HMDA) (76 FR 78465)

The HMDA requires most mortgage lenders located in metropolitan areas to collect data about their housing-related lending activities. Lenders must then report this data annually and make it publicly available. This rule transfers all rulemaking authority under the Act to the CFPB and identifies it as the appropriate Federal agency to whom financial institutions are to submit their reports. The CFPB indicates that substantive changes made to the HDMA under the Dodd-Frank Act requiring the submission of additional lending information will be addressed in a future rulemaking.

Proposed "Regulations G&H": S.A.F.E. Mortgage Licensing Act - Federal Registration of Residential Mortgage Loan Originators, and State Compliance and Bureau Registration Systems (76 FR 78483)

The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (S.A.F.E. Act) provides for the licensing and/or registration of mortgage loan originators. The S.A.F.E. Act additionally requires states to adopt minimum standards for licensing residential mortgage loan originators. Prior to this proposed rule, the Department of Housing and Urban Development (HUD) was charged with overseeing and enforcing states’ compliance under the Act. This rule now divests HUD and various banking institutions of this authority and transfers all regulatory and enforcement power to the CFPB.

Proposed "Regulation M": Consumer Leasing Act (CLA) (76 FR 78500)

The CLA provides for the meaningful and accurate disclosure of the terms of personal property leases for personal, family, or household use. Regulation M specifically requires lessors to provide consumers with uniform costs and other disclosures about consumer lease transactions. This rule transfers to the CFPB all rulemaking authority under the Act which was originally vested in the Board of Governors of the Federal Reserve System.

All three interim final rules have an effective date of December 30, 2011. Affected businesses are strongly encouraged to submit their comments before the deadline on February 17, 2012.

CFPB Issues Three Interim Final Rules on Consumer Protection Laws

Sharon Kim Schiavetti — Fri, 16 Dec 2011 15:16:14 -0500

On December 16, 2011, the Consumer Financial Protection Bureau (CFPB) issued three interim final rules modifying three separate consumer protection laws. This is the first of likely many waves of regulation in the exercise of the agency’s rulemaking authority granted at its inception on July 21, 2011, under the Dodd-Frank Act. The interim final rules published today transfer the rulemaking authority originally vested in the Federal Trade Commission to the CFPB and duplicate existing regulations, making only technical, formatting, and stylistic changes. None of the proposed regulations impose any new substantive obligations on regulated entities. The rules are briefly summarized below.

Proposed "Regulation F": Fair Debt Collection Practices Act (FDCPA) Exemption Process (76 FR 78121)
The FDCPA was enacted to eliminate abusive debt collection practices by debt collectors and promote consistent state action to protect consumers. To prevent duplicative enforcement efforts, this rule describes the procedure by which states may apply to the CFPB for an exemption under the FDCPA if certain debt collection practices are subject to "substantially similar" state law.

Proposed "Regulation I": Federal Deposit Insurance Act (FDIA) Disclosure Requirements (76 FR 78126)
The FDIA establishes the Federal Deposit Insurance Corporation, which insures the deposits of certain banks and savings associations. Not all depository institutions are required to maintain Federal deposit insurance, and this rule addresses the disclosure requirements for those exempt depository institutions.

Proposed "Regulations N and O": Mortgage Acts and Practices - Advertising Rule; Mortgage Assistance Relief Services Rule (76 FR 78130)
This rule relates to unfair or deceptive acts or practices regarding mortgage loans, loan modifications, and foreclosure rescue services. Regulation N prohibits any material misrepresentation - express or implied - in commercial communications as to the fees and costs associated with mortgage credit products. Regulation O mandates various disclosures by mortgage assistance relief services in advertising material and in written agreements executed by the consumer.

All three interim final rules have an effective date of December 30, 2011. Affected businesses are strongly encouraged to submit their comments before the deadline on February 14, 2012.

Republicans Block Cordray Nomination for CFPB Director

Christie L. Grymes — Fri, 09 Dec 2011 09:57:09 -0500

Yesterday, 45 Republican senators blocked a confirmation vote for former Ohio Attorney General Richard Cordray to be the first director of the Consumer Financial Protection Bureau (CFPB). Raj Date replaced Elizabeth Warren as interim director on August 1, 2011, the same week that Mr. Cordray's nomination was announced. As anticipated, the Republicans were nearly united in their opposition to the nomination. “Their objections have nothing to do with Mr. Cordray’s qualifications, his politics, or his character,” said Senate Banking Committee Chairman Tim Johnson (D-S.D.). Rather, in a letter sent to President Obama last May, the opposing Republicans pledged to oppose any nominee unless the CFPB’s powers are curtailed.

Republicans understand that the CFPB is "hamstrung" without a director because it can't exercise its full authority in supervising non-bank financial institutions, such as payday lenders, credit-reporting agencies, and debt-collectors. In an effort to capitalize on this leverage, Republicans demand structural change. They seek stricter oversight measures and the replacement of the director by a five-member board. Republicans also want funding for the agency to be made by Congress rather than through the Federal Reserve.

This is the first time in Senate history a presidential nominee has been filibustered because a party opposed the agency. President Obama told the press yesterday that he would continue to exert pressure to install Cordray, including a potential recess appointment during the holiday break: “I will not take any options off the table when it comes to getting Richard Cordray in as director of the Consumer Financial Protection Bureau.”

The CFPB Proposes Public Disclosure of Certain Credit Card Complaint Data

Sharon Kim Schiavetti — Thu, 08 Dec 2011 14:42:59 -0500

On December 7, 2011, the Consumer Financial Protection Bureau (CFPB) issued a proposed policy statement addressing the public disclosure of certain credit card complaint data.

Since its launch in July, 2011, the CFPB has assumed the role of moderator between credit card consumers and their issuing banks. Consumers file complaints on the CFPB website, inputting their names and addresses, the issuing bank, the type of complaint, and the claimed loss. The CFPB then forwards these complaints to the respective credit card companies and "tracks" the investigations to ensure their proper resolution. Of the more than 5,000 credit card complaints filed with the CFPB since July, approximately 3,100 have been resolved in this fashion.

Now, the CFPB seeks to make some of this information public. It proposes that certain credit card complaint data be publicly available for research and analysis and for periodic reports issued by the CFPB. The aim is to give consumers meaningful information about credit card use, in furtherance of the CFPB's statutory purpose to help consumers "make responsible decisions about financial transactions" and to ensure that markets for consumer financial products "operate transparently and efficiently." 12 U.S.C. 5511(b)(1), (5). The proposed policy does not contemplate the disclosure of sensitive information, such as the consumer's name, address, or credit card number. Also protected from disclosure is any information where the consumer's identification could be traced and confidential business information provided by issuers. What is left is the name of the card issuer, the complainant's zip code, the date of the complaint, the subject area at issue, and whether and how the issuer responded. The CFPB proposes that this information be publicly available in an online, searchable, and downloadable database.

The extent to which this data is reliable or probative remains to be seen. The CFPB does not, however, contemplate the misidentification of credit card companies or false reporting by consumers. This exact concern was raised by product manufacturers when the Consumer Product Safety Commission (CPSC) began making similar public disclosures of consumer complaints earlier this year. The CFPB distinguishes this database from the CPSC's by the fact that the issuer can be reliably identified from the submitted credit card number. In the event that a credit card company believes it has been wrongly identified, the CFPB will keep its name confidential until the correct issuer is confirmed.

Despite these assurances, issuers may still have concerns as to the accuracy of publicly disclosed consumer complaint data. Companies are therefore strongly advised to voice their concerns during the open comment period, which closes on January 30, 2012.

FTC Releases Final Statement of Policy Regarding Communications in Connection with the Collection of Decedents' Debts

Kristin A. McPartland — Thu, 28 Jul 2011 10:35:04 -0500

The FTC’s final Statement of Policy Regarding Communications in Connection with the Collection of Decedents’ Debts was published on July 27, 2011 in the Federal Register. The policy statement clarifies that the agency will not take enforcement action under the Fair Debt Collection Practices Act (FDCPA) or the FTC Act against a debt collector for communicating with certain classes of individuals specified in the FDCPA or an individual who has the authority to pay debts out of the assets of the decedent’s estate. This final Statement will be effective on August 29, 2011.

Under Sections 805(b) and (d) of the FDCPA, debt collectors are prohibited from contacting individuals other than the debtor to collect a debt, with exceptions for the debtor’s spouse, parent (in the case of a minor), guardian, executor, or administrator. Because of the evolution of probate law, however, most estates no longer go through formal probate and thus no executor or administrator is appointed. As a result, the FTC sought comment on its proposed Statement to provide clarification on the parties that may be contacted in collecting decedents’ debts and processes that may be used to identify the person with the authority to pay such debts.

The final Statement states that persons with the requisite authority to pay decedents’ debts may include personal representatives under informal probate or summary administration procedures, persons appointed as universal successors, persons who sign declarations or affidavits to effectuate the transfer of estate assets, and persons who dispose of the decedent’s assets extrajudicially. The Statement further describes the means by which collectors may locate such individuals, stating that collectors should make a good faith effort to conduct record searches before contacting individuals other than executors and administrators. If a collector makes a location call, governed by FDCPA Section 804, to locate the person with the authority to pay the decedent’s debt, the Commission will not take an enforcement action under Section 804(2) for general references to payment of “outstanding bills” of the decedent. Collectors using such language should, however, be cautious of implying that the decedent was delinquent on those bills in a way that would violation Section 804.

Additionally, the statement addresses compliance in communicating with a person who has the authority to pay the decedent’s debts on three specific issues, time of communication, authority to pay, and personal obligation to pay the debt.

Time of Communication:

The final Statement does not include a “cooling off” period after the debtor’s death during which collectors are prohibited from commencing communications. The Commission, however, “emphasizes that such restraint is a key business practice in allaying concerns arising from collection of deceased accounts.”
The Statement emphasizes that Section 805(a)(1) prohibits collectors from contacting family members or others at unusual or inconvenient times or places.

Questions About Authority to Pay:

The Commission declined to prescribe precise language that may be used by a collector seeking to determine whether a person has authority to pay the decedent’s debts but stated that a collector should not use “inappropriate leading questions or engage in any other conduct that may cause the person contacted to asset mistakenly that he or she has the requisite authority.”
As an example, questions about whether the person is “handling the decedent’s final affairs” paid for the decedent’s funeral “are not likely to elicit sufficient evidence of authority on their own and may lead the person contacted to asset authority mistakenly.”

Misleading Consumers About Their Personal Obligation to Pay the Decedent’s Debt

The Commission concluded that the information that must be disclosed to avoid misleading consumers about their personal obligation to pay the decedent’s debt will depend upon the circumstances. The final Statement does not require a particular disclosure but instead references two disclosures in the proposed Statement and states that “[t]hese disclosures generally will be sufficient to prevent deception” while also noting that “there may be circumstances in which these disclosures are not applicable or sufficient to prevent deception.”
As part of the evaluation as to whether a consumer had the misimpression that they are personally liable for the decedent’s debts, the Commission will consider whether the collector obtained an acknowledgment at the time of the first payment that the person understands that he or she is obligated to pay debts only out of the decedent’s assets and is not legally obligated to use his or her own assets or joint assets, to pay the debt.

Raj Date to Fill Elizabeth Warren's Spot at Consumer Financial Protection Bureau

Christie L. Grymes — Wed, 27 Jul 2011 13:37:51 -0500

Starting August 1, Raj Date will replace Elizabeth Warren to run the day-to-day operations at the Consumer Financial Protection Bureau ("CFPB") until a director is appointed. Mr. Date currently serves as a top deputy to Ms. Warren as the Associate Director of Research, Markets, and Regulations, focusing on credit cards and mortgages. Most recently, the White House was reportedly considering nominating Mr. Date as the director of the new agency. The White House ended up nominating Richard Cordray, a former Ohio attorney general, last week.

Prior to joining the CFPB, Mr. Date founded Cambridge Winter Associates, a research organization, and pushed for the creation of the CFPB as part of Dodd-Frank. He is also a former banker with Capital One Financial Corp. and Deutsche Bank AG. In his current role at the CFPB, earlier this month he testified before Congress regarding mortgage servicing standards.

The CFPB began formal operations on July 21, while Mr. Cordray awaits Senate confirmation, which could be an uphill battle. Many Republicans plan to block any nominee unless President Obama agrees to significant structural changes for the CFPB. In the meantime, Ms. Warren plans to return to her teaching position at Harvard Law School this fall.