CFPB Month in Review for August 2016
In case you missed it, here is what the Consumer Financial Protection Bureau (CFPB) was up to over the last month:
Enforcement Actions and Litigation
Enforcement Action Against First National Bank of Omaha
On August 25, 2016, the CFPB announced an enforcement action against First National Bank of Omaha (FNBO) for alleged illegal practices concerning credit card add-on products. Specifically, the CFPB found that FNBO:
- disguised the fact that it was selling consumers a product during phone calls, by implying that they had to stay on the phone while activating their credit cards, despite the fact that activation took only moments;
- deceived consumers into making purchases of add-on products, by leading them to believe that they would not have to pay for the add-on products;
- failed to disclose to consumers that they were ineligible for the product based on information the consumer provided to FNBO;
- hindered consumers from obtaining debt cancellation benefits, through the use of certain terms and conditions;
- instructed representatives to make signing consumers up for debt cancellation products easy, but to make cancelling those products difficult; and
- billed consumers for credit monitoring services that they did not provide.
The CFPB and FNBO entered into a consent order to resolve the enforcement action. As part of the consent order, FNBO must:
- repay $27.75 million to affected consumers; and
- pay $4.5 million payment to the CFPB’s Civil Penalty Fund.
Enforcement Action Against Wells Fargo Bank
On August 22, 2016, the CFPB announced an enforcement action against Wells Fargo Bank (Wells Fargo) for alleged illegal private student loan servicing practices, including failing to provide payment information to consumers, charging consumers illegal fees, and failing to update inaccurate credit report information. Specifically, the CFPB found that Wells Fargo:
- impaired consumers’ ability to minimize costs and fees by processing payments in a manner that maximized fees against the consumers’ accounts;
- misrepresented to consumers the value of making partial payments on accounts;
- charged late fees even though consumers made timely payments; and
- failed to update and correct inaccurate information reported to credit reporting companies.
The CFPB and Wells Fargo entered into a consent order to resolve the enforcement action. As part of the consent order, Wells Fargo must:
- pay $410,000 in consumer refunds related to the illegal late fees;
- improve student loan servicing practices, including allocating partial payments made by consumers;
- improve consumer billing disclosures;
- correct errors on consumer credit reports; and
- pay $3.6 million civil penalty.
Summary Judgment Win Against CashCall, Inc.
On August 31, 2016, the United States District Court for the Central District of California entered an order granting partial summary judgment in favor of the CFPB in CFPB v. CashCall, Inc., et al., Case No. CV 15-7522-JFW (RAOx). The underlying action was initiated by the CFPB alleging unfair, deceptive, acts, and practices (UDAAP) related to a “rent-a-bank” scheme. The CFPB argued that CashCall and Martin Webb (Webb), a member of the Cheyenne River Sioux Tribe (CRST), agreed to organize a lending system whereby CashCall could purchase loans originated by Western Sky Financial (Western Sky), an entity formed by Webb and authorized to do business by CRST, in order to circumvent state usury laws, under the guise that the loans were subject to the “tribal law system.”
The CFPB moved for partial summary judgment arguing that CashCall and not Western Sky was the true lender. In finding in favor of the CFPB, the court found that CashCall was the true lender, in part, because it was CashCall’s money that was at risk (because CashCall fronted the first two months’ worth of loans and agreed to purchase all of the loans originated by Western Sky). Further, the court further concluded that because CashCall was the true lender, there was no reasonable basis for the parties’ CRST choice of law (largely because CRST is in South Dakota, but neither CashCall, a California-based business, nor the borrowers, who primarily applied for the loans online from other states, had ties to CRST). As such, the loans were subject to the laws of the states where the borrowers were located and subject to those states’ usury laws, which further supported the CFPB’s underlying UDAAP claims (i.e., that CashCall attempted to enforce and collect on loans that were in violation of state usury laws and, thus, unenforceable).
The court’s ruling is significant, in part, because it potentially creates a precedent for the CFPB to take future action against lenders and servicers that obtain loans from originators and try to enforce those loans that are in violation of state law. Further, while Congress prohibited the CFPB under the Dodd-Frank Act from setting interest rate caps, this case may provide the CFPB with an avenue to turn certain violations of state law (i.e., usury laws) into UDAAP violations.
Miscellaneous Announcements and Action
Proposed Updates to Know Before You Owe Rule
On July 29, 2016, the CFPB proposed updates to its Know Before You Owe mortgage disclosure rule. The proposed amendments are intended to formalize guidance in the rule and to provide greater clarity and certainty. The proposed changes include (1) providing tolerances for the “total of payments calculation” so that it does not make specific use of the finance charge; (2) promoting housing assistance lending by clarifying that recording fees and transfer taxes may be charged in connection with those transactions without losing eligibility for the partial exemption and exclude recording fees and transfer taxes from the exemption’s limits on costs; (3) extending the rule’s coverage to include all cooperative units; and (4) requiring creditors to provide certain mortgage disclosures to consumers.
Proposal to Expand Consumer Complaint Feedback
On August 1, 2016, the CFPB published a request for information in the Federal Register, seeking information on a proposed addition to the current consumer complaint intake form. The new field would include a survey requesting feedback from consumers related to the company’s response to their complaint. The consumers will be able to opt-in to provide the feedback publicly. The new survey field will replace the existing dispute field that permits consumers to indicate their satisfaction with the company’s response to their complaint.
Guiding Principles for Foreclosure Prevention
On August 2, 2016, the CFPB outlined consumer protection principles “to guide mortgage servicers, investors, government housing agencies, and policymakers as they develop new foreclosure relief solutions.” During the financial crisis, the Department of Treasury created the temporary Home Affordable Modification Program to provide relief to consumers at risk of foreclosure. That program is set to expire in January 2017. The CFPB announcement set forth guiding principles designed to continue assisting consumers facing foreclosure. The principles, which can be found here, promote (1) accessibility of information about loss mitigation options; (2) affordability in repayment plans; and (3) transparency in the information decisions servicers make.
Report Outlining Consumer Student Loan Servicing Complaint
On August 18, 2016, the CFPB Student Loan Ombudsman released a report “finding consumers complain of servicing problems that make it difficult to get lower student loan payments tied to their income.” The report indicates that consumers complained about prolonged processing delays and wrongful rejections by their student loan servicers. In response to those complaints, the CFPB released a “Fix it Form” designed for servicers to use to help improve the level of service they provide.
New Advisory Board and Council Members
On August 19, 2016, the CFPB announced the appointment of new consumer experts, from outside of the government, to the Consumer Advisory Board, Community Bank Advisory Council, Credit Union Advisory Council, and Academic Research Council. Those four advisory bodies provide advice to the CFPB leadership related to consumer financial issues and emerging market trends. To view a full list of the new appointees, click here.
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Zane Gilmer is a member of the firm’s litigation practice group. His practice focuses on business litigation and compliance and he is a member of the firm’s CFPB taskforce. Zane works out of the firm’s Denver office and he can be reached at firstname.lastname@example.org or 303.376.8416.
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