CFPB News: Supervisory Highlights, Consumer Protection Principles

by Manatt, Phelps & Phillips, LLP

Manatt, Phelps & Phillips, LLP

In the latest roundup of Bureau of Consumer Financial Protection (CFPB or the Bureau) news, the Bureau published another edition of Supervisory Highlights, released nonbinding Consumer Protection Principles and was officially handed a defeat when President Donald Trump killed the arbitration rule.

What happened

In the most recent edition of the CFPB’s Supervisory Highlights, the Bureau touched on a range of products and services, from auto finance lending to short-term, small-dollar lending to debt collection and credit card account management. The supervisory actions discussed in the 15th edition of the publication resulted in approximately $14 million in total restitution payments to more than 104,000 consumers, the CFPB reported, as well as $1.15 million in consumer remediation and another $1.75 million in civil money penalties.

In the area of automobile loan servicing—a current hotbed of regulatory focus—the Bureau shared problems with entities repossessing vehicles where borrowers either made catch-up payments or entered into agreements to avoid repossession, triggering concerns about unfair practices.

Credit card account management issues ranged from deceptive misrepresentations to consumers regarding the costs and availability of pay-by-phone options to a failure by issuers to comply with the Truth in Lending Act and Regulation Z error resolution process (such as failing to timely comply with the billing error resolution procedures, threatening or making an adverse credit report about the consumer’s credit standing before a billing error was resolved, and neglecting to timely correct billing errors and credit consumers’ accounts).

The CFPB also found deceptive marketing of credit card add-on products by one or more entities, with customer service representatives allegedly failing to correct consumers’ stated erroneous assumptions about the benefits of the product or its costs.

Turning to debt collection, the Bureau identified multiple activities that it believed were violations of the Fair Debt Collection Practices Act (FDCPA), including unauthorized communications with third parties, communicating with consumers at a time known to be inconvenient, and false representations to consumers about topics such as their liability for debts.

The Bureau spent a fair amount of time addressing examiner concerns in the area of short-term, small-dollar lending, identifying conduct that it deemed prohibited by Dodd-Frank.

Nearly 10 percent of all debt collection complaints handled by the CFPB are related to payday loans, the report noted, and examinations revealed that entities called borrowers at their places of employment, made repeated collection calls to third parties and engaged in misrepresentations in their collection efforts (instructing a borrower to immediately contact a lender to avoid being visited at home or work, for example).

The CFPB claims that examiners also uncovered misrepresentations about products—by advertising products and services that were not in fact offered or making unsubstantiated claims in comparison with competitors—as were unauthorized debits and overpayments, with one or more entities debiting the accounts of borrowers who had already paid their debts.

New principles published—In other CFPB news, the Bureau released nonbinding Consumer Protection Principles (the Principles) intended to protect consumers when they authorize third-party companies to access their financial data in order to provide products and services.

The CFPB recognized that consumer-authorized data access and aggregation “holds the promise of improved and innovative consumer financial products and services, enhanced control for consumers over their financial lives, and increased competition in the provision of financial services to consumers.”

However, “significant” consumer protection challenges are presented by these products and services, the Bureau noted, emphasizing that “consumer interests must be the priority of all stakeholders as the aggregation services-related market develops.” The Principles express the CFPB’s “vision for realizing a robust, safe, and workable data aggregation market that gives consumers protection, usefulness, and value.”

The Principles incorporate nine topics, beginning with access (upon request, consumers should be able to obtain information about their ownership or use of a financial product or service from their provider and should not be deterred from accessing their information), data scope and usability, and control and informed consent, based on the CFPB’s belief that “[c]onsumers can enhance their financial lives when they control information regarding their accounts or use of financial services.”

Authorizing payments (distinct from authorized data access, the Bureau said), security and access transparency also made the list of Principles, as did accuracy (consumers “can expect the data they access or authorize others to access or use to be accurate and current”), the ability to dispute and resolve unauthorized access, and efficient and effective accountability mechanisms.

Although the CFPB promised to continue closely monitoring this market, it noted the Principles do not establish binding requirements or obligations and are not intended as a statement of the Bureau’s future enforcement of supervisory priorities.

Trump seals the deal—Finally, President Trump put the last nail in the coffin of the CFPB’s arbitration rule when he signed H.J. Res. 111 into law. The House of Representatives passed the resolution to nullify the rule pursuant to the Congressional Review Act in July, and the measure squeaked by in the Senate with Vice President Mike Pence casting the tie-breaking vote in October.

CFPB Director Richard Cordray then authored an impassioned plea to the president to veto the resolution. “You and I have never met or spoken, but I am aware that over the course of your long career in business you often found it necessary to go to court when you thought you were treated unfairly,” Cordray wrote. “Of course, most Americans cannot afford to do this on their own so they have to band together to be able to fight companies.”

It is not clear how much attention, if any, the president gave to the letter. Two days later, he signed the resolution, killing the rule.

To read the latest edition of Supervisory Highlights, click here.

To read the Consumer Protection Principles, click here.

To read H.J. Res. 111, click here.

To read the letter to President Trump from CFPB Director Richard Cordray, click here.

Why it matters

Next month, Manatt will be offering a webinar detailing the 2017 year in review for the CFPB. In this remarkable year for the Bureau, the latest CFPB Supervisory Highlights reveal a Bureau that remains proactive, perhaps aggressively so. In its new Principles, the Bureau is arguably attempting to strike a balance between innovative products and services on the one hand and consumer data privacy and security on the other, with the Bureau emphasizing the importance of consumer access and transparency, and the Supervisory Highlights showing the CFPB’s continued aggressive action notwithstanding political headwinds. And although the CFPB’s arbitration rule has come to an end—a cause for celebration for many in the industry—it remains to be seen whether the Bureau takes another swing, albeit an indirect one, at the issue.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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