Guest Post: When to Fight and When Not to Fight

By: Mark J. Dobosz
January 24, 2017

“He will win who knows when to fight and when not to fight.” 

 
Sun Tzu

The art of fighting a battle means that you must learn all there is to know about your enemy. This knowledge can only come about through careful observation, research and even when possible, conversations with factions of your foes.

While the work of understanding and gathering information on how a federal government agency (i.e. the CFPB) acts, responds and strategizes can be laborious, the ultimate end game knows where the weaknesses lay in order to advance your position. As Sun Tzu writes in “The Art of War”, “If ignorant both of your enemy and yourself, you are certain to be in peril.”

The results of the last presidential election have emboldened many an organization to quickly move and attack. While the results of this frontal attack are yet to be seen, it could be argued, “Victorious warriors win first and then go to war, while defeated warriors go to war first and then seek to win.” Sun Tzu

Some organizations have chosen to take the approach that gathering of information, dialogue and observing the multiple variables in the environment which may impact knowing how and when to take advantage of an agency’s weaknesses has often proven to result in some form of comprise. Thus, while a battle may have been waged, the outcome is known well in advance and the results providing a winning result.

Eventually justice and truth will prevail as the pendulum of the powers of government swing back and centers itself. Agencies which have all of the power can best be described by Lord Acton’s quote “Power tends to corrupt and absolute power corrupts absolutely.” Shining a bright light on the knowledge you have gained in your study and observation of the agency will in time reveal the absolute corruption that exists within that agency.

“Know your enemy and know yourself and you can fight a hundred battles without disaster.”

Sun Tzu


About the Author: Mark Dobosz currently serves as the Executive Director for NARCA – The National Creditors Bar Association. Mark is a one of NARCA’s speakers on many of the creditor’s rights issues impacting NARCA members. The National Creditors Bar Association (NARCA) is a trade association dedicated to creditors rights attorneys. NARCA's values are: Professional, Ethical, Responsible.

CFPB Releases Findings From Its Debt Collection Survey

The CFPB recently released its findings from its Survey of Consumer Views on Debt.  The report is of limited value as it contains a relatively small sampling of consumers.  10,876 consumers  were selected based upon de-identified consumer records provided by one of the three major consumer reporting agencies.  Of those, only 20% participated, yielding a sampling of 2,132 consumers.  Moreover, to “ensure that the survey included a sufficient number of responses from consumer who had experienced debt collection, credit records with a recent 60 day delinquency on a loan, a reported collection, or both as of September 2014 were sampled at a higher rate than other records.” Consumer Experiences with Debt Collection, p. 8. Be that as it may, the findings provide some insight as to how the CFPB is approaching debt collection as it continues to fashion its debt collection rules.  Here are our key takeaways:

·        Past due medical bills, credit cards and student loans were among the most frequently cited debts consumers identified as being referred to collection.  This, coupled, with other comments recently by the CFPB have identified the collection of medical debt as a source of concern for the Bureau.  The medical community, as well as debt collectors focused on medical collections, should pay close attention to this issue moving forward.

·        Over half of the survey sample stated that they were contacted concerning debts that were not theirs, owed by a family member or for a wrong amount.  The CFPB has previously identified this concern in its Supervisory Highlights and Monthly Complaint Reports as a chief complaint from consumers.  While this is nothing new, the survey finding is being used to help shape the CFPB’s debt collection proposals concerning new substantiation requirements for debt collectors.

·        Of those surveyed that reported having been sued by a creditor or debt collector in the past year, only a small portion of those appeared at the court proceeding.  The implication is, of course, a significantly high number of default judgments and this is likely to present a concern to the CFPB – one to which there is no good solution.

·        The survey includes some interesting demographic information concerning those who disputed a debt in collection.  The CFPB noted that consumers with annual household incomes of $70,000 or greater were nearly twice as likely to say they disputed a debt as consumers with incomes below $20,000. As acknowledged by the Bureau, “[t]his suggests that, for example the greater fraction of prime consumers contacted about a debt in collection who had disputed a debt compared with non-prime consumers is not driven entirely by differences in the likelihood of having experienced collection efforts the consumers felt were in error.” Id. at p. 26. 

·        The survey also included a series of inquiries regarding communications with debt collectors and reflects the difficulty of balancing privacy needs with the need for effective communication.  As those who have reviewed the CFPB’s proposed Third Party Debt Collection Proposal may recall, the proposal attempts to deal with this difficult issue by providing some certainty as to the number and timing of calls, as well as acceptable messaging content. The CFPB survey reflects that “[c]onsumers feel it is important that others not overhear a message about their debt from a creditor or debt collector.  At the same time, most consumers also want the creditor or debt collector to include, for example, their name and the purpose of the call (debt collection) on a voice mail or answering machine.”  Id. at p. 6.  In fact, nearly 90% of the survey pool indicated that they would prefer the message include the name of the debt collector and about 2/3 of the survey pool indicated they wanted the debt collector to state in the message that they were attempting to collect a debt.  Id. at 38.

·        The survey sample also tended to take a dimmer view generally of debt collectors than of creditors.

The Findings, as well as the Survey are available on the CFPB website.

CFPB Sues Bank Over Overdraft Sales Pitch

The CFPB’s concern with incentives and overdrafts continues and has resulted  in a lawsuit filed against a Minnesota based TCF National Bank.  In the lawsuit, the CFPB alleges that TCF National Bank violated the UDAAP provisions of the Consumer Financial Protection Act and the Electronic Funds Transfers Act (“EFTA”).  In 2010, EFTA was amended to require consumers “opt in” to overdraft coverage for ATM and one-time debit card transactions. 

The complaint which appears to be based upon statements taken from former employees (rather than from customer complaints) is filed in the United States District Court for the District of Minnesota.  See generally, Consumer Financial Protection Bureau v. TCF National Bank, 17-cv-00166, Dkt No. 1 (D. Minn. Jan. 19, 2017).  According to the complaint, TCF utilized consumer testing to determine the best strategy for gaining maximum opt in consent from account holders.  The bank  then designed its opt in program in a manner that did not provide consumers with the ability to provide informed consent.  According to the complaint, employees were provided scripts and strategies which were designed to achieve opt in by the customer.  According to the CFPB, TCF’s explanation was so short that “consumers tended not to pay attention to the decision” and were left with the impression that opting in was mandatory.  Moreover, the CFPB alleged that the script characterized opting in as a choice to allow the Bank to provide a benefit.  The complaint further alleges that the bank incentivized its employees through 2010 by offering “substantial financial incentives” of up to $7,000.00/year for managers of large branches for achieving performance goals related to opt ins.  After incentives were phased out, the CFPB alleges the bank set performance goals which required branch employees to maintain an opt-in rate of 80% or higher on all new accounts they opened.  The complaint additionally alleges that TCF’s opt in rates were significantly higher than those of other similarly situated banks. 

TCF’s press release indicates that it intends to defend the lawsuit and “rejects the claims made by the CFPB”.  “We believe we have strong, principled defenses to the CFPB’s complaint.  We also believe the CFPB’s claims are based on data not representative of TCF’s customers and mischaracterizes our opt-in practices and disclosures, which we believe clearly informed customers about their choice before, during, and after their opt-in decision.”  TCF further asserts that the complaint is contradicted by two key facts.  “First, TCF customers who opened accounts online between 2010 and 2016, with no face-to-face interaction with TCF employees, opted in to TCF’s overdraft protection at a consistent rate of over 60%.  Second, there were virtually no complaints from customers stating that they did not understand they had opted in to overdraft protection.  From 2010 to 2015, there were a total of only 341 complaints from our 2.6 million customers related to their decision to opt-in.”

 The law suit bears watching for several reasons.  First, it raises the issue as to what constitutes informed consent.  Regulation E requires that financial institutions provide consumers with a written statutory notice which contains specific disclosures and that consumers be given a reasonable opportunity to opt in.  See 12 CFR 1005.17.  The Complaint does not appear to take issue with the form or content of the notice but rather takes issue with the sales pitch. Secondly, the complaint once again takes up the issue of the relationship between consumer protection and sales, focusing on incentivizing employees and the establishment of aggressive performance goals.  Thirdly, it appears the CFPB takes issue with the fact TCF was obtaining a 66% opt in rate – “a rate more than triple the average opt-in rate at other banks.”  CFPB Prepared Remarks of Richard Cordray (January 19, 2017).  This is likely one of the reasons the CFPB has focused on TCF’s opt-in procedures.

Financial institutions should continue to follow this matter and examine their own opt-in provisions as this has been a point of discussion in multiple CFPB enforcement actions and reports over the past two years.  Additionally, the complaint re-emphasizes the CFPB’s concerns with employee incentives and the importance of insuring performance goals are aligned  carefully with compliance with consumer protection statutes.

CFPB Continues to Expand Its Meaningful Involvement Requirements for Debt Collection Law Firms

The CFPB recently issued its third consent order involving a debt collection law firm and appears to be expanding its interpretation of “meaningful involvement”. The order, which was entered against two related debt collection firms and their principal, calls into question how debt collection firms fundamentally conduct business. See In the Matter of Works & Lentz, Inc., et al, File No. 2017-CFPB-0003. The order was entered without any admission of any facts or conclusions of the law except those required for jurisdiction. The consent order requires the firms to pay $$577,135 in restitution to consumers, engage in remediation of their business practices, and pay a $78,800 civil penalty.

The Consent Order alleges the law firms violated the FCPA and Regulation V (the FCRA) as follows:

• By failing to have attorneys meaningfully involved in the account prior to engaging in collection efforts;
• Where no attorney had reviewed the account, by sending demand letters and engaging in collections without including a disclaimer that no attorney had yet reviewed the account; 
• By allowing collectors to identify themselves as calling from a law firm where no attorney had yet been meaningfully involved in reviewing the account at issue; 
• By including an automated greeting for unanswered calls indicating that the caller had reached the law firm where not attorney had yet been meaningfully involved in reviewing the account at issue; 
• By notarizing affidavits executed by clients without properly verifying the signatures; and 
• By furnishing information to credit reporting agencies with having written policies and procedures in place to insure compliance with the FDCPA.

The Consent Order expands the expectations previously set forth by the CFPB in its two prior consent orders with law firms by impliedly setting forth the expectation that attorneys must be meaningfully involved with each account prior to initial demand letters being sent out and further limits the delegation that may be made to staff. 

It requires that, “in connection with the collection of a debt, if any attorney has not been meaningfully involved in reviewing the consumer’s account at issue and has not made a professional assessment of the debt”, the law firm may not:

• State or imply that a written communication in connection with the collection of a debt, including a demand letter, is from an attorney or on behalf of an attorney; 
• State or imply that a phone call in connection with collection of the debt is from or on behalf of an attorney; 
• Refer to “attorneys” or a “law firm” in any automated message that plays for consumers calling the firm regarding a debt; 
• State or imply an attorney has reviewed the account;  or
• State or imply that the firm may file suit or seek legal action.

Instead in those instances,

• The law firms must include in all demand letters or written communications with the consumer:
• A disclaimer that no attorney has reviewed the account at issue, 
• State in the signature block that the letter is from the “Collections Department” and
• Omit the name of any attorney and the phrase “Attorney at Law” from the signature block.
• In any oral communications, 
• Include a disclaimer that no attorney has been reviewed the account at issue; and
• Clearly identify the person making the call, his job title and identify themselves as being from the “Collections Department”.
• The firms may not refer to the potential of litigation or commence suit unless and until:
• An attorney has reviewed original account level documentation which includes at a minimum, the consumer’s name, the last four digits of the account number and the claimed amount, a document signed by the consumer evidencing the opening of the account or original account level documentation reflecting a purchase payment or actual use by the consumer or other documentation authorizing the creation of the account;
• Has made a professional assessment of the delinquency; and
• Obtained client consent to file suit on the specific account.

The order is problematic on a number of levels. First, the CFPB’s utter disdain for collection attorneys is apparent in its discussion of their contingent fee arrangements and concerns with use of the firm’s name in the automated recordings. To the point, by prohibiting the law firms from identifying themselves as such when there has not been meaningful attorney involvement with the account and no "professional assessment" has been made, the Consent Order effectively requires the law firm to violate 15 U.S.C. 1692e by not disclosing the true name of the debt collector. To counteract that concern, the Order makes it implicitly clear that attorneys will need to be meaningfully involved at the intake point forward and yet fails to clearly articulate what that means. Remember, that the Hanna Consent Order set the expectation that that Hanna have in hand account documentation before engaging in collection efforts, but did not require the law firm document their meaningful involvement except prior to filing suit. The current consent order suggests that is not enough.

Debt collection law firms should assess risk in light of the CFPB consent order. The consent order appears to expand the CFPB’s expectations as to what constitutes meaningful involvement. Firms should additionally review their demand letter and staff practices to insure compliance with this latest consent order.

CFPB Consent Orders with Consumer Reporting Agencies Focus on Marketing Practices not Credit Reporting

Marketing practices remain at the forefront of CFPB activity as evidenced by two recent consent orders entered into with TransUnion and Equifax.  The consent orders combine to require the CRAs to pay more than $17.6 million in restitution to affected consumers and an additional $5.5 million in civil monetary penalties. Both consent orders will remain in place for five years and were entered without any admission of liability by the consumer reporting agencies (the “CRAs”).



Surprisingly, the violations identified by the CFPB have very little if anything to do with credit reporting.  Instead, the orders are focused on the CRAs’ marketing of credit related reporting services.  According to the Consent Orders, the CRAs marketed and sold consumers credit scores and credit related products.  The CFPB took issue with: (a) the scores being marketed and represented as being the same scores lenders typically used to determine a consumer’s creditworthiness; and (b) the CRAs not adequately disclosing the monthly charges for the services if not cancelled during the free trial period.  Additionally, with respect to Equifax, the CFPB asserted a violation of Regulation V’s prohibition against CRAs advertising its credit products through the centralized credit reporting source for annual free credit reports prior to delivery of the consumer’s free annual credit report.



Specifically, the CFPB asserted TransUnion and Equifax “represented, directly or indirectly, expressly or impliedly, that the credit scores it marketed and sold to consumers were the same scores typically used by lenders or other commercial users for credit decisions.”  Equifax Order, ¶ 23; see also TransUnion Order, ¶ 29.  Additionally, the CFPB asserted that TransUnion and Equifax failed to adequately disclose that consumers, unless they opted out in the free trial period, would automatically be enrolled in a subscription based service with monthly fees.



In addition to the restitution and monetary penalty elements, the Consent Orders require remediation by the two CRAs and provide further insight into the CFPB’s continuing focus on marketing practices of financial institutions.  Beyond the obvious (a prohibition against misrepresenting products and payment terms), the Orders set forth the CFPB’s expectations regarding:

·        Informed Consent.  The Orders require the CRAs obtain express informed consent from consumers before enrolling them in what the CFPB terms as “Negative Option billing structures” (the requirement that a consumer affirmatively opt out in the trial period or incur monthly charges).  Specifically, the orders require the CRAs to include:

o   In their internet offers, a check box on the page where payment information is collected requiring consumers to affirmatively consent to the billing structure.  The Orders further require the check box be conspicuous and clearly state “that the consumer agrees to be billed for the product unless the consumer cancels before the trial period expires.”  The Orders additionally require that adjacent to the check box, the CRAs must disclose the amount of the recurring charge and the billing interval; the date the trial period expires; and the amount the consumer will be charged.  Similarly, the CRAs must provide a simple mechanism for immediate cancellation which must, “at a minimum, be substantially similar to the mechanism(s) the consumer used to initiate the purchase” of any credit-related product.

o   For oral offers, the Orders require the CRAs obtain “affirmative and unambiguous” oral confirm that the consumer affirmatively consents to authorizing payment for the credit-related products and understands the necessary steps to cancel the services and future charges.

·        Clear and Conspicuous Disclosure. Additionally, with regard to the offering of educational credit scores (those offered for consumer purposes but rarely used by lenders), the CRAs are required to clearly and conspicuously disclose the nature of the score and clearly and conspicuously disclose the credit scores sold to consumers are not the same scores used by lenders or other commercial users, that there are various types of credit scores, and that lenders use a different type of credit score in making their lending decisions.  The Consent Orders require that the CRAs include these disclosures in written communications under the label “What You Need to Know” and that the label be in a font size double that of the disclosure.

·        Compliance Management.  Similar to other recent enforcement orders, the consent orders require the development and implementation of policies and procedures designed to improve the effectiveness of their communications with consumers and prevent communications which have a tendency to deceive consumers. 

o   The policies and procedures at a minimum should include:

§  At least an annual collection and review of performance metrics, including a review of both internal consumer complaints, as well as consumer complaints received by federal and state regulators;

§  At least an annual collection and review of data regarding consumers’ perceptions of, among other things, the CRAs’ advertising regarding the nature of their credit products (specifically, credit scores), the pricing structure and other material terms for an assessment of “consumer confusion” regarding the products and services offered to consumers; and

§  At least an annual assessment of advertisements to determine what adjustments should be made to enhance consumer understanding of the consumer products issues.

o   Submission of a comprehensive compliance plan designed to insure the CRAs’ marketing and advertising practices comply with all applicable federal consumer financial laws (including the Consumer Financial Protection Act (and its UDAAP provisions) and the FCRA;

o   A requirement that the compliance plan be updated on a regular basis (the orders mandate at least every two years or as required by changes in laws or regulations);

o   An advertising retention policy which will remain in effect for the life of the Orders (five years) and includes:

§  Copies of all advertisements, as well as sales scripts, training materials, and marketing materials relating to the credit related products, including any such materials used by third parties or affiliates;

§  A record of the date and location or placement that each advertisement is made accessible to the public and to the extent the information is available, the number, type and cost of all credit related products purchased through the advertisement and any and all modifications made to the advertisement including its mandated disclosures;

§  For all internet advertisements, the impressions, number of visits, unique visitors and clicks on the advertisement, as well as the number of purchases;

§  Accounting records showing the gross and net revenues generated by the credit related products;

§  All non-telephonic consumer complaints and refund requests relating to credit related products; and

§   Retain telephone communications with consumers consistent with current retention policies.

Entities subject to regulation should be taking notice of the number of enforcement orders which are now focusing on the marketing and advertising of consumer financial service products and reviewing their products under any product specific regulations, as well as the Consumer Financial Protection Act’s UDAAP umbrella. 

Passive Debt Buyer May Delegate Dispute Communications to Third Party

A New York District Court recently addressed the issue of whether the FDCPA requires passive debt buyers to personally register disputes or whether they can delegate that obligation to their third party debt collector/servicer. Passive debt buyers purchase debt but retain third parties to service and collect the debt. 

In Nunez v. Pinnacle Credit Services, the consumer retained a debt settlement company to assist her in connection with her credit. Nunez v. Pinnacle Credit Services, 2016 U.S. Dist. LEXIS 178600 (S.D.N.Y. Dec, 27, 2016).  One of Ms. Nunez’s accounts had been acquired by a passive debt buyer, Pinnacle Credit Services (“Pinnacle”).  The account appeared on Nunez’s credit report in Pinnacle’s name. When the debt settlement company contacted Pinnacle on Nunez’s behalf and asked if they could dispute the debt, Pinnacle advised that they did not handle accounts, but instead had “outside agencies that handled the accounts” and that the outside agency should instead be contacted.  Pinnacle then provided the outside agency’s contact information and transferred the call.  Ms. Nunez filed suit alleging that Pinnacle’s communication with the debt settlement company violated sections 1692e and f.

On summary judgment, the consumer contended that “Defendant providing its own name and contact information to the credit reporting agency ‘misleads consumers, leading them to reasonably believe that their accounts may be discussed with Defendant,’ and therefore Defendant was obliged to record Plaintiff’s dispute of her debt rather than transferring her to its servicing agency for that purpose.” Nunez at *6-7. In reviewing the communication to determine whether or not it was unfair or deceptive, the court quickly pointed out that Nunez did not allege that the information reported to the credit reporting agency was inaccurate or that there was anything deceptive or inaccurate in the conversation with the debt buyer.  Instead, “Plaintiff’s claim appears to be not that Defendant said or did anything misleading, but rather that the FDCPA obliges owners of debt to personally register disputes from consumers rather than delegating that task to an agent.”  Id. at 7-8.

The court ruled in favor of the debt buyer, noting that the plaintiff provided no authority and instead appeared to be “trying to fit a square peg of any obligation not found anywhere in the FDCPA into the round hold of the statute’s prohibition against deceptive or misleading means to collect a debt.”  Id. at 8-9.  The court went on to note that it is not uncommon for debt buyers to delegate collection activity to agents and that the debt buyer did nothing to impede the consumer’s ability to dispute the debt.

Call Volume Alone Does Not Necessitate a Violation of the FDCPA

A decision from a New Jersey district court serves as a reminder that call volume alone will not support a violation of the FDCPA.  In Chisholm v. Afni, Inc., the issue before the court was “whether a series of 18 telephone calls from a debt collector, of which 17 were unanswered and one where the recipient hung up, unaccompanied by harsh or threatening language or back-to-back calls could reasonably be found to violate the FDCPA.”  Chisholm v. Afni, Inc., 2016 U.S. Dist. LEXIS 162303, *1 (D.N.J. Nov. 22, 2016).  The court held they could not.  In so ruling, the court reviewed the calls under the provisions of sections 1692d and f of the FDCPA.  Section 1692d makes unlawful “any conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of a debt.”  15 U.S.C. §1692d.  The section also prohibits certain specific conduct including “[c]ausing a telephone to ring or engaging any person in telephone conversation repeatedly or continuously with intent to annoy, abuse, or harass any person at the called number.”  15 U.S.C. §1692d(5).  Section 1692f is the FDCPA’s catch all provision for unfair conduct.

In reviewing the calls, the court first acknowledged that the number, frequency, and timing of the calls is an important factor, but not the only factor that must be considered.  While “[a]ctual harassment or annoyance turns on the volume and pattern of calls made,”… “courts around the country have held that the number of calls alone cannot violate the FDCPA; a plaintiff must also show some other egregious or outrageous conduct in order for a high number of calls to have the ‘natural consequence’ of harassing a debtor.” Chisholm at *10-11.

The competent evidence in this case showed that the 18 calls in this case were all made in a two-week period and made between 9:30 AM and 7:00 PM; of the 18 calls, 17 were unanswered; the debt collector never called more than three times in one day; there was at least three hours between each call; and the plaintiff was not called each day.  Moreover, the one call that was answered was a 40 second call in which “defendant’s representative conducted himself politely” and the plaintiff hung up.  In concluding that the calls did not rise to a level which violated the FDCPA, the court pointed out that the “FDCPA was not intended to prevent debt collectors from contacting debtors at all, or to ‘impose unnecessary restrictions’ on ethical collectors.”  Chisholm at *14.  In this case, the court concluded that, as a matter of law, there was no violation of the FDCPA. 

Two More Banks Fall to Redlining Consent Orders

The Department of Justice has entered into a proposed consent order with two Ohio based banks resolving allegations that the banks engaged in a pattern or practice of redlining in their mortgage lending practices by “structuring their businesses to avoid the credit needs of majority black neighborhoods” in four Ohio and Indiana MSAs. The banks, Union Savings Bank and Guardian Savings Bank, are both headquartered in Cincinnati Ohio and share common ownership and management.  The consent orders come just a few weeks after the CFPB reinforced its emphasis on fair lending violations.  The consent order, if approved, requires the banks to invest $7 million in loan subsidies and spend at least $2 million in advertising, outreach, financial education and community partnerships in the Cincinnati, Columbus, Dayton and Indianapolis metropolitan areas. The consent order additionally requires Union Savings Bank to add two full-service branches and Guardian Savings Bank to add one loan production office to serve the majority African American neighborhoods in their MSAs.

The complaint alleged that the banks violated both the Fair Housing Act and the Equal Credit Opportunity Act by serving the credit needs of predominantly white neighborhoods to a significantly greater extent than they served the credit needs of majority African American neighborhoods.  The complaint alleged that both banks engaged in a race-based pattern of locating branches, noting that all of the banks’ branches were in majority white census tracts and that statistical analysis of their loan applications revealed significant disparities in their loan activities when compared to similar lenders in the same MSAs.

The consent order requires the banks engage an independent third party compliance management system consultant to assist in reviewing and revising their policies and practices to insure compliance with fair lending laws.  The Consent Order additionally requires that the banks:

• Conduct a detailed assessment of their policies and practices regarding “branch locations; loan officers’ solicitation of applications, including the geography covered by loan officers; product availability at branch locations; loan officers; assignment, training, oversight, and compensation; marketing; and fair lending compliance monitoring.”
• Submit a plan that includes a program for ongoing fair lending statistical monitoring of loan applications and originations, including statistical peer analysis of applications and originations from majority African American census tracts.
• Provide training to all employees with significant involvement in mortgage lending to insure their activities are conducted in a non-discriminatory manner and address the Fair Housing Act and the Equal Credit Opportunity Act and that the banks document employees’ participation and proficiency.
• Prepare a credit assessment of the needs of majority African American census tracts within their MSAs including analysis of demographic and socioeconomic data of those tracts, an evaluation of the credit needs and lending opportunities in those neighborhoods and a review of affordable loan products offered by other lenders and how products with those features can be adopted by the banks.
• Expand into majority African American neighborhoods.  Specifically, the Order requires Union Bank to open two new branches in majority African American tracts and requires Guardian to open one loan production office in a majority African American tract.
• Partner with local community based organizations or government organizations to provide residents in majority African American census tracts with loan products.  The banks are required to spend $750,000.00 over the term of the Consent Order.
• Advertise and conduct outreach in majority African American census tracts to effectively communicate the availability of the Loan Subsidy Program required by the Consent Oder and generate applications for mortgage loans from qualified residents in the majority African American census tracts.  The banks are required to spend $625,000 over the term of the Consent Order.
• Develop and Implement a consumer financial education and credit report program which includes the sponsoring of a minimum of twelve financial education events a year and the provision of a program for credit establishment or repair assistance to residents of majority African American census tracts.
• Provide a minimum of $7 million dollars in loan subsidies to residents and small businesses operating in majority African American census tracts within the banks MSAs.
• Maintain records relating to their compliance with the Consent Order and provide annually their HMDA data and a report as to their compliance to the Department of Justice to assist it in monitoring the banks’ compliance with the Order.

The Consent Order will remain in effect for 63 months.  A couple of other points worth noting:

• As with most consent orders, the order is made without any admission of liability;
• The DOJ’s findings are based upon a review of the banks’ HMDA data and a comparison of that data with HMDA data from other banks operating in the same MSAs.  Of particular note are allegations in the complaint comparing the percentage of mortgage applications generated and loans originated by both banks in majority black tracts compared with other “comparable lenders” in the same MSAs in the same time period; and
• The MSAs in question are in metropolitan areas which are highly segregated.  This undoubtedly makes these MSAs areas and others that are similar in racial makeup areas of focus for the DOJ.

CFPB Complaint Report Returns to Debt Collection

The CFPB recently issued its monthly report of consumer complaints and turned its focus back to debt collection.  The Report is a high level snapshot of trends in consumer complaints and provides a summary of the volume of complaints by product category, by company and by state.  Additionally, it highlights a product type and a geographic area. 

Here are the highlights:

• Debt collection, mortgage and credit reporting continue to be the leaders in complaint volume;
• Debt collections complaints comprise 27% of the total cumulative complaints received to date by the CFPB;
• Student loan complaints showed the greatest increase over the same period for 2015 with a 120% increase. The Bureau attributes a portion of this increase to the CFPB’s updated student loan intake form which now includes complaints about federal student loan servicing;
• Prepaid products showed the greatest percentage decrease for the September-November 2016 period with a 59% decrease;
• On a monthly basis, debt collection, credit reporting and mortgage complaints were all down in November with credit reporting showing the most significant decrease at 21%;
• While debt collection complaints were down in November, they still comprised 29% of all complaints submitted in the month;

DEBT COLLECTION SPOTLIGHTED

      This month’s report focused on debt collection complaints and revealed the CFPB’s concerns with first party collections and medical collections in particular.  As was the case when the CFPB last highlighted debt collection in March of 2016, the most common complaints involved continued attempts to collect debt the consumer claimed was not owed, as well as communication tactics. Specifically, the CFPB noted:

• Consumers complained they were contacted about debts that were no longer owed and were not being provided with documentation to verify the debt.  In keeping with this, first and third parties attempting to collect debt should note that validation of debts was one of the primary focuses of the CFPB’s third party debt collection proposal and compliance officers should be reviewing their policies and procedures to insure adequate measures are in place to verify debts are owed.
• Consistent with this observation, the CFPB reports that consumers complained that accounts were forwarded to third party debt collectors for debts that were not owed and that, upon dispute, the third party debt collector returned the account to the creditor who then forwarded it to another third party debt collector;
• Consumers also complained that accounts were forwarded to third parties prior to the first party making contact about an outstanding balance;
• Regarding communication tactics, the CFPB singled out excessive calls and calls to the consumer’s place of employment as the primary sources of complaints. 

What's New?

Medical debts are at the forefront of the Report.  The CFPB noted the following concerns with regard to collection of medical debt:

• Third party debt collectors attempting to collect incorrect balances;
• Third party debt collectors attempting to collect accounts where there was an existing payment plan in place with the service provider;
• Amounts being pursued that were covered by insurance; and
• Failure by the third party debt collectors to verify the debt;

There is also a notable addition to the debt collection spotlight.  While the report has typically singled out debt collection complaints by company, this month’s report additionally includes a table showing the companies with the highest and lowest rates of untimely responses to debt collection complaints.  

A Look Back and 2016 and a Look Ahead at 2017

The end of the year is always a time for reflection for me.  As we kick 2016 to the curb, I thought I'd take this opportunity to look back at 2016 and look ahead to 2017. 

2016: A Look Back

Looking back at 2016, the first things that come to my mind are the aggressive rule making agenda undertaken by the CFPB and their struggle to implement rules based upon a less than full understanding of the industries they attempt to regulate.  With 2016 came proposed rules on arbitration and payday lending, adjustments and clarification to the mortgage servicing rules and TRID, as well as an unwieldy and incomplete proposal on debt collection.  The year also saw the CFPB continued to flex its muscle expanding its reach into data privacy and fintech , as well as to inthe way attorneys litigate collection law suits (covered in our prior edition).  Continuing its infatuation with technology, the CFPB also introduced new data tools including its ”Consumer Credit Trends” tools.  In many ways, it was the most ambitious of years for the CFPB. 

As we look forward to 2017, we will closely follow the D.C. Circuit’s en banc review of the CFPB’s jurisdiction.  Coupled with the election of Donald Trump and a Republican majority in Congress here are a couple of things ) think we can expect to see in 2017:

• Reform of the CFPB:  It would not be surprising to see the makeup of the CFPB change to a five person commission and/or to see the CFPB lose its designation as an independent agency.  Challenges have come from the judiciary and legislative branches of government in recent months and we can expect to see reform from the Trump administration. The Financial Services Committee of the House attempted last year to replace Cordray with a bipartisan commission through introduced legislation.  Similarly, the incoming administration has echoed a desire to reign in the Bureau.  Finally, the D.C. Circuit has weighed in on the constitutionality of the CFPB and its ruling is now being considered en banc by its entire panel of judges. Depending upon the outcome of the D.C. Circuit’s en banc review of the PHH decision, the CFPB may become an executive agency vs. an independent agency.  The net result may be that the CFPB and its regulations become subject to the regulatory review process of the Office of Management and Budget. 
• Pending Rules. The CFPB’s pay day and arbitration rules are in jeopardy and may never see the light of the day if the PHH holding is upheld and the CFPB loses its status as an independent agency or if any of the other forces outlined above come to play.
• When all else fails, UDAAP Carries the Day. The CFPB will continue to regulate through enforcement using the UDAAP provisions of Dodd Frank when regulatory authority does not otherwise exist.
• Debt Collection: the CFPB will continue to struggle with the two ton gorilla of debt collection by first putting forward a proposal for first party collections.  We expect to see a SBREFA panel scheduled for some time in the first half of 2017.  Looking further forward, we are likely to see a proposed rule on debt collection by the end of 2017.
• Marketing and Sales. Regulators will continue to focus on marketing and sales aspects of consumer financial service products and continue to emphasize comprehensive compliance management systems.
• Status Quo. Institutions subject to enforcement need to continue to do business under the assumption that nothing will change and remain vigilant in their compliance.  As we sit here today, the status quo remains the order of business.

I'm looking forward to see what's next. On a more personal note,thanks to all who continue to support this blog.  What started out as a six month experiment has become a passion.  This blog has brought new people and opportunities into my life and continues to make me a better lawyer.  I'm grateful to my law firm for supporting me in this endeavor, to my good friends Jerry Myers and Mark Dobosz for their guest posts and to NARCA, WebRecon and the many other blogs and trade associations who continue to pass on my posts to others.  We continue to look for guest posts and I invite anyone with an interest in writing on consumer financial service issues to reach out to me.  Happy New Year!