CFPB Issues Fall Agenda

The CFPB published its Fall 2016 Rulemaking Agenda last week. The Agenda, which is a federal requirement, was issued in the “early fall” and therefore does not take into account the effect the election may have on the CFPB or its current configuration. While the Agenda is worth monitoring and provides insight into the CFPB’s hot button issues, there is no certainty as to what the next six months will hold.

Payday Lending: As most know, the CFPB published its proposed rule on July 22, 2016. The Comment period ended on October 7, 2016. The rule has met significant opposition and it is telling that no further estimation or target dates have been set by the CFPB for a final rule.

TRID: The CFPB published its proposed amendments to TRID in the form of a Notice of Public Rulemaking in July 2016.The proposed amendments “memorialize the Bureau’s informal guidance on various issues and include clarifications and technical amendments.” The comment period expired October 18, 2016 and the Bureau has set a target date of March 2017 for publication of the Final Rule.


Overdrafts: Since at least the spring of 2015, the CFPB has indicated that they are conducting research to assess whether rulemaking is warranted. Since then, the CFPB does not appear to have made much public headway. The Fall Agenda, like its recent predecessors, indicates the Bureau is still engaged in pre rule making activities. The Rulemaking Agenda bumps the target date for further activity from August 2016 to January 2017 for further pre-rule making activity.

Debt Collection: One of the biggest stories that remains is when a proposed rule as to debt collection will be issued. The CFPB has not committed to a time line but has made progress. In a surprise to many, the CFPB has bifurcated the process by addressing third party and first party collections separately. A SBREFA Panel was convened as to the CFPB’s third party debt proposal in August 2016 and the CFPB continues to meet with interested parties. A proposal as to first party collections is the next likely step. The CFPB estimates further pre-rule activities in February 2017.

Arbitration: The CFPB published its proposed Arbitration Rule in the form of a Notice of Public Rulemaking in May 2016 and has targeted February 2017 for a final rule.

Women owned, Minority owned and Small Business Data Collection: The CFPB is in the early stages of developing rules to require financial institutions to report information about their lending to women-owned, minority owned and small businesses. The CFPB has indicated a desire to model any data collection after their recently released HMDA Rules. Pre-rule activities are expected to continue in the first part of 2017.

Supervision of Larger Participants in Installment Loan and Vehicle Title Loan Markets: The CFPB is considering rules expanding its larger participants supervision to include consumer installment loans and vehicle title loan markets. The Bureau is also considering “whether rules to require registration of these or other non-depository lenders would facilitate supervision”. The CFPB has targeted May 2017 for pre-rule activities.

CFPB Issues Compliance Bulletin as to Incentives in Wake of Wells Fargo Consent Order

In the wake of the Wells Fargo debacle, the CFPB has issued a Compliance Bulletin which addresses employee incentives and the consumer risks associated with them.  CFPB Compliance Bulletins are non-binding general statements of CFPB policy.  The Bulletin notes that while businesses and consumers alike may benefit from the use of incentives when properly implemented and monitored, incentives may also lead to significant consumer harm when effective controls for risk are not in place. 

Key to the Bulletin is the CFPB’s articulation of its vision for an effective compliance management system addressing employee incentives.  While effective compliance management systems are not contemplated to be a one size fits all proposition, they should take into account the risk, nature and significance of the incentive program.  The Bulletin describes an effective compliance management system as generally addressing the following:

• Board of Directors and Management Oversight.  An effective compliance management system will foster strong customer service and should take into account the following components:
  • Board members and senior management should take into account not only the outcomes their incentive programs seek to achieve but also how they may incentivize outcomes that are harmful to consumers;
  • Board members and senior management should authorize compliance personnel to design and implement compliance management elements which anticipate both intended and unintended outcomes and provide compliance personnel with sufficient resources to do so; and
  • Board members and senior management should foster an environment that empowers employees to report suspected improper behavior.
     
• Policies and Procedures. The CFPB notes that policies and procedures regarding incentives should provide:
  • Sales/collection quotas tied to employee incentives should be reasonably attainable and transparent;
  • Clear controls managing the risk inherent in each cycle of a product’s life including marketing, opening of the account, servicing the account and collection of the account;
  • Mechanisms to identify conflicts of interest presented by supervisory employees who are covered by incentives but tasked with monitoring the quality of consumer treatment and satisfaction; and
  • Fair and independent processes for investigating issues of suspected improper behavior.
     
• Training.  Training should be implemented and should:
  • Address the institution’s expectations for incentives;
  • Address the institution’s expectations and standards of ethical behavior;
  • Identify and address common risky behaviors;
  • Foster a greater awareness of areas for risk;
  • Educate employees and service providers as to the terms and conditions of the institution’s products and services;
  • Address regulatory and business requirements, including requirements for documenting consent (a point of emphasis in the wake of the Wells Fargo enforcement action)
     
• Monitoring.  Overall monitoring systems should track key metrics and outliers that may be indicative of abuse.  Examples provided by the CFPB include:
  • Employee turnover;
  • Employee complaint rates;
  • Analysis of termination statistics for trends and root causes;
  • Spikes or trends in sales associated with an individual, group or product;
  • Financial incentive payouts;
  • Account opening/enrollment statistics by group and individual; and
  • Account closures/product cancellation by group and individual.
     
• Corrective Action.  The Compliance Management Systems should provide for the prompt identification and implementation of corrective actions addressing any areas of weakness.  The CFPB expects corrective actions to include:
  • Termination of bad actor employees (including managers) and service providers;
  • Changes in the structures of incentive programs and training of affected employees;
  • Remediation in the form of refunds to affected consumers;
  • Identification, analysis and resolution of root causes of deficiencies; and
  • Escalation to the Board and Senior Management, particularly where there is risk of significant harm to consumers.
     
• Consumer Complaint Management Program.  As was noted in the Wells Fargo Order and confirmed by the Bulletin, the CFPB expects institutions to collect and analyze consumer complaints for indicators that incentives are leading to consumer harm or violations of law in order to identify and resolve the root causes of any such issues.
   
• Independent Compliance Audit.  The CFPB expects Compliance Management Systems to provide for periodic independent compliance audits.  Institutions’ Compliance Management Systems should therefore:
  • Provide for and schedule audits for all products subject to incentives.  Audits should address incentives and potential consumer risks;
  • Insure audits are conducted independently of both the compliance program and business functions; and
  • Insure all necessary corrective actions are promptly implemented.
     

Financial institutions who use incentive programs should take some comfort in the fact that the CFPB acknowledges that incentive programs, when properly implemented, may be beneficial to the marketplace.  At the same, time, financial institutions should be aware that incentive programs are being carefully scrutinized.  It is therefore incumbent on financial institutions to carefully review their compliance management programs as to incentive programs.  The level of specificity provided by the CFPB Bulletin suggests that this will likely be the measuring stick used in current and upcoming examinations and that incentive programs will be a point of emphasis by regulators in general.

District Court Opinion Upholds Reasonable Investigation of Credit Dispute

A recent decision out of the Northern District of Georgia serves as a reminder to both consumers and furnishers of information as to the furnisher’s obligation to reasonably investigate a dispute under the federal Fair Credit Reporting Act.  In Taylor v. Georgia Power Company, the consumer disputed the power company’s reporting of her account as delinquent with the consumer reporting agencies (“CRA”).  The consumer submitted a dispute to the CRA disputing that she owed anything to the power company.  The CRA, in turn, passed on the dispute to the power company. 

Under section 1681s-2(b) of the FCRA, upon receipt of the dispute from the CRA, the power company was required to conduct a reasonable investigation of the identified dispute and report the results of its investigation to the CRA.  The power company investigated the dispute based upon the information it had been provided by the consumer and the information it had in its file.  Based upon its investigation, the power company verified the information being reported was accurate.  The consumer filed suit alleging the power company failed to conduct a reasonable investigation. 

The district court granted summary judgment in favor of the power company.  In doing so, the court held that the issue of whether an investigation is reasonable turns on whether the furnisher acquired sufficient evidence to support the conclusion that the information was true.  “A furnisher ‘need not do more than verify that the reported information is consistent with the information in its records’ for an investigation to be reasonable.  Moreover, “the scope of the furnisher’s investigation may be narrow if the plaintiff provides only ‘scant information’ regarding the nature of the dispute.”  Because the consumer failed to provide any information beyond stating that she told an employee of the power company that she did not owe on the account, the power company’s investigation was reasonable when it reviewed all the information in its possession and verified the consumer’s name, birthdate, social security number and the amount owed on the account.

Consumers should take note that the burden to effectively dispute a credit reporting lies with the consumer.   A reasonable investigation can only be based upon information in the possession of the credit furnisher at the time of the dispute.    

In the Eyes of the FCC Not All Mortgage Servicers are Created Equal

The FCC recently denied a petition by the Mortgage Bankers Association which requested a limited exemption from the prior express consent provision of the TCPA for mortgage servicing calls.  In doing so, the FCC shown a bright spotlight on the difficulties faced by the financial service industry in complying with a series of consumer protection statutes which are either outdated or present a natural  conflict with each other.  Moreover, the FCC reiterated a message it sent out earlier this year:  not all financial service providers are created equal. 

The Petition

In its petition, the Mortgage Bankers Association (“MBA”) requested a limited exemption from the “prior express consumer” requirements of the TCPA for certain non-telemarketing residential mortgage servicing calls to cellular telephone numbers.  In support of its petition, the MBA noted that creating the exemption would insure that the TCPA does not restrict telephone communications requested by other federal and state laws and regulations.  The MBA also aptly noted that the a statutory exemption from the consent requirements for calls made to cellular numbers has been made for those collecting debts owed or guaranteed by the United States – an exemption which would include the many residential mortgages owed or guaranteed by the United States.  In support of its petition, the MBA highlighted the early intervention contacts required by the Mortgage Servicing Rules, as well as other federal and state entities. The MBA requested that a limited exemption be provided for free-to-the-end-user mortgage servicing calls which include “all communications, related to the receipt and application of payments pursuant to the terms of any loan or security agreement, execution of other rights and obligations owed under the loan or security agreement, the modification of any terms of the loan or security agreement, and any other loss mitigation options.”  The MBA further suggested a number of required guidelines for such calls including that they be limited in duration and not including any telemarketing, cross-marketing or solicitation.

The FCC Order Denying the Petition

The FCC denied the petition outright, finding that the MBA has not shown the exempted calls would be free of charge to called parties and that the “public interest in, and the need for the timely delivery of, the calls described by MBA do not justify setting aside the privacy interests of called parties.”  The FCC distinguished the MBA’s requested exemption from those previously provided to certain healthcare and financial calls because the MBA has not established a need for immediate communication. The FCC also found that mortgage servicers have other means to contact customers other than “robocalls.”

District Court Refuses to Punish Debt Collector for Accurately Disclosing FDCPA Rights to a Consumer

A New York district court recently dismissed an FDCPA putative class action attempting to penalize a collection agency for disclosing the FDCPA’s cease and desist requirements to a consumer.  Illobre v. Fin. Recovery Servs., 2016 U.S. Dist. LEXIS 153525, 16 CV 452 (S.D.N.Y. Nov. 3, 2016).  The demand letter in question accurately provided the consumer with its Validation Notice under 15 U.S.C. §1692g(a) on the front of the letter.  The back of the letter additionally contained a paragraph under a “NOTICE TO ALL CONSUMERS” which provided as follows:

“You can stop us from contacting you by writing a letter to us that tells us to stop contact or that you refuse to pay the debt.  Sending such a letter does not make the letter go away if you owe it.  Once we receive your letter, we may not contact you again, except to let you know that there won’t be any more contact or that we intend to take a specific action.”

Illobre at *3-4. 

The consumer filed suit contending that the inclusion of the additional language as to cease and desist rights with the validation notice violated both sections 1692e and 1692g because it was confusing to the consumer and overshadowed and contradicted the validation notice.  Section 1692c(c) provides:

If a consumer notifies a debt collector in writing that the consumer refuses to pay a debt or that the consumer wishes the debt collector to cease further communication with the consumer, the debt collector shall not communicate further with the consumer with respect to such debt, except—

(1)  to advise the consumer that the debt collector’s further efforts are being terminated;

(2)  to notify the consumer that the debt collector or creditor may invoke specified remedies which are ordinarily invoked by such debt collector or creditor; or

(3) where applicable, to notify the consumer that the debt collector or creditor intends to invoke a specified remedy.

If such notice from the consumer is made by mail, notification shall be complete upon receipt.

15 U.S.C. §1692c(c).

In granting the collection agency’s motion to dismiss, the court made short order of the consumer’s position noting that the FDCPA “does not aid plaintiffs whose claims are based on bizarre or idiosyncratic interpretations of collection notices.”  Illobre at *7.  The court’s review of the collection letter noted that the validation notice fully recited the requirements of 1692g(a) and accurately summarized the consumer’s rights as 1692c(c).  The court concluded that a reasonable unsophisticated consumer would understand that the notices were distinct disclosures explaining separate and distinct rights.   

The court was also dismissive of the consumer’s nonsensical argument that the debt collector somehow violated the FDCPA by advising the consumer of its rights under the FDCPA.  The consumer contended that the FDCPA does not require the debt collector to disclose to the consumer the communication rights found in Section 1692c(c) and Congress did not intend for this information to be disclosed to a consumer.  The consumer therefore argued that by making the disclosures, the debt collector violated the FDCPA.  As aptly pointed out by the collection agency, however, “[i]t is difficult to imagine Congress enacting a statute for the purpose of providing rights to protect consumers, but not intending that those right be disclosed to the individuals the statute was enacted to protect.” Illobre v. Financial Recovery Services, Inc., 16 CV 452 {S.D.N.Y. Nov. 3, 2016) at Dkt No. 13, p. 10.  The court “decline[d] to construe the FDCPA, a consumer protection statute, in such a way that prohibits or discourages debt collectors from sensible and accurately informing consumers of their rights.”  Illobre at *12.

CFPB Supervisory Highlights: A Mixed Bag for Debt Collectors

The CFPB’s Fall Supervisory Highlights contains a mixed bag for debt collectors.  As you may recall, the Report highlights examinations that were conducted between May and August 2016 and provides a high level summary of the key findings made by the CFPB and the current emphasis of examiners.  Debt collection appears to be back as a point of emphasis for examiners.  The Report makes the following observations which should be heeded by debt collectors:

• CONVENIENCE FEES. Convenience fees continue to be a theme carried over from the Summer Supervisory Highlights.  The CFPB again noted in one or more examinations, the CFPB observed one or more debt collectors charging unauthorized convenience fees to process payments by phone or online.
• INADEQUATE CALL PROCEDURES.  The Report notes that weak Compliance Management Systems attributed to a number of concerns with communications both between the debt collector and the consumer and the debt collector and a third party. While noting these deficiencies, the Report also offered praise for those debt collectors who had “well-established, formal compliance program[s] that met CFPB’s supervisory expectations”, particularly those who used scripts to improve adherence to compliance policies and regularly monitored script adherence. The following deficiencies are highlighted:
  • In one or more examinations, examiners identified collection calls in which the debt collector made false representations regarding the impact that the debt or payment of the debt may have on a consumer’s creditworthiness;
  • The CFPB noted deficiencies with the practices of one or more examined entities concerning third party communications.  Specifically, the Report notes that in one or more examinations, collectors disclosed the debt to third parties, disclosed their employer to third parties without first being asked.

• COMPLIANCE WITH THE FCRA. The Report also noted issues with compliance with Regulation V and the FCRA, continuing a theme raised in the Summer Supervisory Highlights. 
  • Specifically, the Report notes that entities are still struggling with differentiating FCRA disputes from general consumer inquiries, complaints and debt validation requests.  To that end, Supervision directed one or more entities to develop and implement reasonable policies and procedures and establish training to ensure FCRA disputes are appropriately logged, categorized and resolved. 
  • Along similar lines, the Report noted inadequate dispute resolution policies and procedures at one or more examined entities. The Report noted that one or more debt collectors never investigated indirect disputes that either lacked detail or were not accompanied by documentation with relevant information. 
  • The Report also notes concerns with direct disputes.  Regulation V requires that furnishers provide consumers with a notice of determination if a dispute is determined to be frivolous.  In one or more examinations, the examiners noted that the notices failed to advise the consumers of what additional information was needed for the collector to complete its investigation.
• REGULATION E.  The examiners also noted deficiencies with one or more entities compliance with Regulation E.  Specifically,
  • Examiners found that one or more debt collectors failed to provide consumers with the requisite copies of the terms of the authorization, either electronically or in paper form; and
  • Examiners also found that one or more debt collectors who did provide notice, sent deficient notices that failed to describe the recurring nature of the preauthorized transfers from the consumer’s account.
     

The Report reflects that examiners are now focusing on issues aside from compliance with the FDCPA.  Compliance officers need to take a comprehensive look at their policies and procedures and insure their compliance management systems are reflective of compliance with all applicable consumer financial laws which impact their operations.