The Consumer Financial Protection Bureau (CFPB), Recent Developments: December 16, 2013 – December 20, 2013
Friday, January 17, 2014

CFPB Sues Online Loan Servicer for UDAAP Violations

On December 16th, the CFPB’s Enforcement Division filed a lawsuit against an online loan servicer in federal district court in Massachusetts alleging that the servicer engaged in unfair, deceptive, and abusive acts and practices (UDAAPs).1

The defendant services small-dollar installment loans issued online by a South Dakota limited liability company lender which is owned by an individual member of a Native American tribe. At least some aspects of the lender’s activities are alleged to have occurred on an Indian reservation. The complaint alleges that the defendant’s attempts to seek repayment of its loans were deceptive and abusive because the loans themselves allegedly violated state law, and were therefore void in the states where the borrowers were located notwithstanding the lender’s claims that the loans were subject to tribal law. Note that the tribe involved in this instance, the Cheyenne River Sioux Tribe, is not affiliated with the lender’s business and has frequently disclaimed any regulatory or other jurisdictional authority with respect to the lender’s consumer lending activities. The CFPB argues that the lender’s owner’s status as a citizen of a tribe does not exempt the lender’s loans from the jurisdiction of the states where the borrowers are located.

The CFPB conducted its investigation in collaboration with numerous state attorneys general and banking regulators, some of which have also filed suit in state court.

CFPB Orders Mortgage Loan Servicer to Provide $2 Billion in Relief to Borrowers

On December 19th, the CFPB, along with authorities in 49 states, and the District of Columbia, filed a proposed consent order requiring the country’s largest nonbank mortgage loan servicer to provide $2 billion in principal reduction to borrowers.2  In addition, the mortgage servicer must refund $125 million to approximately 185,000 borrowers who have already been foreclosed upon, and it must adhere to certain new homeowner protections. The CFPB alleges that the mortgage servicer engaged in “systemic misconduct at every stage of the mortgage servicing process.”

The complaint,3  which was filed in the federal district court in the District of Columbia, alleges that the mortgage servicer engaged in unfair, deceptive, and abusive acts and practices in violation of the Consumer Financial Protection Act by, among other things: (i) failing to timely and accurately apply payments made by borrowers and failing to maintain accurate account statements; (ii) failing to provide accurate information about loan modifications and other loss mitigation services; and (iii) robo-signing foreclosure documents, including preparing, executing, notarizing, and filing affidavits in foreclosure proceedings with courts and government agencies without verifying the information.

CFPB and DOJ Order Indirect Auto Lender to Pay $80 Million to Consumers

On December 20th, the CFPB and the Department of Justice ordered one of the largest indirect auto lenders in the United States to pay $80 million in damages to African-American, Hispanic, and Asian and Pacific Islander borrowers as well as $18 million in penalties for alleged violations of the Equal Credit Opportunity Act. 4  The CFPB and DOJ alleged that more than 235,000 minority borrowers paid higher interest rates for their auto loans between April 2011 and December 2013 because of the lender’s pricing system. This represents the largest-ever federal auto loan discrimination settlement.

The CFPB’s enforcement order follows its March 2013 compliance bulletin in which it warned against the potential discriminatory impact of auto finance structures in which lenders grant auto dealers discretion to mark-up the interest rates they would otherwise charge to consumers.5

In the CFPB’s recent examination of this particular indirect auto lender’s loan portfolio, the CFPB conducted a so-called “disparate impact” analysis which concluded that, as a result of these dealer mark-ups, the aforementioned minority groups paid higher interest rates on their car loans than similarly situated white borrowers

CFPB Issues Report on College Affinity Credit Card Programs

On December 17th, the CFPB called on financial institutions to publicly disclose their agreements with colleges and universities to market debit, prepaid, and other similar consumer financial products to students. Simultaneously with this call to financial institutions on its blog, the CFPB released its annual report on college credit card agreements.6   While the CARD Act requires card issuers to submit their campus credit card agreements to the CFPB on an annual basis, the Act does not similarly require disclosure of marketing agreements for other financial products.

CFPB Launches Education Campaign for New Mortgage Rules

On December 18th, the CFPB launched a national education campaign to educate the public about its new mortgage rules.7  According to CFPB Director Richard Cordray, the CFPB “want[s] to make sure that potential homebuyers have the information they need to make responsible decisions and that current borrowers know about their new protections.” The materials include a guide for housing counselors, mortgage tips, answers for consumer questions provided via an interactive, online tool called “Ask CFPB,” various consumer tools and factsheets.


1  The complaint is available here.

2   The consent order is available here.

3  The complaint is available here.

4  The consent order is available here.

5  The bulletin is available here.

6  The report is available here.

7  The materials can be found here.

 

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