The Consumer Financial Protection Bureau (CFPB), Recent Developments: July 8 - July 19, 2013
CFPB Issues Bulletins Regarding Harmful Debt Collection Practices
On July 10, 2013, CFPB Director Richard Cordray remarked that it is the CFPB’s job to “root out bad actors and protect consumers against unfair, deceptive or abusive practices and other legal violations, which damage both consumers and also every debt collector that tries to operate within the law.” As part of that effort, the CFPB issued two bulletins regarding harmful debt collection.
The first bulletin focuses on various debt collection practices that may be considered illegal. Specifically, it highlights the following potentially illegal practices:
Threatening action that the debt collector does not have the authority to pursue;
Falsely representing the character, amount or legal status of the debt;
Misrepresenting that a consumer’s debt would be waived or forgiven; and
Failing to properly post payments or credit to a consumer’s account with payments.
This first bulletin is available here.
The second bulletin provides guidance to creditors, debt buyers and third-party collectors regarding representations about the impact that payments on debts in collection may have on credit reports and credit scores. The second bulletin is available here.
By way of example, and as illustrated in the bulletin, a debt collector generally cannot state that paying a debt will improve a consumer’s credit report if the debt is too old to be included on a credit report, or if the debt collector does not report payment of such debts to credit reporting agencies. Similarly, a debt collector’s representation that paying a debt will improve creditworthiness may be considered deceptive due to the myriad of factors that a lender considers in such determination.
CFPB Prepares Consumer Action Letter Templates
In order to assist consumers in their correspondence with debt collectors, the CFPB has published five action letter templates for use by consumers. The purpose of the letters is to help consumers obtain information from debt collectors and to help consumers protect themselves in such dealings. CFPB Director Richard Cordray noted that the publication of these letters reflects the CFPB’s view that “self-protection can be an effective form of consumer protection in some situations.”
The letters are directed toward assisting in the following situations:
The consumer needs more information regarding the debt;
The consumer wants to dispute the debt and requests that the debt collector provide evidence that the consumer is liable for such debt;
The consumer wants to limit how and when they can be contacted by a debt collector;
The consumer has retained counsel; or
The consumer wants the debt collector to case all communications.
The foregoing letters will likely serve as a common starting point for many consumers when responding to debt collectors given their availability on the CFPB website.
CFPB Among Six Agencies to Issue Proposed Rule to Limit Appraisal Requirements
On July 10, 2013, the CFPB, along with the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the National Credit Union Administration and the Office of the Comptroller of Currency, issued a proposed rule to create exemptions from certain appraisal requirements for some higher-priced mortgage loans.
Specifically, under the proposed rule, the following three types of higher-priced mortgage loans would be exempt from the Dodd-Frank Act appraisal requirements:
Loans of $25,000 or less;
Certain “streamlined” refinancings; and
Certain loans secured by manufactured housing.
The proposed rule is available here. The CFPB, as well as the other identified agencies, are seeking comments on this proposed rule through September 9, 2013.
CFPB Finalizes Ability-to-Repay and Mortgage Serving Rules
The CFPB issued a final rule regarding clarifications that the CFPB proposed in April 2013 regarding its January 2013 mortgage rules. Specifically, this final rule finalized corrections, clarifications, and amendments to the CFPB’s Ability-to-Repay and mortgage serving rules as follows:
Clarifies Debt-to-Income Ratio Calculations: The final rule now clarifies how a lender can use and consider various factors when making a debt to income (DTI) calculation, including the use of a consumer’s employment record and income, business credit reports, self-employed documents, Social Security Income and other non-employment income.
Clarifies that RESPA Does Not Preempt Field of Servicing Regulation by States: In the final rule, the CFPB now expressly states that CFPB authority on servicing does not preempt the field of possible mortgage servicing regulations by states.
Identifies Loans to Consider for Small Servicer Status: In the final rule, the CFPB seeks to clarify the January 2013 mortgage rule exemption from some requirements for small servicers. Specifically, it states that mortgage loans serviced on a charitable basis, reverse mortgages and mortgage loans secured by a consumer’s interest in timeshare plans, will notbe considered in determining the small servicer status.
Clarifies Eligibility Standard of Temporary QM Provision: This amendment to the January 2013 mortgage rules explains that for purposes of determining qualified mortgage status for certain loans that are eligible for purchase, guarantee or insurance by a government sponsored enterprise or federal agency, matters that are wholly unrelated to ability to repay are not relevant.
CFPB Now Accepting Debt Collection Complaints
The CFPB announced that it is now accepting complaints about debt collection. Consumers are now able to submit complaints against any company that attempts to collect a debt from them. In addition, however, the consumer can also choose to submit a separate complaint against the company with whom the consumer had the original account. According to CFPB Director Richard Cordray, these new complaints will serve as useful feedback for creditors that hire third-party debt collectors or sell their debts. Creditors, he stated, “will be made aware of the kinds of struggles that consumers are having with their continuing debts and can potentially rethink what is happening to their customers or cut off those debt collectors they deem to be problematic.”
CFPB Announces Key Hires
On July 15th, the CFPB bolstered its leadership team by announcing several key hires. The CFPB announced that Sartaj Alag, who previously launched and managed the Office of Consumer Response, is returning as Chief Operating Officer. Christopher D’Angelo, former senior adviser to Director Cordray, has been named Chief of Staff. Nora Dowd Eisenhower will serve as Assistant Director for the Office of Older Americans. Ms. Eisenhower previously served as Director of the National Center for Benefits Outreach and Enrollment, then Senior Vice President for the National Council of Aging. Lastly, the CFPB tabbed Laurie Maggiano as Program Manager of Servicing and Securitization. Ms. Maggiano previously held the position of Director of Policy in the Office of Homeownership Preservation of the U.S. Department of Treasury.
United States Senate Confirms Director Cordray
On June 16th, the United States confirmed Richard Cordray’s nomination as the first Director of the CFPB by a 66— 34 vote. The Senate had previously voted 71— 29 to advance Director Cordray’s nomination to a full floor vote. Republicans had refused to allow a full Senate vote on Cordray’s confirmation until Democrats agreed to certain fundamental structural changes in the leadership of the CFPB.1
On January 4, 2012, President Barack Obama gave Cordray a recess appointment as CFPB Director while the Senate was in a pro forma session. Constitutional doubt was cast upon that appointment, however, after a three judge panel of the D.C. Circuit Court of Appeals invalidated President Obama's three recess appointments to the National Labor Relations Board that were made on the same day as Director Cordray.2
The Senate confirmation likely quells lingering doubts over the enforceability of CFPB rules and other actions since Cordray has been director. With the nomination issue resolved, the financial services industry should anticipate the CFPB to be more galvanized in both issuing rules and initiating enforcement actions in the coming months.
Portman Introduces Legislation to Create CFPB Inspector General
On July 16th, Senator Rob Portman (R-Ohio) introduced legislation (S. 1310) entitled the “Bureau of Consumer Financial Protection-Inspector General Reform Act of 2013” to create a separate CFPB Inspector General (IG) subject to Senate confirmation. The CFPB currently shares an IG with the Federal Reserve Board. Portman, who supported Cordray’s nomination, justified the creation of a separate IG by noting “CFPB’s insulation from congressional oversight” and the important role played by the IG in the recent IRS scandal. Portman was joined by Senators Mike Crapo (R-ID), ranking member of the Senate Banking Committee, Susan Collins (R-ME), Mike Johannes (R-NE), Dean Heller (R-NV) and David Vitter (R-LA) as co-sponsors of the legislation. The Senate has yet to schedule a vote on the legislation.
CFPB Issues Financial Literacy Report
On July 18th, the CFPB published its first annual Financial Literacy Report to Congress, which details its multifaceted approach to enhancing consumers’ financial literacy. 3 Specifically, the report, which covers from July 21, 2011 to June 15, 2013, is divided into three categories: education initiatives, evidence-based research, and outreach to consumers and financial education stakeholders.
The report commences with an introduction summarizing the CFPB’s strategy to improving financial literacy and claims that “enhancing financial literacy is an integral part of the [CFPB’s] consumer financial protection function.” The report then summarizes the CFPB’s financial education mandate and highlights major CFPB education initiatives, including the multiple tools available on its website, major community institution initiatives and collaborative work with government agencies.
The report then turns to evidence-based research and innovation conducted by the CFPB. Current areas of emphasis for the CFPB are (1) determining how to measure financial well-being, and identifying the knowledge, skills and habits associated with financially capable consumers, (2) evaluating the effectiveness of existing approaches to improving financial decision making and outcomes, and (3) developing and evaluating new approaches. The report details ongoing research projects, including, efforts to evaluate the effectiveness of financial coaching and developing measures of financial well-being for working age and older Americans. The final section discusses how the CFPB promotes financial literacy to consumers, paying specific attention to its programs targeting service members, students, older Americans and traditionally underserved consumers.
GAO to Investigate CFPB Data Collection
On July 18th, the GAO accepted the request of Senator Mike Crapo’s (R-ID) to investigate the purpose, scope and costs of CFPB’s voluminous data collection project. In a July 2nd letter, Senator Crapo cited reports showing the CFPB spent in excess of $20 million for collecting consumers’ personal financial information. Senator Crapo called the GAO investigation a “very positive development.” A CFPB spokeswoman defended its program noting the “data-collection efforts help the bureau to better understand the markets it oversees so we can carry out our job of protecting consumers,” but welcomed the investigation and agreed to “cooperate with any requests.”
1Specifically, Republicans had requested that the CFPB director be replaced by a bipartisan, five-member commission and that the CFPB’s funding be subject to the annual congressional appropriations process.
2 Noel Canning v. N.L.R.B., 705 F.3d 490 (D.C. Cir. 2013). In Canning, the court determined that the appointments violated the Recess Appointments Clause of the Constitution, because the appointments were made while the Senate was not in an intersession recess.
3 The report is available here.