Understanding the CFPB s Supervisory Highlights Report

Transcription

1 Understanding the CFPB s Supervisory Highlights Report Donald Maurice, Maurice & Needleman, P.C. Joann Needleman, Maurice & Needleman, P.C. June 5, 2014 Materials Prepared June 4, 2014

2 Don Maurice Joann Needleman Maurice & Needleman, P.C.

3 Legal Disclaimer This information is not intended to be legal advice and may not be used as legal advice. Legal advice must be tailored to the specific circumstances of each case. Every effort has been made to assure this information is up to date. It is not intended to be a full and exhaustive explanation of the law in any area, however, nor should it be used to replace the advice of your own legal counsel.

4 Verification of Attendance Complete the following to receive your DBA Certificate of Attendance: You will receive an at the conclusion of the presentation containing a link to the course evaluation. When the evaluation is complete, you will receive a link to the Attendance Form Complete the form and enter the Verification Code Return the completed Attendance Form to webinars@mnlawpc.com or fax to Allow 7 to 10 business days for your DBA Certificate

5 Your Participation Please continue to submit your text questions and comments using the Questions Panel

6 Topics to be covered What are the CFPB (FTC, OCC and others) latest hot issues in debt collection? Weak v. Strong CMS Executive involvement in CMS Service Provider/Third Party Risks FDCPA UDAAP FCRA EFTA

7 CFPB Supervisory Authority Banks, credit unions, S&Ls, and certain non bank entities (e.g., debt collectors, mortgage, student loan and payday lenders) Collaborates with other agencies (FTC, DOJ, OCC, FDIC), but we see its influence even when it is not expressly involved

8 Sending Smoke Signals Regulators provide hints to their intentions in their reports, complaints, consent orders and other materials Time barred debt disclosure Repairing a Broken System (2010); Asset Acceptance Consent Order (2012) RJM closing letter (2012); Delgado (2014)

9 Latest Issues 6/5/2014 Maurice & Needleman, P.C. 9

10 Weak v. Strong CMS

11 Supervisory Highlights Undated policies Lack of leadership involvement Poor complaint management Poor third party assessment/monitoring Lack of effective audit Not enough focus on consumer financial protection law, too many programs focused on asset and site security and personnel security p. 16

12 Supervisory Highlights Training p. 7 formal training schedules attendance records written reference materials should be responsive to new or changing regulatory requirements, new products and services, and product changes

13 C Level Responsibility for Company Acts

14 Supervisory Highlights [A] company s leadership is expected to ensure that its staff is trained... p. 6. [C]ompliance audits should include a process by which the institution reports its findings to appropriate leadership and managers... p. 7. [A]dequate board and management oversight are critical components of a CMS CCO must report to leadership p. 8. Leadership must hold personnel accountable for compliance or oversee the compliance program. p. 15

15 C Level Responsibility for Company Acts Commodities Futures Trading Commission v. MF Global

16 C Level Responsibility CFTC civil complaint against Jon Corzine: As alleged below, Jon Corzine, the Chief Executive Officer ("CEO"), is legally responsible for MF Global's misuse of customer money. Edith O'Brien, MF Global's Assistant Treasurer, is also liable. Source: Complaint, USCFTC v. MF Global, Inc., et al., U.S. S.D.N.Y 13 cv 4463 (June 27, 2013)

17 C Level Responsibility CFTC complaint against Edith O Brien As an employee of the Firm, O'Brien had a duty to notify management of any instances of non compliance with any applicable laws or regulations or Firm compliance related policies. Source: Complaint, USCFTC v. MF Global, Inc., et al., U.S. S.D.N.Y 13 cv 4463 (June 27, 2013)

18 C Level Responsibility SEC Administrative Action against Steven A. Cohen 7/19/2013

19 C Level Responsibility SEC Administrative Action against Steven A. Cohen 7/19/2013 Cohen... failed reasonably to supervise two of his senior employees who engaged in insider trading under his watch. Source: Order Instituting Administrative Proceedings, In re Steven A. Cohen, Admin Pro File No , Securities Exchange Commission (July 19, 2013)

20 C Level Responsibility SEC Administrative Action against Steven A. Cohen 7/19/2013 Cohen... failed to take reasonable steps to investigate and prevent such violations. Source: Order Instituting Administrative Proceedings, In re Steven A. Cohen, Admin Pro File No , Securities Exchange Commission (July 19, 2013)

21 C Level Responsibility SEC Administrative Action against Steven A. Cohen 7/19/2013 Instead, faced with red flags of potentially unlawful conduct by employees under his supervision, Cohen... Stood by while the portfolio managers traded... Source: Order Instituting Administrative Proceedings, In re Steven A. Cohen, Admin Pro File No , Securities Exchange Commission (July 19, 2013)

22 C Level Responsibility

23 Focus on Leadership Personal liability for entity acts that can be tied to no/low compliance efforts Leadership can protect itself by designating specific persons responsible for implementation and execution of CMS Leaders must review and approve compliance Compliance failures and audit results must be communicated to leadership delineate how this is done Personnel remediation in place for failed compliance

24 Vendor and Third Party Liability

25 Supervisory Highlights Verify understanding of consumer financial services law p. 9 Verify training that reflects understanding of consumer financial protection law p. 9 Verify compliance with consumer financial protection law p. 9

26 Supervisory Highlights Document and retain assessments Contracts must have compliance related expectations p. 15 Creditor Debt Seller p. 12 Must adequately assess debt buyer s compliance with CFS law

27 Consumer Portfolio Services Consent Order Complaint alleged CPS told consumers they must use certain payment processors The payment processors charged consumer a fee CPS received a portion of the fees CPS did not disclose that other low/no cost payment forms were acceptable

28 Debt Collection Issues Telephone Calls

29 Supervisory Highlights Call volume 1692d, d(5) 20 times within two days 1692d(5) with intent to annoy, abuse or harass But decisional law suggests two or three unanswered calls a day to same number is legitimate attempt to contact debtor Operations should consider whether contact is made Space calls apart 9 am, 1 pm, 7pm

30 Telephone Calls 1692d, d(5) Natural consequence to harass, oppress, abuse 1692d Majority of decisional law does not treat a telephone call as having the requisite natural consequence absent other conduct, like immediate call back

31 Telephone Calls 1692d, d(5) Causing telephone to ring or engaging a person in continuous calls 1692d(5) Sequence, timing, content or place to where call is made weigh heavily After debtor told collector you are harassing me no d(5) violation where collector waited one week before placing another call Shand Pistilli v. Prof'l Account Servs., 2011 U.S. Dist. LEXIS (E.D. Pa. June 16, 2011)

32 Debt Collection Issues Cessation of Telephone Calls

33 Supervisory Highlights Oral cease the lender continued to call customers and references after consumers had made verbal and written requests that they stop doing so. p. 17 But, 1692c(c) requires the consumer to notify the debt collector in writing

34 Consumer Portfolio Services Consent Order Oral Cease Oral cease and desist allows one more call then a hold on telephone calls unless Collector sends, within seven (7) days of cease request, a letter advising request must be in writing Consumer does not send written request Calls can resume after 30 days from oral cease request Entirely new standard question is whether regulators see this as the standard for compliant treatment of oral cease requests

35 Debt Collection Issues Third Party Contact

36 FDCPA Third Party Issues Third Party Contact 1692b, 1692c(b) Permitted to obtain location information Third Party Disclosure 1692c(b), 1692e(8) Disclosure strictly limited to a few circumstances and must disclose if debt is disputed

37 Supervisory Highlights Third Party Contact 1692b, c(b) employees of at least one lender called third parties even after the employees had already made contact with consumers.

38 Consumer Portfolio Services Complaint Third Party Contact Improper contact Collectors, in numerous instances, have called third parties, including references, friends, family members, co workers, and employers, whenever a consumer's payment was late.

39 Consumer Portfolio Services Consent Order Third Party Contact Establishes standards for contact with Third Parties for Location Information Must document a reasonable belief that it cannot locate the consumer. Presumed reasonable belief

40 Consumer Portfolio Services Consent Order Third Party Contact Presumed reasonable belief: mail directed to the consumer s last known address is returned as undeliverable; the consumer s known telephone number(s) are disconnected; at each number known to belong to the consumer the voice mailbox is full or does not accept messages; or a third party at the consumer s last telephone number claims the consumer is no longer using it.

41 Debt Collection Issues Dismissing Lawsuits

42 Supervisory Highlights Dismissing Lawsuits Lawsuits contain an entity s express or implied representations to consumers that it intended to establish that consumers owed a debt in the amount claimed... p. 14

43 Supervisory Highlights Dismissing Lawsuits 70% of the cases, when the consumer filed an answer, the entity would dismiss the suit because it was unable to locate documentation to support its claims. p. 14

44 Supervisory Highlights Dismissing Lawsuits Dismissing lawsuits for lack of documentation is misleading because lender demonstrably had no such intention to establish that consumers owed a debt in the amount claimed. Reference made to 15 U.S.C. 1692e

45 Dismissing Lawsuits Decisional Law Courts differ in whether filing suit without sufficient evidence violates the FDCPA. Samuels v. Midland Funding, LLC, 921 F. Supp. 2d 1321 (S.D. Ala. 2013) Bandy v. Midland Funding, LLC, 2013 WL (S.D. Ala. Jan. 18, 2013)

46 FCRA

47 CPS Consent Order Furnisher Rule 12 C.F.R written policies and procedures regarding the accuracy and integrity of the information relating to consumers that it furnishes to a consumer reporting agency. appropriate to the nature, size, complexity, and scope of each furnisher s activities

48 CPS Consent Order Furnisher Rule 12 C.F.R accuracy (1) Reflects the terms of and liability for the account or other relationship; (2) Reflects the consumer s performance and other conduct with respect to the account or other relationship; and (3) Identifies the appropriate consumer.

49 CPS Consent Order Furnisher Rule 12 C.F.R integrity information furnished (1) substantiated by the furnisher s records at the time it is furnished; (2) furnished in a form and manner that is designed to minimize the likelihood that the information may be incorrectly reflected in a consumer report; and (3) Includes the information in the furnisher s possession about the account or other relationship that the CFPB has: Determined that if omitted would likely be materially misleading in evaluating a consumer s creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living; and Is listed in section I.(b)(2)(iii) of appendix E

50 Supervisory Highlights Reasonable investigation 1681s 2(b)(1)(A) Disputes cannot be handled by simply causing the deletion of information furnished (tradeline) By undertaking a reasonable investigation, furnisher may uncover systemic problems

51 EFTA

52 Supervisory Highlights EFTA EFTA 15 U.S.C Reg. E 12 C.F.R In several examinations, Supervision determined that supervised entities violated Regulation E by failing to secure a written authorization, either signed or similarly authenticated by the consumer, before initiating recurring electronic fund transfers from consumers accounts. p. 13.

53 Supervisory Highlights EFTA Preauthorized Transfers Authorized in advance to recur at substantially regular intervals Requires no further action by the consumer to initiate the transfer See 15 USC 1693a(10); 12 C.F.R (k); 52 Fed. Reg. at 15193; 15 U.S.C. 1693e(a); 12 C.F.R (b)

54 EFTA Preauthorized Transfers Authorization must be in writing A copy of the signed or similarly authenticated writing must be provided to the consumer Writing must be provided before the preauthorized EFT occurs See 15 USC 1693a(10); 12 C.F.R (k); 52 Fed. Reg. at 15193; 15 U.S.C. 1693e(a); 12 C.F.R (b)

55 EFTA (b) Record retention. (1) Any person subject to the Act and this part shall retain evidence of compliance with the requirements imposed by the Act and this part for a period of not less than two years from the date disclosures are required to be made or action is required to be taken. (2) Any person subject to the Act and this part having actual notice that it is the subject of an investigation or an enforcement proceeding by its enforcement agency, or having been served with notice of an action filed under sections 910, 916, or 917(a) of the Act, shall retain the records that pertain to the investigation, action, or proceeding until final disposition of the matter unless an earlier time is allowed by court or agency order. 12 C.F.R

56 Supervisory Highlights EFTA Preauthorized Transfers and E Sign (Global and National Commerce Act), 15 U.S.C. 7001, et seq. Must provide E Sign Disclosures Electronic record cannot simply record the call 15 U.S.C. 7001(c)(6) Electronic signature can record the affirmation 146 Cong Rec S 5281, 5284 (June 16, 2000)(Senate Conference Report on the E Sign Act)

57 Questions? Joann Needleman Maurice & Needleman, P.C. Don Maurice Maurice & Needleman, P.C.