CFPB & UDAAP. Recent Developments & Hot Topics. Michael Stockham. Nicole Williams. June 23,

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1 CFPB & UDAAP Recent Developments & Hot Topics Michael Stockham Nicole Williams June 23, 2015

2 Agenda Background Trends Hot Topics Key Takeaways Questions

3 Background Trends Hot Topics Key Takeaways Questions

4 UDAAP Pre-Dodd-Frank Unfair or Deceptive Acts or Practices (UDAP) Example: Federal Trade Commission (FTC) Act Additionally since Dodd-Frank Unfair, Deceptive and Abusive Acts or Practices (UDAAP) Created CFPB to regulate

5 CFPB Authority over UDAAP Rulemaking, enforcement, and supervisory 1) Large depository institutions 2) Smaller depository institutions 3) Providers of consumer financial products or services Affiliates Participants of other markets as defined by CFPB

6 Growth and Expansion Fiscal Year Spending FTEs 2012 > $299 million > $538 million 1, $497 million 1, (budgeted) $582 million 1,500 (400 examiners) 6

7 Growth and Expansion Complaints increased 80% from 2012 to % from 2013 to ,000 Complaint Volume 250, , , ,000 50,

8 Growth and Expansion Enforcement 15 million consumers received relief $4.6 billion to consumers $150 million in penalties Supervision 775,000 consumer received relief $75 million to consumers (2014 Estimates) 8

9 Complaint Process Consumer Complains CFPB Routes to Company 15 days: Company's Initial Response 15 days: Data Goes Online 60 days: Company's Final Response Consumer May Dispute Response 9

10 Categories of Complaints Received Type of Debt 2014 Reference: 10

11 Categories of Complaints Received Groups Complained About 2014 Reference: 11

12 Background Trends Hot Topics Key Takeaways Questions

13 Relationship with Congress Controversial from the beginning Operation Choke Point DOJ, FDIC, and CFPB Goal: intimidate and destroy private lending? Poison Pill Amendment Congressional appropriations process $45 million over 5 years $100 million over 10 years 13

14 Wielding Its Power Credit bureau agreement: medical debt Steady stream of new rules 8 currently open for comment New closing documents required for loans Required effective October 1, 2015 Delayed from August 1 deadline due to administrative error Seminars to adapt Larger banks taking over closing forms Trouble for smaller banks 14

15 Wielding Its Power PayPal Example Credit financing through ebay 19.99% APR August 2013: Civil Investigative Demand January 2014: Civil Investigative Demand Spring 2015: CFPB Notice and Opportunity to Respond and Advise PayPal agreed to proposed consent order: $15 million in redress and $10 million penalty Subject to court approval 15

16 Wielding Its Power Payday Loan Initiative Goal: End payday debt traps Verify finances & ability to repay Cooling-off periods No similar loans outstanding with any lender Caps on amount & number of loans Study: 80% earn over $25,000 Most pay back within 5 months 16

17 Wielding Its Power PHH Example January 2014: CFPB seeks $430 million Sought to go back to 1995 with no statute of limitations Sought full disgorgement of reinsurance premium payments and restitution to borrowers Sought civil monetary penalties November 2014: ALJ awards $6.5 million Enforced 3-year statute of limitations at time CFPB formed Disgorgement of gains from reinsurance for loans closed after July 2008 Civil monetary penalties barred June 2015: CFPB Director awards $109 million on appeal First-ever appeal of CFPB administrative proceeding Affirmed limitations holding Disgorgement of all payments after July 2008 Civil monetary penalties not barred, but exercised discretion not to award 17

18 FACT PATTERN # 1 18

19 Wielding Its Power Remedies Civil Monetary Penalties Restitution Disgorgement Unjust Enrichment Rescission/Reformation Public Notification 19

20 Background Trends Hot Topics Key Takeaways Questions

21 FACT PATTERN # 2 21

22 Disclosure Current Policy Complaint data viewable in online database 15 days after complaint or when lender gives initial response No fraudulent or baseless data published But can be misleading Tell Your Story feature 22

23 Disclosure New Policy Finalized March 2015 Consumer narratives published online Opt-in required Lenders choose standardized responses Concern that narratives misleading: Facts seem true False trends 23

24 Disclosure New Policy Database boldly boasts its pedigree as a site of the United States Government, but gives short shrift to its admission that the information... is unverified and unreliable. 24

25 Disclosure New Policy Mortgage lending is a particularly complex and factcontingent activity that does not lend itself well to an abbreviated, publicly facing complaint reporting system. 25

26 Disclosure New Policy Could encourage consumers to use resources not regulated by the Bureau 26

27 FACT PATTERN # 2 27

28 Intersection with Social Media 28

29 Background Trends Hot Topics Key Takeaways Questions

30 Key Takeaways CFPB here to stay Independent agency Broad enforcement authority Growing and increasing activity Avoiding or limiting enforcement actions and lawsuits FTC parallels How to approach Settlement considerations 30

31 Background Trends Hot Topics Key Takeaways Questions

32 Questions?