Trendspotting the CFPB: What s Coming and How Institutions Can Prepare Courtney H. Gilmer Baker Donelson Center Suite 800 211 Commerce Street Nashville, TN 37201 615.726.5747 cgilmer@bakerdonelson.com Kavita G. Shelat First Tennessee Building 165 Madison Avenue Suite 2000 Memphis, TN 38101 901.577.8120 kshelat@bakerdonelson.com
The CFPB s Broad Authority CFPB s primary duties Write rules, supervise companies, and enforce federal consumer financial protection laws Take consumer complaints Promote financial education Research consumer behavior CFPB is both rule maker and rule enforcer Overlaps supervision with FTC, OCC and other federal and state agencies 2
CFPB s Data-Driven Approach 3
All complaint data published is freely available for anyone to use, analyze and build on Anyone can view, search, sort and filter data Implications: GOLD MINE for Plaintiff s attorneys and savvy consumers 4
CFPB Releases Monthly Reports on Key Trends CFPB releases monthly reports to highlight key trends from consumer complaints submitted to the Bureau including: Complaint data on company performance Complaint volume State and local information Product trends 5
What is UDAAP? The Bureau may take any action authorized to prevent an unfair, deceptive or abusive act or practice under Federal law in connection with any transaction with a consumer for a consumer financial product or service. The CFPB s UDAAP expands the FTC s UDAP 6
Where to look for guidance on UDAAP? CFPB Consent Orders Agency enforcement actions filed in federal court CFPB's Examination Manual Guidance in Bulletins A word about Consent Orders 7
The Landscape in 2015 Mortgages Debt Collection For-Profit Education /Student Loans Payday Lending Checking Account Auto Finance Credit Reporting 8
Mortgages and Loss Mitigation Green Tree Enforcement Action FDCPA, FCRA, RESPA Mortgage servicer for delinquent loans Honoring loan modification agreements from prior servicers, lack documentation from prior servicers in order to collect accurate payments, aggressive debt collection Prioritized debt collection before loss mitigation Settlement $48 Million to consumers $15 Million civil penalty Convert in process modifications, fast track applications 9
Debt Collection Chase Enforcement Action Settlement regarding Chase s sale of credit card debt to third-party debt collectors and filing collection lawsuits Allegations that the debts were inaccurate, settled, in bankruptcy, or no longer collectible Signal that debt collection continues to be a focus Suspended collections litigation in 2011, debt sales in 2013; yet several years of monitoring 10
Auto Loan Pricing: CFPB s Indirect Policing No authority to directly regulate automobile dealers Regulates bank and nonbank entities that offer financing to automobile dealers Marketing and disclosing terms Accurate furnishing to credit bureaus Debt collection Fair lending Disparate impact methodology The retail installment contract does not state race, national origin Proxy methodology that combines geography-based and name-based probabilities 11
Auto Loan Pricing HONDA Enforcement Action Under the Equal Credit Opportunity Act Analyzed retail installment contracts from Jan 2011 to Dec 2013 Utilized geography-based and name-based probabilities to assign race and national origin probabilities to applicants Based on this method, CFPB finds disparities in pricing for Black, Hispanic and Asian consumers Settlement Terms Reduce dealer markups from 2.25 percent to only 1.25 percent $24 Million refunded to consumers No penalty 12
Credit cards CitiBank Enforcement Action $700 Million reimbursement to consumers, $35 Million penalty Add on products to cancel a consumer s payment/debt if hardship, credit monitoring and credit report retrieval Expedited payment fee Enrollment process, misrepresentations at time of application Affinion Group Holdings Credit monitoring, credit retrieval add on products misrepresented Billed for products before services made available $6.8 Million reimbursement, $1.9 Million penalty 13
Overdraft Fees REGIONS Enforcement Action Under UDAAP Charging overdraft fees to consumers who had not opted-in for overdraft coverage Mandatory Opt-In in July 2010 for new accounts, Aug 2010 for existing accounts. Took more than one year for the issue to be corrected Settlement $49 Million refund to consumers $7.5 Million fine Correct errors in credit reports 14
Payday lending EZCorp High cost, short term unsecured loans in 15 states, 500 stores Violated UDAAP in its debt collection activities, including in person collection and third party contact $7.5 Million refund to 93,000 consumers Stop collection on loan portfolio, and cannot sell portfolio $3 Million penalty Integrity Advance and its CEO short term loans ranging from $100-1000 Disclosures focused on cost of repaying the loan in a single payment, not setting out rollover costs 15
Advertising and endorsements NewDay charged with deceptive practices related to payment arrangement with a veteran s organization for an endorsement unrelated to NewDay s consumer service Expands RESPA through UDAAP 16
Trendspotting the CFPB in 2016: More UDAAP TRID Enforcement and Examination HMDA Final Rule Student loans (*Not just forprofit) Prepaid Products Auto Lending 17
TRID Enforcement and HMDA Final Rule TRID Effective October 1, 2015 Concerns from industry Informal good faith grace period how long will it last? HMDA Increases # of data points that financial institutions are required to report Security/privacy concerns 18
The $1.2 Trillion Student Loan Market 2015 Report Public and political pressure Anticipated Actions: Industry-wide standards Increased coordination among agencies Information given to borrowers Publishing data 19
Prepaid Products Proposed Rules announced 2014 90 day comment period had significant participation Final rule has been in-progress and now expected 1Q of 2016 Likely to cover: Payroll cards; Certain federal, state and local government benefit cards; Student financial aid disbursement cards; Tax refund cards; and Certain peer-to-peer payment products. 20
Auto Lending Increased Complaints Increased CFPB Focus Herbies Auto Sales Enforcement Action Announced January 21, 2016 21
Trends Across the Consumer Financial Industry Retaining documents, data Vendor liability Technology limitations 22
Thank you for your attendance. We welcome any questions. Courtney H. Gilmer 615.726.5747 cgilmer@bakerdonelson.com Kavita G. Shelat 901.577.8120 kshelat@bakerdonelson.com 23