the cfpb – 2014 in review and what’s ahead for...

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The CFPB – 2014 in Review … and What’s Ahead for 2015

Kevin L. Petrasic Partner Paul Hastings LLP

Presentation to the Association of Corporate Counsel March 19, 2015

Gerald S. Sachs Of Counsel Paul Hastings LLP

Lawrence D. Kaplan Of Counsel Paul Hastings LLP


Overview

§  Recap of CFPB Supervision and Enforcement Activity –  Overview of CFPB Supervision Activities

–  Review of CFPB Enforcement Activities

§  What’s Ahead for 2015 –  Prepaid Cards, Mobile, and Emerging Payments Systems

–  Payday Lending / Small Dollar Lending

–  Student Lending

–  Credit Card Products

–  Mortgage Servicing

–  Mortgage Origination

–  Credit Reporting

–  Auto Finance

–  Debt Collection

–  Specially Protected Populations

–  Responsible Conduct

§  Action Items Based on CFPB Expectations for 2015

§  Recap/Conclusion


Recap of CFPB Supervision and Enforcement Activity in 2014


CFPB Supervision Activity in 2014

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§  Supervision – Areas of Focus –  Compliance Management Systems

•  Policies and Procedures •  Adequacy of Staff Training •  Effectiveness of Audit Programs •  Third-party Service Provider Oversight

–  Supervisory Confidential Settlements •  Mortgage Origination and Servicing •  Student Loans •  Auto Finance and Fair Lending •  Credit Cards •  Small Dollar Lending •  Consumer Reporting •  Electronic Funds Transfer Act


CFPB Supervision Activity in 2014

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§  CFPB Bulletins Presage Agency Activity –  Successors-in-interest

•  Policies and procedures reasonably designed to ensure can identify and communicate with successors-in-interest.

–  Fair Credit Reporting •  Furnishers must investigate consumer disputed information.

–  Mortgage Servicing Transfers –  Brokers shifting to mini-correspondent lenders

•  Shifting business models will not allow you to evade consumer protections.

–  Promotional Credit Card Offers •  Be careful how you market balance transfers / deferred interest

and explain the product – e.g. grace period.


CFPB Enforcement Activity in 2014

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§  Enforcement – Areas of Focus –  Auto Finance

•  Credit reporting and debt collection –  Credit Cards

•  Ancillary products – debt cancelation, credit protection –  Debt Collection / Debt Relief

•  Law firms collecting debt and advance fees –  Student Loans – for profit colleges –  Mobile Cramming –  Real Estate

•  Origination Practices – compensation and marketing services agreements

•  Servicing Practices – loss mitigation, foreclosure, transfers, error resolution, and consumer complaints

–  Small Dollar Lending / Payday Lending •  Military members


What’s Ahead for the CFPB in 2015


Likely Areas of Greater Scrutiny

§  Prepaid, Mobile and Emerging Payments §  Payday Lending / Small Dollar Loans §  Private Student Lending §  Credit Card Products §  Mortgage Origination and Servicing §  Credit Reporting §  Auto Finance §  Debt Collection §  Specially Protected Populations

–  Military Members –  Older Americans

§  Activity Involving UDAAP Violations

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Prepaid Cards, Mobile, and Emerging Payment Systems

§  Areas likely to receive extensive CFPB scrutiny in 2015 –  CFPB prepaid proposal – targets certain prepaid products

for first time, including general purpose reloadable cards, and certain digital and mobile wallets

•  As proposed, CFPB would have jurisdiction over large bank and non-bank entities prepaid card issuers

–  CFPB will also focus on digital and virtual currency-related companies

•  CFPB already accepting consumer complaints about virtual currency companies

•  Agency issued consumer alert addressing virtual currency products

9


Small Dollar and Payday Lending

§  Research and Rulemaking Activities –  Payday Lending Report (available at http://files.consumerfinance.gov/f/

201403_cfpb_report_payday-lending.pdf)

–  Checking Account Overdraft Report (available at http://files.consumerfinance.gov/f/201407_cfpb_report_data-point_overdrafts.pdf)

–  Payday Loans and Deposit Advance Products Rule Likely in 2015 (see http://www.reginfo.gov/public/do/eAgendaViewRule?pubId=201410&RIN=3170-AA40)

§  Enforcement - Ongoing case –  UDAAP – CFPB and various state attorneys general offices

•  Defendants purchased, serviced, and collected consumer-installment loans that state laws rendered void or limited the consumer’s obligation to repay

–  CFPB may potentially file more cases or AG’s may use the Dodd-Frank Act authority to file on their own

10


Student Lending

§  Current level of Outstanding Student Loans – in excess of $1.13 trillion at end of Q314 suggests significant focus

§  Specialized Office within CFPB –  Student Loan Ombudsman, specifically charged with

monitoring complaints and reporting to Congress. –  CFPB Private Student Loan Study (2012) – more in

2015 §  That debt is non-dischargeable in bankruptcy lessens the

risks to lenders of non-repayment §  Enforcement

–  CFPB sued private lenders in 2014 – more to come . . .

11


Credit Card Products

§  CFPB likely to remain vigilant in monitoring credit card ancillary products … but prudential regulators will also be active –  Add-on products involving debt protection, credit insurance, and

identity theft protection were areas of considerable CFPB enforcement activity from 2012 to 2014

–  While consumer credit card complaints are likely to continue, we expect CFPB may be less active as many issuers have either stopped offering the products or significantly modified how such products are marketed

§  While CFPB scrutiny of add-on products may abate, scrutiny of issuer promotional offers is likely to continue –  CFPB’s September 2014 bulletin notes it will be reviewing potential

UDAAP violations based on card product marketing –  CFPB is closely reviewing how and to what extent it is willing to

use its authority to prevent “abusive” activities with regard to credit card marketing practices

§  Fair Lending issues also implicated…

12


Mortgage Servicing

§  CFPB Expects Full Regulatory Compliance Despite Implementation Burdens

§  Supervision and Enforcement Focus on Servicing §  Supervision Examinations

–  Servicing transfers (honor existing modification) –  Forcing consumers to waive rights to get modifications. –  Payment processing –  Furnishing consumer information to credit reporting co.

§  Enforcement Investigations –  Likely focus on (1) loss mitigation, (2) foreclosure, (3) servicing

transfers, and (4) general error resolution and consumer responsiveness

–  Any settlement likely will include (1) injunctive relief, (2) restitution, and (3) civil money penalties

13


Mortgage Origination

§  Large consumer market viewed by many as the cause of the 2008 Financial Crisis

§  Bank and nonbank market participants

§  New regulations and standards are effective … compliance is expected –  Qualified Mortgages –  Loan Originator Compensation

§  Supervision focus –  Compliance Management Systems

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Mortgage Origination

§  Enforcement Activities –  RESPA

•  Kickbacks and MSAs •  MLO Compensation Rule

–  HMDA

§  Rulemaking Activities –  Consolidation of Disclosure Forms (TILA/RESPA disclosures,

effective August 1, 2015; available at http://www.consumerfinance.gov/regulatory-implementation/tila-respa/)

–  HMDA and Regulation C Disclosure Modifications (available at https://www.federalregister.gov/articles/2014/08/29/2014-18353/home-mortgage-disclosure-regulation-c)

15


Credit Reporting

§  CFPB oversight falls within CFPB’s “larger participants” jurisdiction of credit reporting agencies, which accounts for over 94% of the credit reporting agency market

§  Key areas of CFPB oversight includes: –  supervised entities’ compliance management systems –  dispute resolution policies and procedures –  third-party service provider relationships –  general responsiveness to consumer complaints.

§  Unclear whether the CFPB will pursue credit reporting agencies in the same way it did credit card companies for violations arising from the use of ancillary product offerings

16


Auto Finance

§  Auto Finance –  Continued focus on dealer reserve / discretionary comp.

•  Enforcement authority over large banks and non-banks •  Supervision authority over large banks

–  A lot of recent press related to subprime lending –  Rulemaking:

•  Finalization of the “larger participants” rule to supervise non-bank auto finance companies (available at http://files.consumerfinance.gov/f/201409_cfpb_proposed-rule_lp-v_auto-financing.pdf)

–  Enforcement: •  Possible focus on ancillary products sold with car financing. •  Possible focus on subprime lending and collections

17


Debt Collection

§  Significant area of consumer complaints and significant volume of debt sales to third parties who did not originate the debt

§  Larger Participants under CFPB supervisory authority §  CFPB UDAAP Bulletins

–  Unfair, Deceptive or Abusive Acts or Practices (available at http://files.consumerfinance.gov/f/201307_cfpb_bulletin_unfair-deceptive-abusive-practices.pdf)

–  Effect of Debt Payments on Credit Reports and Scores (available at http://files.consumerfinance.gov/f/201307_cfpb_bulletin_collections-consumer-credit.pdf)

§  Notice of Proposed Rulemaking (available at https://www.federalregister.gov/articles/2013/11/12/2013-26875/debt-collection-regulation-f)

§  OCC Guidance Regarding Debt Sales (available at http://www.occ.gov/news-issuances/bulletins/2014/bulletin-2014-37.html)

§  Enforcement has been busy suing debt relief and debt collection companies. –  One case against a debt buyer alleges UDAAP for filing too many lawsuits too quickly

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Specially Protected Populations

§  CFPB expected to be active in 2015 in addressing consumer financial protection issues involving specially protected populations: –  Specialized Student Lending Activities –  Issues Involving Servicemembers –  Older Americans –  Fair Lending Issues

§  Particular areas of focus include discriminatory lending and similar practices, e.g., public assistance, disabilities, etc.

§  Increasing accessibility to HMDA data … including distinct possibility of enforcement-related activity.

§  Servicemembers – Jurisdiction of CFPB to enforce provisions of the Military Lending Act

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Interacting with the CFPB


CFPB’s Responsible Conduct Bulletin

§  CFPB Enforcement Office -- Discretion in how it Settles Cases Subject to the Following Factors: –  Self-policing / monitoring

•  Compliance systems / audits –  Self-reporting

•  Telling the CFPB of a problem before the Bureau discovers it –  Consumer remediation

•  Redressing any consumer harm or potential harm –  Extraordinary cooperation

•  Above and beyond what the law requires §  Potential Benefits to Following the CFPB’s Guidance

–  Lower civil money penalties –  Avoiding negative publicity from a public settlement by settling

confidentially through the supervisory process or having the case closed with no action

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Handling CFPB Enforcement Inquiries

§  Recommendations on How to Proceed after Receiving a Civil Investigative Demand:

–  Work with the CFPB staff to understand their concerns •  Meet and confer with CFPB within 10 days •  Motion to quash / modify must be filed within 20 days

–  Produce the relevant information •  Likely 45-90 day production timeframe

–  Decide whether litigating is worth the cost

–  Settle or Fight

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Suggested Action Items


CFPB Action Plan

§  Identify if your business falls under the CFPB’s jurisdiction

–  Large Banks

–  Non-banks engaged in products and services subject to the CFPB’s jurisdiction over 19 Federal laws and UDAAP

§  Review Compliance Management Systems

–  Conduct legal and compliance audits

–  Update policies and procedures

–  Train your staff

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CFPB Action Plan

§  Identify Products and Services Likely Subject to a CFPB Focus Area –  Give extra attention to specially protected populations

§  Understand how to interact with CFPB and be ready to respond to information requests - best before you receive one –  Informal requests (can apply to anyone)

–  Formal requests - Civil Investigatory Demands

–  Be well-versed in CFPB’s Responsible Conduct Bulletin and understand how to receive its benefits

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Conclusion/Questions


About Our Speakers


About The Paul Hastings Team

Kevin L. Petrasic advises banks and financial services firms on a wide array of regulatory, legislative, transactional, compliance and payment systems issues under federal and state banking laws, as well as the federal securities laws. Mr. Petrasic also regularly advises national and international financial firms, including national retail securities brokerage and insurance firms, on a wide array of issues under the federal banking laws and issues within the jurisdiction of the Consumer Financial Protection Bureau. Mr. Petrasic has broad government experience, including serving as Special Counsel, Managing Director of External Affairs, Director of Congressional Affairs, Legislative Counsel, and Assistant Chief Counsel at the U.S. Treasury Department’s Office of Thrift Supervision, as well as Counsel to the former House Banking Committee. Direct: +1.202.551.1896|[email protected] Lawrence D. Kaplan advises clients on all aspects of bank regulatory issues, with an emphasis on corporate structuring, control, operations, problem banks, enforcement, as well as the electronic provision of financial services. Mr. Kaplan’s practice involves the representation of traditional and nontraditional financial services holding companies and financial institutions before federal and state bank regulatory agencies on a variety of matters, including structural, operational, enforcement, and authority issues. Mr. Kaplan has extensive experience with issues pertaining to payment networks and electronic funds transfers. Direct: +1.202.551.1829|[email protected] Gerald (Gerry) Sachs advises clients on all aspects of consumer financial services law, regulatory enforcement, privacy and data security, and litigation. As a former Senior Counsel for Enforcement Policy and Strategy at the Consumer Financial Protection Bureau, former Assistant United States Attorney for the Northern District of Georgia, and attorney for the Federal Trade Commission, Mr. Sachs has prosecuted cases ranging from business opportunity schemes and regulatory violations to money laundering and computer crimes. Direct: +1.202.551.1975 | [email protected]


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