It was another busy year for the Consumer Financial Protection Bureau (CFPB or Bureau), with two lead stories this year: constitutionality and the COVID-19 pandemic. We detail those events, and the rest of the CFPB year in review, below. Likewise, we briefly discuss what to expect from a Biden Administration-driven CFPB in 2021.
First Lead Story: Seila Law Settles Constitutionality Question
In June, the Supreme Court finally resolved the significant question regarding whether the CFPB was constitutionally structured. In Seila Law, the Court ruled, in a 5-4 decision, that the structure of the CFPB was indeed unconstitutional in that it limits the ability of the President to fire the Director of the CFPB, unless with cause. In a decision authored by Chief Justice Roberts and joined by the other conservatives on the bench, the Court ruled that Congress exceeded its constitutional authority in restricting the President’s ability to remove the CFPB’s Director to circumstances of “inefficiency, neglect of duty, or malfeasance.” Separately, however, in an opinion joined by Justices Alito and Kavanaugh, and through a concurring opinion authored by Justice Kagan with the liberal wing of the Court, the Court further concluded that this unconstitutional protection was severable from the other provisions of Dodd-Frank establishing and empowering the CFPB. In sum, the CFPB survived, but the Director may be removed without cause.
While the Court decided that the Director’s removal protection was severable from the other provisions of Dodd-Frank bearing on the CFPB’s authority, there were still open questions about the actions of the CFPB while led by that unconstitutionally protected Director. The lower courts will consider these questions remaining after Seila Law, as will other courts that had paused proceedings challenging the constitutionality of the CFPB while awaiting this decision. Expect to see additional challenges filed by covered persons and others that found themselves on the wrong side of a CFPB CID.
Second Lead Story: COVID-19
Not surprisingly, the pandemic is our second lead story. In March, Congress enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act, and included among its many provisions numerous new protections for consumers. Signed into law on March 27, the law provided, among other things, temporary relief from mortgage foreclosures, and protections against evictions. The CARES Act likewise made changes to appraisal practices in order to avoid mandatory interior inspections, and offered significant relief to student loan debt (but just for certain borrowers whose loans are owned by the Department of Education). Also added were some additional bankruptcy-related protections impacting stimulus payments.
Likewise, the major financial regulators (including the CFPB) issued a joint Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus, also in late March, encouraging financial institutions to work “prudently” with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19. “The agencies view loan modification programs as positive actions that can mitigate adverse affects [sic] on borrowers due to COVID-19,” the statement said. “The agencies will not criticize institutions for working with borrowers and will not direct supervised institutions to automatically categorize all COVID-19 related loan modifications as troubled debt restructurings (TDRs).”
On April 1, the CFPB issued a Fair Credit Reporting Act (FCRA) policy statement that reiterated that lenders and consumer reporting agencies (CRAs) are obligated to follow the CARES Act provisions. Among other requirements, the CARES Act effectively obligated lenders that engage in such reporting to report to CRAs that consumers are current on their loans where such consumers have sought relief from their lenders due to the pandemic. While companies generally are not legally obligated to furnish information to CRAs, the CFPB’s statement encouraged them to continue furnishing information.
In a major concern for consumer groups and numerous state attorneys general, the CFPB also relaxed certain FCRA investigation requirements. The FCRA generally requires that CRAs and furnishers investigate consumer disputes within 30 days of receipt of the dispute, with extensions to 45 days where the consumer provides additional information within the 30-day period. Recognizing the significant operational disruptions that COVID-19 has imposed on CRAs and furnishers in investigating disputes, the CFPB indicated it would consider a CRA’s or furnisher’s individual circumstances and that it did not intend to cite in an examination or bring an enforcement action against a CRA or furnisher making good faith efforts to investigate disputes as quickly as possible, even if dispute investigations took longer than the statutory time frame.
Section 4201 of the CARES Act provides that “if a furnisher makes an accommodation with respect to one or more payments on a credit obligation or account of a consumer and the consumer makes the payments or is not required to make one or more payments pursuant to the accommodation, the furnisher shall (I) report the credit obligation or account as current; or (II) if the credit obligation or account was delinquent before the accommodation—(aa) maintain the delinquent status during the period in which the accommodation is in effect; and (bb) if the consumer brings the credit obligation or account current during the period described in item (aa), report the credit obligation or account as current.” In addition, Section 3513 of the CARES Act addresses the furnishing of certain student loans for which payments are suspended.
In a letter to the CFPB dated April 13 signed by 23 Democratic state attorneys general, the AGs demanded that the CFPB withdraw its guidance to regulated entities that the Bureau would not enforce certain timing provisions of the FCRA during the COVID-19 pandemic. The letter argued that the CFPB’s guidance could discourage consumers from taking advantage of the forbearances and other accommodations that lenders are offering during a time of economic uncertainty. In a warning to all regulated entities, the AGs then concluded: “Consumers and CRAs should know that even if CFPB refuses to act, our states will continue to defend our consumers and families throughout this crisis. We will not hesitate to enforce the FCRA’s deadlines against companies that fail to comply with the law.”
Supplementing the April guidance, on June 16 the CFPB released a Compliance Aid in the form of ten FAQs (FAQs) on consumer reporting related to the CARES Act and the COVID-19 pandemic. While the FAQs generally were consistent with the statement, and perhaps in reaction to criticism, the CFPB also suggested a more aggressive enforcement posture. For instance, in the statement, the CFPB indicated that it did not intend to cite in an examination or bring an enforcement action against a CRA or furnisher which makes good faith efforts to investigate disputes as quickly as possible, even if they take longer than the statutory time frame. While not in direct contradiction to the statement, the FAQs cautioned that the CFPB would not be providing CRAs or furnishers with unlimited time before taking action.
In pronouncements issued May 13, 2020, the CFPB also drew attention to the billing error responsibilities of credit card issuers and other open-end non-home-secured creditors during the pandemic. Likewise, the CFPB separately encouraged financial firms “to continue to provide the kind of assistance to their communities that many have been providing, such as waiving fees, lowering minimum-balance requirements, and implementing changes in account terms that benefit consumers.” The Bureau also issued two sets of FAQs. In the first, providers of checking, savings or prepaid accounts were “reminded” that they can offer consumers immediate relief by changing account terms without advance notice where the change in terms is clearly favorable to the consumer. In the second set, the CFPB focused on existing regulatory flexibilities for non-secured open-end credit that may be useful for assisting customers. Likewise, the Bureau published a statement designed to assist consumers, small-business owners and their creditors in managing the pandemic’s credit-related challenges. It likewise outlined creditors’ responsibilities and provided them with temporary and targeted relief to ensure that they were able to assist their consumer customers and accurately resolve their billing error claims.
Organizational and Personnel Changes
Will we see a new CFPB Director in 2021? The Seila Law decision means that Kathy Kraninger’s days will be numbered after Joe Biden is inaugurated. But that outcome did not slow down Ms. Kraninger’s efforts in 2020 to revamp the Bureau from top to bottom, and those efforts have continued notwithstanding the election.
In late January, the Bureau announced the addition of five new members to its executive team, including Thomas G. Ward as assistant director for enforcement. Mr. Ward previously served as a deputy assistant attorney general under then-Attorney General William Barr. Mr. Ward had filled a position vacant since Kristen Donoghue’s departure in May 2019.
In October 2020, the CFPB announced major changes to its organizational structure, placing enforcement operations under the effective control of supervision. If finalized, this would be a significant reformation of the lines of authority within the CFPB, and might diminish the role of the Bureau in enforcement against non-supervised entities. When the CFPB opened its doors in 2011, the Bureau established separate units (or offices) for Enforcement and Supervision Policy (OSP), each housed (with Fair Lending) in a division appropriately named “Supervision, Enforcement & Fair Lending” (SEFL). In the current Bureau, the assistant director in charge of SEFL is Bryan Schneider, who formerly served as secretary of the Illinois Department of Financial and Professional Regulation (IDFPR).
Taking matters a significant step further, the Bureau internally announced it would create the Office of SEFL Policy & Strategy (OSPS), disband the Office of Supervision Policy (OSP), rename the Office of Supervision Examinations (OSE) to the Office of Supervision (SUP), and establish an SEFL Operations Section (SEFL OPS) to deliver operations services SEFL-wide. Current CFPB Assistant Director (and current OSP chief) Peggy Twohig would lead the division. Alice Hrdy would be reassigned from her role as principal deputy assistant director of OSP to be the principal deputy assistant director of SEFL.
Joe Biden’s victory in November caused the CFPB to reverse course. In an internal memorandum, Bureau leadership advised it was suspending the organizational changes and the future CFPB leadership is not expected to implement these changes.
In August 2020, the Bureau announced that it would impose what it characterized as independent “peer review” on certain of its more important internal research. In specific terms, the CFPB elected to subject its own important research to external peer review by the CFPB’s Academic Research Council (ARC). The Dodd-Frank Act already obligated the CFPB to create a Consumer Advisory Board (CAB) to advise and consult with the Bureau’s Director on a variety of consumer financial issues, but made no mention of the ARC, which was instead created by original Director Richard Cordray. Its original role was to advise the Bureau on its strategic research planning process and research agenda and provide feedback on research methodologies, data collection strategies and methods of analysis, including methodologies and strategies for quantifying the costs and benefits of regulatory actions.
In late December, the CFPB named Ann Epstein to the role of Assistant Director of the Office of Innovation. Prior to joining the CFPB, Epstein spent eighteen years at Freddie Mac, most recently as Director, Affordable Lending and Access to Credit.
Requests for Information
On July 28, the CFPB issued a Request for Information (RFI) seeking industry input on the future of the Equal Credit Opportunity Act (ECOA) and Regulation B. While fair lending enforcement had slowed in recent years, the RFI signaled that the national conversation on race was drawing renewed attention to the topic. The CFPB’s apparent openness to hearing different ideas suggested this was a real opportunity for those in the industry to engage in and impact the discussion about the parameters of ECOA and the future of fair lending enforcement. Along with a more general request for comments and information about fair lending, the CFPB also asked potential commenters ten specific questions. These included questions on such important issues as disparate impact, Limited English Proficiency, and the use of artificial intelligence, among other areas.
The fair lending RFI came after Director of Fair Lending Patrice Ficklin and two other CFPB officials authored in April a blog post focusing on access to credit under the Paycheck Protection Program for women- and minority-owned businesses. The blog post underscored the importance of compliance with ECOA and stressed that the statute protects business owners from discrimination as they seek access to credit under the CARES Act. Warning signs of lending discrimination were provided, including discouragement because of a protected characteristic and negative comments about protected statuses.
In August, the Bureau released an RFI relating to the Credit Card Accountability Responsibility and Disclosure Act of 2009 (the CARD Act) in order to get feedback from the public on the economic impact on small entities of the rules that implement the act. The RFI outlined in detail those rules, which include changes to Regulation Z adopted by the Federal Reserve Board prior to the CARD Act but which were reflected in the act, and subsequent amendments to Regulation Z implementing the act. The CARD Act and the implementing rules have had a significant impact on both the card industry and consumers. The CFPB also sought comments from the public as to how the card market is functioning in general and on several specific aspects of the consumer credit card market. These questions were directed to all market participants—including consumers, issuers, industry analysts and other interested parties—and apply to all groups subject to the CARD Act rules, not only small entities. Under the CARD Act, this review must be conducted every two years, and it has resulted in the issuance of four previous reports by the Bureau.
In an effort to increase compliance assistance to regulated entities, the CFPB issued a policy statement, effective February 1, creating a new “Compliance Aids” designation applicable to certain specified forms of Bureau guidance, and which would be designed to offer “greater clarity” on the legal status and role of the published materials. Noting that compliance aids are not formal regulations, the CFPB made clear that it would not rely on compliance aids to “make decisions that bind regulated entities.”
In July 2020, the Bureau issued a Compliance Assistance Statement of Terms (CAST) template for regulated entities to create employee automatic savings programs.
The CFPB maintained an active role with examinations covering a wide variety of areas. In 2020, the CFPB commenced over 100 supervisory exams and reviews, and completed over 140 such exams and reviews. Published highlights discussed the results of reviews in the areas of consumer reporting, mortgage servicing, short-term lending, student loan servicing, debt collection and consumer deposits.
The CFPB also focused on the pandemic, crafting a targeted supervisory approach, known as Prioritized Assessments, which consists of high-level inquiries designed to obtain information from entities to assess the impacts on consumer financial product markets due to pandemic-related issues.
CFPB “No Action Letters” and Advisory Opinions
The lead story here is the Bureau’s guidance on its Advisory Opinion Policy. On June 22, 2020, the Bureau proposed a new policy on issuing advisory opinions, which the Bureau finalized on November 30. The program provides written guidance to assist regulated entities to better understand their legal and regulatory obligations through advisory opinions, with a focus primarily on clarifying ambiguities in the Bureau’s regulations. On November 30, the CFPB issued a “final” version of that policy, which provides (among other things) that any person or entity can submit a request for an advisory opinion via email. The Bureau indicates it will review the submissions received, prioritize certain requests for response, and issue opinions with a description of the incoming request. The Bureau may also decide to issue advisory opinions on its own initiative. In so doing, the CFPB notes that it will prioritize open questions that can legally be addressed through an interpretive rule, and to evaluate potential topics for advisory opinions based on factors such as alignment with the Bureau’s statutory objectives; size of the benefit offered to consumers by resolution of the interpretive issue; known impact on the actions of other regulators; and impact on available CFPB resources.
In the entire Rich Cordray era, the CFPB declined to issue a single “no action letter” (NAL) in connection with an enforcement investigation. But, following up on the CFPB’s development of an NAL policy as well as its issuance of the very first NAL in late 2019, the Bureau issued a second NAL to a bank in its capacity as a mortgage lender. In its first NAL of 2020, the Bureau responded to a request from the Department of Housing and Urban Development (HUD) on behalf of more than 1,600 housing counseling agencies (HCAs) querying the applicability of the Real Estate Settlement Procedures Act (RESPA) to their counseling services. According to the NAL, the CFPB will not take supervisory or enforcement action under RESPA against HUD-certified HCAs that have entered into certain fee-for-service arrangements with lenders for pre-purchase housing counseling services, providing a template for lenders to request an NAL for such arrangements.
In May, the CFPB likewise issued an NAL template for small-dollar loan products, in response to an application from the Bank Policy Institute. Entities would be able to use the template to request NALs for their individualized small-dollar loan products, in which the product was offered solely to consumers who hold accounts at the institution, where the loan was for an amount of $2,500 or less, and was structured either as an installment loan of less than a year duration or as an open-end line of credit linked to the customer’s account, with certain other limitations. By way of example, using that template, the CFPB issued an NAL to Bank of America on November 5.
Also on November 30, the CFPB issued two advisory opinions under the Advisory Opinion program, one of which clarified that an “earned wage access” program meeting certain conditions does not constitute “credit” under the Truth in Lending Act (TILA) and Regulation Z, while the other clarified that loan products that refinance or consolidate a consumer’s pre-existing federal, or federal and private, education loans meet the definition of “private education loan” in the TILA and Regulation Z.
In February, the CFPB issued proposed regulations that would allow debt collectors to contact consumers about time-barred debt as long as the collectors disclose, in the initial contact, that the consumer can no longer be sued for failing to pay. The Supplemental Notice of Proposed Rulemaking (NPRM) proposed model language and forms that debt collectors could use to comply with the proposed disclosure requirements. Of note, there were two kinds of warnings identified in the four proposed model forms of disclosure. In the first, the debt collector warns the consumer that, because of the age of the debt, the debt collector will not sue on it. In the second disclosure, the consumer is warned that any payment or affirmation of the debt will revive the right to sue, depending on applicable state law.
On October 30, 2020, the CFPB released the first part of its long-awaited final Debt Collection Rule, which substantially updates and modernizes Regulation F, the implementing regulation for the federal Fair Debt Collection Practices Act (FDCPA). The final rule provides much-needed guidance for debt collectors, particularly on using technologies that did not exist when the FDCPA was enacted in 1977, while also offering additional protections for consumers. It varies in many respects from the proposed rule issued in 2019, particularly with respect to rules for collecting debts using email and text messages. The rule also addresses communication frequency, limited-content messages, use of social media and other topics discussed below, but left other matters—such as validation notices, disclosures regarding time-barred debts and credit reporting by debt collectors—for Part Two. Part One generally applies only to third-party debt collection and would take effect on November 30, 2021, one year after publication in the Federal Register. The CFPB issued Part Two of its Debt Collection Rule on December 18. We discuss Part Two here. In a surprise, Part Two did not adopt disclosure requirements for time-barred debt but, instead, outright prohibits debt collectors from threatening to sue, or suing, on such debt.
Marketing Services Agreements
In early October 2020, the CFPB abruptly rescinded a 2015 compliance bulletin concerning marketing services agreements (MSAs) while also issuing RESPA Section 8 (referral fee prohibition) guidance in the form of responses to frequently asked questions (FAQs). Section 8 of RESPA prohibits, among other things, the use of certain marketing arrangements that generate unearned fees or kickbacks. In 2012, the CFPB informed lenders and mortgage brokers of formal investigations targeting several companies believed by the CFPB to have violated RESPA in this regard. In the next few years, the CFPB entered into consent orders with numerous companies to resolve such investigations.
With industry expecting formal guidance, the CFPB instead, in 2015, issued Compliance Bulletin 2015-05. In the bulletin, the CFPB took a decidedly negative view of MSAs and suggested that MSAs involving payments for advertising or promotional services may instead, in some cases, be deemed to be disguised compensation for referrals. In other words, even an otherwise compliant MSA will not be enough to ensure compliance with Section 8 if the relationship involves referrals in exchange for a “thing of value.”
Rather than revise the bulletin, the CFPB rescinded it entirely, and instead released generic FAQs concerning compliance with RESPA, most of which have nothing to do with MSAs per se. Further, in its cover announcement, the CFPB merely announced as follows: “The Bureau’s rescission of the Bulletin does not mean that MSAs are per se or presumptively legal. Whether a particular MSA violates RESPA Section 8 will depend on specific facts and circumstances, including the details of how the MSA is structured and implemented. MSAs remain subject to scrutiny, and we remain committed to vigorous enforcement of RESPA Section 8.”
Framing the “abusiveness” standard, the CFPB had long promised to promulgate regulations better addressing and defining the “abusiveness” prong created by the Dodd-Frank Act, which prohibits not just unfair and deceptive acts, but abusive ones as well. Back in late 2018, then-Acting Director Mick Mulvaney promised to provide a clearer definition. In January, the CFPB issued a policy statement addressing this all-important provision in the law. In brief, when it comes to abusive practices, the CFPB said it would: (1) focus on citing or challenging conduct as abusive only when the conduct’s harm to consumers outweighs the benefit; (2) generally avoid “dual pleading” of abusiveness and unfairness or deception violations arising from the same facts, and alleging “stand alone” abusive acts or practices violations that demonstrate clearly the nexus between cited facts and the Bureau’s legal analysis; and (3) seek monetary relief for abusiveness only when there has been a lack of a good faith effort to comply with the law, except the Bureau would continue to seek restitution for injured consumers regardless of whether a company acted in good faith or bad faith.
In April, the CFPB promulgated its final rule raising the loan-volume coverage thresholds for financial institutions reporting data under the Home Mortgage Disclosure Act (HMDA) and Regulation C. Enacted in 1975, HMDA and its implementing regulation, Regulation C, require certain financial institutions to report data about mortgage loan applications and originations and their purchases. The CFPB’s final rule, amending Regulation C, increases the permanent threshold for collecting and reporting data about closed-end mortgage loans from 25 to 100 loans effective July 1, 2020. The final rule likewise amends (effective January 1, 2022) Regulation C to increase the permanent threshold for collecting and reporting data about open-end lines of credit from 100 to 200, when the current temporary threshold of 500 open-end lines of credit expires (the CFPB had temporarily extended the 500 open-end lines threshold in October 2019). Absent the final rule, the open-end threshold would have reverted to 100 open-end lines of credit upon the expiration of the temporary threshold.
In May, the CFPB promulgated a final rule concerning remittance transfers that greatly eased certain compliance hurdles encountered by financial institutions. Dodd-Frank Section 1073 contains a temporary exception to its requirements under the Electronic Fund Transfers Act (EFTA) that remittance transfer providers disclose actual amounts for remittance transfers. The exception permits insured depository institutions and insured credit unions in certain circumstances to estimate certain required disclosures. As mandated by statute, this EFTA exception was scheduled to expire on July 21, 2020. As a result, the Bureau issued an NPRM in December 2019, and the final rule increases the safe harbor threshold from 100 to 500 per year, among other changes.
On July 7, the CFPB issued its long-awaited final rule (the 2020 Final Rule) amending the regulations that govern payday loans, vehicle title loans and certain high-cost installment loans. As expected, the CFPB revoked the mandatory underwriting provisions from its own final rule dated November 17, 2017 (the 2017 Final Rule), and reaffirmed the payment provisions from that same rule. In response to the doubts that the Seila Law decision cast on the CFPB’s rulemaking ability during the time period when it had a Director who was not removable at will by the President, the CFPB issued a separate ratification document for the payment provisions. The most discussed provision in the 2017 Final Rule deemed it an unfair and abusive practice for a lender to make a covered short-term loan or a covered longer-term balloon-payment loan without reasonably determining that the applicant had an ability to repay the loan according to its terms. This provision was excised by the 2020 Final Rule, largely because of fears that it would entirely cut off a particularly vulnerable—and often unbanked—group from the credit market, leaving them with nowhere to turn when in need of emergency funds.
Not all restrictions were rescinded. The 2020 Final Rule reaffirms the provision prohibiting lenders (or their agents, including payment processors) from making a third attempt to withdraw funds from an account after two consecutive attempts have failed without new and specific consumer consent. The final rule also reaffirms the provisions requiring written notice before the first attempt to withdraw funds and before any subsequent attempts with different dates, amounts or payment channels. The CFPB denied a petition to commence rulemaking excluding debit and prepaid cards from these provisions on the grounds that these payment methods do not give rise to NSF fees.
In October 2020, the Bureau issued an advance notice of proposed rulemaking (ANPR) concerning consumer access to financial records, thus beginning the process of developing regulations to implement rulemaking in this area. Dodd-Frank, codified at 12 U.S.C. Section 5533(a), requires covered entities to “make available to a consumer, upon request, information … concerning the consumer financial product or service that the consumer obtained, … including information related to any transaction, or series of transactions, to the account including costs, charges, and usage data.” The Bureau’s primary focus in the ANPR is consumer-authorized data access, which is defined as third-party access to consumer financial data pursuant to the relevant consumer’s authorization. The ANPR suggests that requiring consumer financial institutions to make information about consumer accounts available to third parties when authorized could have many positive effects for consumers.
In January, the CFPB entered into a new memorandum of understanding (MOU) with the Department of Education (ED). As we previously reported, Sen. Brown, joined by Sen. Patty Murray (D-Wash.), previously criticized the CFPB for failing to work together with the ED on student lending abuses.
In April, the Federal Housing Finance Agency (FHFA) and CFPB announced a joint initiative, the Borrower Protection Program, to enable CFPB and FHFA to share servicing information in order to address whether mortgage servicers are doing enough to protect borrowers during the COVID-19 pandemic emergency. Under the program, the CFPB agreed to make complaint information and analytical tools available to FHFA via a secure electronic interface, and FHFA would, in turn, make available to the Bureau information about forbearances, modifications and other loss mitigation initiatives undertaken by Fannie Mae and Freddie Mac.
Fair Lending Settlement
In February, the CFPB reached a settlement with a consumer advocacy group on a significant fair lending issue, agreeing to restart long-stalled efforts to gather statutorily mandated data on lending to women- and minority-owned businesses.
To facilitate the enforcement of federal fair lending laws, Section 1071 of the Dodd-Frank Act amends the federal Equal Credit Opportunity Act to require the CFPB to collect and publish data from financial institutions on their lending to women-owned, minority-owned and small businesses. The act likewise requires, “as may be necessary,” that the CFPB promulgate regulations. But, in 2018, then-Acting Director Mick Mulvaney suspended rulemaking on this topic. In May 2019, various advocacy groups sued. Under the settlement, the CFPB agreed to outline a proposed rule for data collection and create a small-business advocates panel to assist the process. On September 15, the CFPB released its Outline of Proposals Under Consideration and Alternatives Considered for Section 1071 of the Dodd-Frank Act governing small-business lending data collection and reporting.
It was a remarkably impactful year for enforcement in 2020, as the CFPB flexed its muscles against a variety of regulated entities. As this article was being finalized, the CFPB had already filed 42 public enforcement actions, a significant uptick from the prior few years. More than two dozen cases are currently in an active litigation status, including suits against a major non-bank mortgage loan servicer and another against a leading student loan servicer.
Concluded enforcement matters likewise demonstrate materially increased CFPB enforcement activity. Collectively, the actions collected (or will collect) $670 million in consumer relief and a remarkable $270 million in civil monetary penalties. At least the following matters were resolved by consent orders or stipulated final judgments:
a. Student Lending
In early January, the CFPB filed enforcement actions against various student loan providers and servicers. The Bureau alleged that these entities violated the FCRA by wrongfully obtaining consumer report information and that, in connection with the marketing and sale of student loan debt-relief products and services, certain defendants charged unlawful advance fees and engaged in deceptive acts and practices. The complaint also alleged that certain entities and individuals were liable as Relief Defendants because they received profits resulting from the illegal conduct. The Bureau’s complaint seeks an injunction against defendants, as well as damages, redress to consumers, disgorgement of ill-gotten gains and the imposition of civil money penalties. The suits were variously settled in May, July and October 2020, with substantial redress payments and somewhat lesser civil monetary penalties.
In a major settlement with institutions holding student loans for about 35,000 consumers, the CFPB entered into a stipulated final judgment in September that resulted in an estimated $330 million in student loan forgiveness. The Bureau determined that the defendants allegedly knew or were reckless in not knowing that many student borrowers did not understand the terms and conditions of those loans, could not afford them, or in some cases did not even know they had them.
b. Short-Term Lending
The CFPB had a fairly active year with respect to short-term lenders, and in a variety of areas.
In January, the CFPB entered into a consent order with a company that provided services for a tribal lender and then purchased the loans. Under the consent order, the service provider paid $7 in civil monetary penalties to resolve a CFPB enforcement action commenced under Director Richard Cordray in 2017. The action challenged a tribal lending arrangement based on alleged UDAAP violations arising out of the collection of loans that were allegedly void under state usury laws. However, the consent order was part of a global settlement of several class actions in which millions of dollars were paid by the company and others involved with the loans in question. The CFPB was party to that global settlement.
On April 1, the CFPB entered into a consent order with a Texas-based short-term lender that admitted to making deceptive representations in its television advertisements and telemarketing calls when promoting “50%-off” all of its loan fees when it did not in fact provide that discount. Further, Cash Store engaged in unfair practices by repeatedly calling consumers’ workplaces and references after being asked to stop and not for purposes of locating consumers, disclosing the delinquency of consumers’ debts to third parties or using tactics that risked such disclosure, and making excessive calls to consumers that aggravated, annoyed and distressed consumers.
On June 2, the CFPB settled with a major short-term lender, in which the defendant allegedly provided deceptive finance charge disclosures, failed to refund overpayments on its loans and engaged in unfair debt collection practices. The consent order imposed a judgment requiring $3.5 million in redress, but suspended that amount based on payment of $2 million of that judgment and $1 civil money penalty based on the company’s demonstrated inability to pay.
Among the unresolved filings, the CFPB likewise sued an online lender that allegedly violated the Military Lending Act by originating loans in excess of the 36% limits of that statute. That action is still pending.
The Bureau has been immensely active in this area, with two significant enforcement actions against two of the largest residential mortgage servicers in the country. The CFPB resolved its claims against one of those entities, but one remains in an active litigation posture.
In May, the Bureau entered into a consent order with a major residential mortgage loan servicer, alleging it took prohibited foreclosure actions against mortgage borrowers who were entitled to protection from foreclosure, and by allegedly failing to send or to timely send evaluation notices to mortgage borrowers who were entitled to them. In some cases, the company obtained foreclosure judgments and conducted foreclosure sales on borrowers’ homes when, claimed the Bureau, Regulation X would have entitled the borrowers to protection from foreclosure had SLS complied with that rule. The consent order required the servicer to pay $775,000 in monetary relief to consumers, waive $500,000 in borrower deficiencies, pay a $250,000 civil money penalty, and implement procedures to ensure compliance with RESPA and Regulation X.
The Bureau sued and then settled nine separate enforcement matters against various mortgage companies that allegedly sent deceptive mailers to advertise VA-guaranteed mortgages, obtaining more than $4.4 million in civil monetary penalties.
The CFPB concluded 2020 with a splash, filing suit and obtaining a consent judgment against one of the country’s leading residential mortgage servicers. The Bureau alleged that the servicer violated multiple consumer financial laws, causing substantial harm to the borrowers whose mortgage loans it serviced, including distressed homeowners. In specific terms, the Bureau accused the servicer of repeatedly failing to honor, and foreclosing upon borrowers with, pending loss-mitigation applications or trial-modification plans, and as a result failed to honor borrowers’ loan modification agreements. Likewise, the CFPB alleged that the servicer repeatedly increased borrowers’ permanent, modified monthly loan payments, mispresented to borrowers when they would be eligible to have their private mortgage insurance premiums canceled and failed to timely remove private mortgage insurance from borrowers’ accounts. Likewise, the Bureau alleged that the servicer failed to timely disburse borrowers’ tax payments from their escrow accounts and failed to properly conduct escrow analyses for borrowers during their Chapter 13 bankruptcy proceedings. The judgment and order requires the servicer to pay $73 million in redress to more than 40,000 borrowers, plus $1.5 million in civil monetary penalties. The resolution likewise settled actions pursued by the attorneys general from all 50 states and the District of Columbia, as well as bank regulators across the nation. Collectively, the order provides nearly $85 million in recoveries for consumers, plus over $6 million more in fees and penalties.
d. Debt Collection and Debt Relief
In July, the Bureau settled with a Florida-based debt-relief servicer to consumers with federal student loan debt, in which the defendants allegedly charged illegal advance fees in violation of the Telemarketing Sales Rule (TSR) to consumers who were seeking to renegotiate, settle, reduce or alter the terms of their loans. The order permanently banned defendants from providing debt-relief services and imposed a judgment totaling approximately $3.8 million in consumer redress and civil money penalties.
On November 12, the Bureau issued a consent order against an Illinois-based non-bank third-party debt collector that specializes in collecting telecommunications debt. The Bureau found that the company violated the FCRA by furnishing information to credit bureaus that was inaccurate; failing to report to bureaus as an appropriate date of first delinquency on certain accounts; failing to conduct reasonable investigations of disputes; failing to send required notices to consumers about the results of such investigations; and failing to establish, implement and update its policies and procedures regarding its furnishing of consumer information to bureaus. The consent order requires the company to improve and ensure the accuracy of its furnishing and its policies and procedures relating to credit reporting and dispute investigation. It also imposed a $500,000 civil money penalty.
In December, the Bureau announced a consent judgment against a debt collector that pursued debt collections from consumers but failed to obtain the requisite state licenses to do so in three different states.
A number of payments-related actions remain active, including a suit filed in 2020 against a major national bank concerning allegedly unauthorized deposit and credit card accounts, and another against a bank concerning its response to credit card disputes. Two actions were resolved:
On August 20, the CFPB entered a consent order with a national bank over the sales and marketing practices for its optional overdraft service called Debit Card Advance (DCA). DCA provides overdraft protection for ATM and one-time debit card transactions that exceed the available balance by more than $5. The consent order finds that the national bank’s practices violated the EFTA and the Consumer Financial Protection Act of 2010 (CFPA), particularly the abusive and deceptive prongs of UDAAP. The CFPB’s consent order relies on a broad interpretation of certain legal concepts, such as “affirmative consent” and “abusive,” that go beyond the literal language of the statutes.
In November, the Bureau entered into a consent order against a company and its owner that operated an auto loan payment program called AutoPayPlus that charges fees to deduct payments from consumers’ bank accounts every two weeks and then forwards these payments every month to the consumers’ lenders. The Bureau found that the company’s disclosures and advertisements of its loan payment program contained misleading statements in violation of the Consumer Financial Protection Act of 2010’s prohibition against deceptive acts or practices. The consent order imposes a judgment against them requiring payment of $9.3 million, which amount is suspended based on the company’s demonstrated inability to pay upon their payment of $900,000 plus a token $1 civil money penalty to the Bureau.
f. HMDA and Fair Lending
The CFPB is conducting several CFPB fair lending investigations but, at least publicly, the Bureau had a rather quiet year in fair lending enforcement.
In late October, the CFPB settled with a large Pacific Northwest bank with respect to its HMDA reporting. The Bureau found that the bank’s data included significant errors, with some samples having error rates as high as 40%. The order required the bank to pay a $200,000 civil money penalty and to develop and implement an effective compliance management system to prevent future violations.
g. Auto Finance
On October 13, the Bureau issued a consent order against a Texas-based major captive auto finance company, concluding that the company wrongfully repossessed vehicles; kept personal property in consumers’ repossessed vehicles until consumers paid a storage fee; deprived consumers paying by phone of the ability to select payment options with significantly lower fees; and, in its loan extension agreements, made a deceptive statement that appeared to limit consumers’ bankruptcy protections. The consent order required the company to provide up to $1 million of cash redress to consumers subject to a wrongful repossession, to credit any outstanding account charges associated with a wrongful repossession and to pay a civil money penalty of $4 million. The CFPB also imposed certain requirements to prevent future violations and remediate consumers whose vehicles are wrongfully repossessed going forward.
What to Expect in 2021
Here are our key predictions for 2021:
Next year will be the year of more vigorous enforcement, enhanced fair lending initiatives, and renewed assaults on consumer arbitration, payday lending and other favored targets during the Cordray era.
Made possible (if not inevitable) by the Seila Law decision, incoming President Joe Biden will replace CFPB Director Kathy Kraninger and cast aside other political appointees, even those nominally implanted in non-political positions. Although many names have been mentioned, we expect longtime CFPB employee Patrice Ficklin to be nominated as the new Director. Ms. Ficklin checks all the boxes: a diverse selection, a well-respected senior member of CFPB management and someone deeply devoted to fair lending.
And that is the perfect segue for our second prediction: We predict an immediate reorganization of the Bureau to return fair lending to its original, and significant, role. Back in early 2018, then-Acting Director Mick Mulvaney transferred (read: demoted) the Office of Fair Lending and Equal Opportunity (OFLEO) to the SEFL Division to the Director’s Office, thereby neutering what had been a critically important unit of the CFPB. Whoever leads the CFPB will doubtless return to the original structure.
We also expect the new CFPB Director to undo the most recent organizational changes, the largest impact of which was to place Enforcement under the auspices of Supervision. While this change has a certain compelling logic to it, especially in the hands of someone like Peggy Twohig, many senior CFPB staff were strongly opposed to the changes.
We predict, as well, that the CFPB will either compete or, alternatively, enter into a stronger enforcement alliance with the burgeoning state mini-CFPBs, the most important of which is the new California Department of Financial Protection and Innovation (DFPI). If the former, the CFPB and DFPI will fight for the limelight. If the latter, expect an even more vigorous enforcement regime, the implications of which will be felt far beyond California’s borders.
If neither consumer advocates nor regulated entities were pleased with the CFPB in 2020, then the CFPB was likely striking the right balance. Whether that balance continues in 2021 is anyone’s guess, but our guess is that the pendulum will shift toward more aggressive consumer advocacy, and a return to the approach taken in the last year of the Cordray CFPB era. Stay tuned.