Tag Archive | "CFPB"

CFPB Supporters Ask Federal Appellate Court to Rehear CFPB Decision


WASHINGTON, D.C. — In an amicus brief sent Tuesday, a group of current and former members of Congress that supported the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 urged the federal appellate court that deemed the Consumer FInancial Protection Bureau (CFPB)’s structure unconstitutional to rehear the case.

Arguing that the court’s October decision fundamentally altered the CFPB, the group wants all 17 of the U.S. Court of Appeals for the District of Columbia’s judges to be present, not just the three judges that ruled that the CFPB’s single-director structure violates the federal Constitution.

The group consists of 21 current and former members of Congress, including Senators Elizabeth Warren (D-Mass, who is considered the architect of the CFPB, and Rep. Maxine Waters (D-Calif.). Every name listed in the brief were either sponsors of the Dodd-Frank Act, participated in drafting the law, serve or served on committees with jurisdiction over the federal financial regulatory agencies and the banking industry, or served in the leadership when Dodd-Frank was passed, the letter stated.

“The panel decision fundamentally altered the CFPB and hampered its ability to function as Congress intended,” the brief read. “It also called into question the constitutionality of other regulatory agencies with similar structural features. For those reasons alone, this case involved a question of ‘exceptional importance’ that merits reconsideration by the en banc court.”

The appelate court’s October decision gave the president the power to remove the CFPB’s director at will, as well as direct its activities. In its majority opinion, the court noted that CFPB Director Richard Cordray possessed “enormous power over American business, American consumers, and the overall U.S. economy.”

Granting the president the power to remove the director at will was the group’s biggest objection. In its letter, the group brought up the opposing side’s argument that by having removal restrictions, the president would be impeded in his ability to perform his constitutional duty. They argued, however, that the original provisions that allowed the director to be removable for cause, such as “’abusing [his] office[e],’ committing a ‘breach of faith,’ or ‘neglecting his duties or discharging them improperly,’” were enough to keep the director accountable, and gave the president enough power to remove the director if needed.

“The panel’s conclusion that the CFPB’s structure is unconstitutional flatly contradicts all of these decisions, and it does so principally because it views multi-member commissions as superior to agencies led by a single director,” the brief stated, in part. “The panel improperly elevated that policy judgment — one properly made by Congress — into a holding of constitutional law. That was plainly wrong, and consideration by the en banc court is thus warranted.”

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Pew: CFPB Small-Dollar Rule ‘Would Not Adequately Protect Borrowers’


WASHINGTON, D.C. — The Consumer Financial Protection Bureau’s proposed small-dollar lending rule would neither not adequately protect borrowers, nor address the risks created by the shift toward installment credit in the payday and auto title lending market, a new analysis concludes.

Conducted by Pew Charitable Trusts, the analysis outlines the reasons for the shift to installment lending, highlights the riskiest practices, and identifies actions the bureau can other policymakers can take to counter these harms. It also identifies four primary loan characteristics that harm consumers, including unaffordable payments, front-loaded fees, excessive durations, and unnecessary high prices.

“The CFPB proposed rule would require most small loans to be repayable in installments, which would represent a significant improvement, but that change alone is not enough to make these loans safe,” the nonprofit organization stated. “In 13 of the 39 states where they operate, payday and auto title lenders issue only high-cost, single-payment loans, but in the other 26, they are already making installment loans with annual percentage rates of 200% to 600%.

“These high-cost installment loans would still be permitted under the CFPB standards.”

The analysis identified four primary loan characteristics that harm consumers. They include unaffordable payments, front-loaded fees, excessive durations, and unnecessary high prices.

Pew’s brief, “From Payday to Small Installment Loans: Risks, Opportunities, and Policy Proposals for Successful Markets,” shows that unaffordable payments can lead to the same types of problems as convention payday loans, including frequent re-borrowing, heave use of overdrafts, and the need for a cash infusion to retire debt — issues the CFPB hoped to address when it proposed its rule this past June.

The brief also shows that large upfront origination fees “effectively penalize borrowers who repay early or refinance, while unreasonably long durations can double or triple borrowers’ costs.”

“Because payday and auto title lenders typically compete on location, customer service, and speed rather than on price, costs for these products, like conventional payday and auto title loans, are unnecessarily high, such as more than $1,000 in fees for a $500 loan,” the brief states, in part.

The brief also lists the following policy recommendations it says will address the four main challenges posed by installment loans:

  • Establish clear ability-to-repay standards, limiting loan payment to an affordable percentage of a borrower’s periodic income.
  • Allow only interest charges or monthly fees on the loan, and no other fees.
  • Require loan to have reasonable repayment durations.
  • Enact price limit and enable lower-cost providers, including banks and credit unions, to enter the small-dollar loan market.

“The payday loan market is rapidly shifting away from lump-sum lending toward installments, but 400% APR payday installment loans can be harmful, too,” said Nick Bourke, who directs Pew’s small-dollar loans project. “To protect consumers, the CFPB should add to clear product safety standards to its rule, such as limiting installment payments to 5% of a borrower’s paycheck. This safeguard would make exiting loans more affordable and enable banks to offer comparable small credit at prices six times lower than payday lenders, saving millions of borrowers billions of dollars annually.”

The CFPB’s notice of proposed rulemaking for small-dollar loans is open for public comment until Oct. 7. For more on the bureau’s proposal, click here.

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103 Lawmakers Call on CFPB to Eliminate Mandatory Arbitration


WASHINGTON, D.C. — On Wednesday, more than 100 members of Congress called on the Consumer Financial Protection Bureau (CFPB) to proceed with its effort to eliminate forced arbitration.

In two separate letters, 103 members of the House of Representatives and U.S. Senatepraised CFPB Director Richard Cordray for his agency’s proposed rule prohibiting mandatory arbitration clauses in finance contracts. They claim that eliminating such clauses will protect consumers from a process from which they rarely benefit.

“We wholeheartedly agree, and we offer our strong support for the CFPB’s proposal that rightfully recognizes the expansive harms of forced arbitration, prohibits the unfair use of class action waivers, and requires greater transparency concerning the arbitration of individual claims,” stated the letter signed by 38 U.S. Senators.

“The proposed rule is in the public interest and will protect consumers,” read the letter signed by 65 members of the House of Representatives. “As you know, Congress expressly granted authority to the bureau to research the impact of forced arbitration clauses in financial products and services, and based on this evidence, to promulgate a rule to prohibit or impose conditions on the use of forced arbitration if the bureau finds that it would be ‘in the public interest and for the protection of consumers.’ There is little doubt that the bureau’s proposed rule will serve these twin goals.”

The CFPB’s first proposed its rule on forced arbitration this past May, more than a year after the bureau issued its 728-page report on the use of pre-dispute arbitration clauses in consumer finance markets. The rule the bureau proposed stated that companies would be able to use arbitration clauses in finance contracts; however, use of such agreements could not bar consumers from being part of a class action lawsuit.

“There is overwhelming evidence that class-action waivers in financial products and services agreements undermine the public interest. Originally used primarily in commercial settings, forced arbitration clauses have proliferated in everyday contracts, and are now prevalent in financial services agreements,” stated the House letter. “By restricting class actions and class-wide arbitration in consumer contracts, these clauses enable corporations to avoid public scrutiny by precluding access to the courts.”

These waivers, the letter further stated, are particularly problematic in small, diffuse misconduct. These small claims are often the most harmful to consumers because they’re either too expensive for individuals to pursue or are so small consumers aren’t aware of the misconduct, lawmakers claimed.

“Forced arbitration shields corporations from accountability for abusive, anti-consumer practices, which only encourages unscrupulous business practices by allowing violations of the law to go unchecked. This comes at the expense of consumers, small businesses, and — just as importantly — law abiding businesses. Recognizing this, the CFPB has proposed a narrowly-tailored but important rule to restore access to our civil justice system and promote transparency within the forced arbitration system,” read the Senate’s letter.

But not all findings in the study support the lawmakers’ claims. For instance, the study showed that in many class action cases where the principal purpose of seeking class relief was to pressure a settlement, members of the class action got nothing or next to nothing. It also found that class action cases almost never make it to trial, while a significant percentage of arbitration proceedings actually resolve the disputes. The study also showed that arbitration is both faster and more economical than litigation.

“Late last year, the CFPB released a study on arbitration, which the bureau says shows that consumers are harmed by arbitration agreements as opposed to class action lawsuits. However, a careful review of the CFPB’s study demonstrates that the opposite is true …,” the American Financial Services Association wrote in a news brief published just prior to the CFPB issuing its proposed rule. “In 60% of class actions studied by the CFPB, consumers received no remuneration at all.

“In the 15% of cases where consumers received monetary compensation in class actions, they received an average of just $32.25, after waiting an average of 23 months,” the associated added. “In contrast, consumers who prevailed in arbitration agreements, on average, received $5,389. The real winners in class action lawsuits are plaintiff’s attorneys, who divided approximately $424 million in fees.”

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CFPB Accuses ‘One or More’ Finance Sources of Deceptive GAP Ads, Payment Deferral Offers


WASHINGTON, D.C. — In its summer edition of Supervisory Highlights, the Consumer Financial Protection Bureau accused one or more finance sources of being deceptive in their advertisements of GAP and in the way they disclose payment deferral terms.

According to the report, the GAP advertisements gave the impression that the product fully covered the remaining balance of a consumer’s loan in the event of a total loss, when, according to the bureau, the products only covered the amounts below a certain loan-to-value ratio.

Bureau examiners also accused one or more auto finance sources of using a telephone script that “created the false overall net impression that the only effects of taking advantage of a loan deferral would be to extend the maturity of the loan and to accrue interest during the deferral. The finance sources, the bureau charged, failed to inform consumers that “the subsequent payment would be applied to the interest earned on the unpaid amount financed from the date of the last payment received from the consumer.” The result, the bureau said, is consumers are paying more finance charges than originally disclosed.

“These violations are under review by the bureau to determine what, if any, remedial and corrective actions should be undertaken by the relevant financial institutions,” the bureau added.

The bureau’s Supervisory Highlights report also noted that examiners determined that “weak [complaint management systems]” in place at one or more institutions allowed violations of federal consumer financial law during the review period. Weaknesses included:

  • Failure to raise compliance-related issues to the institution’s board of directors or other principal.
  • Failure to follow the institution’s policies and procedures in daily practice.
  • Failure to properly monitor and correct business line practices to align with federal consumer financial law.
  • Failure to adequately track training completed by employees and the board.
  • Failure to adequately follow up on consumer complaints with a corresponding failure of compliance audit to highlight deficiencies in the consumer complaint response process.

“The relevant financial institutions have undertaken remedial and corrective actions regarding these violations, which are under review by the bureau,” the report stated.

According to the bureau’s June Complaint Report, the CFPB has logged 23,000 auto finance-related complaints since July 21, 2011, representing 60% of consumer loan complaints. The Top 2 complaints were “Managing the loan, lease or line of credit” at 47%, and “Problems when you are unable to pay” at 22%.

“Taking out a loan or lease or account terms and changes” ranked third at 18%, following by “Shopping for a loan, lease or line of credit” at 11%.

According to the report, consumers complained about payment processing issues, including not having their payment applied to their accounts in a timely or correct manner. Consumers also complained of repossessions without notice or having to voluntarily surrender their vehicle because they could no longer afford their payments.

Consumers also complained that “warranties they believe … they were required to purchase” did not cover basic repairs. “In these complaints, consumers purchased older cars and they were under the impression that the warranty would cover the repairs often associated with cars that have high mileage,” the bureau stated in its report. “Since these repairs were not covered, consumers incurred high costs to fix their cars or in some instances were unable to make further use of the vehicle.”

The bureau also received complaints about misleading advertisements at buy-here, pay-here dealerships. “Consumers explained that dealerships checked their credit even though advertisements stated that their credit would not be considered,” the report stated. “Consumers also complained that although advertisements stated that making timely payments on their loans would help build their credit up, dealerships would not furnish good-standing credit information.”

Consumers also complained about having to pay what they felt were high wear-and-tear fees at the end of their lease. “These consumers explained that they disagreed with the wear-and-tear determinations and believed the process was unfair,” the report stated. “Because there is a subjective element to this determination, consumers indicated that they should be allowed to be present for the inspection.”

The bureau’s complaint report also contained a list of most-complained-about companies, which included Santander, Ally Financial, Wells Fargo, Capital One, Toyota Motor Corp., JPMorgan Chase, Westlake Financial Services, GM Financial, and Nissan Motor Acceptance Corp. The companies listed, according to the bureau, account for 50% of all auto finance-related complaints “sent to companies for response in January to March 2016.

“Of these companies, Toyota Motor Credit Corp. saw the greatest percentage increase in auto lending complaints (94%) from January – March 2015 to January – March 2016,” the report stated, adding that Nissan Motor Acceptance Corp. “saw the lease percentage increase in consumer loan complaints (3%) during the same period.

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CFPB Proposes Implementation of Privacy Notice Exemption


WASHINGTON, D.C. — Last week, the Consumer Financial Protection Bureau (CFPB) proposed to implement an amendment to the Gramm-Leach-Biley Act (GLBA) that will grant certain financial institutions exemption from sending annual privacy notices to customers.

The GLBA generally requires financial institutions to send annual privacy notices to customers. Within the notices, institutions are required to describe whether and how customers’ nonpublic personal information is shared. If an institution does share customers’ NPI data with unaffiliated third parties in ways other than specified by the statute, then the institution is required to notify customers of their right to opt out of sharing and inform them on how to do so, according to a CFPB press release.

In December 2015, the GLBA was amended to exempt a financial institution from the requirements of the GLBA if it limits “its sharing of customer information so that the customer does not have the right to opt out and has not changed its privacy notice from the one previously delivered to its customer,” the press release stated.

Along with granting exemption, the proposed implementation of the December amendment would also establish deadlines for institutions resuming annual privacy notices if their practices change and cease to qualify for the exemption, according to the CFPB.

Implementation of the amendment would also allow financial institutions that qualify for GLBA exemption to post annual privacy notices online rather than deliver them to customers individually. “In light of this, the Bureau is proposing to also remove the alternative delivery method,” the CFPB press release stated.

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NADA Chairman Calls on Dealers to Rally Behind CFPB-Reform Bill


An important number that the nation’s auto dealers should know is 2663. The NADA’s battle to tame the CFPB continues and Senate bill S. 2663 is the next chapter. This bill, entitled, “Reforming CFPB Indirect Auto Financing Guidance Act,” is identical to last year’s House bill-H.R. 1737, which passed the House with a resounding, veto-proof majority vote of 332-96, including 88 Democrats.

NADA commends Sen. Jerry Moran (R-Kan.) for introducing this critical legislation this past March. Democrats and Republicans from both sides of the aisle have recognized a simple truth: Every consumer deserves access to competitive financing and great rates when they buy a new car or truck.

America’s franchised auto dealers strongly support S. 2663, and businesses that make, sell, service, auction and finance motor vehicles have also joined in this support. Practically the entire auto industry is united on this issue. Like H.R. 1737, the bill would rescind the CFPB’s flawed auto finance guidance, and make the bureau more transparent and accountable when issuing future guidance. The bill calls for a public comment period, coordination with regulatory agencies that possess authority over dealers and a study of the impact of the guidance on small businesses and, most importantly, consumers.

S. 2663 is a moderate bill that does not dictate a result. It’s important that dealers urge their Democratic senators to support S. 2663 when it comes up for a vote. Due to the shortened congressional session with the Presidential election looming, we need to be ready for a vote at any time.

The bill allows for transparency and public notice so the public has an opportunity to analyze and to comment on the CFPB’s attempt to change the auto financing market via “guidance.” And it protects fair credit laws and their enforcement in order to safeguard equal opportunity in auto financing.

We’re fighting for what dealers have known from the beginning: our current system of convenient dealer-assisted financing is fair and competitive. It boosts access to affordable credit for consumers and saves them money.

At the same time, NADA supports the Senate in its oversight to ensure that the CFPB’s actions do not hurt consumers, especially those with less-than-perfect credit. If the CFPB intends to disrupt our highly efficient model, it can only be justified through reliable and sound analysis. Yet the CFPB continues to try to eliminate a dealer’s ability to discount credit for consumers, despite a clear prohibition in Dodd-Frank against regulating dealers.

The optional NADA/NAMAD/AIADA Fair Credit Compliance Policy & Program is being adopted by a growing number of franchised dealers. Many are taking the proactive steps to ensure that the deserved participation that we earn when arranging financing falls within the Equal Credit Opportunity Act. Each of the three major credit application aggregators-including several other companies-have licensed the use of the program to facilitate its adoption and implementation by dealers.

The significant flaws in the CFPB’s policy do not serve the nation’s 16,500 franchised dealers-or the consumers they proudly serve.

NADA will continue to support our members through these challenges as we prove that dealers provide the most competitive, efficient consumer benefits on the planet in our current auto finance model.

Visit NADA.org/autofinance to learn more about how the CFPB’s campaign to eliminate discounted financing rates is raising credit costs for consumers.

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