Tag Archive | "Dodd-Frank Act"

President Trump Orders Review of Dodd-Frank


WASHINGTON, D.C. — President Donald Trump took his first step toward making good on his promise to dismantle the Dodd-Frank Wall Street Reform and Consumer Protection Act, signing on Friday an executive order directing the secretary of the Treasury to review the 2010 financial oversight law.

The order directs the Treasury secretary to consult with members of regulatory agencies and the Dodd-Frank-created Financial Stability Oversight Council and report back to the president within 120 days (and periodically thereafter). The report, and all subsequent reports, will identify any laws and regulations that inhibit federal regulation of the U.S. financial system.

“Today we’re signing core principles for regulating the United States financial system,” Trump said after signing the order. “It doesn’t get much bigger than this, right?”

The core principles his order lays out include regulations that “empower Americans to make independent financial decisions”; prevent taxpayer-funded bailouts; foster economic growth; enable American companies to be competitive in domestic and foreign markets; advance American interests in international financial regulatory negotiations; and “restore public accountability within federal financial regulatory framework.”

“The Dodd-Frank Act is a disastrous policy that’s hindering our markets, reducing the availability of credit, and crippling our economy’s ability to grow and create jobs,” said White House Press Secretary Sean Spicer during a press briefing. “Perhaps worst of all, despite all of its overreaching, Dodd-Frank did not address the causes of the financial crisis, something we all know must be done.”

Enacted in response to the Great Recession, the Dodd-Frank Act created new regulations along with several new government enforcement agencies, including the Consumer Financial Protection Bureau (CFPB). While Trump’s order isn’t expected to have an immediate impact, it does set the stage for Trump to fulfill his campaign promise to repeal and replace the act. The likely replacement bill is the Financial CHOICE Act of 2016, which was introduced last year by Rep. Jeb Hensarling (R-Texas). It stands for “Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs.”

“I’m very pleased that President Trump signed this executive action, which closely mirrors provisions that are found in the Financial CHOICE Act to end Wall Street bailouts, end ‘too big to fail,’ and end top-down regulations that make it harder for our economy to grow and for hardworking Americans to achieve financial independence,” said Hensarling. “Dodd-Frank failed to keep its promises, but President Trump is following through on his promise to the American people to dismantle Dodd-Frank. Republicans are eager to work with the president to end and replace the Dodd-Frank mistake …”

Repealing Dodd-Frank, however, doesn’t necessarily mean the CFPB will be eliminated, as it exists independent of the law that created it. However, regulatory insiders say passage of the Financial CHOICE Act could weaken the bureau. A federal appellate court also ruled the bureau’s single-director structure unconstitutional this past October, giving the president the power to remove Director Richard Cordray at will. The CFPB is appealing that decision.

Asked during Friday’s  press briefing if the administration planned to keep Cordray, Spicer said he didn’t have an announcement on the bureau. “That’s an area that we need to work with Congress on,” he said.

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Senate Republicans Introduce CFPB-Restructuring Bill


WASHINGTON, D.C. — U.S. Senator Deb Fischer (R-Neb.) reintroduced on Jan. 11 legislation aimed at replacing the director of the Consumer Financial Protection Bureau with a five-member bipartisan board. The bill was introduced just as Congressional Democrats and state regulators pledged to defend the bureau against attacks from the Trump administration.

This is the third time Fischer has introduced a CFPB-restructuring bill; the Republican lawmaker having introduced similar legislation during each of the previous two congressional sessions. This time, Fischer introduced her bill — S. 105, or the Consumer Financial Protection Board Act — less than four months after a three- judge panel of the U.S. Court of Appeals ruled the bureau’s leadership structure unconstitutional and vacated its $109 million fine against mortgage lender PHH Corp.

“For years, the bad decisions made by a single director at the CFPB have kept families locked out of economic opportunity,” Fischer stated in her press release announcing the bill, which sits in the Senate Committee on Banking, Housing and Urban Affairs. “My bill would prevent this misconduct by divesting the authority from one director to a five-member bipartisan board. This much-needed structural adjustment would bring accountability to the bureau and give more Americans a chance to build their own businesses and provide for their families.”

Under S. 105, each board member would be appointed by the president and confirmed by the Senate. The president would also appoint one of the five members to serve as chairperson of the board, which would consist of no more than three members from the same political party. Each board member would serve staggered five-year terms.

If passed, the legislation, which lists Senators John Barrasso (R-Wyo.) and Ron Johnson (R-Wisc.) as cosponsors, would take effect once the Senate confirms three members.

Replacing the single CFPB director with a committee is also part of legislation Republicans in the House of Representatives introduced last September. That bill, also known as the Financial CHOICE Act of 2016, would also repeal and replace the Dodd-Frank Wall Street Reform Act, as well as repeal the CFPB’s March 2013 guidance on dealer participation.

Senators Charles Schumer (D-N.Y.), Sherrod Brown (D-Ohio), and Elizabeth Warren (D-Mass) threw their support behind CFPB Director Richard Cordray and his agency during a Jan. 17 press call. Rumors have circulated around Washington D.C., that President Donald Trump and his administration plan to fire the director and abandon the legal defense of the agency in its appeal of the federal appellate court’s October 2016 ruling. The Senate Democrats claim Cordray’s firing would go against Trump’s promise to keep Wall Street accountable.

Sen. Brown and Rep. Maxine Waters (D-Calif.) then filed on Jan. 23 a motion to intervene in the bureau’s appeal. Seventeen attorneys generals followed suit the same day.

The attorneys general from Connecticut, Delaware, Hawaii, Illinois, Iowa, Maine, Maryland, Massachusetts, Mississippi, New Mexico, New York, North Carolina, Oregon, Rhode Island, Vermont, Washington, and the District Columbia are seeking to defend the constitutionality of the bureau. They argue that the federal appellate court’s ruling, if permitted to stand, would undermine the power of state attorneys general to effectively protect consumers against abuse in the consumer finance industry, as well as “significantly lessen the ability of the CFPB to withstand political pressure and act effectively and independently of the president.”

The regulators also argue that it’s critical they intervene in the case because President Trump has expressed strong opposition to the Dodd-Frank reforms that created the CFPB. “The CFPB is the cop on the beat, protecting Main Street from Wall Street misconduct,” said Attorney General George Jepsen, who led the group of regulators in their filing of the motion. “It was structured by Congress to be a powerful and independent agency that would protect consumers from the abuses of Wall Street, banks, and other large financial institutions. That mission is still critical to consumers today. However, the Trump Administration has said it intends to weaken the CFPB.

“That calls into question whether the new administration will adequately defend the CFPB and the American public it protects.”

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CFPB Orders TransUnion and Equifax to Pay $23.1 Million for Deceptive Practices


WASINGTON, D.C. — The Consumer Financial Protection Bureau (CFPB) this week took action against Equifax and TransUnion, ordering the two credit reporting agencies and their subsidiaries to pay more than $17.6 million in restitution for deceiving consumers about the usefulness and actual cost of credit scores they sold to consumers. The two firms were also ordered to pay $5.5 million in fines to the regulator.

TransUnion will provide more than $13.9 million in restition to affected consumers, while Equifax will pay nearly $3.9 million in restition. The bureau is also ordering the companies to now truthfully represent the usefulness of their credit scores, provide the true cost of obtaining those credit scores and other services, obtain the express informed consent of consumers for services, and provide an easy way to cancel products and services.

“TransUnion and Equifax deceived consumers about the usefulness of the credit scores they marketed, and lured consumers into expensive recurring payments with false promises,” said CFPB Director Richard Cordray. “Credit scores are central to a consumer’s financial life and people deserve honest and accurate information about them.”

Chicago-based TransUnion and Atlanta-based Equifax are two of the nation’s three largest credit reporting agencies. The companies collect information like the borrower’s payment history, debt load, maximum credit limits, names and addresses of current creditors to generate credit reports and scores that are provided to businesses. Through their subsidiaries — TransUnion Interactive and Equifax Consumer Services — the companies also market, sell or provide credit-related products like credit scores, credit reports and credit monitoring directly to consumers.

Many lenders and other commercial users rely, in part, on these scores when deciding whether to extend credit to consumers, the bureau stated. Where the problem lies, however, is that TransUnion’s scores are based on a model from VantageScore Solutions LLC and Equifax’s scores are based on its own proprietary model — neither of which are typically used by lenders to make credit decisions.

The CFPB claims in its consent order that since at least July 2011, Equifax and TransUnion have been violating the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act by deceiving consumers about the value of the credit scores they sold and deceiving consumers into enrolling in subscription programs.

The bureau also charged Equifax with violating the Fair Credit Reporting Act, which requires a credit reporting agency to provide a free credit report once every 12 months. And until January 2014, according to the bureau, consumers who got their report through Equifax first had to view Equifax advertisements. This, the bureau stated, is a violation of the FCRA, which prohibits such advertising until after the consumer receives their free report.

“Under the Dodd-Frank Act, the CFPB is authorized to take action against institutions engaged in unfair, deceptive, or abusive acts or practices, or that otherwise violate federal consumer financial laws,” the statement from the CFPB read.

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N.Y. Shuts Down Subprime Auto Lender


NEW YORK — The New York State Department of Financial Services (NYDFS) submitted last week a final consent judgment to settle its lawsuit against Condor Capital Corporation, a subprime auto lender based in Long Island, and its sole shareholder, Stephen Baron.

Among other violations, the defendants deceptively retained millions of dollars owed to vulnerable borrowers and overcharged them for interest in violation of the Truth in Lending Act, the agency’s press release stated.

Under the terms of the final consent judgment, Condor Capital and Baron will make full restitution plus 9% interest to all aggrieved customers nationwide (an estimated $8-9 million), pay a $3 million penalty, and admit violations of New York and federal law. Following a sale of its remaining loans, Condor Capital will surrender its licenses in all states.

The lawsuit against Condor Capital and Baron was the first legal action initiated by a state regulator under section 1042 of the federal Dodd-Frank Wall Street Reform and Consumer Protection Act, which empowers state regulators to bring civil actions in federal court for violations of Dodd-Frank’s consumer protection requirements.

“We will not tolerate companies that abuse New Yorkers and other customers — particularly vulnerable subprime borrowers who can least afford it,” said Benjamin M. Lawsky, superintendent of Financial Services. “This case demonstrates that the Dodd-Frank Act provides a powerful new tool for state regulators to pursue wrongdoing and obtain restitution for consumers who were abused. We hope other regulators across the country will consider taking similar actions when warranted.”

The department filed a complaint and obtained a temporary restraining order against Condor Capital and Baron on April 23. The court granted the department’s motion for a preliminary injunction and appointed a receiver on May 13. The receiver will remain in place until Condor’s loan portfolio is sold, the penalty and restitution are paid, and Condor has surrendered all of its licenses. To date, the receiver has paid more than $5 million in restitution.

As part of the final consent judgment, Condor admitted to violations of the Dodd-Frank Act, the Truth in Lending Act, the New York Banking Law, and the New York Financial Services Law. Baron admitted to violating Dodd-Frank Act by providing substantial assistance to Condor’s law violations.

Condor Capital concealed from its customers and the department the fact that thousands of its customers had refundable positive credit balances (i.e., money owed by Condor to a customer as a result of an overpayment of the customer’s account). Condor retained these positive credit balances for itself and maintained a policy of failing to refund positive credit balances except when expressly requested by a customer.

Furthermore, Condor programmed its website to terminate customers’ access to their account information once their loans were terminated, even if the customers had positive credit balances in their accounts. In addition, Condor represented to the New York State Comptroller that it had no unclaimed property when in fact Condor was required to report its customers’ positive credit balances to the Comptroller.

Condor Capital also violated the Truth in Lending Act by calculating the interest it charged its customers based on a 360-day year and applying the resulting daily interest rate to its customers’ loan accounts each of the 365 days during the year. This practice resulted in a difference in its customers’ APR in excess of the one-eighth of one percent tolerance permitted under the Truth in Lending Act. After being informed by regulators that this practice violated the Truth in Lending Act, Condor attempted on multiple occasions to add an additional one-eighth of one percent interest back to customers’ accounts.

Condor also endangered the security of its customers’ personally identifiable information. Among other information security lapses, Condor left stacks of hard-copy customer loan files lying openly around the common areas of Condor’s offices. Condor also failed — despite repeated directives from the department — to adopt basic policies, procedures, and controls to ensure that its information technology systems (and the customer data they contain) were secure. The final consent judgment submitted to the court requires Condor’s CEO to pay damages to any customer who the department determines suffered identity theft as a result of Condor’s mishandling of their private information.

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New York Financial Regulator Uses Dodd-Frank to Sue Auto Lender


Via NYTimes

By his own admission, even New York’s top financial regulator did not know he could use the Dodd-Frank law to enforce consumer protections until very recently.

Once he did, however, Benjamin M. Lawsky, the state’s superintendent of financial services, put the power to use.

On Wednesday, Mr. Lawsky’s office filed a lawsuit against a subprime auto lender in New York, accusing it of violating certain provisions of the Dodd-Frank financial overhaul act.

The move appears to make Mr. Lawsky the first state financial regulator and the second state regulator to take advantage of a weapon many of his peers may not have even known was in their arsenal. And as officials across the country seek to appear tough on wrongdoers after the financial crisis, the action could encourage other state regulators to follow suit.

“The authority is clearly there, but it’s never been used by a state regulator before,” said Alan S. Kaplinsky, a lawyer who leads the consumer financial services group at Ballard Spahr. “Once Lawsky does it, other state regulators are going to look at it.”

Dodd-Frank, which was put into place after the financial crisis, contains provisions that prohibit deceptive, abusive or unfair practices by financial companies. It also allows state regulators to enforce those provisions and grants them broader authority than they would have under state law.

Mr. Lawsky’s complaint, filed in Federal District Court in Manhattan, contends that the Condor Capital Corporation, a subprime auto lender based on Long Island, siphoned millions of dollars away from the accounts of unwitting borrowers. To do this, the company would shut down borrowers’ access to online accounts after a loan had been repaid, leaving them unable to see whether an insurance payoff, overpayment or other transaction had left excess money behind, according to the suit.

Condor is also accused of having little or no standards for safeguarding its customers’ personal information. In one instance, examiners found “stacks of hundreds of hard-copy customer loan files lying around the common areas of Condor’s offices.”

The company’s executive vice president, Todd Baron, also stored “backup” tapes that contained confidential customer information without encryption at his home, according to the suit, which also names Condor’s owner, Stephen Baron, as a defendant.

“Simply put, Condor cannot be trusted to service its customers’ loans or handle their funds and data in a safe and lawful manner,” the suit says.

Soon after the suit was filed, a judge granted Mr. Lawsky’s office a temporary restraining order to freeze Condor’s accounts and operations, a spokesman at the department said. The company held more than 7,000 loans to New York State residents with outstanding balances of more than $97 million at the end of 2013, according to the complaint. Across the country, the company’s loan portfolio contained outstanding loans of more than $300 million.

A receptionist at Condor, who declined to give her name, said the company had no comment on the suit.

In his pursuit of Condor, Mr. Lawsky can seek restitution and the ability to install a receiver to run the company. He can also try to move the case into federal court, which would give his office the ability to seek relief for all of Condor’s customers, not just those based in New York. Condor operates in 30 states, according to its website.

But few state regulators have taken advantage of this ability to cast a wider net.

In March, Lisa Madigan, the Illinois attorney general, used the authority granted under the Dodd-Frank Act to sue a payday lender she accused of intentionally deceiving borrowers.

“Once Lawsky does it, other state regulators are going to look at it, and look at what Madigan did and I think it will be the beginning of a lot of additional lawsuits being brought by state A.G.s and state regulators predicated on federal law,” Mr. Kaplinsky said. “I think it will mark the beginning of a trend.”

State regulators had fewer options to pursue banks and other financial companies before the financial crisis, when enforcement was largely left to federal agencies. After the crisis, however, the government had an interest in expanding the states’ power.

“It was a reaction to the feeling at the time that the federal government had largely run roughshod over the rights of states when it came to dealing with the mortgage crisis,” Mr. Kaplinsky said. “This was a way of leveling the playing field and for getting support from the various states for the enactment of Dodd-Frank.”

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Ally Reaches $98M Settlement with DOJ, CFPB for Lending Discrimination


Detroit — The Department of Justice (DOJ) and the Consumer Financial Protection Bureau (CFPB) announced Friday the federal government’s largest auto loan discrimination settlement in history to resolve allegations that Detroit-based Ally Financial Inc. and Ally Bank have engaged in an ongoing nationwide pattern or practice of discrimination against African-American, Hispanic and Asian/Pacific Islander borrowers in their auto lending since April 1, 2011.

The agreement is the first joint fair lending enforcement action by the department and CFPB. With this agreement, eight of the top 10 largest fair lending settlements in the department’s history have been under U.S. Attorney General Eric Holder’s leadership.

The settlement provides $80 million in compensation for victims of past discrimination by one of the nation’s largest auto lenders, and requires Ally to pay $18 million to the CFPB’s Civil Penalty Fund. Ally also must refund discriminatory overcharges to borrowers for the next three years unless it significantly reduces disparities in unjustified interest rate markups. This system will create a strong financial incentive to eliminate discriminatory overcharges.

“With this largest-ever settlement in an auto loan discrimination case, we are taking a firm stand against discrimination in a critical lending market,” said Holder. “By requiring Ally to provide refunds to those who are overcharged because of their race or national origin, this agreement will ensure relief for Americans who are victimized. It will enable the Justice Department and the CFPB to work closely with Ally and others to prevent discriminatory practices in the future. And it will reinforce our determination to respond aggressively to discrimination in America’s lending markets — wherever it is found.”

The settlement resolves claims by the department and the CFPB that Ally discriminated by charging approximately 235,000 African-American, Hispanic and Asian/Pacific Islander borrowers higher interest rates than non-Hispanic white borrowers. The agencies claim that Ally charged borrowers higher interest rates because of their race or national origin, and not because of the borrowers’ creditworthiness or other objective criteria related to borrower risk.

The average victim paid between $200 and $300 extra during the term of the loan. The Equal Credit Opportunity Act (ECOA) prohibits such discrimination in all forms of lending, including auto lending. Ally’s settlement with the DOJ, which is subject to court approval, was filed in the U.S. District Court for the Eastern District of Michigan in conjunction with the DOJ’s complaint. Ally resolved the CFPB’s claims by entering into a public administrative settlement.

“Discrimination is a serious issue across every consumer credit market,” said CFPB Director Richard Cordray. “We are returning $80 million to hard-working consumers who paid more for their cars or trucks based on their race or national origin. We look forward to working closely with the Justice Department and Ally to make sure this serious issue will be addressed appropriately in the years ahead as well.”

Rather than taking applications directly from consumers, Ally makes most of its loans through over 12,000 car dealers nationwide who help their customers pay for their new or used car by submitting their loan application to Ally. Ally’s business practice, like most other major auto lenders, allows car dealers discretion to vary a loan’s interest rate from the price Ally initially sets based on the borrower’s objective credit-related factors.

Dealers receive greater payments from Ally on loans that include a higher interest rate markup. The coordinated investigations by the department and the CFPB that preceded the settlement determined this system of subjective and unguided pricing discretion directly results in Ally’s qualified African-American, Hispanic and Asian/Pacific Islander borrowers paying more than qualified non-Hispanic white borrowers.

The agencies claim that Ally fails to adequately monitor its interest rate markups for discrimination or require dealers to document their markup decisions. Ally’s first effort to monitor for discrimination in interest rate markups began only earlier this year after it learned of the CFPB’s preliminary findings of discrimination, and resulted in only two dealers being sanctioned and subjected to nothing more than voluntary training.

“Ally does not make loans directly to consumers, but rather, it purchases installment contracts originated by auto dealers,” Ally said in a statement. “Ally’s long-time process for evaluating auto installment contracts from dealers does not include information on a consumer’s race or ethnicity. Ally assesses these contracts and sets pricing based solely on a consumer’s creditworthiness and contract characteristics.

“The CFPB and DOJ assert that pricing disparity has occurred for certain protected classes of consumers as a result of the auto dealer’s ability to mark-up Ally’s rate at which it buys a retail installment contract,” the statement continued. “The CFPB and DOJ also assert that Ally has responsibility for the conduct of its dealer customers and allege that Ally has not sufficiently monitored the pricing practices of its dealer customers.

“Ally does not engage in or condone violations of law or discriminatory practices, and based on the company’s analysis of its business, it does not believe that there is measurable discrimination by auto dealers.”

The settlement represents the first resolution of the department’s joint effort with the CFPB to address discriminatory auto lending practices. The 2010 Dodd-Frank Act gave both the DOJ and the CFPB authority to take action against large banks like Ally for violating the ECOA. Although the department has filed previously filed lawsuits alleging violations of ECOA involving car loans, today is the first ECOA lawsuit against an auto lender that operates nationwide.

“This settlement provides relief to those who were harmed by this discrimination,” said U.S. Attorney for the Eastern District of Michigan Barbara McQuade. “Lenders must consider an individual borrower’s credit worthiness, based on income, savings, credit history and other objective factors when determining the terms of a loan. This settlement will ensure that in the future, borrowers will be able to obtain loans from Ally based on their own credit history free from discrimination based on race or national origin.”

In addition to the $98 million in payments for its past conduct and requirement to refund future discriminatory charges, the settlement requires Ally to improve its monitoring and compliance systems. The settlement allows Ally to experiment with different approaches toward lessening discrimination and requires it to regularly report to the department and the CFPB on the results of its efforts as well as discuss potential ways to improve results.

The settlement provides for an independent administrator to locate victims and distribute payments of compensation at no cost to borrowers whom the department and the CFPB identify as victims of Ally’s discrimination. The department and the CFPB will make a public announcement and post information on their websites once more details about the compensation process become available. Borrowers who are eligible for compensation from the settlement will be contacted by the administrator, and do not need to contact the department or the CFPB at this time.

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