This month has concentrated on 1) expanding the CFPB Complaint Dbase 2) FDCPA trend data 3) costs and consequences of a CFPB CID 4) CFPB focus on Compliance Management Programs.
When reviewing these posts, please take time to think about the following:
1) How do you track your complaints? How do you categorize your complaints? If the CFPB asks for a report on past complaints, are you prepared to produce the report? Can you show resolutions, timeframes to resolve, and complaint escalations?
2) How do your complaints compare to the industry by type and quantity?
3) Are you prepared for a CFPB CID (Civil Investigative Demand)?
4) Can you adequately demonstrate your compliance management program to the CFPB? Do you have a change management policy for all of your policy and procedure changes or updates?
VP Compliance offers a full featured web based complaint management system that can be accessed you and your vendors anywhere in the world.
Ask VP Compliance Services about its hands-on compliance management program.
For more information contact William Wittwer at wrw@VPCS.biz www.vpcs.biz.
Patrick Lunsford – Inside ARM July 17, 2014
The Consumer Financial Protection Bureau (CFPB) Wednesday announced that it is proposing to expand its consumer complaints public database to include the consumer’s narrative description of what happened, along with a company response narrative. The announcement came on the three-year anniversary of the CFPB’s launch.
When consumers submit a complaint to the CFPB, they fill in information such as who they are, who the complaint is against, when it occurred, and what issues were relevant based on a preset list of options. But they are also given a text box to describe what happened and can attach documents to the complaint. When the Bureau forwards the complaint to the company, the narrative text and documents (if any) are provided.
But that narrative text does not appear in the CFPB’s public complaints database. Under Wednesday’s proposal, that would change.
The CFPB said, “In many ways, the narratives are the most insightful part of a complaint. They provide a first-hand account of the consumer’s experience and the problem they would like resolved.” The agency said that by publishing the narratives, it would “greatly enhance the utility of the [complaints] database” by adding context to the complaints.
For example, the CFPB noted, providing the complaint narratives within the mortgage category of “loan modification, collection, foreclosure,” would help determine if the consumer is being charged extra fees, the servicer has lost paperwork, or any number of other specific problems. Describing the circumstances can provide vital information about why the consumer believes they were harmed.
The official proposal notes that the CFPB would publish the complaints only if consumers proactively opt for their narrative to be shared. When consumers submit a complaint through the CFPB’s complaint portal, they would have to affirmatively check a consent box to give the Bureau permission to publish their narrative.
The Bureau also noted that it would take “all reasonable steps” to remove any personal information consumers provide within the narrative.
The CFPB is also proposing that companies’ responses be made public, should they choose. Companies would be given the opportunity to post a written response that would appear next to the consumer’s story. In most cases, this response would appear at the same time as the consumer’s narrative so that reviewers can see both sides concurrently. This response would also be scrubbed of personal information.
The proposal is open for public comment for a period of 30 days beginning from when the policy statement is published in the Federal Register. Comments can be filed at Regulations.gov under docket number CFPB-2014-0016.
CFPB hearing in El Paso on proposal to disclose consumer complaint narratives sheds light on CFPB position, reveals concerns of financial institutions
7/21/2014 Ballard Spahr “CFPB Monitor”
The CFPB held a field hearing yesterday in El Paso, Texas, at which it described its proposal to expand the complaint data it publicly discloses in its Consumer Complaint Database to include consumer complaint narratives. We previously reported about the proposal, which was released by the CFPB before the hearing.
Director Cordray identified three main reasons why the CFPB believes it is important to expand the Database to include narratives.
First, Director Cordray suggested that narratives provide additional information that is critical for fully understanding a complaint. “Narrative descriptions,” remarked Director Cordray, “contain the heart and soul of the complaint,” providing “vital information about why the consumer believes she was harmed.”
Second, Director Cordray suggested that narratives will assist those who use the Database in spotting trends. The additional, more specific information contained in a narrative can help industry and policymakers alike identify problems that may need to be addressed. Such information may not be reflected in the broad categories of information currently reflected as part of the Database.
Finally, Director Cordray argued that narratives will help consumers make more informed decisions. Drawing a comparison reminiscent of Senator Elizabeth Warren’s well-known toaster analogy, Director Cordray explained that the CFPB wants the Database to function like the Consumer Product Safety Commission website, Safer Products dot gov, or the National Highway Traffic Safety Administration’s website, Safer Car dot gov. which provide consumer narratives in their public complaint databases. Director Cordray suggested that complaint narratives will help empower consumers of financial services with similar information as that provided through these sites, and also encourage businesses to provide better products.
Director Cordray also described the nuts-and-bolts of the proposal itself, including the requirement for consumers to affirmatively opt-in to have their narratives disclosed. In short, Director Cordray explained that by allowing consumers to make their complaint narratives public, the CFPB hopes to encourage more consumers to make complaints and “offer people a megaphone” to tell their stories.
The hearing touched on one of our principal concerns with including complaint narratives. In short, the complaint may not be valid, and yet its narrative may be publicly available before the target business has had an opportunity to investigate. Though the target of the complaint may respond before the narrative is made public, and its response will be included along with the narrative, the target must do so with 15 calendar days. This timeframe is unreasonably short.
One of the panelists, Heather Shull of Western Union, explained that Western Union often needs to interface with consumers more than once to adequately address complaints, in part because the complaint narrative does not contain sufficient information to understand the issue. Complaints made in social media and other public forums suggest that consumers who opt to make their complaint narrative public will provide less detail, which will make it more difficult and time-consuming for institutions to respond.
We remain concerned about the CFPB’s proposal, and have joined with industry in expressing our concerns about it. The El Paso field hearing has further validated those concerns.
CFPB’s publication of narratives is a Bad idea
July 17, 2014 at 8:59 am Published July 17, 2014 New York’s state of mind – Credit Union Association of New York
Those wacky kids at the CFPB are out it again. This time they want to go Wiki leaks with consumer complaints. They are proposing that the CFPB’s consumer complaint database be expanded to include consumer narratives of complaints consumers agree to publicize. The allegedly offending company would be given the option of responding with its own competing narrative. According to the CFPB, publishing narratives would “be impactful by making the complaint data personal (the powerful first person voice of the consumer talking about their experience), local (the ability for local stakeholders to highlight consumer experiences in their community), and empowering (by encouraging similarly situated consumers to speak up and be heard)” Let Freedom Ring!
Cut through the hyperbole and what you are left with is a debate about the value of empowerment of which I am proudly on the losing side. Amazon just celebrated its twentieth anniversary and, in addition to providing us books and consumer goods with great service at a lower price, it gave us the consumer narrative review. I have never used one of the narratives to buy anything of value. Given the choice I will look at Consumer Reports before I buy a TV or read a book review written by an expert when deciding what to read next. To me these are more reliable than on someone so enamored or annoyed about a product or service that they actually took the time to sit down and write a review. The internet indeed can “empower” anyone to think they are an expert but that doesn’t make them one..
But I am a dinosaur . More and more people are as likely to get their news from Facebook as from the New York Times. The whole idea of an information hierarchy is viewed with suspicion. What is the big deal they say? After all if someone doesn’t find an internet review-or an association blog for that matter -credible than they can just ignore it. They can just ignore a complaint they find on the CFPB’s website.
The problem is that the mere fact the complaint is on a government database is going to be giving complaints much more credence than they deserve. I was against the CFPB granting public access to its credit card complaint data base because I believe that the CFPB has an obligation to investigate complaints before throwing them out to the general public. Unsubstantiated allegations can do a lot more harm than good. A Government website isn’t a free market place of ideas. Unlike those reviews on Amazon it has the government’s imprimatur.
Not to worry says the CFPB; the accused company will always have the right to respond. But responding takes time and resources and the mere fact that a response is made to an allegation doesn’t mean that the damage is undone. For instance let’s say someone accuses XYZ credit union of discrimination after being denied a car loan. Publishing a response that the member was subject to the same race neutral criteria as everyone else won’t undue the seriousness of the allegation.
CFPB should pull the plug on this idea but it won’t. Here is a compromise: Lets recognize that not all financial institutions have the time to respond to a consumer narrative or the resources it takes to martial an effective PR campaign against serious but unsubstantiated allegations. Let’s establish a threshold for company size below which the narrative won’t be made public. It will still be sent to the CFPB which can investigate it; it will still be sent to the institution for a response and the consumer will still have all the legal rights and remedies he has today but smaller institutions won’t have to choose between letting an allegation fester or engaging in a public dispute with a disgruntled consumer at the same time they are trying to run a business. Here is a link to the proposal Institutions have 30 days after publication to respond.
CONSUMER FINANCIAL PROTECTION BUREAU BEGINS ACCEPTING CONSUMER COMPLAINTS ON PREPAID CARDS AND ADDITIONAL NONBANK PRODUCTS
Nonbank Products Include Debt Settlement and Credit Repair Services, Pawn and Title Loans
WASHINGTON, D.C. — The Consumer Financial Protection Bureau (CFPB) is now accepting complaints from consumers encountering problems with prepaid cards, such as gift cards, benefit cards, and general purpose reloadable cards. Consumers can also now submit complaints about additional nonbank products, including debt settlement services, credit repair services, and pawn and title loans.
“Today we are taking another important step to expand the Bureau’s handling of consumer complaints,” said CFPB Director Richard Cordray. “By accepting consumer complaints about prepaid products and certain other services we will be giving people a greater voice in these markets and a place to turn to when they encounter problems.”
The Bureau started taking complaints about credit cards when it opened its doors in July 2011. In addition to taking complaints regarding today’s new products, the CFPB also handles complaints about mortgages, bank accounts and services, private student loans, auto and other consumer loans, credit reporting, debt collection, payday loans, and money transfers. The Bureau requests that companies respond to complaints within 15 days and describe the steps they have taken or plan to take. The CFPB expects companies to close all but the most complicated complaints within 60 days. Consumers are given a tracking number after submitting a complaint and can check the status of their complaint by logging on to the CFPB website.
Prepaid cards generally allow a consumer to access money that has been paid and loaded onto the card upfront. A prepaid card can refer to a number of different types of cards. For example, gift cards are prepaid cards that typically can be used at one specific company like a restaurant or retailer and are used up once the value on the card is depleted. Other cards may be loaded with a consumer’s salary or other employee benefits such as healthcare or transit payments.
“General purpose reloadable” prepaid cards allow consumers to pay to reload the card and reuse it, and often allow consumers to take money out at ATMs. Many consumers use reloadable prepaid cards as an alternative to a traditional checking account. Some prepaid cards, however, have fewer consumer protections than debit or credit cards. In the coming months, the Bureau plans to issue a proposed rule aimed at increasing federal consumer protections for general purpose reloadable prepaid cards.
Consumers can submit prepaid card complaints to the Bureau about:
Problems managing, opening, or closing their account
Overdraft issues and incorrect or unexpected fees
Frauds, scams, or unauthorized transactions
Advertising, disclosures, and marketing practices
Adding money and savings or rewards features
Debt Settlement and Credit Repair Services
Debt settlement services typically promise consumers that they will renegotiate, settle, or in some way change the terms of a person’s delinquent debt owed to a creditor or debt collector. These companies may promise to reduce the outstanding balance, interest rates, or fees a person owes. Credit repair services often promise to improve a consumer’s credit reports by contacting credit reporting agencies on the consumer’s behalf and challenging items on the reports. The fees these types of companies charge consumers often are high. The CFPB has taken several enforcement actions against debt settlement firms for taking advantage of struggling consumers.
Consumers can submit debt settlement and credit repair complaints to the Bureau about:
Excessive or unexpected fees
Advertising, disclosures, and marketing practices
Customer service issues
Frauds or scams
Pawn and Title Loans
Pawn stores and title loan companies often provide small loans to consumers using personal property or a vehicle title as collateral. If a consumer defaults or fails to make payments, the lender can take possession of the consumer’s property or car. These loans are frequently short term and may have high interest rates.
Consumers can submit pawn loan and title loan complaints to the Bureau about:
Unexpected charges or interest fees
Loan application issues
Problems with the lender correctly charging and crediting payments
Issues with the lender repossessing, selling, or damaging the consumer’s property or vehicle
Unable to contact lender
More on Appendix Q; Pre-Disclosure Restrictions; CFPB on Complaint Sharing; Big Bank Bankruptcy Plans
Jul 18 2014, 6:39AM – Mortgage News Daily
Do you have a plan in case you go bankrupt? The “big boys” do! The Dodd-Frank Wall Street Reform and Consumer Protection Act requires that bank holding companies with total consolidated assets of $50 billion or more and nonbank financial companies designated by the Financial Stability Oversight Council (FSOC) as systemically important periodically submit resolution plans to the FDIC and the Federal Reserve. The Federal Reserve Board and the Federal Deposit Insurance Corporation (FDIC) released the public portions of annual resolution plans for 17 financial firms describing the company’s strategy for rapid and orderly resolution under the U.S. Bankruptcy Code in the event of material financial distress or failure of the company. Included are plans from Bank of America Corporation, Bank of New York Mellon Corporation, Barclays PLC, Citigroup Inc., Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group, HSBC Holdings plc, JPMorgan Chase & Co., Morgan Stanley, State Street Corporation, UBS AG, and Wells Fargo & Company. Initial public resolution plans for American International Group, Prudential Financial, Inc., and General Electric Capital Corporation were also released. The public sections of the plans are available on the FDIC and Boardwebsites.
Speaking of big bucks, the FHFA’s Office of the Inspector General (OIG) released a report indicating that GSE purchases of mortgages from their largest counterparties have declined significantly since 2011, and that smaller lenders have significantly increased direct sales to the GSEs. This is a positive trend that the MBA has highlighted and supported with policy positions that call for fair and competitive markets for lenders of all sizes and business models (e.g., guarantee fees based on loan quality, not volume or asset size). Unfortunately, the OIG report inexplicably concludes that the shift to “smaller and nonbank lenders” may increase the GSEs’ exposure to counterparty risk and raised the costs for managing this risk. The report’s narrative ignores the significant risks that the GSEs took through their aggregation models, and the OIG’s “findings” defy basic principles of risk management – that diversification of business partners lowers the GSEs’ and the taxpayer’s risk, period. Taxpayers, the GSEs and most of all consumers benefit from a strong, diversified market, where lenders of all sizes and business models can constructively and fairly participate. As you would expect, the MBA will be preparing a detailed rebuttal to the OIG report to set the record straight on the important benefits that a more competitive and diversified seller base has had on the GSEs.
Look out Trip Advisor, it looks like the CFPB will soon be on Yelp. Or something close to it. “Consumers Could Opt-In to Share Complaint Narrative in CFPB’s Public Database” read the headlines. Hey, who doesn’t want folks to listen to their complaints, especially if they’re actually constructive? The CFPB is proposing a new policy that would empower consumers to publicly voice their complaints about consumer financial products and services. When consumers submit a complaint to the CFPB, they would have the option to share their account of what happened in the CFPB’s public-facing Consumer Complaint Database. Publishing consumer narratives would provide important context to the complaint, help the public detect specific trends in the market, aid consumer decision-making, and drive improved consumer service. “The consumer experience shared in the narrative is the heart and soul of the complaint,” said CFPB Director Richard Cordray. “By publicly voicing their complaint, consumers can stand up for themselves and others who have experienced the same problem. There is power in their stories, and that power can be put in service to strengthen the foundation for consumers, responsible providers, and our economy as a whole.”
We’ve all seen it, but as a reminder the CFPB weighed in on same-sex marriages. After all, nothing is beyond the scope of the CFPB, correct? In order to insure equality for all, the CFPB writes, “On June 26, 2013, in United States v. Windsor, the U.S. Supreme Court struck down Section 3 of the Defense of Marriage Act as unconstitutional. This decision has important consequences for our work. In order to fully implement this decision, we took steps to clarify how the decision affects the rules that we are responsible for. Recently, Director Cordray issued a memo to staff clarifying that, to the extent permitted by federal law, it is our policy to recognize all lawful marriages valid at the time of the marriage in the jurisdiction where the marriage was celebrated. This aligns our policy with other agencies across the federal government.” The Bureau clarified that it will use the terms of: spouse, married, marriage, wife, and husband, including all terms relating to a “family status” as policy; this policy will apply to the Equal Credit Opportunity Act and Regulation B, the Fair Debt Collection Practices Act, the Interstate Land Sales Full Disclosure Act and Regulation J, the Truth in Lending Act and Regulation Z, the Real Estate Settlement Procedures Act and Regulation X, the Bureau Ethics Regulations, and the Procedures for Bureau Debt Collection.
Compliance folks enjoy bantering about things like, “Limits on Verifying Documentation Prior to Issuing a Loan Estimate”. IDS Compliance is happy to address that tendency, and noticed that page 142 of the preamble to the final rule states, “The Bureau understands that some creditors require a purchase and sale agreement prior to issuing the RESPA GFE and the early TILA disclosure. While this practice may be permissible under current Regulation X in some cases, it would conflict with final § 1026.19(e)(2)(iii), which prohibits a creditor from requiring verifying documentation before issuing a Loan Estimate. See the section-by-section analysis of § 1026.19(e)(2)(iii).”
On this point, IDS Compliance recently heard an employee of the CFPB provide an “unofficial verbal guidance” reminder for the industry, which went as follows: We assume that in most cases, creditors will seek additional information about the loan product or products that the consumer is considering before providing the loan estimate. I just will let you know that there are a few pre-disclosure restrictions at 1026.19(e) (2). For example, prior to a consumer receiving a Loan Estimate and indicating an “intent to proceed” with the transaction, a creditor may not ask the consumer for verifying documentation, or charge the consumer for anything other than a reasonable fee to obtain a credit report. Comment 19(e)(2)(i)(A)-5 gives an example of the creditor requiring a consumer to provide a check that the creditor holds but does not cash or a credit card number that the creditor requires the consumer to provide but does not charge until the consumer has received a Loan Estimate and indicated an “intent to proceed,” and the commentary explicitly explains that these practices violate the rule.
And recently the commentary addressed a QM underwriting issue about “What is required to prove rental income in order for a loan to be a Qualified Mortgage?” The CFPB is in charge of underwriting criteria now for QM loans, of course, and Appendix Q is under its jurisdiction. Look for the sections II. Non-Employment Related Consumer Income; D. RENTAL INCOME; 4. Documentation Required to Verify Rental Income. “Analysis of the following required documentation is necessary to verify all consumer rental income: a. IRS Form 1040 Schedule E; and b. Current leases/rental agreements.” To my uneducated eye, it seems pretty clear that if a borrower has rental income, in order for the lender to make a QM loan they’d better have both the Schedule E and the lease agreements IF the borrower needs it to qualify. If you feel that the “and” should be changed to an “or”, or if you have other questions & comments, they should be addressed to the CFPB.
I received this note. “Your compliance-minded readers should know that there are other pathways to QM status under the rule, besides the ‘general definition’ under which Appendix Q treatment is required for all income and debt elements underlying the DTI calculation. (The ‘general definition’ is also the only QM definition that stipulates a max of 43% for the DTI.) For instance, to achieve QM status through the ‘temporary definition,’ a lender must comply with GSE rental income underwriting guidelines and doc requirements, not with Appendix Q requirements. It is possible that there is ‘daylight’ between the two requirements, and, as an example, remember that the DTI maximum is whatever GSE guidelines allow which is currently 45%. There are also QM status pathways using FHA guidelines, as well as various flexibilities to achieve QM status for ‘small creditors.’ (‘Small creditors’ are very specifically defined under the regulations.) These pathways to QM likewise do not require adherence to Appendix Q requirements, nor do they stipulate max DTIs outside of FHA program requirements or any small creditor guideline. The information that you provided is absolutely correct given that a lender is seeking to confer QM status on a loan using the ‘general definition.’ (The ‘general definition’ is likely most frequently relied on for jumbo loan amounts as these are not eligible via GSE or FHA program guidelines so not eligible to be assessed under those pathways to confer QM status.) But for most loan amounts, there are other QM definitions being regularly used in the market which do not require hewing to App Q. Of course, things will become really interesting when we approach the end of the ‘temporary’ 7-year period for the GSE QM patch and a majority of originator’s business will have to find its way through Appendix Q!”
With fire season out west, tornados in the Midwest, and hurricanes up and down the eastern seaboard and gulf, it’s always an interesting time of year for appraisers and originators alike. With that said, what documentation is required after the appraisal is completed and the subject property happens to be located in a disaster area?When the property is located in an area where a natural disaster has struck, a lender must certify to its investors (or potential investors) that the property was not damaged, and the original valuation is supported. If the property was somehow damaged, and in need of repairs, the lender must be made aware prior to the loan’s closing. If an appraisal is completed “As Is,” “Subject to Completion of Repairs,” or “Subject to Completion per the Plans and Specifications'” prior to the disaster event, the lender must provide evidence the subject property did not sustain any damage or value deterioration due to the disaster event affecting the area in which the property is located. The most accepted form to be used is either the 1004D or 442 Appraisal Update and/or Completion for FNMA and FHLMC or the 92051 Compliance Inspection Report for FHA and VA loans. This evidence must be provided by a licensed appraiser, but not limited to the appraiser who prepared the original appraisal.
The 10-yr yield ended Thursday back in the 2.40’s (2.47%). Low rates are good, but unfortunately this was caused by increased risk aversion brought on initially by heightened tensions in Ukraine and additional sanctions on Russia – yes, more bad news for Malaysian Airlines, passengers, and stockholders. On the news the 10-year was up/improved by .5 in price and current coupon agency MBS prices were better by about .375. Housing starts in June came in way below expectations (is that the fault of housing starts or the people estimating them?) while May starts were revised lower. Building permits were also less than expected at 963k versus a predicted 1.04 million with the decline due to 5+ units. And don’t look for scheduled news of substance today: there is none.
FDCPA Lawsuits and CFPB Complaints Increased in June
Monthly data reflects an uptick in Fair Debt Collection Practices Act litigation and complaints about debt collectors to the Consumer Financial Protection Bureau, but a decline in Telephone Consumer Protection Act and Fair Credit Reporting Act cases.
Complaints against debt collectors logged in the Consumer Financial Protection Bureau’s complaint database in June 2014 increased 3.7 percent to 3,336, compared to 3,213 in May, according to newdata from WebRecon.
The number will continue to increase in the coming weeks, making it a strong increase over the 3,213 complaints in May but still lower than the 3,693 filed in April, according to WebRecon.
For six months, there have been at least 3,000 debt collector complaints. The year started with 3,271 in January and 3,364 in February.
Fair Debt Collection Practices Act litigation had a relatively strong month with 806 lawsuits filed, an increase of 4 percent from May. Telephone Consumer Protection Act lawsuits declined by 4.3 percent to 207 and Fair Credit Reporting Act lawsuits declined by 21.9 percent to 169 lawsuits in June.
Year-to-date, however, TCPA lawsuits increased 34.4 percent over 2013 from 869 to 1,325 and FCRA lawsuits increased 11.2 percent from 1,041 to 1,172.
Of those cases filed in June, there were about 1,081 unique plaintiffs (including multiple plaintiffs in one suit.) Of those 1,081 plaintiffs, about 364 (34 percent) had previously sued under consumer statutes. Combined, those plaintiffs have filed about 1,420 lawsuits since 2001. Approximately 875 different collection firms and creditors were sued.
Top complaints among those filed about debt collection include:
The status of June’s CFPB complaints:
In total, 3,164 responses (95 percent) were considered timely and 172 (5 percent) were untimely. Consumers accepted 2,819 (85 percent) of the responses to complaints and disputed 517 (15 percent) of them.
The High Costs and Consequences of a CFPB CID
7/18/2014 JDSUPRA Business Advisor
Dodd-Frank gives the Consumer Financial Protection Bureau (CFPB) the power to enforce and implement federal consumer financial protection laws, including home mortgage and other consumer credit regulations, plus powerful tools to investigate potential violations of those laws. These tools include informal requests for information as part of its examination and supervisory functions, subpoenas for testimony or documents, and the civil investigative demand (CID).
Before initiating any proceeding under a federal consumer financial law, Dodd-Frank authorizes the CFPB to serve a written CID whenever it has “reason to believe” that “any person may be in possession of information relevant to a violation.” The CID, which may require the person to produce documents, file written reports, answer questions, furnish materials, or provide testimony, must identify the conduct constituting the alleged violation and applicable law, describe the information requested in sufficient detail to allow it to be fairly identified, and provide a reasonable period of time for the information to be submitted. Within 10 days of receipt, CID recipients are required to meet and confer with the Bureau investigator to discuss and try to resolve any compliance issues.
Documents and information produced in response to a CID must be accompanied by a statement swearing that everything responsive is being produced. Answers to written questions, as well as oral testimony, must be given under oath. The only objections permitted for refusing to provide information are those based on “constitutional or other legal rights or privileges,” such as the privilege against self-incrimination. If an entity refuses to provide information, the Bureau can petition the district court for an order compelling the information to be provided. On the other hand, a party who receives a CID only has 20 days to petition the CFPB director, in writing, seeking to modify the demand for information, and the reasons for such request. While such a petition is pending, the recipient is expected to comply with those portions of the request that the party does not seek to modify. The director is under no obligation to grant such petitions.
CIDs are sent out by the CFPB’s enforcement division, and not until the Bureau believes there may have been a violation of consumer law. The CFPB’s enforcement division is more aggressive than its regulatory division, and CIDs issued have been detailed and comprehensive. Indeed, the CFPB’s enforcement orders issued to date typically refer to information obtained through investigations that led to the order.
Unlike discovery requests in litigation, where the requesting party may be required to foot the production bill, there is no provision for reimbursement of costs associated with complying with a CID. Costs include, but are not limited to, those of performing electronic and other searches for information (which may require outside vendors), interviewing employees, attorneys’ fees, and the business costs of lost employee and management time in complying with the CID. Where violations of law have been found, the Bureau has not hesitated to issue administrative orders requiring hundreds of millions of dollars in consumer refunds and penalties.
Given the high cost and potential consequences of responding to a CID, the only effective strategy is to avoid receiving one. Most CFPB investigations have been triggered by a number of consumer complaints against an entity. Entities should focus on establishing adequate systems to assure compliance with consumer financial law, resolve consumer complaints, and closely monitor complaints on the Bureau’s complaint database. Entities better at resolving and/or avoiding consumer complaints are less likely to become targets of a CID.
Larger participants in the debt industry need to prepare for CFPB supervision, and an essential part of that preparation will be to establish a formal compliance management system. The CFPB expects a company’s compliance management system to be fully documented through written policies and procedures. In reviewing these policies, the CFPB focuses on a company’s ability to detect, prevent, and correct practices that may present a significant risk of violating federal consumer financial protection laws or could cause consumer harm. According to the CFPB, effective policies and procedures should allow a company to self-identify any issues and initiate corrective action without regulatory intervention. Policies should also be approved by a company’s leadership, whether it is the Board of Directors or other senior management, as the CFPB will hold the company’s Board ultimately responsible for overseeing such policies.
The CFPB has not dictated a particular format for compliance management policies, but debt collection companies should be mindful of common elements when drafting them. Not only should policies be in place to address the Fair Debt Collection Practices Act (FDCPA) and other relevant consumer financial protection laws (e.g., the Gramm-Leach-Bliley Act, the Fair Credit Reporting Act, etc.), but companies also should have policies to address other consumer protection issues. These include unfair, deceptive, or abusive acts or practices (UDAAPs) and other collection practices that are not addressed by existing laws or regulations (e.g., time-barred debt, the use of data brokers, including skip tracers, etc.). Companies should be mindful that policies that are merely a recitation of the law will likely not pass muster with the CFPB. The CFPB has advised that policies should be sufficiently detailed to provide guidance to employees about how to carry out relevant compliance-related responsibilities.
Once comprehensive policies have been put into place, companies must ensure they are being followed. This should include providing appropriate employee training, monitoring implementation of each policy, and assessing to what extent policy revisions may be needed in response to consumer complaints. The CFPB has even recommended that companies consider whether to utilize transaction testing, including mystery shopper programs, to confirm that actual practices are consistent with written policies. To the extent that any one employee may not be following company policies, be sure to document any disciplinary actions taken to ensure that any violations are addressed.
Companies should also ensure that policies are dynamic. Policies should be continuously assessed to ensure that they meet current business strategies as well as respond to consumer needs. The CFPB has indicated that it will review company policies for outdated content or other indicators that the policies lack specificity or are not tailored to the company’s needs and practices. This means that company policies should be updated annually to cover any new services or business practices, as well as to reflect industry developments and trends. In addition to a set review schedule, policies should also be reviewed in response to major legal and regulatory developments, such as the CFPB’s upcoming debt collection rulemaking, FDCPA amicus briefs, enforcement actions, and other bulletins and guidance.
CFPB activity that companies may wish to monitor and incorporate into company policies includes:
On multiple occasions CFPB Director Richard Cordray has expressed his concerns about the system-wide problems that pose risks to consumers that he perceives to exist in the debt collection market . Companies can proactively respond to these concerns through voluntary self-regulatory measures, such as the implementation of strong internal policies and procedures.