Consumer Financial Protection Bureau

Report
Karen Reddick
VP Business Development
National Credit Management
ISLA 2013
Consumer Financial Protection Bureau CFPB

Created by Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010


Independent bureau within Federal Reserve System,
run by Director who is Presidential Appointee,
confirmed by Senate.
Authority to issue rules for all financial institutions,
including rules under Truth in Lending Act, Fair Debt
Collection Practices Act, Equal Credit Opportunity
and Real Estate Settlement Procedures Act.
The CFPB and You
 Consumer Financial Protection Bureau is very
important to schools, servicers
 Regulates institutional loans, other private loans,
collection practices, contacts with students – and has
great powers of enforcement
 Ombudsman – Rohit Chopra – coordinating with ED
ombudsman
 COHEAO sent comments on institutional loans,
financial literacy to CFPB
 COHEAO met with Chopra, others
3
Section 1021 of Dodd Frank Act
 CFPB is authorized to exercise its authorities for the
purpose of ensuring that:
 1) Consumers are provided with timely and
understandable information to make responsible
decisions about transactions involving consumer
financial products and services;
 (2) Consumers are protected from unfair, deceptive, or
abusive acts and practices and from discrimination;
 (3) Outdated, unnecessary, or unduly burdensome
regulations concerning consumer financial products and
services are regularly identified and addressed in order
to reduce unwarranted regulatory burdens;
 (4) Federal consumer financial law is enforced
consistently, without regard to status as a depository
institution, in order to promote fair competition; and
 (5) Markets for consumer financial products and
services operate transparently and efficiently to facilitate
access and innovation.
Scope Of CFPB’s Duties
 The CFPB supervises banks with more than $10 billion of
assets, credit unions, and other non-bank financial
companies
 Non-banks include payday lenders, mortgage brokers,
student loan lenders
 The CFPB enforces federal consumer laws such as the
Truth in Lending Act
CFPB - Leadership
 The President nominated Richard Cordray, former Ohio
Attorney General, to run the CFPB
 President made a recess appointment of
Mr. Cordray on January 4th, 2012
 Senate confirmed after much debate
.
Private Student Loan
Ombudsman
FUNCTIONS OF OMBUDSMAN:
(1) in accordance with regulations of the Director, receive, review,
and attempt to resolve informally complaints from borrowers
of loans
described in subsection (a), including, as appropriate,
attempts to resolve
such complaints in collaboration with the Department of
Education and with institutions of higher education, lenders,
guaranty agencies, loan servicers, and other participants in
private education loan programs;
Ombudsman
(2) establish a memorandum of understanding with the
(Ed Dept.) student loan ombudsman to ensure
coordination in providing assistance to and serving
borrowers seeking to resolve complaints related to their
private education or Federal student loans;
(3) compile and analyze data on borrower complaints
regarding private education loans; and
(4) make appropriate recommendations to the Director,
the Secretary, the Secretary of Education, (and
Congressional Committees)
See: http://www.dodd-frank-act.us/Dodd_Frank_Act_Text_Section_1035.html.
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GOP Proposed Changes
 Replace the position of CFPB director with a five-member
commission
 Give Congress authority over CFPB funding, and
 Design ways to make it easier to overturn CFPB rules
CFPB - Budget
 The CFPB receives up to 10% of the operating budget of
the Federal Reserve ― as much as $500 million.
 The CFPB will be somewhat a part of the Federal Reserve
Board, but not subject to the Fed’s authority.
 The CFPB will decide its own budget and will not be
required to ask Congress for money.
 The CFPB will have no governing board, only a director
whose rulings can’t be vetoed.
Consumer Financial Protection
Bureau
 Bureau has huge authority
 Rulemaking – Perhaps the most significant authority of the
Bureau
 Supervisory
 Enforcement*

Student Loans are a top priority
 CFPB has access to consumer complaints within the FTC
Consumer Sentinel database (In the past only accessible
through law enforcement agencies.)
What is “abusive”?
 Any financial service or activity that takes advantage of a
consumer’s inability to understand the risks, costs or
conditions of loans, mortgages and credit cards.
 The CFPB will not formally define what
is “abusive”.
Unfair Or Deceptive Acts Or Practices
 “Unfair or deceptive acts or practices” have long
been illegal under federal law
 Since 1938 the Federal Trade Commission has
enforced the rule
 Dodd-Frank added the word “abusive” and gave
enforcement authority to CFPB
 The CFPB did not formally define what
is “abusive” in regulation
 Practice, then case law therefore will effectively make
that determination
What Is “Abusive” Act or
Practice?
CFPB Supervision and Examination Manual:
 Materially interferes with the ability of a consumer to
understand a term or condition of a consumer
financial product or service or
 Takes unreasonable advantage of –
 A lack of understanding on the part of the
consumer of the material risks, costs, or conditions
of the product or service;
 The inability of the consumer to protect its
interests in selecting or using a consumer financial
product or service; or
 The reasonable reliance by the consumer on a
covered person to act in the interests of the
consumer.
 Although abusive acts also may be unfair or deceptive,
examiners should be aware that the legal standards
for abusive, unfair, and deceptive each are separate.“
Schools: In or Out?
 Schools are “financial institutions” under federal law
(Gramm Leach Bliley)
 Look at partnerships with banks, other servicer
providers
 Focus on high cost institutional loans expected initially,
especially those with high default expectations
 Support defining Health Professions Loans
as federal
loans
 What to do about low-cost institutional loans?
16
CFPB and Student Loans
 www.consumerfinance.org
 CFPB Student Loan Ombudsman, Rohit Chopra
 Coordinating with Ed Ombudsman
 Student Loan Complaint System
 Student Loan Debt Repayment Assistance
 Financial Aid Comparison Shopper
CFPB and Student Loans
 Report on private student loans
 Required by Section 1077 of Dodd-Frank Act
 Submitted to Congress July 2012
 Written with some involvement of ED, the Department
of Justice, and the FTC.
 Report included recommendations for “effective”
disclosures and communications with borrowers, ways
to relieve burden on borrowers
 Suggested bankruptcy discharge
Bankruptcy Law Proposals
 Current law: all education loans as defined by tax law
are dischargeable in bankruptcy when there is undue
hardship to debtor or dependents
 Recent study: very few try to discharge, thinking it’s
impossible, but it’s not!
 Bills call for dropping undue hardship requirement for
private loans only
 Government loans would remain non-dischargeable
including from any “government units”
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CFPB Recommends….
 Make private loans dischargeable
 Federal loans: Income based repayment will take care
of any problems….
 Will It?
20
Office of Financial Education
 Active on the Financial Literacy and Education
Commission and the President’s Advisory Council
on Financial Capability.
 Created “Shopping Sheet”
 Part of Office of Consumer Education &
Engagement
 Same CFPB silo as “Office of Students,” “Office of
Seniors,” “Office of Servicemembers,” etc.
 Office headed by Gail Hillebrand, formerly senior
attorney with Consumers Union.
Service Providers
 Supervision of Service Providers
 Financial institutions under Bureau supervision may
be held responsible for their contractors.
 Bureau’s expects that supervised financial
institutions have an effective process for managing
the risks of service provider relationships.
 A service provider is defined in the Dodd-Frank Act
as “any person that provides a material service to a
covered person in connection with the offering or
provision by such covered person of a consumer
financial product or service.”
 Institutions must ensure that business arrangements
with service providers do not present unwarranted
risks to consumers.”
Collection Agency Focus By
CFPB
 Dodd-Frank Act requires supervision of certain non-
bank covered persons:
 All providers of private student loans
 ‘‘larger participant[s] of a market for other consumer
financial products or services, as the Bureau defines by
rule.”
 Complaint database also launched for public
complaints – both on student loans and collections in
general
 Default problem is SL category
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CFPB Examinations
 Review of collection agencies with more than $10
million in annual revenues
 About 175 agencies/law firms nationwide, with 60% of
total collections
 At least three examinations of larger agencies reported
underway
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Supervision
 CFPB examination procedures for collectors published
October 31, 2012:
http://files.consumerfinance.gov/f/201210_cfpb_debt-collectionexamination-procedures.pdf
 Next Supervision Front: Student Loan servicers
defined as large participants – over 1 million
accounts. NPRM March 28, 2013
 CFPB will separately be on both ends of many business
relationships
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Complaint Portals
 Bank account or service
 Credit card
 Credit reporting
 Debt collection
 Money transfer
 Mortgage
 Student loan
 Vehicle or
consumer loan
Complaint Portal Process
1. Complaint submitted
2. Review and route
3. Company response
4. Consumer review
Review and investigate
6. Analyze and report
5.
Complaint Process
 The CFPB received nearly 2,900 private student loan complaints in the
first year.
This is a relatively small number given that there are more than
$150 billion in outstanding private student loans.
 The vast majority of the complaints were related to loan servicing
and loan modification issues.
 Active duty service members and their families reported that
they sometimes experience difficulty exercising their rights under
the Service Members’ Civil Relief Act.
 Solution
 Have a written policy to resolve complaints
 Monitor and request your Service Providers written policy
 Don’t let complaints escalate to the Attorney General or CFPB
 Sign up to receive Debt Collection Complaints registered with
CFPB at http://www.consumerfinance.gov/complaint/

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Dispute Process
 Statement of Account (Showing Amount Due)
 Copy of Registration (Time/Date) and E-signature
 Financial Disclosure Form (Agree to Terms)
 Copy of Invoice/Bill
 Notes (Appeals, reason for loss of Financial Aid)
 Proof of Grades received
 Copy of Withdrawal Policy
 Prom Note
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2013 Bulletins
 September 12, 2013- Bulletin on Payroll Card Accounts (Regulation E)
 September 4, 2013-Bulletin on the FCRA’s requirement to investigate disputes and review
“all relevant” information provided by consumer reporting agencies about the dispute.
 July 10, 2013-Bulletin on Prohibition of Unfair, Deceptive, or Abusive Acts or Practices in
the Collection of Consumer Debts
 July 10, 2013-Bulletin on Representations Regarding Effect of Debt Payments on Credit
Reports and Scores
 June 25, 2013- Bulletin about responsible business conduct: self-policing, self-reporting,
remediation, and cooperation
 April 10, 2013-Disclosure of Consumer Complaint Data as published in the Federal
Register
 May 20, 2013- Bulletin about the SAFE Act – uniform state test for state-licensed
mortgage loan originators
 March 21, 2013- Bulletin about indirect auto lending and compliance with the Equal
Credit Opportunity Act
 February 11, 2013 – Bulletin about mortgage servicing transfers
Financial Products For College
Student
CFPB to hold September 30 forum on financial products
marketed to college students
Posted: 30 Aug 2013 04:22 AM PDT
On September 30, 2013, the CFPB will hold a forum in Washington,
D.C. on financial products marketed to college students. In January
2013, the CFPB issued a notice asking for input on a variety of
issues with regard to these products, including the information
shared between schools and financial institution providers, the way
these products are marketed, the fee structures for these products,
how these marketing arrangements are established, and student
experiences with these products. At the forum, the CFPB will
present its findings based on the comments it received in response to
the notice.
Latest Proposed Rule Making
 Defining Larger Participants of the Student Loan Servicing
Market
Proposed rule with request for public comment
Closed May 28, 2013 | Read comments
 Request for Information Regarding an Initiative to Promote
Student Loan Affordability
Notice and request for information.
Closed April 8, 2013 | Read comments
 Request for Information Regarding Financial Products Marketed
to Students Enrolled in Institutions of Higher Education
Notice and request for information.
Closed March 18, 2013 | Read comments
Regulations to Comply With


Consumer Financial Protection Bureau

FCRA
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FDCPA
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Collection Cost

Time Barred Debt

Leaving Messages
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Red Flag Rules
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GLBA
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TILA
Telephone Consumer Protection Act
TCPA, FCC and FTC
 COHEAO in Meetings with FCC Staff with TCPA group
 FCC seeking to harmonize Telephone Consumer Protection Act
(TCPA) regs with FTC Telemarketing Sales Rule
 Good idea, but proposal affects non-telemarketing calls
 Use of auto-dialers, cell phones, and obtaining consent from
consumer the key issues here
 FCC proposal calls for “express written consent” not only from
new consumers (students), but also EXISTING CUSTOMERS for
use of pre-recorded calls to cell phones
 Definition of “auto-dialer” vs. “predictive-dialer”
is concern under review by FCC now – Petitions seek clarification
from Commission
TCPA
 Presidents Deficit Reduction Plan (aka Job’s Bill)
 Plans to amend the Communications Act of 1934
 Allow the use of cell phones to contact debtors who owe money to the
government
 The provision is expected to provide substantial increase in collections
 The Mobile Informational Call Act of 2011 (H.R. 3035)
 Bipartisan coalition (Rep Terry, R-NE and Rep Town, D-NY)
 Allows the use of predicative dialers in contact cell phones were
“existing business relationship exists”
 Modernizes the TCAP by exempting informational calls to wireless
phone from auto-dialer restrictions
 Clarifies the “prior express consent” requirement
(a) for the initiation of a call on behalf of entity with a person
where an established business relationship exists
 (b) that is provided when person purchases a good or service
 States’ Attorney general killed the bill

TCPA
 FCC Committee Hearing
 Reviewing whether to adopt express written consent for all
autodialed or prerecorded calls.
 Commission adopts prior express written consent for
autodialed or prerecorded telemarketing calls only.
 The final rules do not address informational calls, meaning
nothing has changed for the calls made by colleges and their
3rd party companies
How To Prepare For CFPB
 Strengthen the compliance function
 Punitive loan provisions? Be conservative
 Get a feel for the flow of regulatory direction
 Know your appetite for risk
 Stay in touch with colleagues and your trade associations
QUESTIONS
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