Financial Services Litigation & Investigation Monitor : Financial Services Lawyer & Attorney : Perkins Coie Law Firm : Government Investigations, Class Actions

On May 7, the U.S. Attorney for the Southern District of New York  announced the filing of criminal mail and wire fraud charges against a debt settlement firm (Mission Settlement Agency), along with the firm's owner and three  employees. The government alleges that the defendants engaged in a multi-million dollar scheme involving more than 1,200 customers who paid the company fees for its services.  The charges include allegations that the company lied to prospective customers about fees charged for the company’s debt relief products; about the company's purported affiliation with the federal government and credit bureaus; and about the results the company had achieved for its customers.

On the same day the Consumer Financial Protection Bureau (CFPB) announced that a civil complaint had also been filed against the same company and its owner, along with another debt settlement company.  The CFPB complaint alleges that the firms violated the FTC’s Telemarketing Sales Rule and the Dodd-Frank Act by charging consumers illegal advance fees for debt-settlement services. The CFPB seeks an order enjoining the operations, an assessment of civil penalties, and relief for the companys' customers.

According to the CFPB's press release, the agency initiated its investigation into these matters in July 2012, and thereafter made a criminal referral to the U.S. Attorney's Office.  The release states that the CFPB "is required by the Dodd-Frank Act to refer evidence of criminal activity to the Department of Justice. In connection with these actions, the CFPB has also received substantial assistance from the New York Office of the U.S. Postal Inspection Service."

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On March 28, 2013, the Consumer Financial Protection Bureau (CFPB) published a database containing over 90,000 consumer complaints lodged with the agency.  According to the CFPB press release announcing the publication, the public may search the complaints through the CFPB's website database portal.  The database includes more than 1 million data points covering 450 companies. The information in the database includes the nature of the complaint, the company’s response, and whether the consumer disputed the company’s response.

The CFPB, however, does not substantiate or in any way attempt to verify whether the consumer's allegations have any merit before it is publicly posted, according to the CFPB press release.  Instead, the CFPB only verifies that "a commercial relationship between the consumer and the company is substantiated before the complaint is added to the database," according the the CFPB.

David Stevens, the Mortgage Bankers Association's President and CEO, expressed industry concern about the CFPB publishing unverified complaints, stating in letter to MBA members that while the "MBA supports transparency in customer service, and reasonably holding institutions accountable for material mistakes they make.  However, we have raised concerns about the unverified nature of the complaints and the ultimate impact that such a database could have on consumer confidence and public perceptions about financial institutions."

According to the database "Fact Sheet" published by the CFPB, 55% of all complaints concern mortgages and 21% concern credit cards.  Interestingly, student loans--a recent CFPB focus--account for only 3.8% of the complaints received by the agency.

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On March 14, 2013, the Consumer Financial Protection Bureau (CFPB) announced that it had proposed a new regulation that, if it becomes final, will give the CFPB authority to directly supervise non-bank entities that service over one million student loans.  According to a legaltimes.com article, the new rule would cover seven companies that combined service 70% of the student loan market - approximately  forty-nine million federal and private student loans.  The CFPB currently has authority to supervise student loan servicing at larger banks already within its supervisory jurisdiction.

In a press release, CFPB director Richard Corday said, "[t]he student loan market has grown rapidly in the last decade, and servicers are now facing the stress of an increasing number of delinquent borrowers.  Our rule would bring new oversight to the student loan market and help ensure that tens of millions of borrowers are not treated unfairly by their servicers.”

A copy of the proposed rule can be found at: http://files.consumerfinance.gov/f/201303_cfpb_nprm_larger-participants-student-loan-servicing.pdf

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On January 10, 2013, the Consumer Financial Protection Bureau  (CFPB) issued a final "Ability-to-Repay" rule amending Regulation Z, which implements the Truth in Lending Act.  The new rule implements Sections 1411 and 1412 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which generally require creditors to make reasonable, good faith efforts to determine a consumer's ability to repay a loan secured by a dwelling (with exclusions, including open-ended credit; timeshares; and reverse mortgages).  The final rule also establishes certain protections from liability for lenders that make mortgages meeting the "Qualified Mortgages" (QM) standard.  Under the QM rule, lenders will be presumed to have complied with the Ability-to-Repay rule if the loans meet certain requirements relating to upfront points and fees; loan terms that the CFPB refers to as "toxic loan features;" and  debt-to-income ratios.  The final rules also implement Section 1414 of the Dodd-Frank Act, which limits certain prepayment penalties. 

Read more:  Perkins Coie's Financial Services Bulletin:  Actdion at the CFPB ; CFPB Ability to Repay Press Release ; CNNMoney.com
 

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On November 19, 2012, the Consumer Financial Protection Bureau (CFPB) and Federal Trade   Commission (FTC) warned mortgage lenders and brokers about publishing "misleading" mortgage advertisements.  According to a CFPB press release, the two agencies have been working together to evaluate compliance with the 2011 Mortgage Acts and Practices Advertising Rule.  The rule prohibits companies from making misleading advertising claims concerning government affiliation, interest rates, costs, the amount of cash or payment available to the borrower, or payments associated with the loan.   As part of its compliance sweep, the agencies reviewed approximately 800 mortgage advertisements from a wide range of media sources, including web sites, Facebook, and news papers, according to the FTC's press release.

Law360 reported that the CFPB issued 12 "warning letters" and opened six investigations, according to CFPB Assistant Director of Enforcement Kent Markus.  The FTC announced that it had sent 20 warning letters to homebuilders, realtors and mortgage lead originators, and had opened 13 investigations.

It is unclear if the two agencies will coordinate their respective investigations.  A lack of coordination may lead to uneven determinations and investigation processes, including how the agencies interpret what is an "unfair or deceptive" practice.  Most likely, the recent announcement signals the beginning of an increase in the number of false advertisement cases brought against mortgage lenders by the federal agencies.

Read more at:  Marketwatch.com; nbcnews.com; Businessweek.com; The Wall Street Journal.

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Oklahoma, South Carolina and Michigan have joined a lawsuit challenging the 2010 Dodd-Frank Act.  The three states claim in the action that the Orderly Liquidation Authority (OLA) provision in the act, which attempts to deal with troubled financial institutions, is a threat to financial stability.  The OLA allows the Treasury secretary to seize a financial firm if the secretary determines its failure would cause instability in the financial system.  

The three states joined a June 2012 suit filed by a Texas bank and two groups that challenges the constitutionality of the Consumer Financial Protection Bureau created by the Dodd-Frank Act.  In an amended complaint filed on September 21, 2012, the three states are added as plaintiffs, asserting that the OLA could put state funds at risk should the Treasury secretary seize and liquidate a bank.

Read more at Law360 and BloombergBusinessweek.com.

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On July 23, the U.S. District Court for the Central District of California unsealed  the first ever enforcement complaint filed by the Consumer Financial Protection Bureau.  The complaint (PDF)alleges that a Los Angeles law firm charged borrowers advance fees for loan modification services and then did "little or nothing to assist consumers."

Kent Markus, the CFPB's assistant director for enforcement, said in a written statement: “Based on the results of our initial investigation, the court has halted a loan modification scheme that we believe has been unlawfully preying on vulnerable homeowners in multiple states. This action allows us to prevent further harm to consumers and lawfully gather additional evidence and data as the case moves forward.”

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On May 15, 2012, the Consumer Financial Protection Bureau (CFPB) published a Notice and Request for Comment regarding its collection of data about industry compliance costs associated with Dodd-Frank rules and regulations promulgated by the CFPB.

A number of Federal laws require agencies to consider the benefits, costs and impacts of rulemaking actions. ... Furthermore, Section 1022(b)(2)(A) of the Dodd-Frank Act calls for the Bureau to consider the potential benefits and costs of certain rules to consumers and "covered persons," including depository and non-depository providers of consumer financial products and services... As part of its analysis of benefits and costs of certain rulemaking, the Bureau will consider, among other things, the potential ongoing costs for a provider as well as the implementation costs the provider may incur in order to comply with a regulation.

The regulated industry has been outspoken about the resource drain caused by compliance with Dodd-Frank.  A report by members of the House Financial Services Committee ("One Year Later:  The Consequences of the Dodd-Frank Act")  estimates that regulated entities will spend over 2 million labor hours per year complying with the Dodd-Frank that have been implemented thus far.  The CFPB is obligated under Dodd-Frank to consider these important concerns as it continues to promulgate and implement rules.  The CFPB will accept comments through June 19, 2012.

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April 24, 2012-- The Consumer Financial Protection Bureau announced a study into mandatory arbitration clauses in consumer financial product contracts.  The CFPB is required under the Dodd-Frank Wall Street Reform and Consumer Protection Act to submit a study to Congress regarding the use of arbitration clauses in credit agreements, including contracts for credit and debit cards, bank accounts and other consumer financial products.

CFPB Director Richard Cordray said "Arbitration clauses are found in many contracts for consumer financial products,  We want to learn how arbitration clauses affect consumers, and how effective arbitration is in resolving consumers' issues. This inquiry will help the bureau assess whether rules are needed to protect consumers.”

The public and industry has until June 23 to provide their views on arbitration clauses, according to the CFPB release.

Long a source of criticism from consumer advocacy groups,  in 2011 the U.S. Supreme Court in  AT&T Mobility LLC v. Concepcion gave deference to contractual arbitration clauses in consumer contracts that bar plaintiffs from proceeding in a class action.  Industry advocates argue that arbitration is an efficient method to resolve customer disputes, which keep costs down and result in timely resolution of disputes.

Read the CFPB announcement here.
Read the Federal Register announcement here.
Read Los Angeles Times article regarding arbitration review here.

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The American Bar Association (ABA) has sent letters to the United States Congress advocating for passage of legislation requiring the Consumer Financial Protection Bureau (CFPB) to protect privileged information that the agency receives from banks.  The letter from the ABA to Senate and House leaders raises the same concerns expressed by banks that now fall under the new bureau's regulatory regime.  The ABA's letter argues that the CFPB should be governed by the same rules regarding protections of privileged information that other federal banking regulators must follow.

There are pending bills in both the Senate and House (H.R. 4014 and S. 2099) that, if passed, will categorize the CFPB as a federal banking regulator, thus subjecting them to the same rules as other banking regulating agencies regarding privileged information received from banks.  The Dodd-Frank Wall Street Reform and Consumer Protection Act, which created the CFPB, did not include such a provision, leading to bank concerns that sensitive information will be improperly provided to the public or competitors if produced to the CFPB.  Under current law, federal banking agencies may share with other similar agencies privileged information received from banks without a waiving the confidentiality of the information. Sharing privileged information with another third party--which may include the CFPB-- waives the confidential nature of the information.




 

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On February 2, 2012, Perkins Coie issued its weekly Financial Services Bulletin, including an article discussing the Memorandum of Understanding between the Federal Trade Commission and the Consumer Financial Protection Bureau regarding coordinated efforts to enforce consumer protection laws.  Section 1024(c)(3) of the Dodd-Frank Act requires the CFPB and the FTC to work together to coordinate their enforcement activities and promote consistent regulatory treatment of consumer financial products and services.

Read the Perkins Coie Bulletin

Read the FTC Press Release

Read the MOU

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On January 11, 2012, the Consumer Financial Protection Bureau (CFPB) released new procedures for regulating nonbank mortgage lenders.  The Mortgage Origination Examination Procedures apply to independent lenders, brokers, servicers, and others unaffiliated with banks and depository institutions, the bureau said in a statement.

The rules are a requirement of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and were published one week after the January 4, 2012 recess appointment of Richard  Cordray as the bureau's first director. The appointment of a director was a precondition to the CFPB enforcing regulations on certain sectors, including the nonbanking financial industry such as mortgage lending.

In a statement issued with the release of the new procedures, the CFPB said that the bureau's supervision of the nonbank financial sector will be rolled out in phases.  Effective immediately, the CFPB will begin regulating nonbank entities involved in mortgage lending, including originators, brokers, servicers, and loan modification services; payday lenders; and private education lenders.  

For other nonbank financial sectors, including debt collections, consumer credit reporting, and auto financing, the CFPB may supervise "larger participants" after that term is defined.

The bureau's publication of the rules of the game for nonbank mortgage lenders is a watershed moment for the agency.  The agency now has authority to oversee entities that were a main target of the Dodd-Frank financial reform legislation, and it intends to immediatly begin its supervision program. 

The bureau took little time to issue these regulations after the director's appointment, and significant enforcement has already begun with the announcement that the CFPB is investigating New Jersey-based PHH, Corp. in connection with how the company handled mortgage insurance premiums.  (Read more here.)  

Read more about the CFPB's new regulations for nonbank mortgage lenders:  Wall Street Journal Online ; Law360.

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On Thursday, November 17, 2011, the Board of Governors of the Federal Reserve System the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency  issued a joint statement describing how the total assets of an insured bank, thrift or credit union will be measured for purposes of determining supervisory and enforcement responsibilities under the Dodd-Frank Wall Street Reform and Consumer Protection Act.   Under Dodd-Frank, the CFPB has exclusive authority to examine, and primary authority to enforce, compliance with federal consumer financial laws for institutions with total assets of more than $10 billion.  The statement attempts to explain how asset size is measured for this purpose.

For a summary of the statement, read the Perkins Coie Financial Services Bulletin:  New Rules at the CFTC and Fed and a Multi-Agency Joint Statement on Federal Consumer Financial Laws.

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An August 9, 2011 Law360 article ("Consumer Financial Protection Bureau:  Open for Business") by attorney Gregory J. Pulles of Briggs and Morgan PA provides an overview of the Consumer Financial Protection Bureau's (CFPB) new powers as of the July 21, 2011 "designated transfer date."  The article summarizes a number of functions transferred to the CFPB from other federal agencies, and sets out the enumerated consumer laws that now fall within the CFPB's enforcement and rule-making purview.

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