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The Latest on Government Inquiries and Enforcement Actions

Government, Regulatory & Criminal Investigations Group

CFPB Expands Access to Consumer Complaints

contractOn June 25, 2015, the Consumer Financial Protection Bureau’s (CFPB’s) Consumer Complaint Database went live to provide the general public with enhanced access to consumer complaints. Since March 2015, complainants have been able to elect to openly air their grievances by publicizing searchable, narrative descriptions of their complaints in the CFPB database. According to the CFPB, more than half of the consumers lodging complaints have elected to publicize their complaints. Included in the new database is information regarding the timeliness of the company’s response to the complaint, the company’s public response, and whether the complainant disputed the company’s response. To date, nearly 8,000 complaints are included in the new database.

Dating back to June 2012, the public has had access to high-level, anonymous information regarding complaints received by the CFPB. Such information included the date of the complaint, the type of consumer product at issue, the issue classification, the sub-issue classification, the company criticized in the complaint, and the state and zip code of the complainant’s residence. At this writing, more than 400,000 consumer complaints dating back to December 1, 2011, have been indexed.

According to the CFPB, this new database is designed to: (i) provide context for customer complaints, (ii) allow users to spot trends, (iii) permit consumers to make informed decisions, and (iv) encourage companies to improve their own processes and systems.

In the months leading up to the launch of the new database, interested parties were invited to comment on the change. Several companies cited concerns regarding a number of issues including: (i) reputational harm from unverified narratives, (ii) effects on consumer relations, (iii) an appearance that the CFPB was validating potentially unsupported complaints, (iv) potential consumer confusion, (v) lack of context, (vi) “increased litigation, either through potentially ‘defamatory’ narratives posted by consumers or as a result of additional information available to prospective plaintiffs,” and (vii) increased costs to the companies and CFPB to address complaints. See Disclosure of Consumer Complaint Narrative Data, Docket No. CFPB-2014-0016. While the CFPB dismissed these concerns, companies should be aware that customer complaints and company responses will now be readily available to the public at large, including consumer attorneys and potential customers.

CFPB, Enforcement Actions

CFPB Drives Action Against Auto-Finance Company

77006486-thumb-200x200-137.jpgPutting the brakes on what it viewed as aggressive debt-collection tactics, the Consumer Financial Protection Bureau (CFPB) filed suit in Ohio federal court on June 17, 2015, against Security National Automotive Acceptance Company LLC (SNAAC) for several violations of the Consumer Financial Protection Act of 2010 (CFPA), specifically pertaining to Sections 1031 & 1036(a)(1)(B), 12 U.S.C §§ 5531, 5536(a)(1)(B). The alleged violations included deceptive claims and illegal threats utilized by SNAAC as the company conducted its business as an auto-finance company specializing in lending to members of the United States military. The lawsuit noted that since July 21, 2011, SNAAC has collected millions of dollars in consumer debt from thousands of service members.

The CFPB alleged in its complaint that SNAAC steered away from proper debt-collection practices by unlawfully employing unfair, deceptive and abusive methods:

  • Threatening to contact delinquent borrowers’ commanding officers and, in fact, making such contact
  • Disclosing details about borrowers’ debts and delinquencies
  • Making misleading statements regarding the potential impacts on borrowers’ military careers and tax liability if they remained delinquent
  • Making misleading statements regarding its intention to take legal action and its ability to obtain involuntary allotments and garnishments

In pursuing these allegations, the CFPB sought to impose civil money penalties, disgorgement of ill-gotten revenue, redress to harmed consumers, and damages, and to prevent future violations of the CFPA by SNAAC.

Director Richard Cordray’s statement in conjunction with the CFPB’s lawsuit echoed the tough relief pursued by the CFPB’s complaint: “[SNAAC] took advantage of military rules to put enormous pressures on servicemembers to pay their debts. For all the security they provide us, servicemembers should not have their financial and career security threatened by false information from an auto loan company.” SNAAC representatives recently stated they were surprised by the lawsuit and noted that they were in active discussions with the CFPB about resolving potential issues prior to the filing of the lawsuit.

Although the allegations made by the CFPB in this instance likely will be viewed as an extreme example of a company exploiting military rules to prey on borrowers, the CFPB does have wide authority to bring actions to prevent unfair, deceptive or abusive acts under federal law in connection with any transaction with, or offering of, a consumer financial product or service. Companies should maintain robust compliance programs in order to ensure that debt-collection methods are in line with regulatory expectations.

A great resource for companies who deal with consumer financial products is the CFPB’s Supervisory Highlights: Summer 2015 report. The CFPB has specifically observed weaknesses in debt collection compliance management systems (CMS). The CFPB sets expectations for financial institutions to maintain adequate CMS tailored to its operations and believes this is vital to preventing violations of federal consumer financial laws. Examples of such weaknesses include the following:

  • Boards of directors did not hold regularly scheduled meetings or receive information sufficient to adequately oversee compliance practices.
  • Absence of formal follow-up or escalation procedures for third-party debt collection personnel who were delinquent in completing their required training.
  • Absence of comprehensive compliance audit programs.

Additionally, the CFPB has observed company failures to conduct investigations of dispute notices from consumers and consumer reporting agencies, as well as companies failing to have reasonable written policies and procedures regarding information furnished to consumer reporting agencies. While the outcome of this latest CFPB lawsuit is undetermined, the CFPB is firmly in the driver’s seat and determined to continue its enforcement of federal consumer financial laws.

CFPB, Compliance, Regulation

CFPB’s TRID Rule Delayed Again – Uncertainty Persists for Good-Faith Grace Period

Mortgage Loan AgreementThe CFPB announced on June 17 that it would delay the effective date of the “Know Before You Owe” rule until October 1, 2015. However, the proposed rule issued by the Bureau on June 25 now delays the effective date to Saturday, October 3, in part because it “may allow for smoother implementation by affording industry time over the weekend to launch new systems configurations and to test systems.” This rule, more commonly called the TRID (TILA-RESPA Integrated Disclosure) rule, seeks to provide customers a better understanding of their loan product when purchasing a home, while imposing countless new regulatory requirements upon the mortgage lending industry.

The CFPB announced that the delay was necessary “[b]ecause of an administrative error on the Bureau’s part in complying with the [Congressional Review Act] with respect to the TILA-RESPA Final Rule.” This “administrative error” was a failure to timely file with Congress a two-page form giving official notice of the new rule’s implementation. However, rather than merely delaying the implementation the required two weeks until mid-August, the CFPB extended the implementation until October 3, giving an additional six-week cushion.

The CFPB announced in early June – at which time the effective date for TRID was to be August 1 – that it would allow an informal, undefined “grace period” before commencing TRID enforcement for lenders working in good faith to implement TRID’s requirements.  Director Cordray stated in a letter to Congress, “I have spoken with our fellow regulators to clarify that our oversight of the implementation of the Rule will be sensitive to the progress made by those entities that have squarely focused on making good-faith efforts to come into compliance with the rule on time.”   Now that TRID will not be effective until October, it is unclear whether the CFPB will be less forgiving for good faith errors than it had planned to be when the rule was set to take effect in August. In light of the uncertainty, a bill was introduced in the House of Representatives in May that would prevent litigation and assessment of penalties for TRID violations where the conduct alleged to be in violation occurred prior to January 1, 2016 and there has been a good faith effort to comply with TRID.

The delay in the rule’s implementation, while welcomed by many, has caused difficulty for some institutions. Many lenders were prepared and had programmed their internal systems for an August 1 “go-live” date, and in some cases they must now undertake significant work to reverse course and prepare for an October implementation. For most institutions, however, the delay provides an opportunity for additional employee training, systems testing, and fine-tuning of processes.

Lenders can take advantage of this additional time to make process changes prior to October 1 that will ease the transition. For instance, while the CFPB prohibits early adoption of the rule’s new forms, lenders can begin using the new six-item application standard in advance of the rule’s implementation in order to work out any errors before they become legal violations. Further, lenders can begin sending closing packages earlier to become comfortable with the requirement to provide closing disclosures at least three days prior to consummation. Although the possibilities are limited for early application of the rule’s requirements, dealing now with key changes such as these can allow greater focus on other inevitable glitches that will arise after the rule’s implementation. It can also serve as evidence of good faith compliance to the extent such evidence may be necessary in a future investigation or enforcement proceeding.

Compliance, Judgments

Supreme Court Strikes Down Warrantless Searches of Hotel Guest Registries

77006468.jpegHotels possess a treasure trove of private information about their guests. Everything from the guest’s name, address, credit card and vehicle information to the number of guests in the party, arrival and departure dates and the amount paid for the stay. Needless to say, that data can be extremely useful to law enforcement. Indeed, many municipalities across the country, including the city of Los Angeles, have ordinances that not only require hotels to record and maintain such information in guest registries, but also require the establishment to make the data available to police for inspection. Moreover, failure to produce guest records for inspection can be a crime. But is a law that requires businesses to provide data about their customers to police absent a search warrant, subpoena or some exigent circumstance, constitutional? It is not, according to the Supreme Court last week.

A group of motel operators challenged the constitutionality of Los Angeles’ guest registry ordinances and, specifically, the authority of police to inspect, unannounced and without judicial review, data about their guests. In City of Los Angeles v. Patel et al, 576 U.S. ____ (2015), the Supreme Court in a 5-4 decision, struck down the law as facially unconstitutional under the Fourth Amendment. While most citizens recognize that the Fourth Amendment protects against unreasonable searches and seizures, and that police generally cannot search without a warrant, this is actually a much nuanced area of law.

Searches without prior judicial review are per se unreasonable, except for certain well established exceptions. So called “administrative searches” are one such exception to the warrant requirement.   An administrative search occurs when the primary purpose of the search is distinguishable from general crime control, such as ensuring compliance with a record keeping requirement. Therefore, the majority determined that police inspecting a hotel registry is akin to an administrative search. And although administrative searches may be conducted without a warrant, they are not without limitation. The subject of an administrative search “must be afforded an opportunity to obtain precompliance review before a neutral decisionmaker.” In other words, the hotel operator must have a mechanism to challenge the legitimacy of the search before complying. Further, the majority rejected the City’s argument that hotels are a closely regulated industry and, thus, entitled to only minimal privacy protection. Indeed, the Supreme Court has only identified four industries – liquor sales, firearms dealing, mining and automobile junkyards – that are so highly regulated to lose a reasonable expectation of privacy. Hotels, on the other hand, do not fall into that category. Finally, while the majority declined to prescribe the specific means of precompliance review necessary for the ordinance to pass constitutional muster, it suggested that issuing a subpoena to the hotel operator would suffice. A subpoena would permit, but not require, a hotel operator to challenge the search before submitting to inspection. And would only mandate judicial review in the limited instances where a hotel operator actually objected.

This decision has broader implications than simply to hotel operators in Los Angeles (and their registered guests). Privacy advocates have applauded the ruling for supporting a business’s right to protect customer data, and for opening the door to future challenges to the constitutionality of similar government searches. The ruling also demonstrates that facial challenges to a statute or ordinance under the Fourth Amendment, although difficult, can be successful. And while the majority’s opinion did not specifically focus on the privacy rights of hotel guests, the Supreme Court has found the right to privacy to be at the core of the Fourth Amendment.

Fair Housing Act

Supreme Court Upholds Use of Disparate Impact in FHA Claims

In a decision certain to have major repercussions for the banking industry, the Supreme Court on Thursday upheld the use of disparate impact theories of liability – that is, suits that claim a law or practice has a discriminatory effect, even absent showing of any discriminatory intent – under the Fair Housing Act, which prohibits various forms of discrimination in housing.  In a 5-4 decision authored by Justice Anthony Kennedy, the court upheld a court of appeals decision in a case alleging that the Texas Department of Housing and Community Affairs had contributed to “segregated housing patterns by allocating too many tax credits to housing in predominantly black inner-city areas and too few in predominantly white suburban neighborhoods.”  The Supreme Court’s decision approved the approach to the issue taken by the courts of appeals, which had uniformly endorsed the disparate impact theory.

Although long advocated by consumer groups, disparate impact claims threaten financial institutions whose lending policies are facially neutral and not motived by any discriminatory intent but which allegedly have a disproportionate effect on high-minority areas.  Although today’s decision emphasized that FHA plaintiffs must prove a causal connection between a challenged policy or practice and a discriminatory effect, the decision portends increased federal scrutiny into alleged FHA violations and will no doubt encourage private-party litigation as well.  Attorney General Loretta Lynch indicated in a statement that “Bolstered by this important ruling, the Department of Justice will continue to vigorously enforce the Fair Housing Act with every tool at its disposal — including challenges based on unfair and unacceptable discriminatory effects.”

CFPB, Financial Regulation

Proposed New Legislation Would Extend CFPB Oversight Over SCRA

iStock_000005983304-capitol-bldg2On June 11, 2015, Sen. Jack Reed [D-RI] introduced a bill amending the Consumer Financial Protection Act to extend CFPB oversight and protection to include key provisions of the Servicemembers Civil Relief Act (SCRA).  The SCRA provides an array of protections to members of the military, including postponing civil obligations so that servicemembers can better fulfill their military obligations.  SCRA oversight is currently the responsibility of the Department of Justice and Office of the Comptroller of the Currency.  The proposed legislation would extend CFPB jurisdiction over specific SCRA provisions, including the following:

  • Provisions stating that a servicemember’s exercise of certain SCRA rights cannot impact certain future financial transactions, except with respect to insurance. See 50 App. U.S.C.A. § 518.
  • Protections for servicemembers against default judgments, excluding child custody proceedings. See 50 App. U.S.C.A. § 521.
  • Statutory maximum interest rates on pre-service debts. See 50 App. U.S.C.A. § 527.
  • Limitations on a landlord’s ability to evict servicemembers, evict their dependents or subject such premises to distress. See 50 App. U.S.C.A. § 531.
  • Limitations on a party’s ability to rescind or terminate a purchase or lease installment contract for a breach of contract. See 50 App. U.S.C.A. § 532.
  • Limitations on the validity of sale, foreclosure or seizure of property for breach of an obligation on real or personal property that originated before the period of the servicemember’s military service and is secured by a mortgage, trust deed or other security. See 50 App. U.S.C.A. § 533.
  • Provisions setting forth a servicemember’s ability to terminate certain types of premises leases and motor vehicle leases. See 50 App. U.S.C.A. § 535.
  • Provisions setting forth a servicemember’s ability to terminate telephone service contracts. See 50 App. U.S.C.A. § 535a.
  • Provisions setting forth a servicemember’s ability to waive SCRA protections and requirements, except with respect to bailments. See 50 App. U.S.C.A. § 517.

The bill, S.1565, has been referred to the Senate Banking, Housing and Urban Affairs Committee.


Reverse Mortgages May Be on CFPB’s List Following Recent Study

contractIn a new study, the Consumer Financial Protection Bureau (CFPB) criticizes reverse mortgages as misleading and as having resulted in senior citizens being confused about exactly what such a transaction involves. The CFPB concluded that, although this type of loan may help some seniors, these loans can pose serious financial risks to seniors who do not fully appreciate the details of their loans.

A reverse mortgage is a type of home loan available only to seniors 62 years of age and older. Such a borrower is able to take equity out of the home each month while making no loan payments. It is essentially a mortgage in reverse—the homeowner receives a monthly payment from the lender. Of course, the result of this loan is that the balance grows each month, while the borrower-homeowner’s equity in the home shrinks. This type of loan has received more attention in recent years, because it has been advertised by well-known figures such as former U.S. Senator Fred Thompson.

Despite recent growth in popularity (according to CNBC, these loans currently constitute 1 percent of the U.S mortgage market), the CFPB has warned seniors about these loans. The CFPB’s warning comes as a result of a study in which the CFPB conducted a focus group of 59 diverse homeowners in Chicago, Los Angeles, and Washington, D.C. This study found that most of these seniors had seen advertisements promoting reverse mortgages, but these seniors often did not fully understand how a reverse mortgage works. For example, some seniors were unaware that the money received eventually would have to be repaid, that interest would be charged, that they could potentially lose their homes from taking reverse mortgages, or that reverse mortgages were not part of a government-run program. Seniors in the focus group told the CFPB’s study that the advertisements for reverse mortgages conjured images of living a good lifestyle while they were still healthy, traveling, and enjoying an active retirement. Seniors also reported being unable to read the fine print—literally—that describes the terms of reverse mortgages.

The CFPB warned that taking a reverse mortgage at the early point of eligibility is a risky decision because as people live longer, seniors risk outliving the number of months for which they can receive equity out of their homes. This financial risk is even greater for seniors with little or no retirement savings, a situation in which more Americans are finding themselves. For instance, the median retirement account balance for retiring seniors is only $103,000, and research suggests that almost half of seniors will find themselves lacking resources for basic expenses and health insurance. Making matters worse, this financial stress comes at a time when major expenses (such as long-term care) can be significant.

The CFPB’s study did not indicate what future steps it may take in response to these findings. Given the CFPB’s generally aggressive approach to responding to issues that it believes are in the best interests of consumers, it is reasonable to expect the CFPB will, at a minimum, take additional steps to educate seniors about the risks associated with reverse mortgages. Stay tuned to see what the CFPB does next in response to its findings in this new study.

CFPB, Enforcement Actions, Financial Regulation

CFPB Jolts Loan Originator Over Mortgage Origination

MoneyOn June 4, 2015, the Consumer Financial Protection Bureau (CFPB) filed a complaint in the United States District Court for the Northern District of California against RPM Mortgage, Inc. (RPM), and its CEO, Erwin Robert Hirt. RPM is a residential mortgage lender headquartered in California that operates about sixty branches across six states in the western United States. The complaint alleges that RPM − in violation of the Loan Originator Compensation Rule, 12 C.F.R. § 1026.36(d)(1)(i), and Section 1036 of the Consumer Financial Protection Act of 2010 (CFPA), 12 U.S.C. § 5536 − paid bonuses and higher commissions to loan originating officers who steered consumers toward loan products with higher interest rates. Specifically, the Loan Originator Compensation Rule prohibits incentivizing loan originators from steering consumers to costlier mortgages, and violations of this rule would constitute violations of the CFPA.

According to the CFPB, “[RPM] sought to mask this interest rate-based compensation by filtering it through ‘employee expense accounts.’” RPM deposited profits from an originator’s closed loans – profits that were directly tied to the loans’ interest rates – into an expense account set up for the originator. RPM used the expense accounts to pay bonuses and higher commissions to its loan originators. The company also allowed loan originators to tap their expense accounts to offset interest rate reductions or give credits to certain customers to avoid losing the transactions to competitors.”

Along with the complaint, the parties submitted a proposed Stipulated Final Judgment and Order. Without admitting any facts or fault, the stipulation requires:

  1. RPM to pay $18 million in redress to consumers affected by the company’s unlawful compensation practices. The CFPB will notify eligible consumers and send refund checks in the mail.
  2. RPM and Hirt each to pay $1 million to the CFPB’s Civil Penalty Fund. According to the complaint, “Hirt was responsible for managing the design and implementation of RPM’s employee-expense-account plan, including all unlawful compensation paid out of it.”

The Stipulated Final Judgment and Order was signed by the district court on June 9, 2015.

The enforcement action is particularly noteworthy given the reaction by RPM, Hirt and industry commentators. According to an RPM press release: “The company chose to settle this matter without an admission of wrongdoing in order to avoid the cost and distraction of litigation. RPM values its reputation as a respected mortgage lender and has maintained from the beginning of the investigation that all of its compensation policies were and are fully compliant with the law.” Hirt also specifically noted that Buckley Sandler, a well-respected law firm in the consumer financial services space, reviews RPM’s loan origination compensation policies every six months to ensure they are in compliance with CFPB directives. So why did RPM settle instead of fight the CFPB in court? According to Hirt, “The decision was not an easy one but, at the end of the day, I felt it was better to move forward and focus solely on the needs of our customers.”

David Stevens, president of the Mortgage Bankers Association (MBA), echoes some of Hirt’s concerns. According to Stevens, this enforcement action “is emblematic of a larger concern – the [CFPB’s] pattern of issuing dense and complicated rules and then declining to provide written supervisory guidance to clarify issues of common concern in the industry. The rule at play here – the Loan Originator Compensation rule – was originally issued by the Fed in 2010 and then taken over by the CFPB in the wake of Dodd Frank. The rule has long been a subject of industry confusion because of its broad and prescriptive reach into the smallest details of lender compensation plans and the lack of clear guidance on how to comply.” In fact, Stevens notes that the MBA sought guidance from the Fed and CFPB on some of the very same issues addressed in the RPM complaint.

The takeaway from this Complaint, and Stipulated Final Judgment and Order, is that the CFPB continues to aggressively enforce its mandate, and businesses in the consumer financial services space can − and should − expect this trend to continue.

CFPB, Enforcement Actions, Financial Regulation

CFPB Asserts Sweeping RESPA Enforcement Authority In First Appellate Decision

77006468.jpegIn a decision asserting broad authority for the CFPB and which is certain to set the tone for future CFPB appellate rulings, Bureau director Richard Cordray recently issued the Bureau’s first decision from an appeal of a Bureau administrative enforcement action. The decision, issued June 4, generally affirmed a 2014 Administrative Law Judge (ALJ) decision finding that PHH Corporation (PHH) violated the Real Estate Settlement Procedures Act (RESPA) by accepting kickbacks from mortgage insurers. The decision also reversed the ALJ on a few key issues, including increasing the number of payments for which PHH was held liable under RESPA, resulting in an increase in the monetary remedy to PHH.

The CFPB’s enforcement action against PHH alleged that PHH violated RESPA by accepting illegal kickback payments in return for referring customers to mortgage insurance companies for certain settlement services. PHH had created Atrium, a wholly-owned mortgage reinsurer. The CFPB alleged, and the ALJ concluded, that PHH varied the number of mortgages it placed for insurance with mortgage insurers based on the insurers’ agreement to use Atrium as a reinsurer, thereby funneling mortgage insurance premium dollars back to Atrium. The ALJ held that conduct violated Section 8 of RESPA, 12 U.S.C. § 2607, which prohibits any person from giving or accepting any kickbacks or unearned fees in connection with any real estate settlement service.

In a detailed 38-page decision and final order, Cordray upheld PHH’s liability under RESPA but reversed the ALJ on the number of RESPA violations at issue, significantly expanding PHH’s liability. First, Cordray ruled that no statute of limitations applies when the CFPB challenges a RESPA violation in an administrative proceeding. Instead, the limitations period applies only to CFPB enforcement actions brought in court. The Director concluded, however, that the Bureau cannot revive time-barred claims – i.e., claims that HUD itself could not bring before the CFPB took over enforcement of RESPA. Because the CFPB took over for HUD on July 21, 2011, it can challenge alleged RESPA violations that occurred on or after July 21, 2008.

Applying this reasoning, Cordray concluded that PHH committed a separate violation of RESPA each time it accepted a reinsurance payment on or after July 21, 2008 even if the mortgage at issue closed before July 21, 2008. By contrast, the ALJ had concluded that PHH was liable only for payments that were connected with loans that closed on or after July 21, 2008. The result of Cordray’s decision was to increase in the amount of disgorgement PHH was ordered to pay from $6 million to $109 million. In reaching his conclusion, Cordray distinguished a Fifth Circuit opinion, which held that a RESPA cause of action accrues at the closing, on the basis that PHH did not receive the full value of the kickback at the time of closing because a portion of the kickback was received with each mortgage payment. The Director opined that the emphasis placed on closing by the federal courts does not appear within the text of the statute and “the culpable conduct under the statute is the giving and accepting of kickbacks, which does not necessarily occur only at closing but might occur at other stages of the process.” The Director elected not to impose an additional civil penalty when considering that no civil money penalty could have been imposed under RESPA’s framework for the majority of PHH’s conduct and because the disgorgement “is a just and sufficient remedy to fulfill the Bureau’s goals.”

The decision also affirmed extensive injunctive relief, (1) ordering PHH to cease and desist violating section 8 of RESPA; (2) enjoining PHH for 15 years from engaging in the business of captive reinsurance; and (3) ordering PHH to maintain records of all things of value that PHH receives or has received from any real estate settlement service provider to which PHH has referred borrowers since July 21, 2008 and for the next 15 years.

Cordray’s sweeping decision reflects the broad powers that the CFPB is asserting for itself in addressing alleged violations of RESPA. The absence of any statute of limitations applicable to RESPA violations after July 2008, which potentially opens the door to CFPB administrative actions against mortgage industry companies for years to come, is perhaps the decision’s most striking holding, and is tempered only by Cordray’s rejection of the continuing violation doctrine, which the CFPB’s enforcement division had argued authorized the Bureau to pursue RESPA claims even for pre-2008 conduct. Nonetheless, the Bureau’s view of when a RESPA violation occurs – when money is received rather than at loan closing – expands dramatically the number of alleged violations for which the CFPB claims enforcement authority. Also important is the standard of review embraced in the decision, which holds that in any appeals to the Director, the law and facts are reviewed de novo – in other words, no deference is given to the factual determinations of the ALJ.

PHH may file a petition for review of the Director’s final order in a United States Court of Appeals within 30 days of the service of the final order. Time will tell whether the courts will sanction the expansive approach taken by the CFPB here or rein in the authority the Bureau asserts for itself.

CFPB, Financial Regulation

CFPB Issues Final Rule Governing Non-Bank Auto Lenders

MoneyThis week, the CFPB issued a long-anticipated final rule under which it will, for the first time, allow the Bureau to supervise non-bank auto finance companies.  Although the Bureau currently supervises the auto financing activities of banks and credit unions, the new rule will define as “larger participants” in the “automobile financing” market any non-bank company that has at least 10,000 “annual originations” of consumer auto finance products, including auto loans, refinancings, and leases.  According to the CFPB, this definition includes 34 of the nation’s largest non-bank auto finance companies, which together originates approximately 90% of non-bank auto loans and leases in the United States.

Although the rule does not impose new substantive consumer protection requirements, it allows the Bureau to supervise auto finance companies under the Dodd-Frank Act, monitoring them for compliance with consumer financial protection laws including the Truth in Lending Act, the Equal Credit Opportunity Act, the Consumer Leasing Act, and the Dodd-Frank Act’s prohibition on unfair or deceptive acts or practices.  Coinciding with the publication of the new rule, the Bureau has updated its Supervisory and Examination Manual to give its examiners guidance in supervising non-bank auto finance companies.  According to the CFPB, its supervisory focus will include evaluation of whether lenders are fairly marketing and disclosing auto financing terms, providing accurate information to credit bureaus, treating consumers fairly when collecting debts, and lending fairly by complying with the Equal Credit Opportunity Act and other laws.