Subject to Inquiry

Subject to Inquiry


Government Investigations and White Collar Litigation Group

Challenge to CFPB’s Auto Lending Guidance

iStock_000004688619Medium1A bipartisan bill, House Resolution 1737, which the U.S. House of Representatives will be voting on this week, seeks to nullify the Consumer Financial Protection Bureau’s (CFPB’s) guidance to indirect auto lenders. Specifically, the goal of the legislation is to: (1) impose a public notice and comment period prior to issuing the final guidance; (2) require the CFPB to publish all studies and data used in reaching the guidance; and (3) conduct a study on the costs and impacts of the guidance to consumers and women-owned, minority-owned, and small businesses.

In March of 2013, the CFPB released a bulletin to provide guidance to indirect auto lenders and dealers to comply with the fair lending requirements of the Equal Credit Opportunity Act (ECOA) and its implementing regulation, Regulation B. A consumer seeking financing to purchase a car can obtain it directly from the auto dealer, or the dealer may facilitate financing options for the buyer with a third-party indirect auto lender such as a depository institution, a nonbank affiliate of a depository institution, an independent nonbank, or an auto lender with a primary purpose to finance purchases for a particular automobile manufacturer. The auto dealer collects the purchaser’s information and uses an automated system to shop around for prospective indirect auto lenders. Each indirect auto lender provides the dealer with a minimum interest rate under which the lender would consummate the transaction. In some instances, the indirect auto lender may adjust the rate, employ underwriting exceptions, or modify other terms and conditions of financing based upon negotiations between the dealer and the indirect auto lender. Along those lines, the dealer may adjust the interest rate in order to receive what is called “reserve” from the indirect lender, essentially compensation to the dealer for originating loans. Dealer reserves often allow the auto dealers to discount rates for their customers. This system also streamlines the financing process by eliciting multiple rate quotes for the purchaser from various prospective lenders.

The CFPB guidance applies to both depository and nonbank institutions. The CFPB implemented the guidance because the incentives under some auto lender policies and the discretion allowed under these policies could pose a risk of resulting pricing disparities on the basis of race, national origin and other prohibited bases, and in violation of the ECOA. The CFPB suggested that auto lenders compensate dealers with nonnegotiable payments, such as flat fees.

Supporters of the House Resolution claim that passing this bill would help create transparency at the CFPB and help continue to make auto credit available to and affordable for customers. Without curbing the CFPB’s sole authority on this issue, H.R.1737 supporters believe competition will be reduced and credit costs increased. The elimination of flexible discounts to buyers would actually hurt the consumers the CFPB was tasked to protect. Also, supporters of H.R. 1737 have a problem with the method by which the CFPB issued its guidance in the first place: behind closed doors and without public comment or transparency.

Supporters of the CFPB’s approach are speaking out against the upcoming bill and released a letter to legislators on Tuesday. The bill opponents noted that the CFPB was the first and only regulator to address this type of discrimination and the underlying cause, dealer interest rate markups. The bill opponents highlighted the Center for Responsible Lending estimation that consumers taking out car loans in 2009 would pay $25.8 billion in additional interest over the lives of their loans specifically tied to these markups. The letter noted that pricing discretion leads to discrimination and the CFPB’s enforcement work with the Department of Justice had already netted roughly $176 million in restitution and penalties against lenders.

With the outcome to be decided this week, auto lenders need to keep a close eye on compliance requirements for their lending activities. The bill, however, has much bipartisan support with 126 co-sponsors and passed the House Financial Services Committee by a vote of 47-10. The CFPB may lose this battle, but it is unlikely to weaken its ability to influence the consumer financial product marketplace. Expect a vote this week and we will keep you informed of any new developments.

Economic Sanctions

Sanctions Against Iran: EU Adopts Three Legal Acts to Prepare for the Lifting of all Nuclear-related Sanctions

OnExport-Controls-136333535_jpg.jpg 18 October 2015, the Council of the EU adopted three legal acts for the lifting of all the nuclear-related economic and financial EU sanctions against Iran.

First, Council Decision (CFSP) 2015/1863 amends Council Decision 2010/413/CFSP concerning restrictive measures against Iran. It provides for the termination of all Union nuclear-related economic and financial restrictive measures. Moreover, it provides for certain measures in accordance with United Nations Security Council Resolution (UNSCR) 2231 (2015) endorsing the Joint Comprehensive Plan of Action of 14 July 2015 (JCPOA) on the Iran nuclear issue. It also introduces an authorization regime for reviewing and deciding on nuclear-related transfers to, or activities with, Iran not covered by UNSCR 2231 (2015).

Second, Council Regulation (EU) 2015/1861 of 18 October 2015 gives effect to Council Decision (CFSP) 2015/1863 by amending Regulation (EU) No 267/2012 concerning restrictive measures against Iran.

Third, Council Implementing Regulation (EU) 2015/1862 of 18 October 2015 amends Annex VIII of Regulation (EU) No 267/2012 by deleting persons and entities that are listed there.

These three legal acts will take effect only after completion of the verification by the International Atomic Energy Agency (IAEA) confirming that Iran has implemented the agreed measures. This verification is expected to take place at the end of 2015 or the beginning of 2016.

The EU’s commitment to lift all Union nuclear-related restrictive measures in accordance with the JCPOA is without prejudice to the dispute-resolution mechanism specified in the JCPOA and to the reintroduction of Union restrictive measures in the event of significant non-performance by Iran of its commitments under the JCPOA (Council Declaration 2015/C 345/01).


CFPB Takes Action Under FCRA Against Employment Background Check Providers

Oncontract October 29, 2015, the Consumer Financial Protection Bureau (CFPB) announced the settlement of an enforcement action against two of the country’s largest employment background screening report providers for failing to comply with provisions of the Fair Credit Reporting Act (FCRA).

The two companies at issue collectively generate and sell more than 10 million reports about individual job applicants each year to prospective U.S. employers. As such, they are Consumer Reporting Agencies (CRAs) under the FCRA and are required to ensure the accuracy of the reports they provide.

In a consent order, the CFPB found that, in violation of Section 607(b) of the FCRA, 15 U.S.C. § 1681e(b), the companies failed to follow reasonable procedures designed to ensure maximum accuracy of the information they reported. For instance, the CFPB concluded that the companies: 1) did not have written procedures for researching public records for consumers with common names, 2) did not require employers to provide middle names, 3) failed to track consumer disputes in a manner that would allow for the identification and remedy of reporting error trends, and 4) failed to conduct sufficient testing of non-disputed records. As a result, the CFPB concluded that the companies were providing reports with inaccurate criminal information histories. The CFPB also concluded that the companies violated Section 607(b) of the FCRA, 15 U.S.C. § 1681e(b), which prohibits CRAs from reporting on civil suits, civil judgments and arrest records that predate a background report by more than seven years.

As a result of these violations, the companies were required to pay $10.5 million to consumers negatively affected by their inaccurate reports, and also pay a civil fine of $2.5 million. Additionally, the companies were required to hire an independent consultant to help review and revise their FCRA compliance policies and procedures.

The FCRA regulates not only CRAs, but also the conduct of companies that supply information to or use information from CRAs. Accordingly, while this enforcement action was directly aimed at employment background screening report providers and CRAs more generally, the consent order is a warning to all companies subject to the FCRA of the importance of ensuring accurate reporting and compliance with FCRA rules and regulations.

CFTC Enforcement, White Collar Crime

First Guilty Verdict for Dodd-Frank “Spoofing” Violations

On 87790287_jpgNovember 2, 2015, reported that Michael Coscia became the first individual to be convicted for the crime of “spoofing” under the Dodd-Frank Act of 2010. The Dodd-Frank Act amended section 4c(a)(5) of the Commodities Exchange Act, making it unlawful to engage in any trading or practice that “is, is of the character of, or is commonly known to the trade as, ‘spoofing’ (bidding or offering with the intent to cancel the bid or offer before execution).” The Commodity Future Trading Commission (CFTC) published an Interpretive Guidance and Policy Statement that explains spoofing in terms of the intent behind the submission and cancellation of the bids. Improper reasons include: overloading the quotation system, delaying another’s trade execution, creating the appearance of false market depth or creating artificial price movements.

Coscia, the founder of Panther Energy, LLC, allegedly created two computer algorithms that posted orders to the Chicago Mercantile Exchange and ICE Futures Europe with the goal of canceling them before they could be executed. Coscia would place a small order to sell a futures contract and then place a large order to buy the same contract at higher prices, giving the impression of demand, before canceling the buy orders after selling the contracts at his desired price. CFTC Commissioner Bart Chilton referred to this activity as an attempt to “fake out” other traders. Coscia would repeat this pattern sometimes hundreds of times a day for a single contract.

The CFTC’s investigation into Coscia ended with a settlement in 2013 for $2.8 million, which included a $1.4 million fine and $1.4 million disgorgement of the profits from his spoofing activities, as reported in the Washington Post. Coscia also settled with Britain’s Financial Conduct Authority for $900,000.

A little over a year later − in October 2014 − Coscia became the first person indicted under the Dodd-Frank Act’s prohibition on spoofing. Prosecutors said Coscia profited by $1.3 million over three months in what they described as a “classic bait and switch.”

Coscia’s defense team attempted to paint a picture of a highly sophisticated trading strategy that involved high-frequency transactions that occurred “in the blink of an eye.” They explained it was a common strategy to cancel trades that became old, even if old was only a few milliseconds after the bid was entered.

Coscia’s case was watched closely by financial trading firms and regulators, as many observers believed a failure to convict would have been seen as a sign that the anti-spoofing law was unenforceable, as reported in the Chicago Tribune. After a one-week trial, the jury needed only one hour to convict Coscia of all 12 counts of commodities fraud and spoofing.

Commodities and securities traders should be aware of the anti-spoofing provisions in the Dodd-Frank Act, and know that administrative fines and bans represent only one enforcement avenue open to the government.


CFPB Supervisory Highlights

Thcontracte Consumer Financial Protection Bureau (CFPB) recently released its ninth supervisory highlights report, which includes new findings from its supervisory program from May – August 2015.   Overall, the report focuses on examination of the student loan servicing, mortgage origination and servicing, consumer reporting, and debt collection markets. In addition, the report highlights the CFPB’s recent revisions to the appeal process for examinations.

In the report, the CFPB highlighted the following findings:

Credit Reporting

  • While furnishers of information under the Fair Credit Reporting Act (FCRA) generally have adequate policies and procedures for the accurate reporting of credit accounts, the policies were lacking in the area of deposit accounts.
  • With regard to consumer disputes and investigations under the FCRA, the CFPB noted that furnishers did not always provide notice of the results of investigations of direct disputes to the consumers, did not monitor or track direct and indirect disputes they received, and failed to distinguish disputes from other communications (e.g., complaints) they received.
  • The CFPB directed these entities to update and implement dispute-handling policies and procedures and to create a coordinated monitoring system in order to ensure all direct and indirect disputes of deposit information are tracked, investigated and resolved completely within the timeframes required.

Debt Collection

  • In connection with its supervision and enforcement over debt collectors under the Fair Debt Collection Practices Act (FDCPA), the CFPB noted that it had observed that collectors did not always state during subsequent phone calls that the calls were from debt collectors. The CFPB directed the debt collectors to improve training with regard to the FDCPA’s requirement to provide these disclosures.
  • When consumers made verbal requests to debt collectors regarding phone calls, such as a request not to be called at work, the debt collectors’ agents would note the request in one of several places in the account notes, but did not remove or block the affected telephone numbers in their dialer systems. The CFPB directed the collectors to improve their training so agents would annotate accounts and check for dialing restrictions in a consistent manner.
  • The CFPB directed debt collectors to establish and implement reasonable written policies and procedures as required by Regulation V.

Mortgage Servicing

  • Certain mortgage servicers were found to be violating the FDCPA when they charged fees for taking mortgage payments over the phone to borrowers whose mortgage instruments did not expressly authorize collecting such fees and/or resided in states that do not expressly permit collecting such fees.
  • Certain mortgage servicers were found to be violating the FDCPA when they sent debt validation letters listing debt amounts that the servicers could not verify as accurate. The servicers had listed estimates of the debt amounts rather than the actual amounts the borrowers owed. The CFPB advised that servicers should list only accurate and verifiable debt amounts in their debt validation letters.
  • Certain mortgage servicers were found to be violating the FDCPA when they failed to send debt validation letters to borrowers within five days after the initial communications about the debts, where the borrowers’ loans were in default when servicing rights were obtained.

Student Loan Servicing

  • The CFPB criticized student loan servicers that allocate partial payments proportionally to multiple student loans, finding that this policy may result in separate fees for each loan and, in some cases, the total amount of fees charged was higher than if the servicer allocated the payment in another manner. The CFPB recommended that servicers allocate partial payments among current loans to the loan with the highest interest rate first, and then the loan with the next-highest interest rate. In addition, the CFPB emphasized that the servicers should clearly inform borrowers of their ability to direct payments to individual loans.
  • The CFPB found servicers were unfairly processing automatic debits early, which could trigger unexpected overdraft charges because a borrower may not have had sufficient funds in time for the early withdrawal.
  • Similarly, when automatic payments fell on a weekend or bank holiday, payments typically were processed on the next business day, causing additional interest to accrue. The CFPB found that servicers should be crediting payments back to the due date when this delay occurred − a practice that would reverse the additional interest accrual.
  • Some student loan servicers for Department of Education loan notes were representing to consumers that late fees may be charged even though the Department of Education’s current policy is to not allow the charging of any late fees. The CFPB felt that such representations were misleading to the borrowers.
  • The CFPB also noted that confusion remained for borrowers who attempted unsuccessfully to pay off loans with lump-sum payments. The CFPB encouraged servicers to continue to communicate with borrowers during paid-ahead periods so borrowers are aware when a remaining balance exists, which can help borrowers seeking to fully pay off their loans understand that they still owe money.

Revised Appeal Process

The CFPB also released a revised appeals process for any report or exam on or after Sept. 21, 2015. Changes to the process, according to the report, include the following:

  • Expressly allowing members of the Supervision, Enforcement, and Fair Lending (SEFL) Associate Director’s staff to participate on the appeal committee, replacing the existing requirement that an Assistant Director serve on the committee
  • Permitting an odd number of appeal committee members in order to facilitate resolution of appeals
  • Limiting oral presentations to issues raised in the written appeal
  • Providing additional information on how appeals will be decided, including the standard the committee will use to evaluate the appeal
  • Preventing an institution from appealing adverse findings or an unsatisfactory rating related to a recommended or pending investigation or public enforcement action until the enforcement investigation or action has been resolved

Changing the expected time to issue a written decision on appeals from 45 to 60 days

CFPB, Financial Regulation

FTC Unveils Nationwide Debt-Collection Enforcement Effort

The FCashederal Trade Commission (FTC) on Wednesday announced that it would launch its first-ever coordinated, nationwide law enforcement effort targeting abusive and deceptive debt-collection practices. The initiative is known as Operation Collection Protection, and will combine federal, state and local resources across the country to crack down on debt-collection practices the FTC deems unlawful. The illegal tactics targeted by the operation include harassing phone calls by debt collectors, threats of litigation, and attempts to collect debts that are not actually owed, or “phantom” debts.

According to the FTC, the operation will involve coordinated actions by the Department of Justice, the Consumer Financial Protection Bureau (CFPB), 47 state attorneys general, 17 state regulators, other state and local law enforcement authorities, and even one Canadian agency. The targets of the operation range from “rogue individuals” to “some of the biggest names in the [debt collection] business.” Proposed remedies include asset freezes, injunctions, and “millions” in redress and civil penalties.

Among the highlights of the FTC’s announcement were the following:

  • The operation marks a renewed focus for the FTC on abusive debt-collection practices. To mark the occasion, the FTC announced that three new cases had been filed against debt collectors − Delaware Solutions, BAM Financial, and a third debt collector named in a lawsuit that is still under seal. The agency also announced settlements in pending actions against National Check Registry, LLC, and K.I.P., LLC.
  • Initial collaboration before Wednesday’s formal announcement has already led to 115 lawsuits and enforcement actions this year, including 30 recently filed actions against debt collectors. And since 2010, the FTC has sued more than 250 debt collectors and secured judgments of almost $350 million. Eighty-six companies and individuals have been banned from collecting debts altogether.
  • The FTC warned that violations can even result in incarceration − as part of the operation so far, 19 individuals face indictment, have pleaded guilty or have been convicted of criminal charges relating to illegal collection practices.
  • Debt collection has been the No. 1 source of complaints received by the FTC every year − the agency received 280,000 such complaints just last year.
  • The FTC’s efforts will include not just enforcement actions, but also cooperative efforts with the debt-collection industry “to stop questionable practices before they start.” These topics will be the focus of its ongoing “Debt Collection Dialogue” events hosted in cities around the country.

Relatedly, the CFPB continues to work on its own regulations for the debt-collection industry. Those rulemaking efforts have moved slower than anticipated, however. The CFPB predicted in its fall 2014 regulatory agenda that “pre-rule” activities, which likely include convening a SBREFA panel, would last through April 2015; its spring 2015 agenda pushed that date to December 2015. Further details will likely emerge in the coming weeks, when the CFPB is expected to release its fall 2015 regulatory agenda.


CFPB Report Addresses Use of Mobile Financial Services by Underserved Populations

On Wednescontractday, the Consumer Financial Protection Bureau (CFPB) issued a report regarding the use of mobile financial services (MFS) by underserved populations. The CFPB was clear that the report was not “intended to identify areas in which the Bureau may or will take regulatory, supervisory, or enforcement action.” Rather, it was intended to summarize comments received in response to a request for information on this topic.

The report covers:

  • the scope and types of MFS available to underserved populations,
  • opportunities for MFS to reach these consumers,
  • challenges and risks, and
  • recommendations for moving forward.

The CFPB notes that, while the use of MFS has risen significantly for the general population, the same is not generally true for consumers in underserved populations. MFS channels include mobile banking through phone or tablet, personal financial management tools available on websites and mobile apps, text messaging, prepaid products, mobile (point of sale) payments, mobile billing, mobile money transfers, and cash-accessed digital channels. The CFPB reports a general consensus that MFS provides an opportunity to reach underserved populations and enhance their access to financial services from both banks and nonbank providers. And, according to the report, most commenters agreed that, pass-through costs aside, MFS could lower banking costs to these consumers.

But increasing the use of MFS is not without challenges and risks. Commenters expressed concerns about increased costs to the industry in implementing and maintaining these services, as well as concerns regarding data security, privacy, fraud prevention, compliance with other statutes such as the Telephone Consumer Protection Act (TCPA) and the Electronic Signatures in Global and National Commerce Act (E-SIGN Act), a lack of digital financial literacy among targeted consumers, and an already “vanishing branch network” in underserved neighborhoods, which MFS might replace. The recommendations from commenters for moving forward include educating consumers and, obviously, addressing these challenges and risks. It remains to be seen, however, how the CFPB will balance these concerns with any action it takes regarding MFS and its mission to expand the availability of financial services in underserved populations.

A copy of the report is available here.


CFPB’s Cordray Issues Warning to Vendors

ConsiStock_000005983304-capitol-bldg-thumb-225x336-13umer Financial Protection Bureau (CFPB) Director Richard Cordray recently issued a warning to mortgage technology vendors for a lack of compliance with the CFPB’s TILA-RESPA Integrated Disclosure (TRID) Rule. Addressing the Mortgage Bankers Association’s Annual Convention and Expo, Cordray said he was “disturbed” by vendors’ lack of effort to implement the rule, despite having had two years to prepare for its implementation. He also suggested that other financial agencies should pay attention as well. “It may well be that all of the financial regulators, including the Consumer Bureau, need to devote greater attention to the unsatisfactory performance of these vendors and how they are affecting the financial marketplace.”

TRID, also known as the “Know Before You Owe” rule, was designed to provide consumers a clearer understanding of their homebuyers loans. Implementation of the rule, however, has not been as seamless as originally hoped. The rule’s effective date was originally set for August 2015 but was moved to October 1, and then later to October 3. The CFPB explained the scheduling change “may facilitate implementation by giving industry time over the weekend to launch new systems configurations and to test systems.” These concerns were echoed in a September 2015 memo from the American Bankers Association, which claimed that member banks’ “most immediate worry” was a delay in software systems necessary for compliance with the rule.

In his comments to the Mortgage Bankers Association, Cordray reiterated that the CFPB would take a “sensitive” approach to TRID compliance. He seemed to suggest that the CFPB was not likely to adopt a position of strict compliance with the new rule, at least during its early stages. Instead, the CFPB will be more principally focused on compliance efforts. Mr. Cordray explained that “examiners will be squarely focused on whether you have been making good-faith efforts to come into compliance with the rule.” However, it appears that CFPB is not pleased with the progress made by technology vendors since the rule’s October 3 “effective date.”

Compliance, FCPA

Overreacting to Risk Can Ruin a Compliance Program

Government-Regulatory-and-Criminal-Investigations.jpgIn-house counsel, compliance officers and the external counsel who support them are trained to be risk averse when it comes to anti-corruption and other types of compliance, and with good reason.

The enforcement stakes in the United States and beyond are increasingly high, as the bar for attracting regulatory and law enforcement scrutiny seems to be increasingly low.

But there is a balance to be struck between mitigating risks and maximizing profits. Unless and until you find that balance, even the most well-intentioned compliance efforts are at risk of failure.

In the rush to address compliance risks, one can forget that law enforcement and regulators repeatedly advise that their expectation is that companies will take risk-based steps to implement compliance programs and internal controls.  Hard as it may be to believe at times, the law enforcement standard is not perfection, and it can be all too easy in managing compliance to let perfection be the enemy of the good.

But the following guidelines can help you measure and manage risk, while supporting and facilitating both business and compliance success:

  • You can’t be effective if you are “Dr. No.” If the business you support knows that your answer will always be “No,” business people will eventually stop asking the questions. When challenging compliance issues arise, it is important to engage and educate the business, while partnering to try and find a workable solution that alleviates compliance concern while allowing the business to move forward. Show that you share the same goal, or you are likely to be isolated and circumvented.
  • Compliance is about risk mitigation, not risk eliminationIf humans are involved, you cannot eliminate all risk. If you try to do so, you will become an obstacle the business will seek to avoid, rather than an advisor the business trusts and seeks out for counsel.
  • Government interactions are not a red flag, but do require thoughtfulness. Interactions with government officials are an inevitable part of any business, particularly when operating across borders. They are also high-risk from an anti-corruption perspective, and therefore merit close attention. But their presence in business activities is not a red flag in and of itself. Approach them with care, but respect that they are often part of the business as usual.
  • Red flags are not by definition insurmountable. As the name suggests, a red flag is a warning sign, not a sign of surrender. The key is to examine the facts and circumstances, dig as necessary to gain the full picture, and assess whether you can move forward comfortably. In many circumstances, what at first blush may appear to be a significant issue can be easily addressed through contract terms, certifications, training, staffing decisions or other modifications that mitigate the risk in a demonstrable and well-documented manner.
  • There is almost always a path to the desired result. When a legitimate business initiative conflicts with a compliance concern, there is likely some solution that can accomplish the goals of all involved. Any well-trained lawyer or compliance professional can create hard-and-fast rules or take the easy path to “No.” Those who are most effective will take the business’ goal as their own, and seek a way around the potential impasse that maintains their standards of risk aversion while supporting the success of the enterprise.

Compliance professionals, like the businesses they support, must constantly evolve and adapt as their environments change. That includes periodically assessing whether their approach to risk management is tuned appropriately to the needs, initiatives and footprints of the business at issue. That is never easy, but it is vital because overcorrecting in either direction can lead to the same result — failure of your program to prevent, detect and respond to the risks it is designed to address.

This post was originally published on the FCPA Blog.

CFPB, Financial Regulation

CFPB Shines Spotlight on Credit Card Complaints

The 77006468.jpegConsumer Financial Protection Bureau (CFPB) recently released its monthly Complaint Report for October, in which the CFPB focuses heavily on credit card companies, specifically calling attention to cardholder complaints alleging unfairness and lack of understanding of credit products or practices.  The heavy volume of complaints of this type may forewarn increased CFPB scrutiny of the practices at issue, even if technically lawful.

The CFPB started taking consumer complaints as soon as it got off the ground in 2011.  In 2012, it launched a Consumer Complaint Database.  Since that time, the CFPB has fielded more than 700,000 complaints.  According to the CFPB, a company has 15 days to respond initially to both the consumer and the CFPB and is expected to close all but the most complicated complaints within 60 days.  In general, most credit card issuers respond in a timely manner.

The most recent complaint report indicates that credit card complaints are on the rise; up approximately 23 percent since this time last year, with billing disputes topping the list with 16 percent of credit card complaints received.  Customer confusion is the root of the billing dispute complaints, according to the report.  Under Regulation Z (12 CFR Part 1026), which governs disclosures related to billing error rights,  credit card issuers are required to provide a billing rights summary to the cardholder at account opening.  In addition, each account statement must contain an address for billing-error inquiries and, at a minimum, an indication of the general purpose for the address.  Even with these disclosures, the report suggests customers are confused as to their rights and responsibilities regarding statement billing errors.

The report flags five additional areas of concern:

  1. Confusion regarding how late fees are assessed and payment cut-off times
  2. Confusion on how deferred interest programs work
  3. Allocation of payments
  4. Accounts closed without prior notice
  5. Credit limit decreases without prior notice

Many of these kinds of complaints result from cardholders’ lack of understanding of what, how and when card issuers take action on cardholder accounts, and suggest that complaining cardholders often perceive that they are not treated fairly.

Although not all of the complaint categories spotlighted indicate potential regulatory violations, these statistics suggest mere technical compliance with laws and regulations will not shield an issuer from customer dissatisfaction and regulatory attention.  The CFPB can take action against any practice it deems unfair, deceptive or abusive to a consumer pursuant to the UDAAP principles codified in the Dodd-Frank Act.  The same act that launched the CFPB defines its purpose, objective and functions and gives it the ability to investigate and take action against issuers on otherwise lawful practices it determines are unfair to the consumer.  Indeed, the CFPB has repeatedly emphasized that this is its approach.  For example, during an April 2015 panel discussion at the Practicing Law Institute’s 20th Annual Consumer Financial Services Institute, Peggy Twohig, the CFPB’s assistant director for supervision policy, explained that the CFPB approaches the exam process with an eye toward risk to the consumer.

Twohig’s comments are consistent with CFPB Director Richard Cordray’s stated view on the value of complaints:

Each complaint that people take time to submit to the Consumer Bureau can provide invaluable information and insight. Consumer complaint data is part of our DNA and these complaints play an important role in our supervision of companies, our enforcement actions, our rulemakings, and our engagement with servicemembers, students, the economically vulnerable, and older Americans. Each complaint is a chance for us to evaluate a perceived problem and see if it can be addressed successfully. But more importantly, complaints make all the difference by informing our work and helping us identify and prioritize problems. We know that if we hear about the same problem from fifty consumers, it likely looms larger than if we hear about it only from one or two.

The bad news for issuers is that credit card complaints are on the rise. The good news could be that they have a clear window into the next wave of exam activity.