A Look At cfpb
enforcement
actions
John L. Culhane, Jr.
Ballard Spahr LLP
1735 Market Street
51st Floor
Philadelphia, PA 19103
(215) 864-8535
culhane@ballardspahr.com
Christopher J. Willis
Ballard Spahr LLP
999 Peachtree Street
Suite 1000
Atlanta, GA 30309-3915
(678) 420-9436
willisc@ballardspahr.com
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CFPB Enforcement
Activity to Date
• Extremely active in enforcing consumer protection laws
• As of July 21st, $4.6B in relief for approximately 15M
consumers allegedly harmed by unlawful practices
• Another $150M in civil penalties as a result of CFPB
enforcement actions
• Actions touch every corner of the consumer financial services
industry
• The number of problems resolved through the
confidential supervisory examination process pales in
comparison
• As of July 21st, supervisory actions and self-reported
violations have result in $75M in remediation to to
approximately 775,000 consumers
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Overview of Outcomes
• Investigations rarely closed without an enforcement action
• Most investigations result in Consent Orders, not litigation
• Restitution and injunctive remedies are touted as holding
“bad actors accountable and help[ing] consumers harmed
by illegal practices”
• The outcomes almost invariably include a civil penalty
• Generally about 15% to 25% of the restitution amount
• Often include a requirement to report on increased
monitoring and training efforts; may include review of the
associated compliance program and enhancement of
procedures to prevent future violations
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Enforcement Themes
• Notwithstanding any shorter SOL, investigations generally
go back three to five years
• “Hurry up and wait” approach
• Sometimes technical compliance is a focal point but more
often the focus is on the UDAAP proscriptions, particularly
the proscription against deceptive acts or practices, and the
risk that the practice poses to consumers
• The outcome often includes “new” or “aspirational”
standards that are not required by law or likely not
obtainable in contested litigation
• The “Regulation by Consent Decree” phenomenon
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Enforcement Themes (cont.)
• An enforcement action may be accompanied by associated
“guidance” designed to underscore the industry or crossindustry nature of the issue; or “guidance” may be the
precursor to an enforcement action
• E.g., CFPB Bulletin 2012-06 (Marketing of Credit Card Add-On
Products), issued simultaneously with Capital One Consent Order
• E.g., CFPB Bulletin 2013-02 (Indirect Auto Lending and Compliance
with the Equal Credit Opportunity Act), touted as giving “fair
notice on fair lending”
• The use of Consent Orders to establish “new” or
“aspirational” industry standards is reminiscent of approach
historically taken by state attorneys general
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Responsible Conduct
• CFPB Bulletin 2013-06: Credit for Responsible Conduct
• Reality: Hard to discern readily apparent, positive
impact
• No objective proof of credit for responsible conduct
• CFPB claims responsible conduct influences decision, but no
way to test
• Remediation seems to be a strict liability standard
• But may still be the best course of action
• Lessen the desire to “punish” (i.e., impose civil penalties) or
the extent of the civil penalties
• Impact on the relationship going forward
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FTC DEBT COLLECTION
ENFORCEMENT ACTIVITY
• Growing emphasis on litigation and stronger remedies
• In 2013, FTC brought or resolved nine debt collection cases
and, in one, assessed largest civil penalty to date, $3.2M
• Focus on “new and troubling issues” in debt collection,
including text message-based collections and “phantom
debt” collections
• Same pattern continuing throughout 2014
• FTC has brought or resolved at least 15 cases so far, assessing
a $1.5M penalty in one and a $2.0M penalty in another
• Continued focus on “phantom debt” collections but also on
use of deception to assess convenience fees and to gain
access to bank accounts for payments
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Debt Collection
Enforcement (cont.)
• Recurring issues
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Failure to self-identify as debt collector
Failing to provide information in writing about the debt
Failure to follow FTC protocol for voicemail messages
Improper disclosure of debt to third parties (typically
family members, employers, and co-workers)
Harassing calls and repeated inconvenient or prohibited
calls
Ignoring “do not call” and “do not contact” directives
Assessment of unauthorized convenience fees
Unauthorized withdrawals from bank accounts
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DOJ SCRA ENFORCEMENT
ACTIVITY– SCRA Complaint
• Alleged “pattern or practice” of violations of Section 521 by:
• Obtaining 5 default judgments over five years without filing
affidavits and showing necessary facts to support same
• Alleged “pattern or practice” of violations of Section 527 by:
• Failing to lower rates after receiving written notice and
qualifying active duty orders
• Failing to make acceptable efforts to obtain qualifying active
military duty documents from servicemembers who
requested benefits but did not provide orders
• Failing to notify servicemembers that they might be eligible
for rate reductions when they provided their military
documents for other purposes
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The New SCRA Default
Judgment Rules
• Initial review within 2 business days before collection referral
• Search of DMDC data base and review of all information in
company’s possession, including customer notes
• For borrower in military service, no referral or referral only
with special warning
• Subsequent review after defendant’s failure to file timely answer
and within 2 business days before seeking default
• Search of DMDC data base and review of all information in
company’s possession, including customer notes
• For borrower in military service, file affidavit so stating,
attach DMDC certificate with date stamp no more than 2
business days before affidavit execution, and file copy of
orders if available
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The New SCRA Rate
Reduction Rules
• Accept as written notice (request):
• Military orders
• Request for military deferment or forbearance
• Submission through new online process
• Accept as military orders:
• Letter from commanding officer with specified information
• Results of search of DMDC database (required if notice and
no orders; for positive result – send notice of right to dispute
eligibility dates; for negative result – send notice requesting
copy of documents establishing service)
• Likely exception – federal student loans (DCL ID: GEN-14-16)
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Hot Regulatory and
Litigation Issues
• “Structurally unfair” allegations by CFPB and other
regulators (ITT, Corinthian cases)
• Underwriting: making loans (or certain loss mitigation
options) too easy vs. too difficult to obtain (UDAAP)
• Underwriting – cohort default rate and other schoolspecific variables (ECOA)
• Payment processing and payment application
(minimum payment, late fees, posting, failed debits,
allocation, multiple loans, etc.) (UDAAP)
• Application of prepayments and partial payments –
“pay ahead” or other; crediting or suspense (UDAAP)
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Hot Issues (cont.)
• ACH-related disclosures, especially when payments
change (EFTA)
• Treatment of military borrowers (SCRA, UDAAP)
• Letters/scripts and other collection issues, including
statements about bankruptcy (FDCPA and UDAAP)
• Loss mitigation options – imposing federal-like
requirements on private loans (deferment,
forbearance, rehabilitation, income-based repayment)
(UDAAP)
• Refinancing – disclosure of loss of benefits (UDAAP)
• Servicing transfers – notice of same and impact of
transfer on borrower benefits (UDAAP)
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Comments or questions
Thank you for having us speak today. If you have any
comments or questions, please contact us:
John L. Culhane, Jr.
Ballard Spahr LLP
1735 Market Street
51st Floor
Philadelphia, PA 19103
(215) 864-8535
culhane@ballardspahr.com
Christopher J. Willis
Ballard Spahr LLP
999 Peachtree Street
Suite 1000
Atlanta, GA 30309-3915
(678) 420-9436
willisc@ballardspahr.com
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