The Consumer Financial Protection Bureau (CFPB) was a hive of busy bees last year kicking some serious butt including credit card issuers, mortgage lenders, payday loans, bank deposit advance loans, collection agencies, to name a few. All for bad business practices that were determined harmful to American consumers.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) established the CFPB.
Here is a review of the CFPB achievements in 2013 related to the consumer payments and lending business:
GE Capital Retail Bank and its subsidiary, CareCredit are ordered in December to refund up to $34.1 million by the CFPB to potentially more than 1 million consumers who were victims of deceptive credit card enrollment tactics. At doctors’ and dentists’ offices around the country, consumers were signed up for CareCredit credit cards they thought were interest free, but were actually accruing interest that kicked in if the full balance was not paid at the end of a promotional period.
American Express was ordered in December by the CFPB to refund an estimated $59.5 million to more than 335,000 consumers for illegal credit card practices. These practices included unfair billing tactics and deceptive marketing with respect to credit card “add-on products” such as payment protection and credit monitoring. American Express also agreed to pay an additional $9.6 million in civil penalties to the CFPB.
Also in December, the CFPB released preliminary research on the use of arbitration clauses in connection with consumer financial products and services. The research indicates that arbitration clauses are commonly used by large banks in credit card and checking account agreements and that roughly 9 out of 10 clauses allow banks to prevent consumers from participating in class actions. The research also shows that while tens of millions of consumers are subject to arbitration clauses in the markets the CFPB studied, on average, consumers filed 300 disputes in these markets each year between 2010 and 2012 with the leading arbitration association.
In November the CFPB took its first enforcement action against a payday lender by ordering Cash America to refund consumers for robo-signing court documents in debt collection lawsuits. The CFPB also found that Cash America – one of the largest short-term, small-dollar lenders in the country – violated the Military Lending Act by illegally overcharging servicemembers and their families. Cash America will pay up to $14 million in refunds to consumers and it will pay a $5 million fine for these violations and for destroying records in advance of the CFPB’s examination.
Also in November, the CFPB took the first step toward considering consumer protection rules for the debt collection market. Through its Advance Notice of Proposed Rulemaking, the CFPB began collecting information on a wide array of issues, including the accuracy of information used by debt collectors, how to ensure consumers know their rights, and the communication tactics collectors employ to recover debts. The Bureau also said it will begin adding consumer complaints about debt collections to its public Consumer Complaint Database.
In October the CFPB launched a nationwide multimedia campaign to inform consumers who send money internationally about new protections that went into effect last year. Consumers who make transfers covered by the new remittance rule will receive a number of new protections, including: free, upfront information about the exchange rate, fees, and taxes they will pay; Information on the amount to be received; the right to cancel most transfers within thirty minutes at no cost; and 180 days to report errors to the company, the right to an investigation, and a remedy for certain types of errors.
The CFPB in October levied an enforcement action against Meracord a major debt-settlement payment processor, for allegedly helping others to collect millions of dollars in illegal upfront fees from consumers. The CFPB asked a federal district court to approve a consent order that would require Meracord and its CEO and owner, Linda Remsberg, to halt all illegal activities and to pay a $1.376 million civil penalty.
In early October the CFPB released a report detailing how the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) reduced penalty fees and made the cost of credit cards clearer to consumers. The report found that total cost of credit declined by two percentage points between 2008 and 2012 but that there are still areas of concern in the credit card market. The CARD Act was signed into law in May 2009 with the intent of establishing fair and transparent practices in the credit card market.
The CFPB ordered Chase Bank in early October to refund an estimated $309 million to more than 2.1 million customers for illegal credit card practices. This enforcement action is the result of work started by the Office of the Comptroller of the Currency (OCC), which the CFPB joined last year. The agencies found that Chase engaged in unfair billing practices for certain credit card “add-on products” by charging consumers for credit monitoring services that they did not receive.
In September the CFPB released guidelines to its examiners on how to identify consumer harm and risks related to Military Lending Act violations when supervising payday lenders. The CFPB is committed to ensuring that payday lenders comply with the Act, which provides greater protections for military families, including capping annual percentage rates at 36 percent. The new guidelines are included in an updated exam manual that the CFPB released for the short-term, small-dollar lending industry.
On September 12 the CFPB published a bulletin reminding employers that they cannot require their employees to receive wages on a payroll card. The bulletin also explains some of the federal consumer protections that apply to payroll cards, such as fee disclosure, access to account history, limited liability for unauthorized use, and error resolution rights. The CFPB has heard reports of employers, particularly in the retail and food service industries, distributing wages solely through payroll cards. Federal law, however, prohibits employers from mandating that employees receive wages exclusively on a payroll card. Some employees receiving wages on employer-sponsored payroll cards have complained of unexpected fees for activities such as ATM use, teller withdrawals, and checking the balance of a card.
The CFPB, during the summer of 2013, put on notice companies that supply information to consumer reporting companies. The CFPB released a bulletin in September stressing that, under the law, these companies, called furnishers, are responsible for investigating consumer disputes forwarded by the consumer reporting companies. Furnishers are also responsible for reviewing all relevant information provided with the disputes, including documents submitted by consumers.
In July the CFPB issued a rule that establishes procedures to bring under its supervisory authority certain nonbanks whose activities it has reasonable cause to determine pose risks to consumers. Nonbanks subject to the rule are companies that offer or provide consumer financial products or services but do not have a bank, thrift, or credit union charter. This rule outlines procedures to notify a nonbank that it is being considered for supervision because the CFPB may have reasonable cause to determine that it poses a risk to consumers.
In June, the CFPB released a report on bank and credit union overdraft practices that raises concerns about whether the overdraft costs on consumer checking accounts can be anticipated and avoided. The report shows big differences across financial institutions when it comes to overdraft coverage on debit card transactions and ATM withdrawals, drawing into question how banks sell this account feature. The report also finds that consumers who opt in for overdraft coverage end up with more costs and more involuntary account closures.
The CFPB in May filed a complaint in a federal district court against a Florida debt-relief company that misled consumers across the country and charged illegal fees for their services. The Bureau plans to submit a proposed consent order that, if approved by the court, would halt the company’s operation, prevent the company and owner from providing debt-relief services in the future, and impose a $15,000 civil penalty fine. A CFPB investigation found that American Debt Settlement Solutions and its owner Michael DiPanni routinely charged consumers illegal upfront fees for debt-relief services that rarely, if ever, materialized. In total, the CFPB believes that in the course of their illegal conduct, the defendants charged approximately $500,000 in fees to hundreds of consumers in multiple states. The proposed consent order would award a judgment against the company of approximately $500,000, which would be suspended based on the company’s inability to pay.
Also in May the CFPB finalized rules to facilitate access to credit by creating specific exemptions and modifications to the CFPB’s Ability-to-Repay rule for small creditors, community development lenders, and housing stabilization programs. The amendments also revised rules on how to calculate loan origination compensation for certain purposes. The final rule amends the CFPB’s Ability-to-Repay rule, which was finalized in January of this year.
In late May the CFPB filed a complaint in a federal district court in New York against two debt-relief service providers that allegedly charged consumers illegal advance fees for debt-settlement services. The Bureau is seeking to halt the operations and to obtain both penalties and relief for victims. According to the CFPB complaint, the defendants, Mission Settlement Agency and related entities and individuals, and Premier Consultant Group along with a related entity, routinely charged consumers upfront fees prior to settling the consumers’ debts. These illegal fees and the companies’ failures to provide effective services often caused consumers to fall further into debt and harm their credit history in the process. Mission is based in New York and Premier is based in New Jersey.
In April the CFPB updated existing regulations to make it easier for spouses or partners who do not work outside of the home to qualify for credit cards. The amendment, first proposed by the CFPB in October 2012, allows credit card issuers to consider income that a stay-at-home applicant, who is 21 or older, shares with a spouse or partner when evaluating the applicant for a new account or increased credit limit. The Credit Card Accountability Responsibility and Disclosure Act (CARD Act) became law in 2009. The CARD Act requires that card issuers evaluate a consumer’s ability to pay before opening a new credit card account or increasing a credit limit. Under the current CARD Act regulations, a card issuer generally may only consider the individual card applicant’s independent income or assets.
In April. the CFPB issued a report on payday and deposit advance loans finding that for many consumers these products lead to a cycle of indebtedness. Loose lending standards, high costs, and risky loan structures may contribute to the sustained use of these products which can trap borrowers in debt. The report found that payday loans and the deposit advance loans offered by a small but growing number of banks and other depository institutions are generally similar in structure, purpose, and the consumer protection concerns they raise. Both are typically described as a way to bridge a cash flow shortage between paychecks or other income.
In January the CFPB launched an inquiry into the impact of financial products marketed to students through colleges and universities. The CFPB says it will use the information gathered to determine whether these arrangements are in the best interest of students. The Credit CARD Act of 2009 restricted financial institutions from using certain types of marketing practices on college campuses. The CARD Act also made agreements between credit card issuers and institutions of higher education subject to public disclosure. Campus financial products include student identification cards that double as debit cards, cards used to access scholarships and student loans, and school-affiliated bank accounts.
FOR MORE INFORMATION ON THE CFPB VISIT WWW.CONSUMERFINANCE.GOV
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R. McKinley
Staff Writer at CardTrak.com Inc.
Robert McKinley is considered one of the foremost authorities on payment products and systems with nearly 25 years of experience in the day-to-day analyses of the payments industry.
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