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CFPB Director Kraninger – 2019 Listening Tour and Bureau Priorities

On December 11, 2018 Kathleen Kraninger, the new Director of the Bureau of Consumer Financial Protection, held a media conference. She introduced herself and answered media questions. Subsequent headlines have focused on among other things: (a) whether she would simply follow the recent course set by her predecessor Acting Director Mick Mulvaney, and (b) whether the Bureau’s recent name change would stick. Director Kraninger’s comments appeared to signal accountability, independence and curiosity. The impact on regulated institutions in 2019 and beyond remains to unfold. Here are some developments to watch in 2019.

Listening Tour 2019. Kraninger will be engaging in a listening tour to get to know the 1500 employees in the Bureau. For example, she plans to visit to San Francisco, Chicago, New York regional offices. She also indicated that she intends to connect with other regulators and constituencies including, state regulators, other related federal agencies, consumer advocates and regulated institutions.   She also indicated she will work to have a productive relationship with House Financial Services Committee and its incoming chair Maxine Waters. Earlier this month, Waters released a statement requesting Kraninger undertake specific initiatives “to put consumers first by rolling back the anti-consumer actions taken by her predecessor and allowing the Consumer Bureau to resume its work of protecting hardworking Americans from unfair, deceptive or abusive practices.”   New staffing alignments and other strategic changes may be borne form this listening tour.

Believes Regulated Industry Wants to Comply. In a nod to industry, Kraninger noted that institutions want to comply with consumer protection laws. The Bureau needs to give institutions clear rules in her view. However, she also signaled strong action for outliers, indicating that enforcement is a critical function and tool of the Bureau “fundamental to the agency’s mission.”  She also noted that “bad actors” should expect repercussions under her watch.

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A Litigator’s KISS Takeaways from CFPB’s Summer 2018 Supervisory Highlights

KISS. An acronym first utilized in military equipment design in the 1960’s, “Keep it Simple Stupid.” Litigators rely on KISS in formulating trial themes and presentations to juries. Simple messages resonate. In that vein, I offer three KISS takeaways from the Bureau of Consumer Financial Protection’s Supervisory Highlights, Issue 17, Summer 2018.

KISS #1: Details Matter. 

On two key levels: (a) your business compliance operations and consumer interactions, and (b) in the Bureau’s supervision and examination conclusions. Taking these in reverse order, the Bureau’s Introduction (p. 2) provides important guardrails:

[L]egal violations described in this and previous issues of Supervisory Highlights are based on the particular facts and circumstances reviewed by the Bureau as part of its examinations. A conclusion that a legal violation exists on the facts and circumstances described here may not lead to such a finding under different facts and circumstances.

This is critical to your supervision and examination preparedness and your interactions with the Bureau.  If the Bureau spots a concern, consider providing a fulsome explanation of the analysis that went into the policy formulation, how your organization believed it was operating in good faith under applicable laws and believed that the practice would not harm or mislead consumers, what steps your organization has done in monitoring and addressing any consumer concerns regarding the policy or practice. This may sound basic, but the Bureau’s statement matters and can be referenced. The Bureau should, in my view, consider such information in assessing whether any violation has occurred, whether any consumers actually were harmed and whether any remediation is necessary. Sometimes the conclusion may be that the practice presents a risk of potential confusion or harm and simply should be modified going forward. Present your best case; the Bureau appears to be open to considering all the facts and circumstances.

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CFPB’s Delay in Announcing Further Delay of the Prepaid Card Rule

The Consumer Financial Protection Bureau has issued a brief press announcement that the Prepaid Card Rule would be further revised and that the effective date for compliance will be further postponed from the current deadline in April 2018.

The announcement creates more worry than relief – it’s just a tease. The announcement did not say what changes would be made or when the new deadline will be. It only said that amendments to “certain aspects” of the rule would be coming “soon after the new year.”  No doubt the Bureau meant for this announcement to be helpful to someone, but it is not clear if anyone is actually helped.

Prepaid card issuers are scrambling to implement the systems changes and new business processes necessary to support the sweeping changes required by the rule. With this announcement, they must now wonder which of those efforts will turn out to be wasted, or perhaps need to be re-worked, and they can’t pause pursuing any specific implementation efforts until the actual amendments are published. Are they supposed to trust that the extra time to be allowed by the CFPB will be sufficient to accommodate this pivot?

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New CFPB Rule Prohibits Class Action Waivers

On July 10, 2017, the Consumer Financial Protection Bureau (CFPB) released a rule prohibiting class action waivers in certain pre-dispute arbitration agreements. The rule drastically impacts arbitration clauses currently used by many financial products and services providers in their consumer agreements.

The rule has three main components. First, the rule prohibits providers from using a pre-dispute arbitration agreement to prevent consumers from bringing or participating in class actions in federal and state court. Second, the rule requires that arbitration agreements inform consumers that their right to bring a class action is unrestricted. Third, the rule requires providers to supply certain records and data relating to arbitral proceedings to the CFPB.

The rule is effective 60 days after publication in the Federal Register and generally applies to agreements entered into more than 180 days after the effective date. Congress, however, can use the Congressional Review Act to prevent the rule from taking effect.

What is the effect of the rule?

The new rule prohibits pre-dispute arbitration agreements for certain consumer financial products or services that block consumer class actions in federal and state courts. The rule accomplishes this in two ways:

  1. providers cannot rely on any pre-dispute arbitration agreement entered after the compliance date that restricts or eliminates a consumer’s right to a class action in state or federal court (§ 1040.4(a)(1)); and
  2. providers must include certain specified plain language in arbitration agreements that explicitly disclaims the arbitration agreements applicability to class actions (§ 1040.4(a)(2)).

The rule also requires providers to submit certain records relating to arbitral proceedings to the bureau, including copies of pleadings, the pre-dispute arbitration agreement, and the judgment. (§ 1040(b).)

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CFPB Customer Complaint Data: Seeing What the Plaintiffs’ Bar Sees

CFPB watchers know that since 2013 customer complaints have been solicited and complaint data has been made available on the CFPB website. January is ubiquitous with New Year’s resolutions (perhaps you’ve already broken all of yours, but hopefully not). It is a great time to review the 2016 customer complaint data and see what the Plaintiffs’ Bar sees about your customers and your institution.

Undoubtedly, in due course, the CFPB has contacted your compliance and legal teams directly about these consumer complaints on an individualized basis. And undoubtedly, you have investigated the issue and provided responsive information to the CFPB and the consumer. Hopefully, each individual customer complaint matter is resolved and closed.

As a class action litigator, however, it is important to highlight that there is more here than just each individual complaint. We are living in an age of big data. The CFPB knows it. Your institution knows it. And, guess what, the Plaintiffs’ Bar knows it. The individual complaints posted to the CFPB database may be only the tip of the iceberg, or the issues may not have been fully resolved.

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Complying with the Rules When Posting Privacy Notices Online

On October 28, 2014, the CFPB amended the consumer privacy rules of Regulation P to allow financial institutions to post privacy notices online rather than mailing the required annual notice each year.  Some institutions are already taking advantage of this alternate delivery method.  There are conditions to this option, however, and some institutions might not be satisfying those conditions.  It is important to confirm that your institution is meeting the following conditions if you have decided to take advantage of the new rule:

  1. No Opt Outs.  The alternate delivery method can be used only if you do not share your customers’ information in any way for which the customer has the right to opt out under Regulation P or Section 603(d)(2)(A)(iii) of the Fair Credit Reporting Act (FCRA).  This provision of the FCRA is the one under which information that otherwise would be a “consumer report,” such as credit experience with third parties, may be shared with an affiliate for other than marketing purposes so long as the consumer is given an opt-out right.
  2. Satisfy the FCRA Affiliate Sharing Rules.  You must have previously satisfied the affiliate sharing rules of Section 624 of the FCRA or you do so other than by delivery of the annual Regulation P privacy notice.  This provision seems to cause some confusion.  Section 624 of the FCRA is the provision under which an affiliate of a financial institution that receives certain information (such as transaction information) may not use that information for marketing purposes unless the consumer is notified of such use and given a chance to opt out.  The Section 624 notice would only need to be given one time so long as an institution honors consumers’ opt outs indefinitely, or could be delivered other than as part of a Regulation P privacy notice.  Therefore, so long as you are not relying on the annual Regulation P privacy notice to satisfy Section 624, you satisfy this condition to the alternate method for delivery of your annual Regulation P notice.
  3. No Changes to the Notice.  The privacy notice you post online cannot have changed since consumers received the immediately previous notice, other than to eliminate categories of information that you disclose or categories of third parties to whom you disclose information.  So, for example, if you previously shared information in a way that required that you to offer the consumer an opt-out right, you could stop such sharing.  This would allow you to satisfy the no opt-out rule described above and post your modified privacy notice online.
  4. Model Notice.  You must use the model form of privacy notice included in Regulation P.
  5. Notify Consumers of the Posting.  You must notify your customers each year that your privacy notice is available online and that it will be mailed to customers who request it by telephone.  This notice can be provided on an account statement, coupon book, or any other notice or disclosure that you are required or expressly and specifically permitted to issue to the customer under any other provision of law.
  6. Post the Notice Continuously in a Public Location.  Your privacy notice must be posted continuously and in a clear and conspicuous manner on a page of your Web site that consists only of the privacy notice and that can be accessed by consumers without having to log in, provide a password or agree to any conditions.
  7. Mail Upon Request.  If any customer requests a copy of the privacy notice by telephone, you must mail it to him or her within 10 days.

This alternate method for delivery of the annual Regulation P privacy notice will be attractive to many financial institutions, but don’t forget these conditions to this method.

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New CFPB Disclosure Requirements Come Up Short

On October 28, 2014, the Consumer Financial Protection Bureau (“CFPB”) issued a final rule amending Regulation P (the “Amendment”), which implements the consumer privacy provisions of the Gramm-Leach-Bliley Act (“GLBA”).  In most cases prior to the amendment, Regulation P required financial institutions to mail paper copies of the annual privacy disclosure, which many in the financial industry felt was overly costly and needlessly burdensome.  The new rule permits covered institutions to publish privacy notices electronically on their websites, but only after satisfying the following conditions:

  1. The financial institution does not disclose nonpublic personal information to nonaffiliated third parties other than for the exception purposes that do not allow for consumer opt-outs, such as for servicing or processing the consumer’s account;
  2. The financial institution’s information sharing practices do not trigger opt-out rights pursuant to Regulation P or Section 603 of the Fair Credit Reporting Act (“FCRA”);
  3. The requirements of the affiliate sharing provisions of FCRA Section 624, as applicable, were previously satisfied or the annual privacy notice is not the only notice provided to satisfy those requirements;
  4. The information contained in the privacy notice has not changed since the customer received the previous notice, except for changes to eliminate categories of information the institution disclosures or categories of third parties to whom the information is disclosed;
  5. The financial institution uses the model form provided in Regulation P as its annual privacy notice;
  6. The financial institution must make its customers aware that its privacy notice is available on its website, that it will mail a paper copy of the notice to customers who request it by calling a specific number, and that the notice has not changed since the prior year’s version.  The financial institution can satisfy this requirement by inserting, at least once per year, a clear and conspicuous statement on an account statement, a coupon book, or on a notice or disclosure required by any provision of law.  The statement must include a specific URL that can be used to access the website;
  7. The financial institution must continuously post the annual privacy notice in a clear and conspicuous manner on a page of its website, without requiring a login or similar steps or agreement to any conditions to access the notice; and
  8. The financial institution must mail, within ten days of a request, a paper copy of the notice to any customer who makes such request by telephone.

Importantly, if the financial institution changes its privacy practices or engages in information-sharing activities for which customers have a right to opt-out, it must use one of the permissible delivery methods that predated the rule change (paper notices or electronic with E-Sign consent).

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Welcome to 2015: Another Big Year for Consumer Financial Services Regulation

As we begin 2015, it is worth noting the various federal regulations that will or might take effect. This article summarizes the key regulations that took effect late in 2014, that will take effect in 2015, and that have at least some potential of taking effect in 2015. We focus here on those regulations directly impacting consumer financial services.

Rules Taking Effect in 2015 (and Late 2014)

Integrated Disclosures under the Real Estate Settlement Procedures Act (Regulation X) and Truth in Lending Act (Regulation Z)

Perhaps the most significant new consumer regulations to take effect in 2015 are the integrated disclosure regulations under the Real Estate Settlement Procedures Act (Regulation X) and Truth in Lending Act (Regulation Z) (the Final Integrated Disclosure Rule). Released on November 20, 2013, by the CFPB, the Final Integrated Disclosure Rule will be effective on August 1, 2015. 78 Fed.Reg. 79730, December 31, 2013. For loan applications received prior to August 1, 2015, the existing Regulation X and Regulation Z rules would apply and, for loan applications received on or after August 1, 2015, the new disclosure requirements would apply.

The Final Integrated Disclosure Rule consolidated the RESPA and TILA initial disclosures, and the RESPA and TILA loan closing disclosures for most closed-end consumer mortgage transactions, resulting in a single Loan Estimate disclosure and a single Closing Disclosure. The new rules do not apply to home equity lines of credit, reverse mortgages, or loans secured by a mobile home or other dwelling that is not attached to real property.

Countless articles and seminars have provided details of the Final Integrated Disclosure Rule, and vendors have stepped into the breach to provide the forms and systems needed to create new disclosures. This article therefore does not address the new Integrated Disclosure Rules in detail. However, a proposal issued on October 10, 2014, (the “October Proposal”) should be noted.

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CFPB Releases Revisions to International Remittance Transfer Regulations

The Consumer Financial Protection Bureau has just released its much anticipated revisions to the Regulation E provisions governing international remittance transfers.

According to the bureau’s press release, the revised rule makes optional the requirement to disclose foreign taxes and recipient institution fees (unless the recipient institution is the remittance transfer provider’s agent). It also makes clear that a remittance transfer provider does not bear the cost of funds deposited into the wrong account because the sender provided the wrong account number or routing number and certain other conditions are satisfied, although the provider is required to attempt to recover such funds.

The final rule will become effective October 28, 2013.

We are reviewing the full text of the revisions and will provide a more detailed analysis in the coming days.

The revised rule is available here.

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CFPB Proposes Amendments to Remittance Transfer Rules

The CFPB released its proposal to make several amendments to its remittance transfer rules and to briefly extend the effective date of the rule. The bureau’s proposal is “narrow in focus and intended to preserve the new consumer protections while facilitating compliance with the rule.” The proposed changes address:

—-Effective date.  The rules are currently slated to become effective on February 7, 2013. The bureau is proposing to temporarily delay the effective date of the rules until it finalizes changes made as a result of the proposal. The new effective date would be 90 days after the bureau finalizes the proposal.

According to the bureau, the extension should be sufficient for remittance transfer providers to implement necessary systems changes. The bureau also indicates that the extension “might also enable providers (and their vendors) to build solutions that cost less than those that might otherwise have been possible.” In addition, the bureau believes that remittance transfer providers “should be working toward implementing those portions of the Final Rule unaffected by this proposal during the interim period, for instance by continuing to research foreign central governments’ taxes.”

On the flip side, the bureau notes that the proposed changes “impose costs on [consumers who are] senders [of remittances] by delaying the time when they would receive the benefits of the Final Rule,” although senders will benefit to the extent the proposal’s changes eliminate disruptions in providing remittance transfer services.

—Errors resulting from incorrect account information provided by consumers sending remittance transfers.   One important improvement made in the proposal is the change to the error resolution procedures and liability that apply when a remittance transfer is not delivered to a designated recipient because the sender provided an incorrect account number to the remittance transfer provider, resulting in funds deposited into the wrong account. When a remittance transfer provider can demonstrate that a consumer provided an incorrect account number and the consumer had notice that the transfer amount could be lost if he/she provided an incorrect account number, the provider would be required to promptly use reasonable efforts to recover those misdirected funds but would not be liable for funds it is unable to recover.  Although this change requires prior notice to the consumer, that can be provided at the time of the transaction, offering a helpful safeguard to remittance providers.

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