CFPB News: MOUs, Automated Underwriting, Settlements, Payday Rule Delay

Financial Services Law

In another busy stretch for the Consumer Financial Protection Bureau (CFPB or Bureau), lawmakers reached out to the Bureau and the Department of Education (DOE) regarding protections for student borrowers, while the CFPB and the New York attorney general reached a $60 million deal with a group of defendants accused of debt collection violations.

The CFPB also continued its focus on rulemaking with an extension of the time to comment on its proposed debt collection rules, and offered support for the use of alternative data and machine learning in underwriting.Meanwhile, a Texas federal court extended its stay of the Payday Rule, and the CFPB again updated its TRID FAQs (discussed here).

What happened

The Bureau has been busy on multiple fronts.

  • Student loans: Sens. Patty Murray (D-Wash.) and Sherrod Brown (D-Ohio) wrote to Bureau Director Kathy Kraninger and DOE Secretary Betsy DeVos, seeking an explanation as to why the agencies stopped working together on issues related to student loans.

    As required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, the two agencies are required to work in conjunction to “resolve complaints related to [borrowers’] private education or federal student loans,” with specific instructions to enter into a memorandum of understanding (MOU). Although the CFPB and DOE did have an agreement in place, the DOE terminated it in August 2017.

    The DOE stated that it terminated the MOU because the Bureau stopped sending complaints related to federal student loans within 10 days of receipt. But the CFPB disputed that it ever ceased sharing borrower complaints, with former Director Richard Cordray explaining that the Bureau made the complaints available to the DOE electronically, in near-real time.

    Kraninger backed up this statement, adding that the complaints were referred to the DOE through a secure web portal.

    In addition to the difference of opinion on why the MOU was terminated, the agencies provided different stories on reestablishing the agreement. Both Cordray and Kraninger indicated a willingness to work toward a new MOU, while the DOE told Congress that the “CFPB has not formally attempted to reestablish an MOU.”

    Tired of the conflicting accounts, the lawmakers demanded “a clear and immediate explanation” of the basis for the termination of the MOU, whether attempts have been made to reestablish the agreement, what issues still need to be resolved in order to reestablish the MOU, and an expected timeline for reestablishing it.

    “Far too many student borrowers are being taken advantage of by predatory student loan companies and it is imperative that the Department and the CFPB coordinate to stop bad actors and ensure borrowers have the help they need to manage their student debt,” Sens. Murray and Brown wrote. “We expect your agencies to work together to resolve any outstanding issues.”
  • $60 million settlement: Together with the New York AG’s office, the CFPB reached proposed settlements with two individuals and three corporate entities the regulators said ran afoul of the Consumer Financial Protection Act (CFPA), Fair Debt Collection Practices Act (FDCPA) and New York state law.

    According to the complaint filed in 2016, the Buffalo-based defendants purchased millions of dollars’ worth of consumer debt, inflated the debt, and then relied on illegal tactics in their attempts to collect the debt. Together, the defendants had a network of at least 60 debt collection firms, the regulators said, which misrepresented to consumers that they owed amounts they did not owe, were not obligated to pay, or that the companies did not have the legal right to collect.

    Other unlawful collection efforts included falsely threatening consumers with legal action that the collectors had no intention of taking and the impersonation of law enforcement officials, government agencies and court officers.

    Pursuant to the proposed settlements, all of the defendants would be banned from the industry and permanently enjoined from engaging in any misrepresentation or omission in connection with any consumer financial product or service.

    Two corporate entities and one individual defendant would be required to pay a total of $60 million: $40 million in redress, with a $10 million civil money penalty to both the CFPB and New York AG.

    The remaining corporate and individual defendant would be on the hook for $4 million in redress and civil money penalties to both regulators of $1 million, although full payment would be suspended subject to the defendants paying a $1 civil money penalty to the Bureau and $10,000 for consumer redress.
  • Reg F comment period extended. The CFPB has been working on several rules in recent weeks—issuing an advance notice of proposed rulemaking relating to its proposal to allow expiration of the temporary qualified mortgage provision granted to Fannie Mae and Freddie Mac as part of the Ability to Repay/Qualified Mortgage (ATR/QM) Rule and reopening the comment period for certain comments on Regulation C, implementing the Home Mortgage Disclosure Act (HMDA)—and continued its effort with an extension of time to comment on the notice of proposed rulemaking (NPRM) implementing the Fair Debt Collection Practices Act (FDCPA).
  • The current Regulation F proposal would set bright-line limits on the number of calls debt collectors may place to reach consumers on a weekly basis, clarify requirements for certain consumer-facing debt collection disclosures, and apply prohibitions on harassment or abuse, false or misleading representations and unfair practices in debt collection.

    Comments will now be accepted until September 18.
  • Artificial intelligence:  Meanwhile, in an interesting CFPB blog post, the Bureau demonstrated its support for the use of machine learning and alternative data as a means of underwriting consumer loans.  The post arrives just under two years after the CFPB issued its first no-action letter to Upstart Network based upon that company’s commitment to address consumer risks in its own alternative data and machine learning underwriting algorithms.
  • Payday Rule Delayed Again:  As we previously reported, the CFPB delayed the mandatory underwriting provisions of the Payday Rule to November 2020 but kept the payments provisions as of August 19, 2019.  Now, the same Texas district court that previously stayed the rule following a challenge by two trade groups has likewise stayed the August 19 compliance date, both for payments and ability-to-repay. The court ordered a further status report by December 6, so the stay will remain in effect for at least that long.

To read the letter from the senators, click here.

To read about the proposed settlements, click here.

To read the NPRM on debt collection, click here.

To read the CFPB blog post, click here.

To view a copy of the Texas court order, click here.

Why it matters

Perhaps the biggest news here is the Bureau’s new direction on machine learning and alternative data.The Cordray era revealed skepticism among the initial CFPB leadership in such processes, but the Kraninger-led (and sandbox-friendly) Bureau has shown itself open to the technology.That said, regulated entities should continue to exercise caution here, as the CFPB could shift away from this approach if consumer harm emerges as a result.