Nearly seven months into Mick Mulvaney’s tenure as Acting Director of the Bureau of Consumer Financial Protection (Bureau), the agency issued just its second enforcement action under his leadership on June 13, 2018. You may have missed it, as the press release was not pushed out through the Bureau’s email notifications and the cursory press release may have flown under your radar. The settlement is with a parent company and its subsidiaries that originated, provided, purchased, serviced, and collected on high-cost, short-term secured and unsecured consumer loans. The consent order contains allegations of violations of the prohibition on unfair practices under the Consumer Financial Protection Act and of the Fair Credit Reporting Act, and requires the respondents to pay a $5 million civil money penalty. Notably, the consent order does not require any consumer redress, despite Mr. Mulvaney’s stated intent to only pursue cases with “quantifiable and unavoidable” harm to consumers.

Debt Collection Practices

The Bureau alleges that respondents engaged in unfair in-person debt collection practices, including discussing debts in public, leaving the respondents’ “field cards” (presumably identifying the respondents) with third parties (including the consumers’ children and neighbors), and visiting consumers’ places of employment. The Bureau alleges that these practices were unfair because they caused substantial injury such as humiliation, inconvenience, and reputational damage; consumers could not reasonably avoid the harm because consumers were not informed of whether and when such visits would occur and could not stop respondents from engaging in the visits; and any potential benefit in the form of recoveries were outweighed by the substantial injury to consumers. The consent order notes that respondent attempted 12 million in-person visits to more than 1.3 million consumers over a five-year period, and requires respondents to cease in-person collection visits at consumers’ homes, places of employment, and public places.

The Bureau also alleges that the respondents made collection calls to consumers at their places of employment even after being told that the consumers could not receive calls at work, and called third parties in a manner that risked disclosing the debts. The Bureau further alleges that respondents did not heed cease-contact requests with respect to these parties. The Bureau alleges that such practices were unfair for the same reasons as the in-person collection practices described above.

Despite Mr. Mulvaney’s emphatic rejection of regulation by enforcement, the debt collection allegations in this consent order center around practices that lack any formal rulemaking. First, it appears that the Bureau is applying the guidance issued in its December 2015 bulletin, regarding unfair, deceptive and abusive acts and practices (UDAAP), which notes that in-person debt collection practices at consumers’ homes or places of employment can result in violations of the prohibition on UDAAP and the FDCPA due to the risk of disclosure of debts to third parties and the risk that such communications are at a time or place known to be inconvenient to the consumer. Second, the Bureau appears to be applying its July 2013 bulletin, which notes that prohibited practices under the FDCPA can be considered UDAAPs when employed by first-party debt collectors. Finally, the allegations suggest that the Bureau believes that debt collectors should inform consumers of their policies or practices regarding in-person collection visits despite no regulatory requirement to do so.

Credit Furnishing Practices

The Bureau alleges that respondents did not have in place any written policies and procedures regarding credit furnishing. The Bureau further alleges that the respondents furnished inaccurate information to credit reporting agencies, were slow to correct errors, overwrote corrected errors, and failed to furnish the date of first delinquency on certain accounts to credit reporting agencies. The consent order requires the respondents to consult an independent consultant to implement and maintain reasonable credit furnishing policies and procedures and to review all information furnished to a credit reporting agency since July 21, 2011.

More of the Same?

The settlement has many of the familiar trappings of the old Bureau in terms of the kind of conduct at issue and the corrective action required of the respondents (a Compliance Plan, etc.). But the consent order also reflects what appear to be new approaches to some issues. The consent order’s description of how the respondents’ actions were unfair, for example, is more fulsome than prior consent orders, including an acknowledgement that the collection tactics at issue may have a “marginal benefit in the form of more recoveries.” While this suggests that Mr. Mulvaney’s Bureau may be more thoroughly considering the third prong of unfairness (which requires a balancing of likely consumer injury with advantages to consumers or competition) than the previous leadership, the consent order still summarily concludes that the “marginal benefit” does not outweigh likely consumer injury. This conclusion is not supported by any empirical findings, notwithstanding Mr. Mulvaney’s assertion that the Bureau will engage in more quantitative analysis and his establishment of an Office of Cost Benefit Analysis. Time will tell whether the move to empirical analysis will be limited to rulemaking or will make its way to the enforcement realm as well.

Additionally, despite the allegations of substantial injury from the debt collection conduct at issue, the consent order does not require any financial consumer redress or cancellation of debts for impacted consumers. While the Bureau has been inconsistent in this regard in its past debt collection actions, it has typically required such consumer redress. For example, in a prior action involving in-person debt collection, the Bureau required that consumers be refunded any payments made within 90 days of an in-person collection visit.

It is dangerous to read too much into any one enforcement action, but what does appear clear is that the Bureau’s enforcement machinery is slowly creaking back to life after a near-freeze at the beginning of Mr. Mulvaney’s tenure. Future actions will reveal whether he was serious about there being “more math” (i.e., quantitative analysis) in the Bureau’s future and whether this action reflects a new approach to consumer redress.

Last week, we wrote about how the Bureau of Consumer Financial Protection (“Bureau”) under Acting Director Mick Mulvaney had surprisingly doubled down on claims of unfair, deceptive and abusive practices (“UDAAP”) brought under former Director Richard Cordray in a case against a lead aggregator (back when the Bureau referred to itself as the Consumer Financial Protection Bureau). As if to prove the point that the Bureau is not backing off aggressive UDAAP claims, the very next day the Bureau filed a brief  in another case similarly supporting novel UDAAP claims brought under Cordray. The Bureau’s brief was filed in opposition to a motion to dismiss by defendants Think Finance, LLC and related entities. The case involves Bureau claims that Think Finance engaged in unfair, deceptive and abusive conduct when it attempted to collect on loans that were, according to the Bureau, void under state law. Continue Reading UDAAP Strikes Again: The New BCFP Seems a Lot Like the Old CFPB

Much has been written about Mick Mulvaney’s statements about how the Consumer Financial Protection Bureau (CFPB) will no longer “push the envelope” when it comes to enforcement and no longer engage in “regulation by enforcement.” But a little-noticed filing by the CFPB in the Ninth Circuit last month suggests that the CFPB is not necessarily scaling back its enforcement efforts with respect to novel claims under its authority to prevent unfair, deceptive, and abusive acts and practices (UDAAP). Continue Reading Meet the New Boss; Same as the Old Boss? The CFPB’s Take on UDAAP Might Surprise You

Several of Mayer Brown’s Consumer Financial Services lawyers will be featured at the upcoming Legal Issues and Regulatory Compliance Conference in Los Angeles, sponsored by the Mortgage Bankers Association.

On Sunday, April 29th, Ori Lev will participate on a panel analyzing unfair, deceptive, or abusive acts or practices (UDAAP), as part of the conference’s Applied Compliance track.

On Monday, April 30th, Kris Kully will participate in a panel attempting to look on the bright side of HMDA — how understanding that additional data will be useful not just for lenders’ compliance function, but also for production growth, and perhaps even operational efficiencies.

On Tuesday, May 1st, Krista Cooley will discuss the latest developments in False Claims Act enforcement.

In addition, Phil Schulman will address “TRID 2.0” — with the resolution of the PHH decision, how can lenders work with other service providers to market their loans to potential borrowers? Phil also will participate in the RESPA Section 8 “Deep Dive” Compliance Roundtable later that afternoon.

On Wednesday, May 2nd, Keisha Whitehall Wolfe will participate in what promises to be a lively discussion about “Compliance in Action,” discussing real life examples related to analyzing, addressing, responding to, and resolving compliance issues.

Other Mayer Brown lawyers in the group, including Debra Bogo-Ernst, Holly Bunting, Jon Jaffe, Rebecca LobenherzLarry Platt, and Tori Shinohara also will be on hand.  See you in Los Angeles!

The ABA Business Law Section is holding its 2018 Spring Meeting in Orlando next week and will offer nearly 90 CLE programs and many more committee meetings and events.

Mayer Brown’s Matthew Bisanz will co-moderate, and Anjali Garg will participate on, a panel on April 13th discussing current developments in UDAP/UDAAP enforcement involving financial institutions, including considerations for advertising disclosures and the potential for increased state enforcement activity. Matthew and Anjali are members of Mayer Brown’s Financial Services Regulatory and Enforcement Group in Washington, DC.

Also on April 13th, restructuring partner Luciana Celidonio (Tauil & Chequer, São Paulo) will participate on a panel exploring the issues and actors involved in international bond defaults.

For more information, please visit the event webpage.

In a decision expressly based on the novelty of the legal claims brought by the Consumer Financial Protection Bureau (CFPB), a federal district court has rejected the CFPB’s broad demand for consumer restitution and civil money penalties in a case that has already produced several important rulings. The case represents the second time that a federal district judge has rejected the CFPB’s expansive view of remedies following a bench trial. The CFPB’s loss suggests that parties willing to litigate against the CFPB may achieve success even if they lose on the merits, as courts appear reluctant to award the robust remedies the CFPB typically demands, particularly in cases where the CFPB’s claims do not sound in fraud or are based on novel legal theories. Continue Reading District Court Rejects CFPB Restitution and Penalty Demand

On October 5th, the CFPB finalized its long-awaited payday lending rule, reportedly five years in the making. The final rule is substantially similar to the proposal the Bureau issued last year. However, the Bureau decided not to finalize requirements for longer-term high-cost installment loans, choosing to focus only on short-term loans and longer-term loans with a balloon payment feature.

The final rule will be become effective in mid-summer 2019, 21 months after it is published in the Federal Register (except that provisions facilitating “registered information systems” to which creditors will report information regarding loans subject to the new ability-to-repay requirements become effective 60 days after publication).

The final rule identifies two practices as unfair and abusive: (1) making a covered short-term loan or longer-term balloon payment loan without determining that the consumer has the ability to repay; and (2) absent express consumer authorization, making attempts to withdraw payments from a consumer’s account after two consecutive payments have failed. Continue Reading CFPB’s Final Payday Lending Rule: The Long and Short of It

Dealing the Consumer Financial Protection Bureau (CFPB) another setback, on April 21, 2017, the DC Circuit Court of Appeals refused to enforce a Civil Investigative Demand (CID) issued by the CFPB. The decision is likely to have broad implications for how the CFPB identifies the nature and scope of its investigations in its CIDs, which to date have provided investigation subjects with little information about the nature of the CFPB’s concerns. More precisely defined investigations could provide significant benefits to CID recipients, as well as establish a basis to challenge the requests set forth in CIDs. To learn more about the ruling and its implications, read our Legal Update.

 

On January 20, the Ninth Circuit handed the Consumer Financial Protection Bureau (CFPB) a victory in one of the first cases challenging the CFPB’s investigative authority — although that victory seems tied to the particular facts of the case.

The court held that the CFPB has the authority to investigate the activities of for-profit, small-dollar lenders created by three Indian tribes (the Tribal Lending Entities). Given the unique facts of the case, however, the decision may provide scant guidance for the other pending cases challenging the CFPB’s authority to issue administrative subpoenas known as Civil Investigative Demands (CIDs).

The case before the Ninth Circuit involved CIDs issued to the Tribal Lending Entities as part of an investigation into whether small-dollar online lenders were violating federal consumer financial laws. Unlike the other pending challenges to the CFPB’s investigative authority, the Tribal Lending Entities did not claim that the nature of their activities (lending money) was outside the scope of the CFPB’s authority. Instead, they argued that the CFPB’s investigative powers – which are limited to sending CIDs to “persons” – did not authorize the agency to send such demands to tribal entities. The Ninth Circuit disagreed. Continue Reading Ninth Circuit Affirms CFPB Authority to Investigate Tribal Lenders

Claims brought by the Consumer Financial Protection Bureau (CFPB) alleging that a company engaged in deceptive conduct must be accompanied by specific factual allegations or face dismissal, according to a ruling by a federal judge in the Central District of California. Because the Central District of California is a favorite forum of the CFPB’s and allegations of deceptive conduct are a common claim brought by it, the decision may have long-term implications for how the CFPB pleads its cases, which cases it brings and where it brings them. To learn more about the ruling and its implications, read our Legal Update.