Several attorneys from Troutman Sanders attended this week’s meeting of the National Association of Attorneys General in Washington, during which Richard Cordray, Director of the Consumer Financial Protection Bureau and former Ohio Attorney General, provided an overview of the four obstacles that, in his view, “interfere with justice and dignity for consumers.” He referred to these obstacles as “the four Ds”: deceptive marketing, debt traps, dead ends, and discrimination. During his speech, he described the progress that the CFPB has been making to combat each one.
Deceptive marketing – Cordray explained that the CFPB’s signature project, “Know Before You Owe,” was undertaken to make various aspects of consumer financial contracts more understandable and helpful to consumers, including mortgage forms and credit card disclosures. In addition, he touted the CFPB’s enforcement actions aimed at companies that misled consumers, including credit card, mortgage foreclosure relief, and debt relief companies, and also focused on the CFPB’s joint enforcement actions with attorneys general and the Federal Trade Commission. He concluded his discussion on deceptive marketing by mentioning actions taken by the CFPB against law firms that defrauded consumers with promises of resolving debts and for-profit colleges that lured students with false job promises.
Debt traps – Cordray asserted that common “debt traps” include short-term, high-cost loans such as payday loans, installment loans, or auto title loans. He explained that consumers often get trapped in these types of loans, given that the repayment terms can lead consumers to borrow in a repeating and self-defeating cycle. He also noted that the CFPB is the first federal agency to supervise payday lenders, and he highlighted parallel actions of the CFPB’s and the state attorneys general against CashCall, an online payday loan servicer. In addition, Cordray asked the state attorneys general for input on the CFPB’s rulemaking targeted at reforming the payday lending industry.
Dead ends – Cordray said that consumers face “dead ends” when they cannot choose the business with which to deal in a financial services matter because they lack the control and power to sever ties with a business and to take their business elsewhere. Cordray offered the credit reporting and debt collection areas as examples of that concept. To address consumer dead ends in credit reporting, he noted that the CFPB began accepting consumer complaints about creditor reporting in October 2012, and also has worked with the three credit reporting companies to implement important upgrades to e-OSCAR, the electronic system used to notify furnishers of disputes, making it easier and more convenient for consumers to support their claims and get their disputes resolved correctly. In the debt collection industry, Cordray noted that, while there are many legitimate debt collectors who work hard to play by the rules, there remain some that engage in harassing tactics such as incessant phone calls and false threats of arrest. He explained that the CFPB’s supervisory examinations and investigation of the mortgage servicing, auto loan, student loan, and payday loan companies have unearthed many claims involving troubling debt collection practices. He also highlighted the extensive work that the CFPB has been undertaking to promulgate rules to implement the Fair Debt Collection Practices Act in an effort to keep up with new technology and concerns. These efforts “could lead to the most significant changes in federal law in this area in almost forty years.”
Discrimination – According to Cordray, the CFPB has undertaken efforts to target discrimination and to provide greater transparency in transactions involving access to credit. He explained that the CFPB is taking steps to require more information to be disclosed to the public under the Home Mortgage Disclosure Act, and is also working to create new tools to help identify patterns in mortgage loan origination practices that may be discriminatory. Finally, he noted that the CFPB is “keeping a watchful eye on the auto lending market” by reviewing the auto lending practices of the largest banks through the CFPB’s supervisory and enforcement authority and moving forward with a proposed rule that will provide the CFPB with supervisory oversight over the larger nonbank auto finance companies. He noted that the CFPB’s examination and enforcement teams have reached resolutions to address discriminatory practices at several supervised institutions, and these institutions are collectively paying out approximately $136 million to provide redress for up to 425,000 consumers.
The industries called out during Cordray’s speech, including debt collection, credit reporting, auto lending, for-profit education, debt relief, and payday lending, come as no surprise, as these industries have been recent targets of the CFPB. What is evident from Cordray’s speech is that the CFPB’s focus on these industries is strong and ongoing. In fact, his carefully scripted plan for addressing the potential for consumer harm in each named industry is clearly a “work in progress.” All companies under the wide-ranging jurisdiction of the CFPB, particularly those engaged in the industries named by Cordray in his remarks to NAAG, are well-advised to continue directing their compliance efforts on interactions with consumers where the potential for consumer harm is greatest.