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On May 16, the Consumer Financial Protection Bureau (CFPB or Bureau) announced that it will launch a new initiative to provide guidance to other agencies with consumer financial protection responsibilities on how the CFPB intends to enforce “Federal consumer financial law.” 12 U.S.C § 5481(14).

The CFPB will use Consumer Financial Protection Circulars, described as “general statements of policy,” under the Administrative Procedure Act. These circulars will provide background information about applicable law; articulate considerations relevant to the CFPB’s exercise of its authorities; and, in the interest of maintaining consistency, advise other parties with authority to enforce “Federal consumer financial law.” Circulars will be released publicly.

The CFPB’s first-issued circular, “Deceptive representations involving the FDIC’s name or logo or deposit insurance,” appears in the form of a Q&A. The question: When do representations involving the name or logo of the Federal Deposit Insurance Corporation (FDIC) or about deposit insurance constitute a deceptive act or practice in violation of the Consumer Financial Protection Act (CFPA)? The CFPB then follows with its answer: “Covered persons or service providers,” the Bureau writes, “likely violate the CFPA’s prohibition on deception” by misusing the name or logo of the FDIC by engaging in false advertising or making misrepresentations to consumers about deposit insurance, regardless of whether such conduct (including the misrepresentation of insured status) is engaged in knowingly. In addition to its answer, the CFPB also provides a section on analysis with footnotes.

Whether this Q&A format will continue for all future circulars is yet to be seen.

The federal banking regulators often issue joint statements and guidance (e.g., November 10, 2021 “Joint Statement on Supervisory and Enforcement Practices Regarding the Mortgage Servicing Rules in Response to the Continuing COVID-19 Pandemic and CARES Act”). The CFPB initiative and its first circular, however, indicate the CFPB is willing to act on its own by sharing its views with its sister agencies without coordinating with them beforehand.

On May 5, the Consumer Financial Protection Bureau (CFPB or Bureau) and the Federal Trade Commission (FTC) together filed an amicus brief in an appeal pending before the Court of Appeals for the Second Circuit, Sessa v. Trans Union, LLC, No. 22-87 (2d Cir. 2022). The agencies argue that the Fair Credit Reporting Act (FCRA) does not distinguish between “legal” and “factual” inaccuracies, and thus credit reporting agencies (CRAs) may be held liable for failing to maintain reasonable procedures to prevent even inaccuracies that turn on legal questions regarding the underlying debt or credit information. This amicus brief comes on the heels of a recent CFPB amicus brief filed in an Eleventh Circuit appeal in which the CFPB similarly argued that the FCRA does not exempt furnishers from investigating disputes based on legal, as opposed to factual, inaccuracies.

In Sessa, the plaintiff filed a putative class action against TransUnion in the Southern District of New York, alleging TransUnion violated the FCRA when it inaccurately reported a buy-out option at the end of her car lease as an outstanding $19,440 balloon payment on the lease. TransUnion argued that the alleged inaccuracy was legal, not factual, because the question of whether the payment was a balloon payment or buy-out option involved a legal dispute between the plaintiff and her lender. Ultimately, the District Court ruled in favor of TransUnion, finding that (1) “CRAs cannot be held liable when the accuracy at issue required a legal determination as to the validity of debt reported” and (2) that the plaintiff’s report was factually accurate because TransUnion reported the exact information it received from plaintiff’s lender.

On appeal, the CFPB and FTC filed an amicus brief, arguing that the District Court’s decision should be overturned for two reasons.

First, the agencies argue the lower court’s decision improperly takes the position that the FCRA is only concerned with “factual” instead of “legal” inaccuracies. The brief cites to decisions, such as Denan v. Trans Union LLC, 959 F.3d 290, 294 (7th Cir. 2020), which note the FCRA’s lack of clear language distinguishing factual and legal inaccuracies. Further, the agencies argue that many CRA disputes turn on “contractual interpretation” that can be “plausibly characterized” as legal questions.

Second, the agencies argue the District Court was incorrect in holding that a consumer report is factually accurate so long as a CRA correctly reports the information received from a furnisher. The agencies argue that the court’s decision improperly implies that information provided by a furnisher to a CRA can be considered intrinsically reasonable and accurate. Instead, the agencies argue that the FCRA’s reasonable procedures requirement obligates CRAs to compare information received from third parties to the CRA’s own records and to screen for discrepancies.

Like the CFPB’s recent amicus brief to the Eleventh Circuit, the Sessa brief urges the Second Circuit to adopt a decision contrary to the decisions of several federal courts that have distinguished between legal and factual inaccuracies in the context of the FCRA.[1] Both amicus briefs are examples of the efforts by these agencies to reshape the state of the law regulating the consumer reporting industry. The conclusions urged by the agencies, however, threaten to create substantial compliance challenges for furnishers and CRAs, and neither brief meaningfully explains how regulated companies can be expected to adjudicate legal disputes. The Sessa brief in particular handwaves away the District Court’s conclusion that CRAs are not in a position to assess legal issues, such as the validity of a debt, by stating that any concern regarding the “significant burden” this may impose on CRAs “could be taken into account in determining what procedures are ‘reasonable.'”

Nor do the briefs address how the rules they advocate might actually negatively impact consumers more broadly. The position of the agencies not only would affect original reporting, but also consumer disputes. By requiring CRAs to address legal issues, most CRAs would likely be forced to reach a legal conclusion favorable to the consumer even when a court or other adjudicatory body later decides that the law requires a different conclusion. While the agencies may view this as a beneficial outcome, this outcome would logically result in underreporting of valid debts, public records, or other information. That, in turn, increases uncertainty and risk for lenders, with the result being increased costs and an overall decrease in credit availability for consumers. These likely negative consequences to both the industry and consumers alike are ignored in the amicus briefs.

[1] E.g., Batterman v. BR Carroll Glenridge, LLC, 829 F. App’x 478, 481 (11th Cir. 2020) ([W]e conclude that [the plaintiff’s] complaint concerns a contractual dispute that requires resolution by a court of law, not a credit reporting agency. As such, the complaint does not allege a factual inaccuracy in the credit reports and does not contain allegations sufficient to raise a right to relief on [plaintiff’s] FCRA claims.); Brill v. TransUnion LLC, 838 F.3d 919, 921 (7th Cir. 2016) (granting defendant’s motion to dismiss the plaintiff’s FCRA claims because the defendant did not have a duty to verify the accuracy of the plaintiff’s signature on a car lease prior to reporting the details of the car lease on the plaintiff’s consumer report); DeAndrade v. Trans Union LLC, 523 F.3d 61, 68 (1st Cir. 2008) ([t]his is not a factual inaccuracy that could have been uncovered by a reasonable reinvestigation, but rather a legal issue that a credit agency such as Trans Union is neither qualified nor obligated to resolve under the FCRA.).

On May 6, the Consumer Financial Protection Bureau (CFPB or Bureau) released its Fair Lending Report for 2021. As in 2020’s report, published last year, the CFPB shows that its focus remains on what it characterizes as “financial inclusion, racial and economic equity, and fair competition”:

“As part of the prioritization process, the CFPB identifies emerging developments and trends by monitoring key consumer financial markets. If this field and market intelligence identifies fair lending risks in a particular market, that information is used to determine the type and extent of attention required to address those risks.”

The 2021 report makes several prominent mentions of the use of artificial intelligence (AI) and machine learning — a practice that Fair Lending Director Patrice Ficklin says that she is skeptical of, especially as a “cure-all for bias in credit underwriting and pricing.” The report reaffirms that the CFPB will be expanding its evaluation of AI and machine learning models as used by institutions, including in evaluating applicants for credit.

But while the focus on machine learning and AI is not new, there is something very interesting about the report. In it, the CFPB seems to be reframing and expanding the scope of what it considers “fair lending.” It does this by framing its actions against a prison financial services company and a nonbank immigration services provider as fair lending cases, rather than as garden-variety UDAAP (unfair, deceptive, and abusive acts and practices) cases, even though the allegations in both cases did not involve discrimination. We had previously understood that the CFPB would prioritize UDAAP and other nondiscrimination cases when it felt that the injured consumers were members of protected classes, and the inclusion of these cases in the report underscores that point. But if those cases were brought today, would there be allegations of “unfair” discrimination, consistent with the CFPB’s March 2022 updates to its UDAAP exam manual? We will have to wait and see.

Also interesting for their inclusion in the report are the October 2021 orders to large tech companies to provide information to the CFPB on their business practices. Specifically, the orders sought information on data harvesting and monetization, access restriction and user choice, and other consumer protections. It is unclear why these orders are included in the Fair Lending Report; the short narrative that mentions them says nothing about discrimination.

The CFPB’s 2021 Fair Lending Report confirms much of the messaging we have been hearing over the last year, especially the Bureau’s continued suspicion of machine learning and AI technologies. But it leaves unanswered the outstanding questions about the Bureau’s intentions with respect to the “discrimination as UDAAP” announcement made in March this year. We’ll continue to watch and report on those developments here.

On April 7, the Consumer Finance Protection Bureau (CFPB or Bureau) filed an amicus brief in an appeal, pending before the Court of Appeals for the Eleventh Circuit in which the Bureau argued that the Fair Credit Reporting Act (FCRA) does not exempt furnishers from investigating disputes based on legal questions as opposed to factual inaccuracies. Section 1681s-2(b)(1) of the FCRA states that a furnisher of consumer information must conduct an investigation of disputed information upon receiving notice from a consumer reporting agency (CRA) that the consumer has disputed the accuracy of the information. Many courts have interpreted this to require furnishers to reasonably investigate factual questions, but not disputed legal issues (e.g., whether a consumer is liable for a reported debt). By contrast, the CFPB’s brief asks the Eleventh Circuit to “clarify that furnishers are required to conduct reasonable investigations of both legal and factual questions posed in consumer disputes.”

The subject plaintiff allegedly suffered identity theft that she discovered in 2016. The identity thief — an employee of the plaintiff — opened a credit card in the plaintiff’s name, and over the course of several years, accumulated over $30,000 in debt, while also making some payments from business bank accounts controlled by the plaintiff. When the plaintiff became aware, she notified the issuing bank, and the account was closed. The employee was ultimately convicted of identity theft. The bank, however, continued to furnish information about the outstanding debt to the credit bureaus. The plaintiff filed multiple disputes with the credit bureaus regarding the debt, which were then transmitted to the bank. Although the bank acknowledged that the plaintiff’s employee had opened the credit card account without the plaintiff’s consent, it concluded that the plaintiff was nevertheless responsible for the debt due to her negligent supervision of her employee and failure to object to continuous payments from bank accounts controlled by the plaintiff. Thus, the bank “verified” the debt and continued to furnish the information.

After the plaintiff filed suit, the bank moved for summary judgment, asserting multiple arguments, including that the plaintiff’s dispute turned on the disputed legal question of the plaintiff’s liability for the account rather than on a factual inaccuracy, as well as that the FCRA does not impose a duty on furnishers to investigate the accuracy of legal questions raised in consumer disputes. The district court granted summary judgment to the bank, concluding that it had “conducted a reasonable investigation as required under the procedural requirements of the FCRA.” In reaching this conclusion, the district court described the investigation duties imposed on furnishers under the FCRA as “procedural” and “far afield” from legal “questions of liability under state-law principles of negligence, apparent authority, and related inquiries.” Citing the First Circuit’s decision in Chiang v. Verizon New England, Inc., 595 F.3d 26 (1st Cir. 2010), the district court concluded that “a consumer cannot prevail on an FCRA claim by raising disputed legal questions as part of the dispute process instead of pointing to factual inaccuracies contained within the credit report.”

On appeal, the CFPB filed an amicus brief, arguing that furnishers are statutorily obligated to investigate both legal and factual questions raised in consumer disputes. The CFPB’s brief acknowledges that several federal courts have distinguished between “factual” and “legal” questions in determining the obligation of CRAs to investigate disputes under 15 U.S.C. § 1681i and that other decisions, including Chiang and unpublished decisions of the Eleventh Circuit, likewise recognize such a distinction in the context of furnisher investigations under Section 1681s-2(b)(1). Nevertheless, the CFPB argues that these cases in the furnisher investigation context were “incorrectly decided” because the FCRA does not make any such distinction. The CFPB argues that unlike CRAs, furnishers are qualified and obligated to assess issues, such as whether a debt is actually due or collectible, and routinely do assess such issues. The CFPB also goes further and suggests that even in the context of CRA investigations under Section 1681i, a formal distinction between legal and factual investigations is inappropriate and argues that a CRA has a duty to conduct a “reasonable investigation” of a legal dispute even if it does not have a duty to provide a legal opinion on the merits of the dispute. Finally, the CFPB urges the court to reject a “formal distinction” between factual and legal investigations because of the practical difficulty in distinguishing between them.

The CFPB’s arguments urge a decision contrary to the decisions of several federal courts that have distinguished between legal and factual questions in the context of both CRA and furnisher investigations under the FCRA.[1] If the Eleventh Circuit accepts these arguments, it would create a circuit split with the First Circuit, and it would create significant uncertainty for furnishers attempting to comply with the FCRA by placing upon them a more onerous obligation than other courts have adopted. Further, a decision accepting the CFPB’s arguments could draw into question the distinction between legal and factual issues in the context of CRA investigations under Section 1681i as well, creating an even deeper split from existing precedent. The amicus brief is another example of the CFPB’s recent efforts to shape the state of the law governing the consumer reporting industry through both rulemaking and litigation.

[1]E.g., Leones v. Rushmore Loan Management Servs., LLC, 749 F. App’x 897, 901-02 (11th Cir. 2018) (distinguishing between factual inaccuracy and disputed legal questions in context of furnisher investigations); Chiang v. Verizon New England, Inc., 595 F.3d 26, 38 (1st Cir. 2010) (Like CRAs, furnishers are ‘neither qualified nor obligated to resolve’ matters that ‘turn[ ] on questions that can only be resolved by a court of law.’); Mohnkern v. Equifax Info. Servs., LLC, No. 19-CV-6446L, 2021 U.S. Dist. LEXIS 218532, at *15 (W.D.N.Y. Nov. 10, 2021) (adopting Chiang‘s approach after surveying the case law and finding it “represent[s] the prevailing view when courts deal with the type of claim asserted against furnishers like plaintiffs’ here).

On May 2, the Consumer Financial Protection Bureau (CFPB or Bureau) released its Supervisory Highlights report on legal violations discovered during examinations in the second half of 2021.

The Supervisory Highlights detail issues identified by CFPB examination teams across a wide number of segments of the consumer financial services industry. Summarized below are those issues identified in the areas of auto servicing, consumer reporting, credit card account management, debt collection, deposits, mortgage origination, prepaid accounts, remittances, and student loan servicing.

Auto Servicing

1. The CFPB sees wrongful repossessions everywhere. Per the report, recent examinations found that servicers engaged in unfair acts or practices when they repossessed vehicles after consumers took action that should have prevented the repossession. The CFPB required servicers to enhance their procedures, including enhancing timely communications with repossession agents, and remediating consumers. This is yet another emphasis point on this issue, about which the CFPB released a bulletin earlier this year.

2. Final payment amounts after deferral. The Bureau returned to this issue again, which first appeared in the “Prioritized Assessment” special edition of Supervisory Highlights in early 2021. Specifically, the Bureau asserted that auto finance companies used “imprecise conditional statements,” such as stating that a final payment “may be larger” (emphasis added). The CFPB required servicers to update disclosure language and practices, such as affirmative outreach as the final payment date approaches, including estimated final payment amounts in written correspondence confirming a deferral, or developing online calculators to calculate final payment amounts.

3. Failing to trigger refunds of GAP protection after a repossession. The Bureau continued its emphasis on ancillary product refunds by stating that auto finance companies failed to request refunds from GAP providers for unearned portions of the cost of GAP coverage when a vehicle was repossessed, and then failing to apply the refund to the deficiency balance.

Consumer Reporting

1. The CFPB sees reasonable investigations — or the lack thereof — as a continuing problem. The CFPB specifically highlights the practice of some consumer reporting agencies (CRA) to simply delete disputed tradelines, rather than investigate them (reasonably). Another practice highlighted in the report: failing to review and consider all relevant information submitted by the consumer when conducting reasonable dispute investigations.

2. The CFPB asserts that CRAs are slow to provide prompt notice of a dispute to the furnisher. CRAs are required to send a notification of a dispute to furnishers within five business days of receiving the dispute — but the CFPB says it uncovered failures to do so in several examinations.

3. In addition, the CFPB found issues with CRAs providing notices to consumers. Not just in providing notice to furnishers, the CFPB also found that CRAs weren’t notifying consumers promptly of the results of a dispute reinvestigation.

4. And when CRAs did provide notice to consumers, the CFPB found that those notices weren’t clear. Per the report, examiners found that CRAs’ statements of results omitted material information necessary to understand the results of the investigation. Examiners also found that in some cases the statement of results was incorrect — stating, for example, that disputed information had been corrected when, in fact, the disputed information was verified as accurate by the furnisher and not materially changed by the CRA.

5. The CFPB found that some furnishers do not have reasonable policies and procedures in place concerning accuracy and integrity of furnished information. The policies and procedures must be appropriate to the nature, size, complexity, and scope of each furnisher’s activities. The CFPB required furnishers to consider and incorporate, as appropriate, the guidelines of Appendix E to Regulation V when developing their policies and procedures

Credit Card Account Management

1. The CFPB believes it found Truth in Lending (Regulation Z) violations related to Fair Credit Billing Act disputes. Specifically, the CFPB stated that it found errors in every aspect of handling such disputes:

  • Failing to mail or deliver written acknowledgments to consumers within 30 days of receiving a billing error notice.
  • Failing to resolve disputes within two complete billing cycles after receiving a billing error notice.
  • Failing to reimburse consumers after billing errors were determined to have occurred as consumers asserted.
  • Failing to mail or deliver correction notices to consumers resolving billing errors in their favor.
  • Failing to conduct reasonable investigations after receiving billing error notices due to human errors and system weaknesses.
  • Providing inaccurate explanations to consumers as to why the creditor denied the consumers’ billing error claims in whole or part.
  • Failing to provide consumers with the evidence the creditor relied upon to determine no billing error occurred.The CFPB required issuers to make system improvements, perform enhanced monitoring, create additional controls for consumer complaints, and revise applicable policies and procedures.

2. Failure to re-evaluate annual percentage rates (APRs) on credit cards under the CARD Act. The CFPB reports that this seems to happen most often with creditors’ acquisitions of pre-existing credit card accounts from other creditors. The CFPB wants to see creditors removing the inappropriate factors when determining the applicable APR following the re-evaluation of a rate increase and revise their relevant policies and procedures.

3. The CFPB sees deceptive advertising of interest-free financing. Specifically, when creditors advertise the interest-free financing feature of their credit card without adequately disclosing the preconditions for obtaining the financing.

Debt Collection

1. The CFPB believes that debt collectors misrepresent consumers’ responsibilities in cases of identity theft. The CFPB reports that examiners found instances in which debt collectors violated this section by misrepresenting or implying to consumers that they were responsible for paying charges on their accounts that were incurred as the result of fraudulent activity. The CFPB might also see this as a sustained deviation from debt collectors’ policies and procedures.

2. The CFPB alleges debt collectors fail to refund overpayments in a timely manner. Per the report, these practices caused or were likely to cause substantial injury to affected borrowers as consumers lost the ability to use funds for an extended period of time. Covered collection agencies where this practice was discovered will have to report on remedial measures, including issuing full refunds to consumers, revising their policies and procedures, and strengthening their monitoring to ensure credit balances are timely refunded.

Deposits

1. Too many holds on mobile check deposits. One area the CFPB identified as a consumer harm is when financial institutions charge a consumer overdraft fees because the institutions failed to lift the initial automatic holds on the amounts of mobile check deposits after an additional suspicious deposit hold was placed on the account. The CFPB wants to see revised policies and procedures governing holds controls to monitor for and detect instances of duplicate holds.

2. The CFPB alleges some financial institutions do not perform robust enough investigations of errors. In many cases, financial institutions did not perform an investigation because the consumer failed to submit an affidavit; however, the reports asserts that financial institutions cannot require a consumer to file a police report or other documentation as a condition of initiating or completing an error investigation.

3. Some financial institutions did not provide consumers with notice of revocation of provisional credit. In cases where consumers filed error claims stating that checks deposited at ATMs in specific amounts were not properly credited to their accounts, the CFPB alleges that financial institutions violated Regulation E by failing to state that they would be debiting the excess amounts originally provisionally credited from the consumers’ accounts.

Mortgage Origination

1. Some mortgage originators may not have asked for sufficient documentation for changed circumstances. The lenders claimed that the rush appraisals, which led to the appraisal rush fees, were requested by consumers. However, in each instance, the lender failed to maintain sufficient documentation evidencing the consumer’s request of the rush appraisals. In certain instances, the lenders’ documentation included only a checked box indicating the consumer requested the rush appraisal, but there was no other evidence retained reflecting this occurred.

2. The CFPB believes that some disclosures failed to reflect the terms of legal obligations. The CFPB reported this specifically on closing disclosures that did not reflect the legal obligation between the parties. The problem might be a software one; some software used a rounding method that is different from the method used in the corresponding promissory notes. The software automatically rounded up to the nearest 1/8%; the promissory note’s instructions, however, were to round to the nearest 1/8% — up or down. This practice resulted in closing disclosures that do not reflect the terms of the legal obligation between the parties.

Prepaid Accounts

1. Financial institutions might not be submitting prepaid account agreements to the CFPB. This is a requirement set forth in Regulation E, which says that these prepaid account agreements must be submitted to the CFPB on a rolling basis, no later than 30 days after an issuer “offers, amends, or ceases to offer any prepaid account agreement.”

2. The CFPB alleges some financial institutions failed to honor valid stop-payment requests. Specifically oral stop-payment requests. Regulation E states that a consumer may stop payment of a preauthorized electronic fund transfer from the consumer’s account by notifying the financial institution orally or in writing at least three business days before the scheduled date of the transfer. The CFPB asserts that some financial institutions do not follow the statute. The CFPB wants to see corrected processes to allow for stop-payment requests received orally or in writing, regardless of where the payment originated.

3. Financial institutions may not always communicate error resolutions to consumers. Several examined entities failed to include a statement noting the consumer’s right to request the documents that the institution relied on in making its determination after determining no error or a different error occurred as part of the report of the results.

Remittances

1. Reported transfer speeds may have been deceptive. Some companies used words like “instant” and “30 second” in describing transfer speeds, even when those transfers may not be completed either instantly or within 30 seconds. In some cases, the CFPB found that transfers could take as much as an additional 48 hours.

2. The CFPB alleges several instances of transfer account agreement waiver violations. What the CFPB reports in its Spring Highlights is multiple instances where remittance transfer service agreements with consumers violated the Electronic Funds Transfer Act’s (EFTA) prohibition on waivers of rights conferred or causes of action created by EFTA. Per the EFTA, “[n]o writing or other agreement between a consumer and any other person may contain any provision which constitutes a waiver of any right conferred or cause of action created by this subchapter.”

3. The CFPB asserts disclosure and timing issues on receipts for remittance transfers. According to the report, examined institutions violated the Remittance Rule by failing to disclose on the remittance transfer receipts the date the funds are available to the designated recipient. The institutions disclosed when the funds were delivered to the designated recipient’s bank, but not the date on which the funds would be available to the recipient. Further, the CFPB believes institutions violated the rule in instances where they failed to issue receipts until after the funds were successfully delivered to the intended recipients.

4. No written policies or procedures. In what can be seen as a common refrain throughout the report, in most cases where examined institutions failed to meet the CFPB’s expectations, it was in cases where policies and procedures either weren’t robust enough or nonexistent.

5. Institutions failed to provide notice of the results of error investigations. Examiners also found that institutions failed to provide refunds in the amounts needed to resolve the errors within one business day, or as soon as reasonably practicable, after receiving the sender’s instructions regarding the appropriate remedy, as is required.

Student Loan Servicing

1. The CFPB alleges deceptive advertising. Examiners found that servicers engaged in unfair acts or practices by failing to make incentive payments that they offered in advertisements and agreed to make in the relevant contracts with consumers.

2. Refunds to consumers weren’t timely. Examiners found that servicers engaged in unfair acts or practices by failing to issue timely refund payments in accordance with the payment schedules in loan modifications. Examiners were concerned because consumers relied on the specific terms described in the modification agreement.

On April 29, the Consumer Financial Protection Bureau (CFPB or Bureau) released Spanish language translations for certain model and sample forms included in the Prepaid Rule in Regulation E and for certain adverse action model and sample notices included in Regulation B.

The Bureau also used the announcement as an “opportunity to remind financial institutions of their obligation to serve the communities where they do business, including communities with limited English proficiency.” Many financial institutions looking for safe harbor language often rely on translations provided by regulators to bridge the opportunity gap between non-English-speaking communities and avenues for credit.

The ECOA model and sample forms in Spanish include (links to the Spanish versions):

  1. C-1: Notice of Action Taken and Statement of Reasons – Adverse Action based on outside source other than CRA
  2. C-2: Notice of Action Taken and Statement of Reasons
  3. C-3: Notice of Action Taken – Credit Score
  4. C-4: Notice of Action Taken – Counteroffer
  5. C-5: Disclosure of Right to Request Specific Reason for Credit Denial
  6. C-6: Notice of Incomplete Application
  7. C-7: Notice of Action Taken – Business Credit
  8. C-8: Disclosure of Right to Request Specific Reason for Credit Denial – Business Credit

The prepaid model forms and samples in Spanish include (links to the Spanish version):

  1. Model Form A-10(a): Short Form Disclosures for Government Benefit Accounts
  2. Model Form A-10(b): Short Form Disclosures for Payroll Card Accounts
  3. Model Form A-10(c): Short Form Disclosures for Prepaid Accounts, Example 1
  4. Model Form A-10(d): Short Form Disclosures for Prepaid Accounts, Example 2
  5. Model Form A-10(e): Short Form Disclosures for Prepaid Accounts with Multiple Service Plans
  6. Sample Form A-10(f): Long-Form Disclosures for Prepaid Accounts

While financial institutions are not statutorily required to use these Spanish-language forms, those wishing to provide translated versions of these documents will likely gravitate to the model forms.

While we find the model forms interesting, we find even more interesting the Bureau’s statement about financial institutions’ “obligation” to serve customers with limited English proficiency. The Bureau’s latest official guidance on LEP consumers — the January 2021 “Statement Regarding the Provision of Financial Products and Services to Consumers with Limited English Proficiency” — mentioned no such “obligation,” but rather spoke in permissive terms about financial institutions that might wish to provide in-language services in non-English languages. It appears to us that this permissive approach is shifting toward a more mandatory one, and we view the “obligation” language in the Bureau’s announcement as further evidence of this shift.

On April 25, the Consumer Financial Protection Bureau (CFPB or Bureau) announced that it would begin invoking a provision in Dodd-Frank, previously used only infrequently, to conduct supervisory examinations over a greater number of nonbank financial companies that may “pose risks to consumers.”

Under Dodd-Frank, the CFPB has authority to examine three categories of nonbank entities:

  1. Nonbank entities that offer or originate mortgages, private student loans, and payday loans, regardless of the nonbank entity’s size.
  1. Larger nonbank participants, designated under the CFPB’s various “larger participant” rules, in other markets for consumer financial products and services — e.g., consumer reporting, debt collection, student loan servicing, international remittances, and auto finance.
  1. Nonbanks engaging, or have engaged, in “conduct that poses risks to consumers.”

The CFPB is eyeing this third category — not specific to any consumer financial product or service — as an opportunity to widen its supervisory jurisdiction and potentially disclose the entities that it has determined pose risks to consumers. The Bureau adopted a rule in 2013 governing the procedure for determining whether a nonbank covered person falls under the third category. In the April 25 announcement, the CFPB also released an amendment to the 2013 procedural rule that will give the Bureau’s director the unilateral discretion to publish decisions about whether a company falls under the third category on the CFPB’s website. This is a radical departure from well-established rules and regulations protecting confidential supervisory information (CSI). The decision to publish the names of the companies subject to the CFPB’s supervision will be significant because doing so announces the CFPB’s conclusion that the company has engaged in conduct that “poses risks to consumers.”

Under Section 1091.103(a) of its procedural rule, the CFPB is required to issue a Notice of Reasonable Cause that specifically sets forth its bases for proceeding, summarizing the documents, records, or other items relied upon for the conclusion that a particular market participant poses risks to consumers. The Bureau states that it may base such reasonable cause determinations on complaints collected by the CFPB, information from other sources (such as judicial opinions and administrative decisions), whistleblower complaints, state partners, federal partners, or news reports. Noticeably absent in the list are consumer groups; however, it is likely that those groups will be influential in this process. Once an entity is designated for supervision under this provision, the designation stays in place until rescinded by the Bureau director, and the affected company can petition to be removed from supervision only after two years of supervision, and then only once per year thereafter.

As the Bureau’s press release notes, this authority to subject individual market participants to supervision is not specific to any particular part of the consumer finance industry, or any particular product. The Bureau said little in the press release about where it planned to use this authority, other than one reference to “fintechs,” and the statement that it planned to “supervise entities that may be fast-growing or are in markets outside the existing nonbank supervision program.” We will see where the Bureau invokes this procedure, but the director’s prior remarks about fintechs and the reference to fintechs in the April 25 press release are noteworthy to that industry.

The main takeaway, we believe, is that the CFPB is seeking to expand its sphere of supervisory jurisdiction by hand-picking individual companies not currently subject to its supervisory authority. Whether it limits itself to a handful of entities or designates a large number of companies that “pose risks to consumers” is also an open question. But we believe that any designation that a particular industry actor poses risks to consumers will likely mean the resulting examination will be a precursor to an enforcement investigation.

On April 18, the Consumer Financial Protection Bureau (CFPB or Bureau) published a blog post, scrutinizing the practice of withholding transcripts from students with delinquent accounts and who are attending an institute of higher education.

The practice of withholding transcripts as a collections tactic has never been popular with regulators or consumer advocates. As recently as December 2021, U.S. Department of Education Secretary Miguel Cardona, in a presentation at the 2021 Federal Student Aid Training Conference, identified transcript withholding as an unfair practice particularly affecting vulnerable student populations.

In laying out the Department of Education’s (Department) priorities in student aid, Cardona was clear that ensuring equitable recoveries for colleges and students is a key determinator in policy. Transcript withholding also has been under attack for several years at the state level as an increasing number of states propose, and in some instances enact, laws prohibiting this practice.

Further driving attention to this practice is the current relationship between the CFPB and the Department of Education, which is much closer and better aligned than in the past. Current CFPB Director Rohit Chopra previously served as a Department senior advisor, working under the Security of Education. Before that, he served as the CFPB’s student loan ombudsman under former Director Richard Cordray. And former CFPB Director Richard Cordray now just happens to serve as the Department’s chief operating officer for federal student aid. Both are outspoken critics of current student loan lending and servicing practices, so it is no surprise at all to see Director Chopra and Mr. Cordray coordinating positions and efforts in pursuit of consumer protection.

In its recent blog post, the CFPB is clearly signaling that the practice of withholding transcripts as a debt collection tactic does not make much sense to the Bureau, stating: “It is particularly perplexing, as it can undermine rather than enhance a student’s likelihood of repaying.” The main takeaway in all of this is that financial institutions working in student loan servicing, originations, and institutions of higher education generally should anticipate attention from both the CFPB and the Department of Education with respect to their respective lending and servicing programs, with an eye toward stronger consumer protections. Accordingly, now is the time to take stock of those programs and consider what enhancement opportunities may exist.

On April 14, the Consumer Financial Protection Bureau (CFPB or Bureau) published a report titled Student Loan Borrowers Potentially At-Risk when Payment Suspension Ends. The publication uses data from the CFPB’s Consumer Credit Panel to identify which types of borrowers may struggle to make their scheduled loan payments based on five potential risk factors:

  1. Pre-pandemic delinquencies on student loans
  2. Pre-pandemic payment assistance on student loans
  3. Multiple student loan servicers
  4. Delinquencies on other credit products since the start of the pandemic
  5. New third-party collections during the pandemic

The CFPB finds that about 15 million borrowers have at least one of the potential risk factors considered in this report, and over 5 million have at least two.

On April 6, President Joe Biden announced an extension of the federal student loan pause through August 31. In his statement, Biden suggested that if these loan payments were to resume on schedule in May, analysis of recent data from the Federal Reserve indicated that millions of student loan borrowers would face significant economic hardship, and delinquencies and defaults could threaten Americans’ financial stability.

Much like the Bureau’s recent activity around medical debt, this report seems to signal a wider and more aggressive conversation the CFPB is having with consumers and financial institutions about student loan debt. In a blog post on April 14, the CFPB referenced the Biden administration’s student loan extension, noting three things that borrowers and lenders should keep in mind: borrowers are at risk of struggling when payments return; borrowers could face bills for unnecessarily high amounts; and millions of borrowers are also navigating servicing transfers. Two days earlier, on April 12, the Bureau published another blog post “busting myths” about bankruptcy and private student loans, stating explicitly that education loans “can” – emphasis in the original – be discharged in bankruptcy.

The picture here is of an administration and a regulatory agency deeply concerned with the economic well-being of American consumers, and willing to take much bolder action than previous administrations. How these actions will interact with the complex American economic system, however, is not as clear.

On April 12, the Consumer Financial Protection Bureau (CFPB) released a blog post titled “Busting myths about bankruptcy and private student loans.” In the blog post, the CFPB argues that certain private education loans can be discharged in bankruptcy. Specifically, the CFPB argues that the following private student loans can be discharged without a showing of undue hardship and an adversary proceeding:

  • Loans where the loan amount was higher than the cost of attendance (such as tuition, books, room, and board), which can occur when a loan is paid directly to a consumer.
  • Loans to pay for education at schools that are not eligible for Title IV funding, such as unaccredited colleges, a school in a foreign country, or unaccredited training and trade certificate programs.
  • Loans made to cover fees and living expenses incurred while studying for the bar exam or other professional exams.
  • Loans made to cover fees, living expenses, and moving costs associated with medical or dental residency.
  • Loans to a student attending school less-than-half-time.

The CFPB then relies on its own prior research to make the case that consumers rely on servicers to provide information about private student loans and cites specific consumer complaints as evidence that student loan owners, lenders, servicers, and collectors unlawfully collect on private student loans that should — according to the CFPB — have been discharged.

This blog post is another example of the seemingly high level of influence the CFPB takes from the Student Borrower Protection Center (SBPC). In our blog post on the CFPB’s “discrimination as a UDAAP” position, we noted that the SBPC had released a report nearly a year prior to the CFPB’s announcement, arguing that discrimination should be enforced as an unfair act or practice. The CFPB’s playbook appears to be the same here. In January of this year, the SBPC released a report titled “Morally Bankrupt: How the Student Loan Industry Stole a Generation’s Right to Debt Relief.” The report makes the case that only certain private student loans face limits to dischargeability in bankruptcy, and contends that agencies need to “use the tools of consumer financial protection to safeguard borrowers and to hold industry accountable” for any alleged wrongdoing on this topic. The CFPB’s recent blog post seems to indicate that it has taken up the issue urged by the SBPC.

Typically, the CFPB uses these kinds of blog posts and pronouncements as a precursor to action on a particular issue. Having publicly identified what it perceives to be a problem, the CFPB will then take action to correct that problem by targeting those industry participants engaged in any alleged wrongdoing. It feels inevitable that this private student loan blog post will result in the same kind of scrutiny.

Troutman Pepper will continue to monitor any developments related to the CFPB and its supervision and enforcement of the student loan industry.