The Hudson Cook team has been in writing mode, and the results are its latest resource to help dealerships and finance office professionals.
CounselorLibrary.com, the publisher of multiple products and resources for the consumer financial services and privacy industries, on Thursday announced that it has updated its popular CARLAW F&I Legal Desk Book. Winner of the Axiom Business Book Award, the book gives readers 363 things to know about auto, boat and RV dealer finance laws and regulations.
This is the brand-new eighth edition of this compliance resource.
The book presents a law-by-law, regulation-by-regulation guide through the legal maze that dealers face every day. Authored by Thomas Hudson, Michael Benoit, Ralph Rohner and the attorneys at Hudson Cook, this new edition reflects the latest updates to the federal laws and regulations affecting F&I practices.
Formatted in a straightforward Q&A design, the book is crafted to address many of the everyday compliance issues dealers face and includes links to the actual laws and regulations discussed in each chapter.
The 390-page book is designated as the official textbook for the Association of Finance and Insurance Professionals’ Certified F&I Professional Program, and is available for $49.95 (plus shipping and handling) by going to this website.
Reynolds and Reynolds has featured earlier editions of the book, and is pleased to announce that once again it will be hosting a book signing of the latest edition at its booth at the NADA 2019 Convention in San Francisco beginning on Jan. 24. Both Hudson and Benoit will be signing these books at the convention. Attendees of the book signing will receive a complimentary copy.
In an age where so much communication now occurs via email or an even faster text message, a hand-delivered letter from an industry association quickly generated a phone call from the new director of the Consumer Financial Protection Bureau.
That hand-delivered letter from the National Association of Federally Insured Credit Unions on Tuesday prompted new CFPB director Kathy Kraninger to call NAFCU president and chief executive officer Dan Berger early Wednesday morning. It’s an exchange that marked a new relationship between the bureau and NAFCU staff, according to the association’s recount of the events.
During the call NAFCU said Berger congratulated Kraninger on her new role and shared credit unions' top priorities that specifically concern the bureau.
“We appreciate bureau director Kathy Kraninger’s interest in issues critical to the credit union industry, and we thank her for reaching out to NAFCU,” Berger said. “We look forward to working with director Kraninger to ensure a healthy regulatory environment in which credit unions can grow, thrive and successfully serve their membership.”
Berger recounted that letter to the bureau outlined what credit unions would like to see from the bureau. In this four-page document, Berger listed several priority areas for NAFCU, including:
• The bureau to use its exemption authority to excuse credit unions from certain rulemakings
• “Clear, transparent guidance” from the bureau on its expectations for credit unions under the unfair, deceptive, or abusive acts and practices (UDAAP) law
• Congress and regulators to address “supervisory gaps that may result in poor oversight of non-bank financial companies,” such as fintech companies
• An exemption from the bureau’s payday lending rule for new iterations of the NCUA’s payday alternative lending (PAL) program
• A shift at the bureau from a single director to a bipartisan commission, as well as making the bureau subject to the congressional appropriations process
• An exemption for all credit unions, regardless of asset size, from the bureau’s supervisory and enforcement authority
• Reforms to the bureau’s consumer complaint database and a ceasing of publication of unverifiable consumer complaint data
Perhaps reflecting a process as difficult as getting vehicle financing finalized for a customer with too little monthly income and too much debt burden and negative equity, the nearly six-month, politically divided slog to confirm Kathy Kraninger as the next director of the Consumer Financial Protection Bureau reached a highly partisan finale on Thursday.
The Senate with its slight Republican majority voted 50-49 to install Kraninger as CFPB director for the next five years, triggering waves of applause from industry associations along with sharply worded disappointments from consumer advocates and Democrat lawmakers.
Kraninger arrived as the nominee back in June with then acting director Mick Mulvaney saying, “I have never worked with a more qualified individual than Kathy. Her commitment to the law, to protecting consumers and to defending what works in our vibrant financial services sector, all while respecting hard-working taxpayers who pay their bills and play by the rules ensures that the Bureau will be in good hands throughout her term.”
A week ago, the Senate barely approved invoking cloture to end debate about Kraninger’s nomination. And with the Capitol getting back to regular business following ceremonies and remembrances associated with the passing of President George H.W. Bush, a nearly identical composition of lawmakers voting in favor and opposition of cloture repeated the process for Kraninger’s confirmation.
SubPrime Auto Finance News collected and received an array of reactions to a permanent director now being in place at the bureau, beginning with the American Financial Services Association.
“The American Financial Services Association supports Kathy Kraninger as the next director of the Bureau of Consumer Financial Protection (BCFP),” said Bill Himpler, president-elect of AFSA. “We believe that Ms. Kraninger is the right choice to lead the Bureau as someone with a sense of fairness and empathy toward the needs of consumers and credit providers. We hope that she’ll continue to provide more accountability and transparency to an agency that has operated in a cloak and dagger fashion in the past.”
American Bankers Association president and chief executive officer Rob Nichols began by congratulating Kraninger.
Nichols continued by stating ABA looks “forward to working with her to ensure consumers have access to and can make independent and informed choices among a wide variety of responsible financial products and services. We learned during her nomination hearing that she believes in promoting competition and appropriately tailoring regulations by taking into account both costs and benefits. We share those views, and believe those principles will benefit consumers while allowing banks to better serve their customers and innovate.
“We also appreciate the bureau’s reforms and outreach efforts under acting director Mick Mulvaney, particularly his work to gather input from stakeholders across the spectrum to make sure that rules and regulations are protecting consumers and promoting choice in the financial marketplace,” Nichols went on to say.
“Kraninger's management experience, her years of work on Capitol Hill and leadership roles in the executive branch will help her run the Bureau efficiently and hold it accountable to the American people. We wish her well in this important role,” Nichols added.
Meanwhile, Consumer Bankers Association president and chief executive Richard Hunt also praised Kraninger while touching on how deeply divided processes like her path to be confirmed isn’t necessarily the most prudent approach to regulation.
“CBA would like to congratulate Ms. Kraninger on her confirmation to this important position, one where she has the final say over virtually every financial institution in the country as well as almost every financial decision Americans make. We would also like to thank Mr. Mulvaney for his service over the last year as acting director,” Hunt said.
“We look forward to working with Ms. Kraninger on common-sense regulations that protect consumers while also allowing our well-regulated banking system to serve families and small businesses,” Hunt continued.
“CBA continues to support the shared mission of depoliticizing the Bureau and making it a gold standard regulator. In order to achieve these goals, the bureau needs a bipartisan commission to ensure a variety of voices and views are at the table during the rulemaking process,” Hunt went on to say.
Strong opposition from advocates and lawmakers
While AFSA, ABA and the CBA all saw Kraninger’s confirmation as a positive development for the financial system, organizations such as the Center for Responsible Lending and Allied Progress Center for Responsible Lending senior legislative counsel Yana Miles used a variety of negative descriptions to summarize that organization’s view.
“Mulvaney’s tenure at the CFPB wasn’t public service — it was service to predatory lenders,” Miles said. “The administration’s pattern of nominating unqualified, political candidates to important independent agencies, like the CFPB, is dangerous, misguided and will cause irreparable harm to families across the country.
“Kathy Kraninger’s inexperience and endorsement of Mulvaney’s destructive policies are gifts to bad financial actors who are hell-bent on using their predatory business model to rip off vulnerable consumers, especially consumers of color,” Miles continued.
Karl Frisch, executive director of Allied Progress, included a quick Q&A in his reaction to Thursday’s confirmation.
“Why did Republican Senators prioritize Kathy Kraninger’s confirmation during this lame-duck session of Congress when there are still so many unanswered questions about her qualifications and record? Political payback, plain and simple,” Frisch said.
“These Senators have taken millions in campaign cash from the very industries regulated by the CFPB, and they trust Kraninger’s commitment to continue Mick Mulvaney’s anti-consumer agenda,” Frisch continued.
“More than anything, they do not want someone leading the CFPB who will aggressively protect the interests of consumers from the likes of Wells Fargo, Equifax, payday lenders and other financial bad actors,” he went on to say.
Although the Senate had the task of evaluating and confirming Kraninger as CFPB director, two leaders in the U.S. House that’s now controlled by Democrats have their sights set on watching Kraninger’s actions closely.
Rep. Nancy Pelosi, the California Democrat who is projected to return as Speaker of the House, said, “As the new director of the Consumer Bureau, Kathy Kraninger has an important responsibility to fulfill the bureau’s critical mandate to protect hard-working families, veterans and seniors against abusive, deceptive and predatory practices.
“Mick Mulvaney’s disastrous tenure as acting director of the Consumer Bureau had a devastating impact on the financial security and economic stability of millions of Americans,” Pelosi continued. Instead of working to protect consumers against financial marketplace abuses, director Mulvaney doubled down on the administration’s cynical big bank and big corporate donor-first agenda.
“Director Kraninger must abandon the Administration’s shameful campaign to destroy this vital consumer watchdog,” Pelosi went on to say. “Before director Mulvaney, the Consumer Bureau produced extraordinary results for all Americans, returning nearly $12 billion to more than 29 million consumers who had been cheated by dishonest financial marketplace players.
“The American people deserve a strong, independent cop on the beat at the Consumer Bureau, free from the harmful anti-consumer policies imposed by director Mulvaney and the Trump Administration,” Pelosi added. “Democrats will hold big banks and financial institutions accountable for abusive practices, and we will continue to fight to strengthen critical consumer protections that ensure hard-working families can succeed.”
Another California House member is taking a similar stance. Rep. Maxine Waters currently is the ranking member of the House Financial Services Committee and is likely to take the chair role with Democrats holding the new majority.
“The Consumer Financial Protection Bureau was specifically designed by Congress to be an independent watchdog for America’s consumers, and I am committed to ensuring its statutorily mandated mission is not undermined,” Waters said.
“Mick Mulvaney took a series of actions to weaken the agency’s ability to carry out its important mission, while benefitting the predatory actors the agency is designed to police,” Waters continued. “He has done everything in his power to roll back consumer protections, strip the agency of its resources and compromise its independence.
“Now that Mulvaney is no longer at the helm, I call on director Kraninger 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,” Waters went on to say.
A state view of the CFPB
Of course, the CFPB is a federal agency, but regulators who work at the state level took a keen interest in Kraninger’s confirmation. One example is the Conference of State Bank Supervisors where John Ryan is president and chief executive officer.
“State financial regulators look forward to continuing our relationship with the bureau under director Kraninger’s leadership. State regulators have a vital role in enforcing consumer protections and work closely with the bureau on behalf of the consumers in every state and U.S. territory,” Ryan said.
With lawmakers and consumer advocates uneasy about the CFPB’s path with Kraninger in place, regulatory experts see states taking an expanded role in finance industry oversight.
The Public Interest Research Group Education Fund (U.S. PIRG), which describes itself as an independent, non-partisan group that works for consumers and the public interest, generated a report about this potential trend.
“Kathy Kraninger has no consumer protection or financial regulation experience. We expect her to simply follow Mick Mulvaney’s playbook,” said Ethan Lutz, U.S. PIRG’s consumer fellow. “While the CFPB’s current leadership has abandoned its mission, we’re grateful that several states are taking action to make sure companies don’t take advantage of consumers.”
The report titled, Positioned to Protect: How State and Local Authorities Can Fill the CFPB Void, included the following assertions:
• Several states, notably New Jersey, Pennsylvania and Virginia, have added resources to their state attorney general offices or have even established “mini-CFPBs,” while Maryland established its own Financial Consumer Protection Commission to provide policy recommendations to its state legislature and Attorney General.
• State authorities unilaterally have protected their constituents and prosecuted acts that run afoul of federal unfair, deceptive or abusive acts and practices (UDAP) statutes.
• States including California, Connecticut, Illinois, and Washington, as well as the District of Columbia have enacted student loan servicer regulations and established student loan ombudsman positions.
• A bipartisan coalition of attorneys general from numerous states have banded together to fill the enforcement void. Its tactics include expanding attorney general consumer protection divisions, writing letters urging for stronger enforcement, and implementing student loan borrower protections
• The private group Cities for Financial Empowerment (CFE) has helped establish consumer financial education programs in more than 20 cities and has begun to establish city-level consumer protection enforcement in Denver, Nashville, Tenn., and Salt Lake City.
“Until we get a strong CFPB back doing its only job, protecting consumers, we need to find other ways to police the financial marketplace,” said Mike Litt, consumer campaign director for U.S. PIRG. “The work of states and cities is critical, and we encourage other state and local governments to study these policies and use them as a template for future action.”
The process for establishing Kathleen Kraninger as the next director of the Consumer Financial Protection Bureau took another sharply, politically divided step forward on Thursday as the Senate barely approved invoking cloture to end debate about her nomination.
Composition of the 50-49 tally included Republicans constituting all approval votes and all Democrats and the Senate’s lone independent making up all of the down votes.
The Senate will vote one final time to decide if Kraninger will replace Mick Mulvaney, who first took control of the CFPB on an interim basis after being appointed by President Trump and has been in place for about two years.
More than a week before the Senate took this latest action, the American Financial Services Association urged the chamber’s leadership to vote to install Kraninger as director. In this letter written to Sen. Mitch McConnell and Sen. Chuck Schumer, AFSA president-elect Bill Himpler emphasized that Kraninger is “an excellent choice” to lead the CFPB.
“Ms. Kraninger is an excellent choice to lead the bureau and to continue Mr. Mulvaney’s pragmatic, measured approach to ensuring that consumers benefit from safe, affordable products provided by the most responsible members of the consumer credit industry,” Himpler wrote.
“Since its inception, the (bureau) has had extraordinary authority over all facets of the consumer credit industry. The director of the bureau needs to ensure certainty, fairness and transparency. Kathy Kraninger will be a strong and effective leader for the (bureau), and I encourage you to act quickly to confirm her nomination as director,” Himpler went on to write.
Reflecting the distinct divide over Kraninger’s nomination, two Democrats made passionate pleas to stop the process, including Sen. Sherrod Brown, who along with Kraninger hails from Ohio. Brown recollected when Kraninger faced questions from lawmakers during a hearing back in July.
“We asked Ms. Kraninger whose side she would be on if she were the head of the Consumer Financial Protection Bureau. Would she be on Wall Street’s and Mick Mulvaney’s side, or would she fight for workers, and servicemembers, and students and seniors? It’s one of the few questions she did answer,” Brown said on the Senate floor ahead of Thursday’s vote.
“She said — I’m quoting her — ‘I cannot identify any actions that Acting Director Mulvaney has taken with which I disagree.’ We know exactly whose side Ms. Kraninger is on,” Brown continued. “She’s with Mick Mulvaney, she’s with Wall Street, she’s with the payday lenders, she’s with the special interests.
“She is not on the side of the millions Americans, and her neighbors in Ohio, who lost their homes and their jobs and their retirement savings to Wall Street greed,” Brown went on to say. “She is not on the side of people who work for a living; she is on the side of big corporations collecting a tax break to send American jobs overseas.
“Ms. Kraninger has no experience in banking, or finance, or consumer protection. Her one and only qualification is that she will be a rubber stamp for special interests. That is unconscionable,” Brown added.
Sen. Catherine Cortez Masto, a Nevada Democrat, also stanchly opposed the nomination ahead of Thursday’s vote, tying the actions to the White House.
“Like many of President Trump’s nominees, Kraninger seems handpicked to undermine the agency’s mission,” Cortez Masto said. “As a faithful disciple of Mick Mulvaney, the architect behind this administration’s plan to destroy the CFPB from the inside out, Kraninger will continue crippling its power to protect American consumers.
“The next director of the CFPB will be called upon to make a choice, to stand aside and allow powerful special interests to call the shots in our country’s financial system, or to fight for families who want a fair and affordable loan to buy a car, home or college education for their children; a bank account and credit card without costly fees; or who are simply trying to make ends meet,” Cortez Masto continued.
“Kathy Kraninger can’t be relied upon to make the right choice,” Cortez Masto went on to say.
FNI Inc. president David Bafumo spent part of his Thanksgiving holiday dissecting the potential pitfalls that resulted in Santander Consumer USA reaching a settlement with the Consumer Financial Protection Bureau over a GAP product.
Two days before the country carved turkeys and passed around pie, the CFPB described a consent order detailing how the bureau found Santander violated the Consumer Financial Protection Act of 2010 by not properly describing the benefits and limitations of its S-GUARD GAP product, which the finance company offered as an add-on to its auto finance products.
The regulator also stated SCUSA failed to disclose the impact properly on consumers of obtaining a contract extension, including by not clearly and prominently disclosing that the additional interest accrued during the extension period would be paid before any payments to principal when the consumer resumed making payments.
Under the terms of the consent order, the CFPB said Santander must, among other provisions, provide approximately $9.29 million in restitution to certain consumers who purchased the add-on product, clearly and prominently disclose the terms of its contract extensions and the add-on product, and pay a $2.5 million civil money penalty.
Meanwhile, Bafumo did not doze into a turkey-induced nap this past week. Instead, he examined the consent order that’s available here and offered his analysis in an attempt to help dealerships and finance companies not have to fork over millions to their customers and the bureau.
“The bureau hangs their enforcement hat on just one element of the S-Guard GAP program, basing the entire ‘unfair and deceptive’ finding on a 125 percent loan-to-value benefit limitation found in the S-Guard consumer contract,” Bafumo wrote in his latest Take Action newsletter that he shared with SubPrime Auto Finance News.
“The cap means that no GAP benefit coverage is provided for the amounts financed over 125 percent — potentially leaving those customers partially unprotected,” he continued in the newsletter available here.
“In the bureau’s opinion, the limitation makes the S-Guard GAP marketing materials deceptive, as they do not specify the limitation and instead, make multiple references to ‘true full coverage,’ implying that a customer’s complete deficiency balance would be covered by the GAP contract benefits," he went on to say.
Bafumo explained that the CFPB first delved into regulating GAP coverage in 2012 and 2013. As a result, he noted that many providers modified their marketing material. Providers often changed the wording from, “In the event of a total loss, GAP pays the difference in what you owe on your loan and what your insurance company settles for,” instead to “GAP helps pay the difference in what you owe…”
Bafumo emphasized that this modification recognized there are exclusions to coverage and to imply the possibility of a balance still due.
“Missing this well known, industry-wide adjustment in GAP marketing was a mistake by Santander’s due diligence team and by the S-Guard GAP administrator who provided both the product and the marketing materials,” he said.
Bafumo closed his latest update by stressing some of the points and strategy offered via his firm that’s online here. He included:
- Document your product vendor and marketing due diligence.
- Establish a standardized, compliant marketing process.
- Implement a product-specific consumer disclosure form.
- Require product vendor agreement terms that protect you.
The Consumer Financial Protection Bureau (CFPB) has issued its final rule adopting changes to Regulation P, which governs the requirements for financial institutions to issue privacy notices to its customers.
The final rule implements new timing requirements for sending annual privacy notices pertaining to financial institutions that no longer qualify for the exception and eliminates the “alternative delivery” option for annual privacy notices. The most significant impact of the final rule is the creation of an exception which permits financial institutions to avoid sending annual privacy notices to its customers under certain circumstances.
The final rule will have the biggest impact on financial institutions who do not share nonpublic personal information with unaffiliated third parties. However, with recent amendments to the Gramm Leach Bliley Act (GLBA) and Regulation P regarding privacy notices, all financial institutions should evaluate their current privacy policies and procedures.
The final rule will become effective on Monday.
Creation of annual privacy notice exception
The changes to Regulation P are intended to align the rule with amendments made by Congress to the Gramm Leach Bliley Act (GLBA) in 2015. Under Regulation P, financial institutions are required to send a privacy notice to all customers every 12 months without exception. This includes information such as whether the financial institution shares consumer information with nonaffiliated third parties, how the financial institution protects nonpublic personal information obtained from customers, and whether the customer has the right to opt-out of the sharing of that information.
The final rule now creates an exception to this rule and exempts financial institutions from this requirement if it satisfies two conditions:
1. The financial institution does not share nonpublic personal information with nonaffiliated third parties.
2. The financial institution must not have changed its “policies and procedures with regard to disclosing nonpublic personal information” from the policies and procedures outlined in the most recent privacy notice sent to the consumer.
This exception only applies to annual privacy notices and does not impact current requirements regarding initial privacy notices or amended privacy notices.
Amendment to timing requirements
In addition to creating the annual privacy notice exception, the final rule also adopted new timing requirements for issuing annual privacy notices in the event that a financial institution has made changes to its privacy policies and procedures and no longer qualifies for the exception. The timing requirements are rather nuanced but essentially require a financial institution to issue an annual privacy notice either:
1. Before implementing the changes in the policy or practice which trigger the obligation to send a revised privacy notice
2. Within 100 days after adopting a policy or practice that eliminates the financial institution’s notice exception but the changes did not trigger the obligation to send a revised privacy notice.
Removal of “alternative delivery” method
Finally, as part of its changes to Regulation P, the CFPB eliminated the “alternative delivery” method for annual privacy notices.
Under the “alternative delivery” method, financial institutions were permitted to satisfy the annual privacy notice requirement in certain circumstances by posting a copy of the annual notice on its website. However, the CFPB rationalized that many of the requirements permitting a financial institution to use the “alternative delivery” method were the same as the requirements for a financial institution to qualify for the new annual privacy notice exception and, therefore, the method was now irrelevant.
As regulators continue to amend privacy notice requirements, it is imperative that financial institutions monitor their privacy practices to remain in compliance.
Alexander Koskey, an associate in Baker Donelson’s Atlanta office, represents individuals, businesses and financial institutions on a wide range of regulatory and compliance issues, real estate and commercial matters. He can be reached at akoskey@bakerdonelson.com.
The Consumer Financial Protection Bureau concentrated the auto-finance portion of its latest supervisory highlights on two of the most complicated matters when someone needs credit to acquire a vehicle — repossession and the application of insurance proceeds.
Before deploying a repossession agent to find and take back a vehicle, the CFPB acknowledged that many finance companies provide options to consumers in an effort to avoid repossession when a contract is delinquent or in default. The bureau also recognized in the summertime update that finance companies may offer formal extension agreements that allow consumer to forbear payments for a certain period of time or may cancel a repossession order once a consumer makes a payment.
But then, problems came to light, at least according to the CFPB’s investigations.
“One or more recent examinations found that servicers repossessed vehicles after the repossession was supposed to be cancelled. In these instances, the servicers incorrectly coded the account as remaining delinquent, or customer service representatives did not timely cancel the repossession order after the consumer’s agreement with the servicers to avoid repossession. The examinations identified this as an unfair practice,” bureau officials said in the supervisory highlights.
"The practice of wrongfully repossessing vehicles causes substantial injury, because it deprives borrowers of the use of their vehicles and potentially leads to additional associated harm, such as lost wages and adverse credit reporting,” officials continued.
“Such injury is not reasonably avoidable when consumers take action they believed would halt the repossession, and there is no additional action the borrower can take to prevent it,” the CFPB went on to say.
The bureau made one more point about the ramifications of errors happening during the repossession process, stating a financial injury is not outweighed by countervailing benefits to the consumer or to competition.
“No benefits to competition are apparent from erroneous repossessions. And the expense to better monitor repossession activity is unlikely to be substantial enough to affect institutional operations or pricing,” the CFPB said.
In response to the examination findings, the bureau indicated finance companies are stopping the practice, reviewing the accounts of consumers affected by a wrongful repossession and removing or remediating all repossession-related fees.
Insurance issues
Before delving into the repossession world, the CFPB recapped what’s happened when it’s investigated finance companies in connection with insurance.
The bureau shared in the supervisory highlights that one or more examinations observed instances in which notes required that insurance proceeds from a total-vehicle loss be applied as a one-time payment to the contract with any remaining balance to be collected according to the consumer’s regular billing schedule.
However, in some instances after consumers experienced a total-vehicle loss, the CFPB said finance companies sent billing statements showing that the insurance proceeds had been applied to the loan payments so that the loan was paid ahead and that the next payment on the remaining balance was due many months or years in the future.
“Servicers then treated consumers who failed to pay by the next month as late, and in some cases also reported the negative information to consumer reporting agencies,” bureau officials said.
“The examination found that servicers engaged in a deceptive practice by sending billing statements indicating that consumers did not need to make a payment until a future date when in fact the consumer needed to make a monthly payment,” they continued. The billing statements contained due dates inconsistent with the note and the servicer’s insurance payment application.
Such information would mislead reasonable consumers to think they did not need to make the next monthly payment. The misrepresentation is material because it likely affected consumers’ conduct with regard to auto loans,” the bureau went on to say.
Had the information been presented differently?
“Consumers would have been more likely to make a monthly payment if they knew that not doing so would result in a late fee, delinquency notice or adverse credit reporting,” the bureau said in its latest compliance update.
In response to examination findings, the CFPB state that finance companies are sending billing statements that accurately reflect the account status of the contract after applying insurance proceeds from a total-vehicle loss.
Attorneys general are continuing to implore the Consumer Financial Protection Bureau to be an aggressive regulator.
Through a letter delivered on Wednesday, New York attorney general Barbara Underwood — part of a coalition of 14 AGs — called on the CFPB and acting director Mick Mulvaney to continue protecting the rights of consumers against credit discrimination under the Equal Credit Opportunity Act (ECOA). The attorneys general share authority with the CFPB to enforce regulations regarding the ECOA and lead antidiscrimination efforts in their own states. As such, they are calling on the CFPB to continue enforcing the ECOA, including its provision for disparate impact liability.
The letter was signed by the attorneys general of North Carolina, California, Illinois, Maine, Maryland, Massachusetts, Minnesota, New Jersey, New York, Oregon, Rhode Island, Vermont, Virginia and the District of Columbia.
“The Equal Credit Opportunity Act was enacted because of our country’s sordid history of credit discrimination — and it’s unbelievable that the CFPB is considering refusing to use it to protect consumers,” Underwood said. “As we’ve shown, my office won’t hesitate to uphold the law and protect those we serve, even if the CFPB won’t.”
The ECOA is the principal federal antidiscrimination law for all forms of credit except home mortgage lending. It prohibits creditors from discriminating against consumers on the basis of race, color, religion, national origin, sex, marital status and age.
The ECOA also protects people from discriminatory intent and unconscious prejudices that do not mention race, color, religion, national origin, sex, marital status, or age, but still have a discriminatory effect that prevents equality of opportunity; this is called disparate impact liability.
The state officials added the CFPB is charged with oversight and enforcement of federal laws relevant to nondiscriminatory lending and credit practices, which includes interpreting the ECOA.
In their letter, the attorneys general say they “will not hesitate to uphold the law if CFPB acts in a manner contrary to law with respect to interpreting ECOA.”
Senior U.S. District Judge for the Southern District of New York Loretta Preska issued an opinion on June 21 that has set the consumer finance world atwitter, sparking discussions of a potential review by the Supreme Court.
In her opinion, Preska, a 1992 George H.W. Bush appointee, ruled that the structure of the Consumer Finance Protection Bureau violates the Constitution’s separation of powers and, as such, terminated the bureau’s status as a party to a lawsuit. She went on to say that she would strike an entire section of the 2010 Dodd-Frank Act relating to the establishment of the CFPB, rather than overhauling it, as other judges have suggested.
The lawsuit, filed by the bureau and the people of the State of New York, alleged that a New Jersey company had defrauded former NFL players suffering from brain injuries and Sept. 11 emergency medical workers anticipating money from large settlements to the tune of millions, thereby violating provisions of the Consumer Financial Protection Act (CFPA). One can’t ask for more sympathetic plaintiffs, right? The defendants moved to dismiss the action on several bases, including the assertion that the CFPB is not structured in compliance with the U.S. Constitution and thus lacks authority to bring claims under the CFPA.
Though Preska denied the crux of defendants’ motion, allowing the claims of the State of New York to stand, she wrote that “because the CFPB’s structure is unconstitutional, it lacks the authority to bring claims under the CFPA and is hereby terminated as a party to this action” (emphasis added). BOOM! She reasoned that the fact that the bureau was set up as a completely independent agency, with a single director who cannot be fired by the president (except for cause), places it squarely outside the confines of constitutional fitness. In the decision, Judge Preska acknowledged the en banc holding of the Court of Appeals for the District of Columbia Circuit in PHH Corp. v. CFPB, 881 F.3d 75 (D.C. Cir. 2018), which reversed a lower court ruling and held that the CFPA statute was indeed constitutionally sound. However, in a statement demonstrating a bit of judicial sass, Preska wrote, “Of course, that decision is not binding on this court.”
Instead, Preska largely adopted the findings of Judge Kavanaugh’s dissent in PHH, asserting that, “based on considerations of history, liberty, and presidential authority, Judge Brett Kavanaugh concluded that the CFPB ‘is unconstitutionally structured because it is an independent agency that exercises substantial executive power and is headed by a single director.’“ She parted ways with Judge Kavanaugh, however, when it came to the overall constitutional health of the CFPA. Kavanaugh asserted that the remedy to the problem was to completely overhaul the CFPA. Preska, conversely, claimed that she “would strike Title X in its entirety,” a step that would require the shuttering of the bureau altogether. She went on to say that the constitutional issues relative to the CFPB’s structure are not cured by President Trump’s appointment of Mick Mulvaney as Interim Director because, as defendants so accurately pointed out, “the relevant portions of the Dodd-Frank Act that render the CFPB’s structure unconstitutional remain intact.” Even the President’s appointment on June 18 of Kathleen Kraninger as director (an action that was not acknowledged in the opinion) doesn’t remedy the problem, as Kraninger’s position is still subject to the unconstitutional “for cause” provision of Dodd-Frank.
Because the court let the claims of the state stand, there is no “final” ruling from which the CFPB can currently appeal. In order to obtain a review of Preska’s decision, the bureau would thus have to obtain leave to appeal … from the very judge who terminated its status as a party to the action. Because of the difference of opinion between Circuits on this issue, however, this is most certainly not the last we’ll hear on the constitutionality of the CFPB’s structure. There are rumors in the consumer financial services community that this issue will end up before the U.S. Supreme Court for a final determination of the CFPB’s constitutionality and perhaps even that of Dodd-Frank Section X, as a whole.
Stay tuned. This is going to get interesting.
Blair Evans, of counsel in Baker Donelson’s Memphis, Tenn., office, is a creditors’ rights, collections and business litigator with experience representing major automotive and commercial equipment creditors, banks, credit unions and nonbank auto finance companies in replevin, government seizure and collection actions in state and federal courts. She can be reached at bevans@bakerdonelson.com.
Coinciding with Kathleen Kraninger telling the Senate Banking Committee this week how she would oversee the regulator as its new director, the Consumer Financial Protection Bureau outlined the head of a new division — the Office of Innovation.
Acting director Mick Mulvaney announced that he has selected Paul Watkins to run the recently created Office of Innovation, which is designed to focus on encouraging consumer-friendly innovation. Mulvaney stressed that innovation is now a key priority for the bureau as work that was being done under Project Catalyst will be transitioned to this new office.
Mulvaney explained the CFPB intends to fulfill its statutory mandate to promote competition, innovation and consumer access within financial services. To achieve this goal, the new office will focus on creating policies to facilitate innovation, engaging with entrepreneurs and regulators, and reviewing outdated or unnecessary regulations.
“I am delighted that Paul Watkins is bringing his deep expertise, track record of protecting consumers and commitment to innovation to the bureau,” Mulvaney said.
“I am confident that, under his leadership, the Office of Innovation will make significant progress in creating an environment where companies can advance new products and services without being unduly restricted by red tape that belongs in the 20th century,” Mulvaney continued.
Watkins comes to the CFPB from the office of the Arizona attorney general, where he was in charge of the office’s fintech initiatives. He managed the FinTech Regulatory Sandbox, the first state fintech sandbox in the country, which allows a company limited access to the marketplace in exchange for relaxing some regulations.
Watkins was also the chief counsel for the civil litigation division. In that role, he managed the state’s litigation in areas such as consumer fraud, antitrust and civil rights.
Previously, Watkins practiced at Covington & Burling LLP in San Francisco and Simpson and Thacher & Bartlett LLP in Palo Alto, Calif.
FinTech innovation is the focus of the Automotive Intelligence Summit, which begins on Tuesday in Raleigh, N.C. There is still time to register and attend by going to www.autointelsummit.com.
Kraninger on Capitol Hill
Roughly a month after she was nominated by President Trump to be the next director of the CFPB, Kathy Kraninger testified in front of the Senate Banking Committee, outlining what she described as four initial priorities should lawmakers confirm her for the post.
If approved by the Senate, Kraninger would be transitioning from leadership positions previously held within the Office of Management and Budget, Department of Transportation and Department of Homeland Security, as well as three separate Congressional committees.
“First, the bureau should be fair and transparent, ensuring its actions empower consumers to make good choices and provide certainty for market participants,” Kraninger began. “In particular, the bureau should make robust use of cost benefit analysis, as required by Congress, to facilitate competition and provide clear rules of the road. In my experience, effective use of notice and comment rulemaking is essential for ensuring the proper balancing of all interests. It also enables consideration of tailoring to reduce the burden of compliance, particularly on consumers and smaller marketplace participants.
“Second, the bureau should work closely with the other financial regulators and the states on supervision and enforcement. Nothing is more destructive to competitive markets and consumer choice than fraudulent behavior,” she continued. “Under my stewardship, the bureau will take aggressive action against bad actors who break the rules by engaging in fraud and other illegal activity.
“Third, the bureau must recognize its profound duty to the American people to protect sensitive information in its possession,” Kraninger added. “Under my leadership, the bureau would limit data collection to what is needed and required under law and ensure that data is protected. This issue clearly needs more attention, particularly because many consumers are unaware of the vulnerabilities or unsure of what actions to take to protect themselves.
“And, fourth, the bureau must be accountable to the American people for its actions, including its expenditure of resources,” she went on to say.
In her opening remarks, Kraninger mentioned that while attending college in her native Ohio, she served an internship for Sen. Sherrod Brown while he was still a member of the House. Brown now is the ranking member of the Senate Banking Committee and highly questions whether Kraninger is fit to lead the CFPB.
“For months, I urged the administration to nominate someone to lead the CFPB who had a track record of working for consumers. Unfortunately, Ms. Kraninger has no experience whatsoever in consumer protection,” Brown said in his opening remarks during the hearing. “Mr. Mulvaney argues she should be approved because of her management and budget experience. It is hard to see how that is enough, especially given the nominee’s refusal to provide information requested by committee members.
Every one of us on this side of the dais wanted this hearing postponed until we got information about that experience,” Brown continued. “When the nominee and I met, she said it was out of her hands and would try to get a response. That was over a week ago. Still nothing. What are they hiding?
“Here is what we do know. At the Office of Management and Budget, she signed off on a $1.9 trillion tax break for millionaires. To pay for it, she helped write a budget that would triple the rent for families that are already struggling to get by,” Brown went on to say.
“She has been involved in the management of one disastrous policy after another. … Management is supposed to be Ms. Kraninger’s one qualification,” Brown added. “Nobody wants Mr. Mulvaney out of the CFPB faster than I do. But American consumers can’t afford five years of someone who stands with the bankers in this administration and on Wall Street. We need a CFPB director who will sit with hardworking families at their kitchen tables.”
