Consumer complaints possibly made about your finance company, dealership, debt-collection agency or related industry service provider to the Consumer Financial Protection Bureau now are available for anyone to see.
For the first time on Thursday, the CFPB turned on its enhanced public-facing consumer complaint database, pushing more than 7,700 consumer accounts of problems they are facing with financial companies concerning auto loans, mortgages, bank accounts, credit cards, debt collection and more.
The CFPB is also publishing a Request for Information seeking input on whether there are ways to enable the public to more easily understand and make comparisons of the complaint information.
“The bureau's work improves as we hear directly from consumers,” CFPB director Richard Cordray said. “Every complaint tells us what people are facing in the financial marketplace. Publishing these consumer stories today is a historic milestone that we believe will lead to better outcomes for everyone.”
SubPrime Auto Finance News scanned through the database’s sorting capability to find complaints associated with an auto loan. While personal information about the consumer has been redacted, the company targeted for the issue can be found easily. Some of the complaints posted with the CFPB since the beginning of the year includes ones involving institutions heavily involved in subprime financing such as Capital One Auto Finance, Exeter Finance, Regional Acceptance, Westlake Financial Services, J.D. Byrider, Consumer Portfolio Services, Ally Financial and Santander Consumer USA.
For industry supporters who maintain the importance of credit availability to subprime consumers, it’s significant to point out that only 62 of the more than 7,700 consumer complaint narratives the CFPB made available when it activated this feature had a connection with an auto loan. And each of those files in the auto space were related to collections activities.
Furthermore, of the entire CFPB Consumer Complaint Database — launched in June 2012 — only 1,821 cases are connected to the auto space. As of this week, the bureau possessed more than 410,000 consumer complaints in that database.
In March, the bureau finalized a policy regulators say is geared to empower consumers to publicly share their stories when they submit complaints to the CFPB. Since the bureau launched this feature, officials pointed out more than half of consumers submitting complaints to the CFPB website have “opted in” to share their accounts of what happened.
Going forward, the CFPB consumer narratives that have been scrubbed of personal information will be added to the complaint database on a daily basis.
The CFPB contends its database is nation’s largest public collection of consumer financial complaints. It includes basic, anonymous, individual-level information about the complaints received, including the date of submission, the consumer’s ZIP code, the relevant company, the product type, the issue the consumer is complaining about, and how the company handled the complaint.
“Consumer narratives provide a firsthand account of the consumer’s experience,” the CFPB said. “The narratives provide context to complaints, are easily searchable, and help spotlight specific trends.
“The narratives can also help consumers to make more informed decisions, as well as encourage companies to improve the overall quality of their products and services and more vigorously compete over good customer service,” regulators went on to say.
The comments included in some of the complaint narratives might be familiar to finance company executives or dealership managers who held previous stints in the collections department.
In one account associated with a conflict with Ally, the consumer said, “I (filed) a complaint with CFPB regarding to Ally to resolve a matter. However, Ally is calling me on an automatic system and blocking their phone calls without resolving these matters. They call my house all day long more than XXXX times. We are in dispute and they refuse to resolve the matter as I am waiting for a supervisor to return a phone call to me however this is an automatic system and then they block the calls the rest of the day.”
Another consumer complaint stated, “My car loan with Regional Acceptance has language in the agreement that states we have two weeks past due date before it is considered late and beyond that there is a charge that can be negotiated with a payment arrangement. I continually make payment arrangements but I receive XXXX-XXXX calls a day once the due date has past. I have requested they stop and they continue, please help. I always pay my bill including any late fees, I’ve never missed a payment. My only issue is sometimes I’m late.”
Meanwhile, a consumer with an issue involving Westlake indicated, “They have repossessed our car and auctioned it off. We get many calls a day. They were sent a notice and still keep calling. Each time we talk they say they will keep calling till we pay. I am XXXX and on XXXX. We do not have enough to pay our regular bills.”
The CFPB mentioned its Consumer Complaint Database is designed to allow users to explore the information, spotlight particular practices and problems and gain valuable insights. Specifically, users can:
• Search for specific product names or features: Users can now search consumer narratives for product names or features such as the brand name of a credit card or a mortgage feature.
• Highlight specific company practices and problems: Users can search for terms in consumer accounts of what happened such as “lost paperwork,” “foreclosure scam,” or “robo-signing.”
• Break down information by state: Users can sort complaints by state and zip code to spotlight local trends and information.
Officials reiterated the CFPB consumer complaint narrative policy lays out the specific procedures and safeguards the Bureau has put in place to publish narratives in the database.
“The policy includes important safeguards for removing a consumer’s personal information and ensuring the informed consent of any consumer who participates,” the bureau said.
Under the CFPB policy, companies also have 180 days to select an optional public-facing response to be included in the public database. These company responses are now included in the database for the first time.
“This policy builds on the safeguards the CFPB’s database already has in place,” the CFPB said.
The agency added complaints are listed in the database after the company responds to the complaint or after it has had the complaint for 15 days, whichever comes first. The CFPB will disclose the consumer narrative when the company provides its public-facing response, or after the company has had the complaint for 60 calendar days, whichever comes first.
No matter what the protocol might be, Consumer Bankers Association president and chief executive officer Richard Hunt still disagrees with the entire concept.
“We are pleased the CFPB agrees with us on the need to normalize the complaint data and is seeking comment on the best approaches. This is a step in the right direction,” Hunt said.
“However, we are profoundly disappointed the bureau is releasing the public narratives,” he continued. “In my opinion, the vast majority of banks will choose not to respond publicly, but will continue the long held tradition of speaking with their customers in confidence. Publishing unverified one-sided narratives does not benefit consumers.
“The CFPB prides itself on being a data-driven agency, but today’s action is simply a public shaming of banks,” Hunt went on to say.
The bureau's database can be accessed here.
Time is dwindling in the current Supreme Court session, and the justices have yet to offer their opinion on a case connected with the use of disparate impact, one of the sharpest tools the Consumer Financial Protection Bureau uses to regulate the auto finance industry. No matter which way the court goes, analysts from KeyBanc Capital Markets remain “bullish” on the profit prospects for dealers in their finance offices.
To recap, the court is expected to offer its opinion in the coming days regarding the case of the Texas Department of Housing and Community Affairs versus the Inclusive Communities Project. KeyBanc analysts explained the case focuses on the use of low income housing tax credits, which are federal tax credits distributed to low-income housing developers by state housing authorities.
In 2009, the Inclusive Communities Project (ICP) sued the Texas Department of Housing and Community Affairs (TDHCA) claiming that TDHCA disproportionately granted tax credits to minority neighborhoods and away from affluent neighborhoods, a practice attorneys said perpetuated segregation in violation of the Fair Housing Act. At trial, ICP attempted to show discrimination by disparate impact, and the court ruled against TDHCA, which later appealed claiming that the district court used the wrong standard to evaluate disparate impact claims.
The two sides eventually faced off in front of the Supreme Court back in January. KeyBanc indicated the Supreme Court will decide whether the disparate impact standard will remain available to those complaining of housing discrimination under the Fair Housing Act.
Disparate Impact is a policy or practice that can be deemed discriminatory and illegal if it has a disproportionate adverse effect on minorities or other protected classes, even if unintentional.
“The Equal Credit Opportunity Act (ECOA) has very similar language in the law, and the CFPB has used disparate impact to attempt to prove illegal discrimination in auto finance,” KeyBanc analysts said.
“A ruling that bars disparate impact could propel a similar change in the ECOA in the future, which would undercut the CFPB’s argument that it can use disparate impact under the Act,” they continued.
The CFPB used disparate impact to hand out an $80 million penalty against Ally Financial at the end of 2013.
If the court approves the use of disparate impact, KeyBanc said the decision “would not alter the CFPB’s current view that dealers should be compensated for loan originations, which we believe would have little impact on auto retailer profitability.
“Automotive paper is in high demand given its strong performance through the downturn,” analysts continued. “In the worst-case scenario, the CFPB could enforce a flat-fee compensation.
“We would expect lending institutions to bid competitively for the business, setting a fee similar to current compensation,” KeyBanc went on to say.
BB&T Dealer Services already announced a decision to switch from a dealer mark-up model to a flat-fee structure. The bank will implement the change on July 1.
A securitization presale report from Standard & Poor’s gave a glimpse as to what the interaction between Westlake Financial Services and the Consumer Financial Protection Bureau has been like dating back more than a year.
The report based on information as of June 12 indicated that the CFPB is considering legal action against Westlake for certain alleged violations of federal consumer protection laws. S&P said Westlake received that notification on May 19 when the CFPB provided a discretionary Notice and Opportunity to Respond and Advise.
“Westlake believes that to the extent that violations occurred, it has and will continue to address such incidents by way of employee disciplinary action, vendor terminations, and enhancements and modifications to internal policies and procedures,” S&P analysts said in its report. “Westlake has provided a response to the CFPB proposing a meeting through counsel to discuss the parameters of a possible resolution.
“Based on the company’s strong balance sheet and information that Westlake's management provided, Standard & Poor's believes that the resolution of the CFPB's findings will not have a material effect on Westlake,” analysts went on to say.
S&P highlighted that as of as of April 30, 2015, Westlake had 1,198 employees and a network of more than 23,000 dealerships across all 50 states from which the finance company buys its vehicle installment contracts.
Analysts mentioned Westlake’s portfolio of nonprime and subprime retail installment sales contracts totaled $2.5 billion. They added Westlake closed 2014 with pretax income of $235 million and had equity of $766 million.
According to the report connected with the presale of Westlake Automobile Receivables Trust 2015-2, the interaction between Westlake and the CFPB began on March 28 last year when the finance company received a civil investigative demand (CID) from the bureau.
That CID requested that Westlake provide testimony, produce documents, and provide information relating to the offering, providing, marketing, underwriting, and servicing of auto loans, the collection of debts associated with auto loans, or the repossession or sale of collateral securing auto loans to determine if Westlake is in violation of consumer financial laws.
“Westlake cooperated with the civil investigative demand and produced documents and provided testimony as requested by the CFPB,” S&P said.
While officials said the complaint is not a finding or ruling that the finance company has actually violated the law, the Consumer Financial Protection Bureau sued Security National Automotive Acceptance Co. (SNAAC) today for aggressive debt collection tactics against servicemembers.
In a complaint filed in federal court, the CFPB alleges that SNAAC used a combination of illegal threats and deceptive claims in order to collect debts. The CFPB said it is seeking compensation for harmed consumers, a civil penalty and an order prohibiting the company from committing future violations.
Through this lawsuit, the bureau indicated that it seeks to stop the alleged unlawful practices of the company. The bureau also requested that the court impose penalties on the company for its conduct and require that compensation be paid to consumers who have been harmed.
“Security National Automotive Acceptance Company took advantage of military rules to put enormous pressures on servicemembers to pay their debts,” CFPB director Richard Cordray said.
“For all the security they provide us, servicemembers should not have their financial and career security threatened by false information from an auto loan company,” Cordray continued.
SNAAC is an Ohio-based auto finance company that operates in more than two dozen states and specializes in lending to servicemembers. It lends money primarily to active-duty and former military to buy used vehicles.
The CFPB alleges that the company violated the Dodd-Frank Wall Street Reform and Consumer Protection Act’s prohibitions against unfair, deceptive, and abusive acts and practices by using aggressive collection tactics that took advantage of servicemembers’ special obligations to remain current on debts.
The bureau noted both active-duty and former servicemembers could encounter trouble with the company if they missed or were late on payments.
“Once consumers defaulted, they became subject to repeated threats to contact their chain of command,” bureau officials said. “In many other instances, the company exaggerated the consequences of not paying. Thousands of people were victims of the company’s aggressive tactics.”
Specifically, the CFPB alleges that the company has:
• Exaggerated potential disciplinary action that servicemembers would face: The CFPB believes that the company routinely exaggerated the potential impacts on servicemembers’ careers of remaining delinquent. The bureau alleges SNAAC told customers that their failure to pay could result in action under the Uniform Code of Military Justice, as well as a number of other adverse career consequences, including demotion, loss of promotion, discharge, denial of re-enlistment, loss of security clearance, or reassignment. In fact, these consequences were extremely unlikely.
• Contacted and threatened to contact commanding officers to pressure servicemembers into repayment: The CFPB stated SNAAC buried a provision within the fine print of contracts saying that it could contact commanding officers about servicemembers’ debts. The company would repeatedly contact commanding officers to disclose the debts in an effort to force payment, and suggest that the servicemembers were in violation of military law and other regulations.
The CFPB alleges that many consumers were unaware of the provision, and those who were aware of it did not understand the pressure that would be brought to bear on them because of it. The company’s tactics, the CFPB alleges, therefore took advantage of the servicemembers’ inability to protect their interests in their transactions with the company and was unfair.
• Falsely threatened to garnish servicemembers’ wages: The CFPB charged that SNAAC implied to consumers that it could immediately commence an involuntary allotment or wage garnishment. But officials said such consequences could not or would not occur because, through the military pay system, involuntary allotments are only processed once a judgment by a court is obtained.
They go on to state SNAAC would threaten to pursue an involuntary allotment before they had even determined whether the servicemember would be sued.
• Misled servicemembers about imminent legal action: In many instances, the bureau contends SNAAC threatened to take legal action against customers when, in fact, it had not determined whether to take such action.
The bureau added that in numerous instances, the company did not intend to take such action at the time.
While a pair of industry associations indicated they weren’t blindsided when the Consumer Financial Protection Bureau released its final larger participant rule this week, an attorney with more than 30 years of experience cautioned finance company executives about not ignoring an important portion of what the CFPB emphasized.
Along with the National Automotive Finance Association and the American Financial Services Association, SubPrime Auto Finance News also reached out to David Silverman, who operates his own firm in Englewood, Colo., served two terms on the board of directors for the National Association of Retail Collection Attorneys (NARCA) and was founding president of the Colorado Creditor Bar Association.
“It’s great to finally have clarity of the rules of the game, taking much of the guesswork out of doing business,” said Silverman, an attorney since 1982.
Currently, the bureau supervises auto financing at the largest banks and credit unions. This rule extends that supervision to any nonbank auto finance company that makes, acquires or refinances 10,000 or more loans or leases in a year.
Under the rule, those companies will be considered “larger participants,” and the bureau may oversee their activity to ensure they are complying with federal consumer financial laws, including the Equal Credit Opportunity Act, the Truth in Lending Act, the Consumer Leasing Act, and the Dodd-Frank Wall Street Reform and Consumer Protection Act’s (Dodd-Frank Act) prohibition on unfair, deceptive, or abusive acts or practices.
Under this final rule, which was proposed last September, the bureau estimates that it will have authority to supervise about 34 of the largest nonbank auto finance companies and their affiliated companies that engage in auto financing.
To coincide with this new authority, the bureau updated its Supervisory and Examination Manual to provide guidance on how the CFPB will monitor the bank and nonbank auto finance companies that it supervises.
“While it’s great to now know the rules, do not ignore the examination procedures,” Silverman said. “Following these procedures can give an organization of every size, not just the defined larger participants a huge competitive advantage because it’s analogous to the teacher publishing test questions before test day.
“This principal applies to every business in the automobile lifecycle from lead generation to default and recoveries and all phases in between,” he went on say.
The CFPB indicated rule will take effect 60 days after publication in the Federal Register.
“The large participant rule was not a surprise to the industry. It was very similar to what the CFPB announced as the proposed rule,” said NAF Association executive director Jack Tracey, who welcomed Jeffrey Langer, assistant director, office of installment and liquidity lending markets at the CFPB, during the organization’s annual conference last month in Plano, Texas.
“The CFPB has a history of defining its supervision over large segments of each market they oversee, so the ruling is not a surprise to the industry,” Tracey continued in a message to SubPrime Auto Finance News. “Actually it probably good that the waiting is over. The auto financing industry has been dealing with the CFPB now for the past few years and I don’t see any additional concerns for them now that the ruling has been finalized.
“The large players already knew who they were after the proposed rulemaking was announced and they have been preparing themselves for the supervision,” he went on to say.
AFSA president and chief executive officer Chris Stinebert said in a statement to SubPrime Auto Finance News that the bureau’s final rule arrived this week “as anticipated.”
Stinebert surmised that the CFPB only made “minor changes” to its original proposal to define larger participants in nonbank auto finance.
“The CFPB’s rule retained its original transaction threshold, meaning that nonbank auto finance companies that make, acquire, or refinance 10,000 or more loans or leases in a year will come under CFPB supervision and enforcement,” he said.
“At AFSA’s recommendation, the CFPB broadened the definition of asset-backed securities to ensure that they are excluded from the 10,000 transaction threshold,” Stinebert continued. “In addition, the CFPB modified the definition of refinancing for the purpose of the threshold. Specifically, the Bureau clarified that a refinancing must be secured by an automobile to be included in the definition.
“Basically, the final rule remains largely unchanged regarding auto leasing,” he went on to say.
No matter how often or significantly the CFPB or any other federal or state regulator modifies rules that govern auto financing, Tracey emphasized the impact makes the compliance certification program the NAF Association offers that much more valuable.
Broken up into four modules — two in-person sessions and two online components — the NAF Association’s certification program gives finance company managers the chance to learn foundational concepts and compliance strategies in a law-school-like setting.
“Everyone in the auto financing space, especially the large players, have to be sure that they have a good compliance management system in place with knowledgeable compliance people behind it to successfully deal with CFPB supervision,” Tracey said.
“The NAF Association has committed itself to assisting the industry in its ongoing dealings with the CFPB by developing education and training programs,” he continued. “We’ve had the Consumer Credit Compliance Certification Program in place for the past 18 months and we’ve just announced online training modules for auto finance underwriters and collectors.
“This new program should help our finance company members equip their front line people with the ability to be knowledgeable about compliance and help them to apply the knowledge when dealing with consumers,” Tracey went on to say.
For more information about the compliance certification program, go to www.nafassociation.com or contact Tracey directly at jtracey@nafassociation.com.
What the Consumer Financial Protection Bureau officially will consider to be a “larger participant” in the auto finance market took another significant step forward today.
The CFPB published a rule that will allow the agency to supervise larger nonbank auto finance companies for the first time. The CFPB also released the examination procedures that regulators will use to ensure that auto finance companies are following the law.
“Auto loans and leases are among the most significant and complex financial transactions in a typical consumer’s life,” CFPB director Richard Cordray said. “Today’s rule will help ensure that larger auto finance companies treat consumers fairly.”
The CFPB estimated auto loans are the third largest category of household debt, behind mortgages and student loans. The bureau added American consumers had about $900 billion in auto loans outstanding in the fourth quarter of 2014.
Currently, the bureau supervises auto financing at the largest banks and credit unions. Today’s rule extends that supervision to any nonbank auto finance company that makes, acquires or refinances 10,000 or more loans or leases in a year.
Under the rule, those companies will be considered “larger participants,” and the bureau may oversee their activity to ensure they are complying with federal consumer financial laws, including the Equal Credit Opportunity Act, the Truth in Lending Act, the Consumer Leasing Act, and the Dodd-Frank Wall Street Reform and Consumer Protection Act’s (Dodd-Frank Act) prohibition on unfair, deceptive, or abusive acts or practices.
Under today’s final rule, which was proposed last September, the bureau estimates that it will have authority to supervise about 34 of the largest nonbank auto finance companies and their affiliated companies that engage in auto financing.
These companies together originate around 90 percent of nonbank auto loans and leases, and in 2013 provided financing to approximately 6.8 million consumers. The final rule also defines additional automobile leasing activities for coverage by certain consumer protections of the Dodd-Frank Act.
The bureau indicated it is finalizing the rule largely as proposed, with minor changes. The final rule broadens the category of transactions involving asset-backed securities that are not counted toward the 10,000 transaction threshold.
Bureau officials added the rule also makes a minor modification to the definition of refinancing for the purpose of the threshold.
To coincide with this new authority, the bureau updated its Supervisory and Examination Manual to provide guidance on how the CFPB will monitor the bank and nonbank auto finance companies that it supervises.
The regulator explained examiners will be assessing potential risks to consumers and whether auto finance companies are complying with requirements of federal consumer financial law. Among other things, examiners will be evaluating whether auto finance companies are:
• Fairly marketing and disclosing auto financing terms: The bureau will be examining auto finance companies that market directly to consumers to ensure they are not using deceptive tactics to market loans or leases. The Bureau would be concerned if consumers are being misled about the benefits or terms of financial products. The Bureau is also looking to ensure that consumers understand the terms they are getting.
• Providing accurate information to credit bureaus: The bureau will assess whether information auto finance companies provide to credit bureaus is accurate. The CFPB recently took an enforcement action against an auto finance company that distorted consumer credit records by inaccurately reporting information like the consumers’ payment history and delinquency status to credit bureaus. The CFPB is looking to prevent inaccurate information from being reported in the future.
• Treating consumers fairly when collecting debts: The bureau will assess whether auto finance companies are using illegal debt collection tactics. The Bureau will be looking to ensure that collectors are relying on accurate information and using legal processes when they collect on debts. The Bureau also will review the repossession process, including the practices of third-party service providers that are employed to repossess autos.
• Lending fairly: The bureau will assess whether auto finance companies’ practices comply with the Equal Credit Opportunity Act and other Bureau authorities protecting consumers.
Today’s rule will take effect 60 days after publication in the Federal Register.
A copy of the rule published today can be found here.
The examination procedures for auto finance can be found here.
As one the leading experts in asset backed securities analysis took a stab at deflating the “subprime bubble” talk, the Consumer Financial Protection Bureau official whose jurisdiction is the auto finance market answered pre-submitted questions for nearly an hour on Thursday during the National Auto Finance Association’s 19th annual Non-Prime Auto Financing Conference.
The CFPB barred media outlets from attending this conference session, so SubPrime Auto Finance News followed up with NAF Association executive director Jack Tracey to obtain a recap of what transpired. The session included Jeffrey Langer, assistant director, office of installment and liquidity lending markets at the CFPB, as well as Hudson Cook partner Joel Winston, who spent decades of his professional career at the Federal Trade Commission.
“I think it went well,” Tracey said of the session that attracted most, if not all, of the more than 400 conference attendees who gathered in the largest meeting space available at the Dallas/Plano Marriott at Legacy Town Center in Plano, Texas.
“I think there are limitations on what can be said. But in the framework of what he could say, he was forthcoming,” Tracey continued. “During the question-and-answer period … we touched on the important things, disparate impact, size of finance company portfolios and compliance management systems.”
Winston posed the questions NAF Association members submitted in advance. Langer also took part in two other closed-door, informal gatherings with a select group of finance company executives later on Thursday.
“There’s always the wish that (Langer) was able to be even more forthcoming,” Tracey said. “But as he explained it, as long as they’re working on (policy) and it’s in the developmental stage, it’s improper to put it out there because it can cloud the marketplace.
“I’m personally respectful for what he’s trying to do. I’m particularly grateful that this is the fourth year they’ve come. They’re wanting to know our industry, and they’re using the NAF Association as the way to do it,” Tracey went on to say.
Langer conducted similar sessions during the NAF Association’s annual gathering last year. Before leaving the bureau for a partner position with Hudson Cook, Rick Hackett also appeared twice at this conference.
“It’s very important for the NAF Association to have relationship with other industry associations as well as an amicable relationship with the regulators,” Tracey said. “The flow of information and the opportunities for discussion are what an association has to do.”
Return of Bubble Talk
As she has done for nearly every NAF Association conference, Standard & Poor's senior director Amy Martin gave nearly a 30-minute presentation about how the ABS market is performing. Soon after Martin finished her commentary on Thursday, she took questions, and it didn’t take longer for the discussion to return to a subject that might make subprime finance company executives grind their teeth.
Martin responded to an inquiry about how the industry can diffuse discussions about finance companies inflating a “subprime bubble” similar to what happened in the mortgage space.
“We don’t think there is a bubble in subprime autos because people don’t speculate with their cars. They don’t buy a car thinking it’s going to appreciate in value,” Martin said.
“There is a real need for this segment to have basic transportation to get to and from work, to the grocery store and take their kids to school. Many of them are a one-car family. They need the car,” she continued.
Martin referenced back to her presentation to show how the subprime ABS market nearly evaporated during the low point of the Great Recession back in 2009.
“And because the ABS market wasn’t open for business many subprime auto finance companies could not obtain the financing with which to make subprime loans,” Martin said. “There was a scarcity of subprime lending. So yes, there’s been a lot of growth. But maybe we’ve gotten back only to where we were before the crisis.”
Where Martin sees records being set in the auto finance space stems from the opposite side of the credit spectrum. She pointed to the volume of super prime consumers taking out vehicle installment contracts as what could be making headlines.
“I don’t think that there’s a (subprime) bubble. But I do think we need to watch the rise in delinquencies and losses,” Martin said.
“We have to be disciplined and identify to make sure the credit enhancement is commiserate with the ratings and loss expectations,” she continued. “Just because collateral losses are going up, it doesn’t mean the companies can’t be profitable. They just need to price the risk appropriately.”
Five trade groups, including the American Bankers Association, American Financial Services Association and the Consumer Data Industry Association, recently sent a letter to the Consumer Financial Protection Bureau offering five reasons why the CFPB should solicit public comment on its recently-issued arbitration study before deciding whether to initiate a rulemaking.
Officials insisted through the letter that a formal comment period is essential for five reasons, including:
— Because the study is so long, written comments are the only realistic way for the CFPB to obtain substantive feedback
— There are many business and consumers who will be affected by a rule regulating arbitration whose views have not been solicited
— Soliciting comment now would at least start the process of compensating for the extreme lack of transparency and refusal to solicit public participation that characterized the CFPB’s study process
— Soliciting comment now would allow the CFPB to inform itself of the significant defects in the study’s analysis
— Soliciting public input before embarking on a major rulemaking is consistent with the CFPB’s approach in other contexts.
Joining the ABA, AFSA and CDIA were the Financial Services Roundtable and the U.S. Chamber of Commerce
The organizations wrapped up their letter to CFPB director Richard Cordray saying, “In sum, there are extremely strong reasons why the bureau should provide interested parties with a 60-day period to comment on its study. And it is not clear why the bureau would decline to offer this opportunity.”
The entire letter can be downloaded here.
Along with recommendations on how to alter the nine standard responses the agency plans to embed, the American Financial Services Association shared four more potential finance company replies that would be integrated within the Consumer Financial Protection Bureau public compliant database.
In a letter to CFPB director Richard Cordray, AFSA executive vice president Bill Himpler maintained the association’s concerns with the bureau’s policy how it plans to disclose publicly unstructured and unverified consumer complaint narrative data via its Web-based, public-facing database. The policy states that companies have set responses that they can select from when responding publicly to narratives that the consumer has chosen to publish. The policy also states that the CFPB will not notify companies when a consumer has chosen to make a complaint public.
Although it is a final policy statement, AFSA pointed out the CFPB stated that it was open to feedback and would consider making changes.
Along with the nine responses the CFPB plans to allow, Himpler mentioned four other ones that could help finance companies, including:
— After completing a thorough investigation, the company has determined that the complaint is without merit.
— After completing a thorough investigation, the company has determined that the consumer who submitted the complaint is not a customer of the company.
— The company contacted the customer and resolved the matter privately.
— The company is unable to conclude the investigation because the customer has not responded to the company’s communication attempts.
Himpler closed his four-page letter to Cordray by reiterating the CFPB’s consumer database is “impracticable and unworkable” for four reasons, including:
— It does not adequately protect consumers’ privacy.
— Publicizing unvalidated and unverified consumer narratives will not be beneficial to consumer choices.
— Publishing both the consumer narrative and the company’s response will unfortunately have a chilling effect on communication between the two parties.
— It does not address the unjustified and significant brand and reputational risk to financial services companies.
“It is our understanding that it is not the CFPB’s intention to unfairly damage or hurt the reputation of financial service companies by publishing the consumer narratives,” Himpler said. “The CFPB’s goal, as we understood it from the very beginning, was to create a communication channel between all parties that would provide a fair and unbiased platform in resolving issues between the concerned parties.
“The CFPB states that other government websites include databases with narratives that have helped inform consumers about a range of products,” he continued. “However, those comparisons are not valid. Information about a consumer’s experience with a financial product or service is covered by a number of privacy restrictions. These restrictions do not apply to consumer narratives about other products.”
Himpler’s entire letter can be downloaded here.
The Consumer Financial Protection Bureau published a report on Tuesday finding that 26 million Americans are what the agency is calling, “credit invisible.”
The bureau explained this figure indicates that one in every 10 adults do not have any credit history with a nationwide consumer reporting agency. Officials noted the report also found that Black consumers, Hispanic consumers, and consumers in low-income neighborhoods are more likely to have no credit history with a nationwide consumer reporting agency or not enough current credit history to produce a credit score.
“Today’s report sheds light on the millions of Americans who are credit invisible,” CFPB director Richard Cordray said. “A limited credit history can create real barriers for consumers looking to access the credit that is often so essential to meaningful opportunity — to get an education, start a business, or buy a house.
“Further, some of the most economically vulnerable consumers are more likely to be credit invisible,” Cordray continued.
The CFPB contends credit reports and the three-digit credit scores that are based on those reports play an increasingly important role in the lives of American consumers. Most decisions to grant credit and set interest rates for loans are made based on information contained in credit reports.
As a result, those consumers who have a limited or nonexistent credit history face greater hurdles in getting credit.
The agency acknowledged consumers’ credit histories reflect how they have repaid their debts. Consumers’ credit histories may contain information about bank loans, vehicle loans, credit card bills, student loans and mortgages. They may also contain details about the terms of consumers’ credit, how much is owed to creditors, consumers’ payment histories, and court judgments or liens against them.
“Credit history helps the consumer reporting agencies determine how likely consumers are to repay their debts. The agencies use that information to produce credit reports and scores,” the CFPB said.
Further Classifications
In broad terms, the bureau explained consumers with limited credit histories can be placed into two groups.
The first group is consumers without a credit report, or the “credit invisibles.” The second group, the “unscored,” includes consumers who do not have enough credit history to generate a credit score or who have credit reports that contain “stale” or not recently reported information.
“The exact definition of what constitutes insufficient or stale information differs across credit scoring models, as each model uses its own proprietary definition,” CFPB officials said.
The bureau indicated its newest report is designed to shed more light on the number of consumers and the characteristics of those consumers who have little to no credit record at the nationwide consumer reporting agencies. The report found that:
• Twenty-six million consumers are credit invisible: About one in 10 Americans can be considered credit invisible because they do not have any credit record. About 189 million Americans have credit records that can be scored.
• Nineteen million consumers have unscored credit records: About 8 percent of the adult population has credit records that are considered unscorable based on a widely-used credit scoring model. Those records are almost evenly split between the 9.9 million that have an insufficient credit history and the 9.6 million that lack a recent credit history.
• Consumers in low-income neighborhoods are more likely to be credit invisible or to have an unscored record: Of the consumers who live in low-income neighborhoods, almost 30 percent are credit invisible and an additional 15 percent have records that are unscored. These percentages are notably lower in higher-income neighborhoods. For example, in upper-income neighborhoods, only 4 percent of the population is credit invisible and another 5 percent are unscorable under the widely-used model.
• Black and Hispanic consumers are more likely to have limited credit records: Black and Hispanic consumers are considerably more likely to be credit invisible or have unscored credit records than White or Asian consumers. About 15 percent of Black and Hispanic consumers are credit invisibles compared to 9 percent of White consumers. An additional 13 percent of Black consumers and 12 percent of Hispanic consumers have unscorable records under the widely-used model compared to 7 percent of White consumers. CFPB analysis suggests that these differences across racial and ethnic groups materialize early in the adult lives of these consumers and persist thereafter.
This analysis was conducted using information from the CFPB’s Consumer Credit Panel, which is a random sample of de-identified credit records purchased from one of the nationwide credit reporting agencies and is representative of the population with credit records.
By comparing information in the credit panel from December 2010 with 2010 Census data, the bureau said it was able to estimate the number of consumers who were credit invisible or had unscored credit records.
“Part of our mission is to empower economically vulnerable consumers. It is humbling and important work,” Cordray said. “And in order to achieve that goal, we need to first understand the landscape that shapes how these consumers operate. Today’s report helps shed some light on the challenges they face.
“At the Consumer Bureau, we are dedicated to fostering a responsible marketplace that helps consumers get ahead rather than harming them and setting them back,” he went on to say. “We will be able to take the information from today’s report and apply it in the future as we continue to work on behalf of the most vulnerable consumers among us.”
