As a lobbying group reportedly backed off its campaign against the agency’s drive to push full consumer complaint information online, the Consumer Financial Protection Bureau appears poised to tighten its regulatory grip on the auto finance industry.
With the CFPB set to have another field hearing about vehicle financing on Thursday, the Wall Street Journal reported that the bureau is about to launch in-depth reviews of 40 of the largest finance companies to determine whether the operations are following federal consumer-protection laws. People familiar with the situation told the newspaper the details on Tuesday.
The report indicated the CFPB’s investigation would include some of the largest captive finance companies for automakers such as Ford, Toyota, Honda and Nissan. According to Experian Automotive’s second-quarter data, just those four captives alone combined to hold 12.91 percent of the vehicle finance market.
The presumed announcement of the additional investigations is on top of what the American Financial Services Association expected to be revealed during Thursday’s event in Indianapolis. AFSA informed its members last week that the CFPB likely will release a larger participant proposed rule for auto finance companies and a white paper with more details on the bureau’s proxy methodology for identifying discrimination in indirect auto financing.
AFSA officials explained that under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB has the authority to supervise nonbank covered persons of all sizes in the residential mortgage, private education lending and payday lending markets.
In addition, AFSA indicated the CFPB has the authority to supervise nonbank larger participants of markets for other consumer financial products or services, as the CFPB defines by rule. The CFPB already has released larger participant rules for the international money transfer, consumer debt collection, student loan servicing markets, as well as for credit reporting agencies.
“Auto finance companies will be designated as larger participants based on the annual volume of loan originations,” AFSA said. “It is not yet known if ‘annual volume’ will be calculated in terms of dollars or number of transactions.”
And with regard to this white paper, CFPB director Richard Cordray said the document was in the works when he testified during a hearing held by the U.S. House Financial Services Committee to share the CFPB’s semiannual report back in June.
“I think it’s been a source of frustration to the committee, to me and to the bureau that we’ve been back and forth on different kinds of information about this,” Cordray told House lawmakers about questions regarding disparate impact in the vehicle finance space. “I think we’re providing a lot of information, but people identify other information they want. Partly as a result of that, we are going to put out a white paper on the proxy methodology that will try to address this very directly later this summer.”
“We’ll continue to try to be responsive on this,” Cordray continued. “The reality is the auto industry and the auto lenders, they know all about this because they’re constantly monitoring it. They have to fend off private lawsuits whether the CFPB ever existed or not. They do the same analysis that we do, I believe. We’ve had lots of discussions with them. We’d like to have more. It’s been an ongoing dialogue.”
And speaking of dialogue, Bloomberg reported earlier this week, the Financial Services Roundtable — a nearly 100-member advocacy organization whose supporters include a wide array of captives and commercial banks that offer vehicle financing — halted its extensive campaign the organization has called, “The CFPB Rumor Mill.”
This summer, the CFPB announced a new policy proposal that would empower consumers to publicly voice their complaints about consumer financial products and services. When consumers submit a complaint to the CFPB, they would have the option to share their account of what happened in the CFPB’s public-facing Consumer Complaint Database.
However, Bloomberg reported that the roundtable’s arguments against the database — including a four-point dispute that included graphics and videos — went against the thinking of organization members who reportedly were not consulted about the content and strategy.
The chief executive officer of the Financial Services Roundtable is Tim Pawlenty, a former two-term governor of Minnesota who ran for president in 2012. Pawlenty discussed the campaign against the CFPB complaint database with Bloomberg this week.
“We don’t have any more plans for a public process,” Pawlenty told Bloomberg, conceding that the membership wasn’t fully behind him on the campaign. “Some members had anxiety. It involved some risk.”
Bloomberg indicated that members who had concerns about the campaign included JPMorgan Chase, Bank of America and Citigroup.
Editor’s Note: SubPrime Auto Finance News will be tweeting (@SubPrimeNews) during Thursday’s CFPB field hearing. Also look for special reports to be posted on the publication’s website (www.subprimenews.com).
In light of the Consumer Financial Protection Bureau handing out stern enforcement actions connected with credit bureau reporting, the ranking member of the U.S. House Financial Services Committee now is joining the regulatory fray.
As the chairman-elect of the American Bankers Association attempted to assure the subcommittee about how the industry is committed to consistent, accurate credit reporting, Rep. Maxine Waters released a proposal that would make “sweeping” reforms to the nation’s consumer reporting system.
Waters, a California Democrat, explained her draft proposal, entitled the “Fair Credit Reporting Improvement Act of 2014,” will enhance requirements on the consumer reporting agencies (CRAs), and furnishers that provide information to these CRAs, to guarantee consumers have the capacity to ensure that the information on their credit reports is accurate and complete.
Waters noted her proposal comes in the aftermath of a number of recent court cases, news reports and studies that have detailed the significant problems and flaws in the current consumer reporting system, including the CFPB penalizing First Investors Financial Services Group.
“Credit reports are no longer just used exclusively by lenders in making a credit decision. More and more, credit reports are used in a variety of ways, from employment decisions, to determining a consumer’s ability to rent a home, buy a car, or purchase insurance,” Waters said.
“A person’s credit report is too important in determining access to a wide array of opportunities for these reports to contain inaccurate and incomplete information,” she continued. “This proposal addresses many of the flaws with the existing consumer reporting system, by making common-sense changes that enhance consumers’ rights, create more transparency over the consumer reporting and credit scoring process, and increase the accountability of credit reporting agencies, furnishers and companies that develop credit scoring models and formulas.”
According to the Federal Trade Commission, one in five, or roughly 40 million consumers, have had an error on one of their credit reports. The lawmaker said about 10 million consumers have errors that could increase the cost of credit available to them.
The draft proposal would make several reforms to the Fair Credit Reporting Act. Key provisions include:
— Providing relief to millions of borrowers who were victimized by predatory mortgage lenders and servicers, by removing adverse information about these residential loans that are found to be unfair, deceptive, abusive, fraudulent or illegal.
— Ending the unreasonably long time periods that most adverse information can remain on a person’s credit report, shortening such periods by three years.
— Giving consumers the tools to “truly” verify the accuracy and completeness of their credit reports, by mandating that furnishers retain all records for as long as adverse information about these accounts remains on a person’s credit report.
— Eliminating punitive credit scoring practices by removing fully paid or settled debt from credit reports, including medical debt, which has been found not to be a reliable predictor of a person’s creditworthiness.
— Giving distressed private education loan borrowers the same chance to repair their credit as federal student loan borrowers, by removing adverse information when delinquent private education loan borrowers make consecutive on-time monthly payments for a certain period of time on their loans.
Waters also mentioned the draft proposal also restricts the use of credit reports for employment purposes, which employers are increasingly using to screen qualified job applicants despite a lack of adequate data to show that a person’s credit is predictive of their job performance.
She pointed out the proposal also sets a dollar amount that a consumer can be charged to buy their credit score from CRAs, while also requiring CRAs to provide consumers with a free annual credit or educational credit score upon a consumer’s request.
“Over 10 years ago, Congress tried to strengthen consumer protections, but our consumer reporting system still has a number of systemic flaws. I believe we must take action to end the heartache that has plagued millions of consumers who have been unable to obtain a job, go to college, or buy a car because of their credit score,” Waters said.
“Many of these problems have stemmed our country’s economic growth. This draft proposal attempts to meet our obligation to ensure that consumers who have fallen victim — or fallen on hard times — are not deprived of the chance to achieve the American Dream,” she went on to say.
What Industry Is Already Doing
John Ikard is ABA chairman-elect and chief executive officer of FirstBank, headquartered in Lakewood, Colo. Ikard told House subcommittee members about how banks and other finance companies work diligently to provide accurate information to credit bureaus, which provides tremendous value to consumers and institutions alike.
“For consumers, credit reports provide a compilation of their historical performance on obligations which enables them to shop around for credit from any lender knowing that all lenders have a similar base of detailed information,” Ikard said.
Without these reports, consumers would have to provide extensive documentation lender by lender or be limited to a financial institution that they had previously done business with. Thus, credit reports open up the options for consumers and ensure that they can shop around in a very competitive market — nationwide — for the best loan or account that serves their needs. The greater efficiency and competition means better deals and lower prices for consumers,” he continued.
Ikard emphasized how important credit bureau reports are in the underwriting process, especially if the finance company hasn’t worked with this potential borrower previously.
“Banks benefit because an accurate understanding of a credit applicant’s credit history means they are better able to predict who is likely and unlikely to repay a loan, allowing them to make better decisions on whether to grant credit and at what price. Credit reports have proven to be good predictors of how consumers will manage their finances in the future,” Ikard said. “The ability to make more accurate decisions helps lower their costs, which helps to lower prices for consumers.
“Accuracy within credit reports is critical, of course, to ensure that customers are evaluated and extended loans based on the history of their individual performance,” he continued.
And if there are errors in a person’s credit file?
“Inaccurate reports undermine the value of the system,” Ikard told lawmakers. “An inaccurate report could prevent a qualified borrower from getting the credit that they deserve by making them look less creditworthy. An inaccurate report that is missing negative information could also make a borrower eligible for credit that they are ill prepared to handle. Thus, accurate credit reports ensure that credit is extended to deserving borrowers.”
Ikard wrapped up his prepared testimony in front of the committee by stressing how critical of a resource credit reports are and how they’re just as important to banks and finance companies as they are to consumers.
“Having such an efficient system is critical to credit availability for all deserving borrowers and is a key driver of economic growth, competition, lower prices and better deals for consumers,” he said. “Because the benefits to both customers and lenders are so large, it is in the best interests of both parties to ensure that credit reports are as accurate as possible.
Banks have invested heavily in systems and processes to report accurate data and contribute to this important public good. The system would be unworkable without accurate information that all parties can rely upon,” Ikard continued.
“Having an effective dispute mechanism is critical to this process. But any process can also be abused. Repeated unfounded disputes absorb resources that hurt everyone,” he went on to say. “Changes can be made that would help to stop such abuses without hurting legitimate claims to correct errors.”
A George Mason University researcher and Yale School of Law graduate found three significant issues with the Consumer Financial Protection Bureau wanting to publish consumer complaint narratives online — including the CFPB lacking the authority to make such a move.
Hester Peirce sent a nine-page letter to the CFPB articulating the position, stressing the bureau’s plan to expand the database to include consumer complaint narratives is outside its statutory authority. Despite the CFPB’s contentions to the contrary, Peirce also stated the strategy is also inconsistent with open government directives such as Office of Management and Budget’s Open Government Directive.
“The other government databases that the bureau cites as parallels to its own are not appropriate models for the bureau to follow,” said Peirce, a senior research fellow within the financial markets working group at George Mason’s Mercatus Center.
Peirce along with research assistant Vera Soliman told the CFPB in the letter sent last week that Congress did not authorize the bureau to launch a public consumer complaint database. They recapped that the CFPB makes a case for the database because of its goals to ensure that “consumers are provided with timely and understandable information to make responsible decisions about financial transactions” and “markets for consumer financial products and services operate transparently and efficiently to facilitate access and innovation.”
However, Peirce contends that publicizing complaint narratives as the bureau intends would work counter to both of these objectives, creating the possibility of even more dire consequences.
“The consumer complaint database invites consumers to rely on incomplete and potentially inaccurate anecdotal information in their financial decision-making. By potentially harming the reputations of high-quality providers of consumer financial products and services, the consumer complaint database could adversely affect markets,” she said.
Before tackling the question of authority, Peirce also informed the CFPB in this letter that “the expanded database is a solution in search of a problem,” and “costs of the proposed database expansion outweigh the benefits.”
To back up her position, Peirce explained services such as Yelp and Amazon.com collect and publish feedback on numerous consumer products and services. But Peirce noted these sites contain more balanced and complete information for consumers than a government website designed solely to collect complaints.
“In addition, both companies have developed systems to empower readers to assess reviews for accuracy and usefulness,” she said.
Devoid of what she contends is the proper context, Peirce also projected that every complaint will carry equal weight, regardless of the facts and circumstances and the complainant’s motivation.
“Because of their location in a government database, the complaints will carry an air of official gravity,” she said.
“Given that the database collects only complaints, it is an intentionally one-sided marketplace,” Peirce continued. “Even for companies with many satisfied customers, positive comments will not be included in the database to offset negative comments. Consumers, relying on the database as a relevant input in their financial decision-making, will not get an accurate picture.”
Peirce also touched on how much this database might impact the compliance costs finance companies face — expenses already on an upward trajectory because of the CFPB and other regulators.
“Because of the public and permanent nature of the database and the inclusion of a field related to company responsiveness, companies are likely to feel compelled to resolve even meritless complaints,” she said. “Doing so will decrease the attention they can devote to customers whose complaints have merit. Complainants may end up with preferable treatment to people who deal directly with the company.
Peirce closes her letter to the CFPB with a simple recommendation — return to the drawing board.
“Once back at the drawing board, the bureau should analyze whether there is a market failure, whether the bureau is well suited to solve that market failure, whether Congress has given the bureau the authority to create a public complaint database, and the potential costs and benefits of creating a responsible (i.e., not misleading) public complaint database,” she said.
The CFPB first made its complaint database proposal back in August.
National Automobile Dealers Association members are gathering on Capitol Hill this week to urge Congressional lawmakers to pass bipartisan legislation that franchised dealers say would nullify the Consumer Financial Protection Bureau’s “flawed” guidance on auto lending.
NADA explained H.R. 5403 — the Stutzman-Perlmutter Bill — also would require more transparency and accountability from the CFPB on future guidance. The proposed bill arrived in the U.S. House on Monday, 10 days before the bureau is scheduled to conduct another auto finance field hearing.
“The CFPB’s actions will likely raise the cost of credit for car buyers,” NADA chairman Forrest McConnell said. “The CFPB is attempting to change the $905 billion auto loan market and limit market competition without prior public comment and without analyzing the impact of its guidance on consumers.”
The new bill, also titled “Reforming CFPB Indirect Auto Financing Guidance Act,” would allow CFPB to reissue its guidance under a more transparent process. The measure is sponsored by Rep. Marlin Stutzman, a Republican from Indiana, and Rep. Ed Perlmutter, a Democrat from Colorado.
NADA pointed out this new bill is a narrower version of H.R. 4811, which was reported out of the House Financial Services Committee by a bipartisan vote of 35-24 in June.
“A majority of car buyers choose to finance their purchases through indirect financing at dealerships, which is always optional,” said McConnell, a Honda and Acura dealer from Montgomery, Ala. “Dealers often discount these interest rates to earn their customers’ business.”
In March of last year, NADA recapped that the CFPB issued guidance that threatens to eliminate the flexibility of dealerships to discount the interest rate offered to consumers to finance vehicle purchases.
The association said the CFPB claims that negotiated interest rates between dealers and their customers create a significant risk of unintentional “disparate impact” discrimination. However, McConnell insisted there are a variety of legitimate business-related factors that can affect finance rates, such as beating a competing rate.
"H.R. 5403 is needed because it requires the CFPB to follow a transparent process when issuing auto finance guidance," McConnell said. "The bill would rescind the 2013 auto finance guidance and require public participation for future guidance before it is issued."
NADA is urging dealers to contact their House members today to cosponsor H.R. 5403. To locate your House member, click here. For the issue brief on H.R. 5403, click here.
One of the marketing hooks that subprime finance companies of all sizes often use contains the pitch about how consistent payments can lead to steady reporting to credit bureaus and eventually the possible healing of the borrower’s profile.
Hudson Cook partner Jean Noonan emphasized the recent enforcement action against First Investors Financial Services Group reinforces the responsibilities finance companies take when providing this service.
Last month, the Consumer Financial Protection Bureau said First Investors Financial Services Group failed to fix known flaws in a computer system that was providing inaccurate information to credit reporting agencies. The consent order signed by the finance company included a $2.75 million fine.
Noonan told SubPrime Auto Finance News last week that the regulatory moves bureau officials made shows how seriously the CFPB is taking strict compliance with the furnisher’s rule under the Fair Credit Reporting Act.
“As we can see by reading the consent decree, given the relatively small numbers of consumers effected given the overall size of the portfolio, there was no allegation of any consumer injury whatsoever. And yet, the CFPB still asked for a pretty steep civil penalty of $2.75 million,” Noonan said.
“Now $2.75 million against a company that’s not in the top 50 originators of auto finance contracts, that’s a pretty sizeable sum, especially without an allegation of consumer injury,” she continued. “Now they talk about potential consumer injury but there’s no evidence that they cite at least. I think that’s a very sobering fact for the industry.”
Part of that sobering fact is just because a finance company has a service provider whose job is to provide the technological backbone for accurate credit reporting doesn’t lift the institution from feeling the brunt of responsibility when problems arise. CFPB director Richard Cordray reiterated that point immediately after the bureau made the consent order public.
“Today’s action sends a signal to all companies that supply information to the credit reporting agencies that they must have sound practices in place that protect consumers,” Cordray said. “You cannot pass the buck on this responsibility. Using a flawed computer system purchased from an outside vendor does not get you off the hook for meeting your own obligations.”
Noonan acknowledged the bureau’s stance places finance companies into a difficult position if a problem is detected.
“What do you do if you discover a glitch in your system? You can continue reporting it while you work diligently to fix the glitch. Or you can cease reporting. One thing that we learn from this consent agreement is that you really must cease reporting the inaccurate information until you get the glitch fixed,” Noonan said.
“It can be a problem, especially in the subprime area because a lot of subprime creditors and subprime customers count on that regular reporting of credit information,” she continued. “Sometimes a subprime creditor will say one of the benefits is that we report to credit bureaus and if you make payments on time you’ll be able to rebuild your credit history or to build it in the first instance if you don’t have one.
“That’s important to consumers. Stopping reporting can be a problem for consumers but you really have two bad choices in that instance,” Noonan went on to say. “If you have promised consumers that you’re going to report, and you have to cease reporting because you have a glitch in your system, then the CFPB is going to be on your case either way.”
In order to avoid the wrath of the CFPB as much as possible, Noonan and Hudson Cook are stressing a point they often make to their clients — and one Cordray hammered, too.
Finance companies must keep close tabs not only on their service providers but also complaints that might be arriving. Noonan shared that a client recently detected a problem when several discrepancies arrived in a short time. The problem was corrected and the accurate consumer information was sent to credit bureaus within two weeks thanks to “around the clock work,” according to Noonan.
“Credit reporting is a complicated business,” she said. “It’s not rare for discrepancies to happen. That means you’ve got have a good audit system so that you know you’re reporting accurate information. You’ve got to do great complaint monitoring.”
Noonan finished her assessment by touching on two final points other finance companies can learn from the action taken against First Investors Financial Services Group.
“Keeping a close tab on service providers is always a very important lesson to take to heart. The consent agreement indicated that First Investors was using a service provider. Even if it is a service provider with a great reputation, you still have to be sure that the service is complying with a creditor’s legal obligations. In this case, that’s to furnish accurately,” Noonan said.
“What this consent agreement teaches us — and I think we’ll be seeing other consent agreements with similar issues — is that you’ve got to be very on top of things so that if through misfortune you have a discrepancy, that you detect it, fix it and you get that fix locked in and you get the information corrected for the consumer,” she added.
On Tuesday, Hudson Cook added two nationally recognized collections attorneys as partners to support the firm in creating a new practice group. That Hudson Cook segment will focus on lender oversight and regulatory compliance for third-party debt collectors, debt buyers, collections law firms and creditors collecting their own debts.
The two newest partners are Gary Becker and Barbara Sinsley.
Becker is an attorney and entrepreneur who has worked in the collections industry for nearly 30 years. He is the former chief executive officer, chairman and general counsel of national collection agency DCM Services; a founding partner of Balogh Becker, one of the nation’s largest collection law firms; and a founding board member of the National Association of Retail Collection Attorneys.
“Gary is an innovator in the application of technology to collections and a recognized leader in applying legally compliant customer-centric approaches in collections and recovery,” Hudson Cook said.
The firm highlighted Sinsley is considered one of the nation’s leading attorneys in the area of debt sales and consumer collections regulatory preparedness and compliance with more than 24 years of experience. She previously served as general counsel of DBA International (formerly the Debt Buyers Association).
Over the course of her career, both as an outside attorney and in-house counsel, Hudson Cook mentioned Sinsley has assisted dozens of large and small collections businesses in coming into compliance with state and federal laws, and has represented numerous industry members before the Consumer Financial Protection Bureau, Federal Trade Commission, state attorneys general and in the courts.
Hudson Cook noted Becker and Sinsley will be joining several current firm attorneys, including Joel Winston (former head of the FTC’s debt collection enforcement program), Chuck Dodge, Ron Gorsline, Eric Johnson, Blake Sims and Tom Buiteweg in a group that focuses on compliance as it relates specifically to the regulated aspects of lenders’ collection and recovery; creditor supervision of third-party debt collection by agencies and law firms; and the sale of consumer debt.
“Gary and Barb bring to the table a wealth of experience and knowledge, allowing us to increase the breadth and depth of our collections and debt buying practice,” Hudson Cook chairman Tom Hudson said. “They will develop and offer broad-based solutions, including compliance audits, for businesses trying to ‘stay ahead of the curve’ as the government increases its enforcement and regulatory efforts in this area.
“By leveraging new technologies, we can provide these services in the most efficient and cost-effective way possible,” Hudson continued. “In addition to counseling businesses on the specific concerns they face, we believe we best serve our clients by helping them be prepared in advance, if and when the regulators come calling. We are very pleased to welcome Gary and Barb to the firm.”
Automotive Compliance Consultants general counsel David Missimer gave a strong warning to dealers stemming from what might be considered a small problem or incident blossoming into a significant issue that attracts the attention of federal regulators.
Missimer described many dealers’ attitude toward government laws regulating their business as unfortunate and likely to cost them dearly.
Why could such a stance hurt dealers badly? Missimer pointed to how easily it has become for consumers to register complaints against dealerships
“The compliance approach of some in our industry is that the Consumer Financial Protection Bureau, the Federal Trade Commission nor the Occupational Safety and Health Administration will take much interest in a single dealership, so why make compliance a priority,” Missimer said.
“This approach works well until someone is injured in a shop accident, a disgruntled employee decides to take on the title of whistleblower or a consumer takes their complaint to the government,” he continued.
Missimer reminded dealers that the government has made it very easy for consumers to register complaints against them.
“Have you logged onto the CFPB or FTC website lately? These agencies are begging people to contact them and complain about your business,” he said.
Presently, Missimer noted that CFPB posted complaints do not provide a consumer narrative, but the bureau is strongly considering changing that policy.
Given the CFPB’s eye on dealerships, Missimer believes that it likely won’t be long before consumer report narratives will also focus on dealerships as well.
Missimer said haphazard compliance is not an option in today’s business environment.
“Not a single reward is associated with noncompliance unless you consider the discount in attorney fees you get from your lawyer for frequent use,” he said.
“For those dealers,” Missimer continued, “their business risk-reward analysis should consider how much can it afford to pay for fines, lawyers, settlements and judgments — and still make a profit.”
Missimer reminded dealers the CFPB is not going away, and the FTC has taken more dealer compliance action in the past six months than it has in the last 10 years.
He also noted federal and state agencies now share consumer complaint information.
“To test your risk, type into Google ‘car dealer suit’,” Missimer said. “When I did this, I got more than 1.2 million results in 0.34 seconds, with the very first result being, ‘How to sue a used-vehicle dealer in small claims court.’”
For information on how dealers can sharpen their compliance strategy, contact Missimer at dmissimer@compliantnow.com or visit www.compliantnow.com.
The Financial Services Roundtable — a nearly 100-member advocacy organization whose supporters include a wide array of captives and commercial banks that offer vehicle financing — is four steps into a campaign the organization has called, “The CFPB Rumor Mill.”
Earlier this summer, the Consumer Financial Protection Bureau announced a new policy proposal that would empower consumers to publicly voice their complaints about consumer financial products and services. When consumers submit a complaint to the CFPB, they would have the option to share their account of what happened in the CFPB’s public-facing Consumer Complaint Database.
CFPB director Richard Cordray insisted that publishing consumer narratives would provide important context to the complaint, help the public detect specific trends in the market, aid consumer decision-making and drive improved consumer service.
The proposal has been met with strong pushback including the Financial Services Roundtable, the American Bankers Association, the Consumer Bankers Association, The Clearing House and the U. S. Chamber of Commerce.
Officials from the Financial Services Roundtable went so far as to create a rebuttal campaign dubbed “The CFPB Rumor Mill.” One of the segments the organization rolled out highlighted what leadership believes are three problems with the bureau’s online complaint portal, including:
1. The CFPB is planning to launch a system to post anonymous, unverified consumer complaints about financial services companies online.
2. Anybody can file a complaint, but the CFPB won’t independently verify who they are. Neither can other consumers.
3. The complaint could be completely untrue, but it stays online. That’s a disservice to consumers who expect facts on government websites.
Financial Service Roundtable officials continued the campaign with another three-part rebuttal, offering what they believe are a trio of reasons why the complaint portal won’t be based on facts.
1. Government websites are supposed to be the place to go for people to find authoritative facts. By posting unverified information onto their government website, CFPB will be tacitly endorsing what is in the complaints. That doesn’t help consumers.
2. Information posted on a government-funded website, like the CFPB’s, is a government endorsement. The government shouldn’t be endorsing information it chooses not to verify.
3. The CFPB says financial services companies will be able to post responses to complaints. However, federal consumer privacy protections restrict financial companies from posting information about the customer or the circumstances. But if the institution doesn’t respond, consumers may be left uninformed.
“As a consumer educator, my reaction was disbelief that the CFPB could get it so wrong and shock that consumers, who expect and deserve facts from their government, would instead get rumors,” said Anne Wallace, senior director of consumer financial services for the Financial Services Roundtable.
“Imagine asking a police officer for directions in an unfamiliar city. You’d expect the police officer, a trusted law enforcement official, to point you in the right direction,” Wallace continued. “But what if you followed the directions, only to find out the police officer had pointed you in the wrong direction? Would you still place your confidence in that government representative as an official source of reliable information?
“Of course not. And that’s why the CFPB’s plan to post consumer narratives is so baffling,” she went on to say.
More material associated with the ongoing campaign is available at www.cfpbrumors.com.
Along with an opportunity to complete the organization’s compliance certification program, members of the National Automotive Finance Association can take advantage of a $100 registration discount to attend the SubPrime Forum, the event dedicated to auto financing at Used Car Week.
This two-day conference will provide data, knowledge, insight and powerful business networking opportunities to spur innovation and drive growth in the growing subprime auto finance marketplace. Presented by SubPrime Auto Finance News and SubPrimeNews.com, and in affiliation with the NAF Association, the event will offer a best-in-class forum for executives and thought-leaders in the auto finance vertical.
The SubPrime Forum is set for Nov. 11 and Nov. 12 at the Red Rock Casino, Resort and Spa in Las Vegas. It’s a part of Used Car Week, which includes the CPO Forum, the Re3 Conference and the National Remarketing Conference.
All member-company staff of the NAF Association are eligible for a discount of off the standard registration fee for the SubPrime Forum. Use discount code NAF2014 when registering.
“Register before Oct. 10 and attend this best-in-class forum for $395,” NAF Association executive director Jack Tracey said. “Hope to see you there.”
Click here for additional information regarding the SubPrime Forum, including the agenda, scheduled speakers and exhibitors.
Before the SubPrime Forum begins, the NAF Association is planning to hold the closing segment of its compliance certification program. The NAF Association offers an exceptional certification program including:
— 35 hours in-classroom and online self-paced courses
— In-depth coverage of federal laws and regulations
— Thorough analysis of state laws and regulations
— Complete module devoted to CFPB
“A critical part of a compliance management system is staffing it with qualified compliance personnel. A company having their compliance officers certified through a comprehensive educational program is a clear demonstration of the importance the organization places on compliance,” Tracey said.
For complete details about the compliance certification program, visit www.nafassociation.com.
The Consumer Financial Protection Bureau announced on Wednesday that Texas-based First Investors Financial Services Group entered into a consent order because the regulator said the subprime finance company distorted consumer credit records for years.
CFPB officials said First Investors failed to fix known flaws in a computer system that was providing inaccurate information to credit reporting agencies. The bureau contends the actions potentially harmed tens of thousands of the finance company’s customers.
On Tuesday, the CFPB ordered First Investors Financial Services Group to pay a $2.75 million fine, fix its errors and change its business practices.
“First Investors showed careless disregard for its customers’ financial lives by knowingly distorting their credit profiles for years,” CFPB director Richard Cordray said. “Companies cannot pass the buck by blaming a computer system or vendor for their mistakes.
“Today’s action sends a signal that the CFPB will hold companies accountable for sending inaccurate information to credit reporting agencies,” Cordray continued.
Back in September of 2012, First Investors Financial Services entered into a definitive merger agreement as the company came off of record-setting performances during its previous two fiscal years. First Investors merged with FIFS Holdings Corp., a company controlled by Aquiline Capital Partners, which is a New York-based private equity firm investing in the financial services sector.
Under the merger agreement, officials said FIFS Holdings acquired all of the outstanding shares of First Investors common stock in an all-cash transaction valuing the subprime lender at $100 million. They said stockholders of First Investors received $13.87 for each share of First Investors common stock they hold.
Signing the consent order with the CFPB was Bennie Duck, executive vice president and chief financial officer of First Investors Financial Services Group.
According to regulators, the CFPB investigation found that First Investors furnished inaccurate information about its customers to credit reporting agencies for at least three years. Because the company services its own loans, it supplies information on its accounts to the credit reporting agencies and is considered a furnisher under the Fair Credit Reporting Act (FCRA).
When First Investors discovered the problem in April 2011, the CFPB determined it notified the vendor but did nothing more. Bureau officials said the company did not replace the system or take any steps to correct the inaccurate information it had supplied. It continued for years to use a system that it knew was flawed.
“Tens of thousands of consumers were likely subject to these systemic reporting problems,” bureau officials said.
Specifically, the CFPB found that First Investors was providing distorted information to the credit reporting agencies regarding how its customers were performing on their accounts. The incorrect information First Investors reported included:
• Wrong payments and overdue amounts: First Investors provided inaccurate information about how much consumers were paying toward their debts. In many cases, First Investors understated the amounts its customers were paying. When consumers made multiple payments within a single month, for example, First Investors only reported one of the payments. This does not give consumers full credit for keeping up with their loan obligations. First Investors also overstated the dollar amount by which many of its customers were past due on their accounts.
• Distorted dates: First Investors inaccurately reported many of its customers’ “date of first delinquency,” which is the date on which a consumer first became late in paying back the loan. In most cases, First Investors was reporting the date to be more recent than it actually was. The date an account first becomes delinquent matters because it determines how long a delinquency can appear on a consumer’s credit report. Inaccurate reporting of the age of a consumer’s delinquency can cause it to appear on the consumer’s credit report longer than is allowed by the FCRA.
• Inflated delinquencies: First Investors substantially inflated the number of delinquencies for some customers when it reported customers’ last 24 months of consecutive payment activity. In one case, First Investors reported that a consumer was delinquent 11 times, when in fact the consumer had only been delinquent twice.
• Mischaracterization of vehicle surrender: When loans reach a certain stage of delinquency, First Investors has the option to repossess the car. Before that happens, though, consumers have the option to voluntarily surrender their vehicle and avoid a “repossession” showing up on their credit report. First Investors told credit reporting agencies that some of its customers had their vehicles repossessed, when in fact those individuals had voluntarily surrendered their vehicles back to the lienholder.
Enforcement Action
The CFPB said First Investors violated the FCRA by inaccurately furnishing information and it violated the Dodd-Frank Wall Street Reform and Consumer Protection Act by misrepresenting to consumers that the company would only furnish accurate information. The CFPB’s order requires First Investors to take the following actions:
• Correct errors on credit reports: First Investors must identify all consumer accounts affected by its reporting errors and fix any inaccuracies. The company must either provide the correct information, or, in cases where accurate information is not available, First Investors must delete references to the loan altogether.
• Help consumers obtain free copies of their credit reports: First Investors will identify and inform all affected consumers about this action. It will also help all affected consumers receive free copies of their credit reports so consumers can check the reports’ accuracy for themselves.
• Establish consumer safeguards: First Investors must change how it does business and establish safeguards to ensure that it reports only accurate information about its customers to credit reporting agencies. In addition, it must ensure it has the staffing, facilities, systems, and information necessary to timely and completely respond to consumer disputes. And, it must establish an audit program to identify any systemic inaccuracies.
• Pay a civil monetary penalty of $2.75 million: First Investors will pay a $2.75 million fine for the illegal actions.
Editor's Note: To clarify a previous headline associated with this story, the CFPB did not penalize New York-based First Investors, a financial services provider that helps clients reach their financial goals through a variety of products and services, including mutual funds, life insurance, annuities, retirement-related services and investment management.
