Since Acting Director Mulvaney took the helm of the Bureau of Consumer Financial Protection (CFPB) in November 2017, many have questioned whether the CFPB would continue its prior level of enforcement. Although the CFPB has dropped some high profile lawsuits and investigations under Acting Director Mulvaney, it appears that the CFPB is pursuing other enforcement actions at a significant pace. The CFPB has issued at least six settlements so far in 2018, including three in June and two in July.
While this is an indication that the CFPB under Acting Director Mulvaney is still utilizing its enforcement powers, these actions most likely stem from investigations started under former Director Cordray. It remains to be seen how many new investigations and enforcement actions have been started since Mulvaney became Acting Director. Further, a new permanent Director could put in place a different policy towards the agency’s use of its enforcement powers. But we can at least see from this June and July that the CFPB continues to pursue enforcement cases.
Below, we highlight three recent enforcement actions that show the CFPB is enforcing in different areas of law and for different products. The first illustrates that engaging in “responsible conduct” (including self-reporting, voluntary restitution, and cooperation with the CFPB, as described in the CFPB’s Bulletin 2013-06) can positively affect the outcome of an enforcement action, in this case resulting in no civil money penalty.
The last two actions discussed show that, under Acting Director Mulvaney, certain cases can still result in enforcement actions against individuals and include bans from the industry.
Large National Bank under the CARD Act
The CFPB, on June 29, issued a Consent Order against Citibank, N.A. for failing to reevaluate and reduce the APRs for about 1.75 million consumer credit card accounts as required in violation of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (“CARD Act”) amendments to the Truth in Lending Act. The CFPB also found that the bank failed to maintain reasonable policies and procedures about APR reevaluations as required. The consent order requires the bank to pay $335 million in restitution to consumers affected by these practices. The bank must also submit a compliance plan within 60 days.
The CARD Act requires creditors to periodically reevaluate APRs based on certain factors for credit card accounts on which they have increased the APRs, including after imposing default APRs, and maintain reasonable policies and procedures on conducting the reevaluations. Creditors are generally required to conduct APR reevaluations at least every six months after the rate increase.
The CFPB found that the bank conducted APR reevaluations, but did not apply the required factors correctly, which resulted in overcharges to consumers. The CFPB found several errors that generally involved using criteria that did not align with criteria used for underwriting new accounts or improperly applying the criteria, including an incorrect calculation of the consumer’s ability to pay and incorrect use of FICO scores.
We are often asked about the advantages and disadvantages of self-identifying violations to the CFPB (as well as voluntary corrective action and restitution). It seems that in this case, self-identification and other “responsible conduct,” enabled the bank to avoid a civil money penalty, at least on top of the substantial restitution payment. The CFPB noted in its order that the bank originally uncovered the violations in 2016, self-reported the deficiencies to the CFPB, and began providing voluntary restitution in early 2017. The CFPB apparently took this conduct into account, as described in Bulletin 2013-06, noting in its announcement that, “the Bureau did not assess civil money penalties based on a number of factors, including that Citibank self-identified and self-reported the violations to the Bureau, and self-initiated remediation to affected consumers.” This enforcement action is worth keeping in mind when evaluating whether to self-identify violations to the CFPB.
You can find the CFPB’s announcement here: https://www.consumerfinance.gov/about-us/newsroom/bureau-consumer-financial-protection-settles-citibank-na/
National Credit Adjusters, LLC and its Former CEO under FDCPA and UDAAP
The CFPB, on July 13, issued a Consent Order against National Credit Adjusters, LLC and its part-owner and former CEO, Bradley Hochstein. The CFPB found NCA maintained a network of debt collection agencies that used unlawful debt collection practices that harmed consumers in violation of the Fair Debt Collection Practices Act and the CFPB’s prohibition against unfair, deceptive, or abusive acts or practices. The Consent Order imposed a $3 million civil money penalty against each of NCA and Hochstein, but suspended part of the payment if NCA and Hochstein pay $500,000 and $300,000 penalty, respectively.
According to the CFPB, NCA used collection agencies that told consumers they owed more than they were legally required to pay, and threatened consumers with lawsuits, visits from process servers, and arrest, when they did not have the legal authority to take those actions. In addition, NCA continued to sell debt portfolios to these debt collection companies even with knowledge, or reckless disregard, of the harmful debt collection practices. The CFPB pointed to a number of factors that added to NCA’s fault, including that NCA’s compliance personnel recommended that NCA sever its relationship with the debt collection companies due to their illegal collection acts and practices. However, NCA and Hochstein continued placing accounts with the debt collectors. NCA also provided “critical assistance” to the debt collection companies, including drafting their policies and procedures to give a false impression the debt collectors complied with federal law.
Notably, the CFPB named Hochstein individually in the Consent Order due to his “managerial responsibility for NCA” and “direction and oversight” of NCA’s debt collection activities.
As a result, NCA and Hochstein are barred from certain collection practices, and Hochstein is permanently barred from working in any business that collects, buys, or sells consumer debt.
You can find the CFPB’s announcement here: https://www.consumerfinance.gov/about-us/newsroom/bureau-settles-national-credit-adjusters-llc-and-bradley-hochstein/
Settlement with Individual Defendant in Hydra Group Lawsuit
Also, on July 23, in a lawsuit the CFPB filed back in 2014 involving alleged violations by an online payday lender, the CFPB entered a stipulated final judgment and order against one of the individual defendants in the case with a civil money penalty of $1. While that may sound small, there was also a five-year broadly worded ban from the industry, and requirements for full cooperation with the CFPB in its continuing investigation against the other defendants, and ongoing reporting for five years covering the individual’s compliance and other business activities.
The CFPB continues enforcement actions under Acting Director Mulvaney. While, these enforcement actions likely involved investigations that began under former Director Cordray, Acting Director Mulvaney apparently approved these particular actions moving forward. Moreover, these actions include orders against individuals that included civil money penalties and bans from business.
Only time will tell whether and at what pace the CFPB will initiate new investigations. It also remains to be seen how a new permanent Director, including, if confirmed, the President’s recent nominee, Kathy Kraninger (current Associate Director at the Office of Management and Budget), will place on enforcement. In the meantime, however, lenders should continue to proceed with caution and take compliance seriously.