All posts by collectionind723

CFPB Sets Its Sights On Large Tech Companies

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Director Chopra comes to the CFPB directly from his stint as a commissioner at the Federal Trade Commission (FTC), an agency with more sweeping authority over large tech companies. The jurisdiction of the CFPB intersects with the payments functionality and other financial services or products offered or facilitated by non-bank technology firms. To date, the CFPB has taken enforcement actions against smaller fintech firms, but it has yet to directly confront the potential consumer protection issues raised by the operations of the largest technology companies.

In today’s action, the CFPB issued lengthy information requests to some of the largest tech companies in the world. The information request and accompanying statement by Director Chopra can be found at CFPB Orders Tech Giants to Turn Over Information on their Payment System Plans | Consumer Financial Protection Bureau (consumerfinance.gov). The requests seek detailed information about the companies’ products, plans and use of consumer information related to payments. In an accompanying statement, Director Chopra makes clear some of the questions on the minds of CFPB regulators, such as:

  • Will the operators engage in invasive financial surveillance and combine the data they collect on consumers with their geolocation and browsing data? Will they in turn use this data to deepen behavioral advertising, engage in price discrimination, or sell to third parties?
  • Will the payment platforms be truly neutral, or will they use their scale to extract rents from market participants?
  • Will small businesses feel coerced into participating in the payment platform out of fear of being suppressed or hidden in search or product listings?
  • If these tech companies enter a market that competes with other providers on the platform, will these providers be removed or otherwise disadvantaged? What factors will these tech companies use when disqualifying or delisting an individual or business from participating on the platform?
  • Finally, how will these payment platforms ensure that key consumer protections are adhered to? How effectively do they manage complaints, disputes and errors? Are they sufficiently staffed to ensure adequate steps are taken to address consumer protection and provide responsive customer service when things go wrong?

Overall, the CFPB is concerned about whether the tech firms operate their payment platforms “in a manner that interferes with the fair, transparent and competitive markets.” While the CFPB has clear jurisdiction over consumer financial products and services, some of the queries above seem targeted at larger issues of competition that are typically within the ambit of the FTC of the Department of Justice.

It’s worth nothing the method chosen by the CFPB to gather this information. Today’s order was issued not as part of an enforcement investigation, but rather pursuant to the CFPB’s authority under Sec. 1022(c)(4) of the Dodd Frank Act, which allows the agency to monitor risks to consumers. It could have issued a more general Request for Information inviting all industry participants to comment but requiring none to do so. Instead, the CFPB issued mandatory requests to a select few large tech players. The CFPB notes that the information gathered will help inform the future work of the CFPB, as well as other regulators. In other words, for now the CFPB is asserting its authority to gather this information, but it hasn’t addressed more broadly what regulatory actions it may take with respect to these tech companies.

The CFPB’s information requests can be seen in the context of its overall approach to fintech, an issue expected to rise up the CFPB’s priority list under Director Chopra. Increased scrutiny in this sector is not surprising given how quickly financial marketplaces have evolved, with tech companies and other non-bank firms increasingly performing functions traditionally left to banks. The CFPB has already commenced important rulemaking regarding consumers’ access to their financial data (an effort cited in the information requests) that could significantly impact how companies interact and share consumer financial information. Consumer access to financial data has been a topic of growing interest (and even some bipartisan agreement) on Capitol Hill, as well as within the Biden administration.

© 2021 Bradley Arant Boult Cummings LLPNational Law Review, Volume XI, Number 295

Credit unions in Alaska, Washington intend to merge

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SPOKANE, Wash. (AP) — Two credit unions, one based in Washington state and one in Alaska, said Thursday they are seeking regulatory approval of their intent to merge.

The credit unions said in a news release that the merger would combine Anchorage, Alaska-based USA Federal Credit Union’s 700,000 members with Global Credit Union’s 45,000 members.

The merger will result in an organization with combined assets of over $11 billion, making it one of the 15 largest credit unions in the country, according to the news release.

Alaska USA has 67 branches in Alaska, Washington, California and Arizona. Global operates nine branches in Washington and Idaho as well as three branches in Italy on U.S. military installations.

“Our members will enjoy the security and expanded services this merger will provide, while retaining Global’s name, service and commitment they have come to rely on,” Jack Fallis, Global Credit Union’s president and CEO, said in the new release.

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The merger proposal requires approval by the National Credit Union Administration and additionally must be approved by Global Credit Union members, with an anticipated effective date in late 2022.

If the merger goes through, Alaska USA plans to offer jobs to all existing Global employees.

Education Department Extends Navient Student Loan Servicing Contract, But Not FedLoan

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Student Loan Servicing Changes

Last month, Navient announced that it intends to exit the U.S. Department of Education’s loan servicing system. Just weeks prior to that, FedLoan Servicing and Granite State Management & Resources — two other major loan servicers for the Department — had also announced their withdrawal.

As a result of the cascade of student loan servicer exits, the Department would have to transfer millions of borrowers who have Department-held federal student loans to a new servicer. Navient had proposed an arrangement with a company called Maximus, another loan servicing company that primarily handles the Department’s defaulted federal student loans, to take over Navient’s accounts. That arrangement would need to be approved by the Biden administration.

Loan Servicing Contract Extension for Navient

Today, the Department announced it has extended Navient’s loan servicing contract to December of 2023. As a result, Navient may continue to service government-held federal student loans for another two years, reducing the chances of imminent servicing transfers for student loan borrowers.

However, the Department also indicated that it is still evaluating Navient’s proposal to transfer its Direct loan servicing portfolio to Maximus. “Navient… signed a contract extension, although the Department is currently reviewing a recently submitted request from Navient to transfer its contract to Maximus,” wrote the Department. Thus, notwithstanding the contract extension, it is possible that, if approved, Navient’s proposal could still go into effect, albeit on a less-rushed timeline.

No Loan Servicing Contract Extension for FedLoan Servicing

FedLoan Servicing — the Department of Education servicing wing of the Pennsylvania Higher Education Assistance Agency (PHEAA) — was not granted a two-year contract extension. FedLoan also recently announced its withdrawal from the Department’s federal student loan servicing system, a particularly disruptive development given that FedLoan is the sole servicer contracted to administer the troubled Public Service Loan Forgiveness (PSLF) program. Similarly, there is no contract extension for Granite State Management & Resources, another departing loan servicer.

“FSA is in the process of transferring those loans to remaining servicers,” wrote the Department. Some FedLoan accounts are already being transferred to MOHELA, an existing Department loan servicer. However, the Department has not confirmed that all FedLoan accounts will be transferred to MOHELA, and many still remain with FedLoan for now.

Other Student Loan Servicers

The Department has agreed to a two-year extension of servicing contracts for other major federal student loan servicers including Great Lakes Higher Education, HESC/Edfinancial, MOHELA, Nelnet

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, and OSLA Servicing. That reduces the chances that there will be further abrupt withdrawals of loan servicers from the Department of Education’s servicing system in the near term.

The Department also indicated that the contract extensions will include stronger oversight and consumer protections for borrowers including “stronger standards for performance, transparency, and accountability.”

“FSA is raising the bar for the level of service student loan borrowers will receive,” said FSA Chief Operating Officer Richard Cordray. “Our actions come at a critical time as we help borrowers prepare for loan payments to resume early next year. The great work done by our negotiating team here enables us to ensure that loan servicers meet the tougher standards or face consequences.”

The Department characterized these steps as an initial phase of a larger process to transform and improve federal student loan servicing for borrowers going forward.

Further Reading

Student Loan Forgiveness Changes: Who Qualifies, And How To Apply Under Biden’s Expansion Of Relief

Huge Student Loan Servicing Shakeup: This Major Loan Servicer Is Ending Its Contract

Student Loan Servicing Transfers Begin This Week As Servicer Upheaval Expands: Key Details

Student Loan Borrowers: Expect These 4 Things By January

CFPB enters into second settlement with reverse mortgage provider

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Last week, the CFPB simultaneously filed a lawsuit against American Advisors Group (AAG) in a California federal district court and a proposed stipulated final judgment and order to settle the lawsuit.  The lawsuit alleged that AAG inflated estimated home values in marketing its reverse mortgage product and made false representations about AAG’s effort to ensure home value information was reliable.

In 2016, the Bureau entered into a consent order with AAG to settle claims that AAG engaged in deceptive advertising in violation of the Mortgage Acts and Practices-Advertising Rule (Regulation N) and the Consumer Financial Protection Act.  In addition to requiring AAG to pay a civil money penalty of $400,000, the consent order contained a provision prohibiting AAG from violating the CFPA for five years, or until December 2021.

In its new complaint, the CFPB claimed that AAG’s alleged use of inflated home values and false representations about its efforts to ensure home value information is reliable constituted deceptive acts or practices in violation of the CFPA.  It also alleged that by engaging in such deceptive acts or practices, AAG violated the consent order.  The CFPB claimed that by violating the consent order, AAG violated federal consumer financial law because the consent order, as an order prescribed by the Bureau, constitutes a federal consumer financial law.

The proposed stipulated final judgment and order requires AAG to pay a $1.1 million civil money penalty and $173,400 in consumer redress to consumers who received mailers from AAG with estimated home values, paid for and received appraisals with property values lower that AAG’s estimates, and decided not to proceed in obtaining a reverse mortgage from AAG.  It also prohibits AAG from engaging in deceptive practices generally and, in connection with marketing its consumer financial products, it prohibits AAG from misrepresenting any fact material to consumers, including, but not limited to, home values.  Additionally, AAG must submit a compliance plan to the CFPB and include links to specific CFPB materials about reverse mortgages in its direct mail solicitations and in welcome communications to borrowers with newly-originated reverse mortgages.

Court Delays CFPB Payday Rule While Industry Challenge Continues

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Payday lenders won a bid to delay a Consumer Financial Protection Bureau rule limiting their access to customers’ bank accounts to collect payments.

Payday and auto title lenders don’t have to comply with the CFPB rule while the Community Financial Services Association of America and a Texas-based trade group appeal a district court ruling in favor of the bureau, the U.S. Court of Appeals for the Fifth Circuit said in an Oct. 14 ruling.

The CFPB rule requires payday and vehicle title lenders to get permission to access a consumer’s bank account after two failed attempts to collect on the short-term, high-cost loans, among other provisions.

Judge Lee Yeakel of the U.S. District Court for the Western District of Texas in August started a 286-day transition period for the rule to take effect after rejecting the industry group’s challenge. The Fifth Circuit said in its unanimous order that the transition period won’t start until the appeals process is completed.

Judges Jerry E. Smith, Stephen A. Higginson and Don R. Willett signed the order.

Representatives for the CFSA didn’t immediately respond to a request for comment Friday. The CFPB declined to comment.

The CFPB had set a June 13, 2022 effective date for the rule following Yeakel’s ruling. The district court judge rejected the industry’s motion to stay the regulation while the trade groups appealed his ruling to the Fifth Circuit.

The rule under appeal is a slimmed-down version of regulations first issued in October 2017 by former Director Richard Cordray, an Obama appointee.

The original rules included tough requirements for lenders to determine a borrower’s ability to repay a payday or vehicle title loan, which can have interest rates as high as 400%. The CFPB also mandated cooling-off periods after a borrower takes out three loans in a short period of time.

The Trump administration rescinded those provisions, but kept restrictions on payday lender access to consumer bank accounts.

Consumer advocates hope that President Biden’s CFPB director, Rohit Chopra, will reinstate the ability-to-repay provisions and the cooling-off requirements.

Chopra was sworn into his post on Oct. 12.

The case is Cmty. Fin. Servs. Ass’n. of Am., Ltd. v. CFPB, 5th Cir., No. 21-50826, stay granted 10/14/21.