By: Zane Gilmer
On October 27, 2015, at the request of the Consumer Financial Protection Bureau (CFPB), the United States District Court for the Northern District of Illinois Eastern Division entered a default judgment against Corinthian Colleges, Inc., in the amount of $530 million.
In September 2014, the CFPB filed a complaint against Corinthian Colleges, Inc., alleging that Corinthian “lured tens of thousands of students into taking out private loans to cover expensive tuition costs by advertising bogus job prospects and career services.” In addition, the CFPB alleged that Corinthian engaged in illegal debt collection practices by trying to “strong-arm” students into paying back loans while the students were still in school.
In May 2014, Corinthian filed for bankruptcy and its assets were liquidated. As a result, the default judgment against Corinthian is largely symbolic as it will be unable to pay the judgment. Nevertheless, the CFPB’s willingness to pursue the default judgment is a sign that student loan-related consumer complaints as well as debt collection practices remain priorities for the CFPB. Indeed, the CFPB has issued numerous statements this year indicating its concern about student loan-related services and products and its intent to “halt harmful practices and boost assistance for distressed borrowers.” In addition, the CFPB has initiated numerous enforcement actions related to debt collection practices. As a result, companies should ensure that their student lending and debt collection practices are in compliance with CFPB’s expectations.
View the default judgment against Corinthian Colleges, Inc., here: http://files.consumerfinance.gov/f/201510_cfpb_default-judgment-and-order-corinthian.pdf.
View the CFPB’s September 29, 2015, press release announcing concerns about student loan servicing and frameworks for reform here: http://www.consumerfinance.gov/newsroom/cfpb-concerned-about-widespread-servicing-failures-reported-by-student-loan-borrowers/.
View CFPB Director Richard Cordray’s May 14, 2015 prepared remarks on student loans here: http://www.consumerfinance.gov/newsroom/prepared-remarks-of-cfpb-director-richard-cordray-at-the-field-hearing-on-student-loans/.
By: Zane Gilmer
On October 28, 2015, the Consumer Financial Protection Bureau (CFPB) filed an administrative order against Security National Automotive Acceptance Company (SNAAC), an auto lender specializing in loans to servicemembers.
In June 2015, the CFPB filed a lawsuit against SNAAC, which alleged SNAAC engaged in illegal debt collection practices. Specifically, the complaint alleged that when servicemembers defaulted on their auto loans, SNAAC would:
- Exaggerate the potential impacts of the delinquency, including telling consumers that if they fail to pay it could result in action under the Uniform Code of Military Justice and other adverse career consequences
- Threaten to contact the servicemembers’ commanding officers
- Threaten to garnish the servicemembers’ wages, even though such garnishment could not be commenced without first obtaining a judgment
- Threaten to take legal action against the servicemembers, even when the company had not yet decided to take any action
Pursuant to the administrative order, SNAAC is required to:
- Identify affected consumers and provide them with credits and refunds in the approximate amount of $2.28 million, with each affected consumer receiving relief in the amount of the debt they were unlawfully pressured into paying
- Stop threating to contact servicemembers’ commanding officers
- Stop telling servicemembers that their loan defaults constitute a violation of military law
- Stop telling consumers that the company is taking legal action unless it intends to take such action
- Stop telling consumers that the company will garnish the consumers’ wages unless the company first obtains a judgment permitting such garnishment
- Pay a civil penalty in the amount of $1 million to the CFPB’s Civil Penalty Fund
The CFPB’s enforcement action against SNAAC highlights that debt collection and auto lending practices remain CFPB priorities.
View the CFPB’s administrative consent order here: http://files.consumerfinance.gov/f/201510_cfpb_consent-order-administrative-snaac.pdf.
View the CFPB’s federal district court complaint here: http://files.consumerfinance.gov/f/201506_cfpb_complaint-security-national-automotive-acceptance-company.pdf.
View the CFPB’s federal district court’s Stipulated Final Judgment and Order here: http://files.consumerfinance.gov/f/201510_cfpb_consent-order-district-snaac.pdf.
By: Zane Gilmer
On October 8, 2015, the Consumer Financial Protection Bureau (CFPB) issued a compliance bulletin concerning marketing services agreements (MSAs) under the Real Estate Settlement Procedures Act (RESPA).
RESPA was enacted by Congress to eliminate referral fees or kickbacks in connection with real estate settlements. Specifically, RESPA prohibits the giving or receiving of “any fee, kickback or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.” The statute includes both civil and criminal penalties for violations and covers a wide variety of services provided in connection with real estate settlement services, including (i) title searches, examinations, and insurance; (ii) services provided by an attorney; (iii) document preparation; (iv) property surveys; (v) providing credit reports or appraisals; (vi) inspections; (vii) services rendered by a real estate agent or broker; and (viii) loan origination, processing, and underwriting.
According to the CFPB, providers of settlement services in mortgage loan transactions often enter into MSAs, which agreements “are usually framed as payments for advertising or promotional services, but in some cases the payments are actually disguised compensation for referrals,” in violation of RESPA. Although the CFPB acknowledges that a determination of whether a particular MSA violates RESPA requires an analysis of the specific facts and circumstances related to the creation and implementation of the agreement, the CFPB’s bulletin warns that the following examples have resulted in enforcement actions for RESPA violations:
- title insurance company entering into MSAs in order to obtain referrals in exchange for the payment of fees, which fees were paid, in part, based on the number of referrals received and revenue generated therefrom
- settlement service provider hindering consumers’ ability to “shop for mortgages” by burying the disclosure that the consumer has the right to shop for settlement services in a description of the services provided
- settlement service provider failing to disclose to consumers (i) its relationship with an affiliate that provided appraisal management services; and (ii) that the consumers had an option to shop for settlement services before they were directed to the affiliate
- title insurance company entering into oral agreements in which the company indirectly paid for referrals by subsidizing the loan officers’ marketing expenses, which led to liability for the lender for failing to detect and/or prevent the RESPA violations
In short, the CFPB’s bulletin warns that “any agreement that entails exchanging a thing of value for referrals of settlement service business involving a federally related mortgage loan likely violates RESPA, whether or not an MSA or some related arrangement is part of the transaction.” The bulletin encourages mortgage industry participants to carefully consider the compliance and legal risks associated with MSAs and to consider self-reporting its own conduct to the extent it may violate RESPA in accordance with CFPB’s earlier bulletin on responsible business conduct and self-reporting.
View CFPB’s Bulletin 2015-05, RESPA Compliance and Marketing Services Agreements, here: http://files.consumerfinance.gov/f/201510_cfpb_compliance-bulletin-2015-05-respa-compliance-and-marketing-services-agreements.pdf.
View CFPB’s Bulletin 2013-06, Responsible Business Conduct: Self-Policing, Self-Reporting, Remediation, and Cooperation, here: http://files.consumerfinance.gov/f/201306_cfpb_bulletin_responsible-conduct.pdf.
By: Lindsay Johnson
President Obama has recently issued a number of executive orders imposing new requirements on federal contractors in the area of labor and employment. Some of these executive orders, which are regulated and enforced by the Office of Federal Contract Compliance Programs (OFCCP), will become effective or will result in new regulations in 2016. As the term “federal contractor” includes most banks and financial institutions, these new requirements threaten to further increase costs and compliance burdens in the banking industry.
When Financial Institutions are Considered Federal Contractors
While different laws enforced by the OFCCP have different jurisdictional thresholds and the question of government contractor status is not always straightforward, the OFCCP generally considers a financial institution a federal contractor if it (i) is covered by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Association (NCUA) with deposit insurance; (ii) serves as a federal fund depository; or (iii) holds a federal contract exceeding $10,000. Financial institutions falling within this definition must comply with the new requirements discussed below, as well as a significant number of existing laws and regulations.
Paid Sick Leave for Financial Institution Employees
Effective January 1, 2017, financial institutions with covered federal contracts entered into after this date will be required to provide paid sick leave to employees. Executive Order 13706 provides that federal contractors must allow employees to earn at least 56 hours or 7 days of paid sick leave annually. Although more detail will be provided in the OFCCP final rule to be released by the fall of 2016, key provisions of the Executive Order include the following:
- Federal contractors must allow employees to earn at least one hour of paid sick leave for every 30 hours worked.
- Paid sick leave must carry over from year to year and must be reinstated for employees rehired within 12 months of job separation.
- Employees of federal contractors may use paid sick leave to cover a broad variety of absences set forth in the order.
- Employers are not required to pay out accrued and unused sick leave upon termination of employment.
Pay Transparency Rule Affecting Financial Institution Non-Discrimination Policies
The OFCCP’s final rule regarding pay transparency prohibits federal contractors from discharging or discriminating against employees and applicants who ask about or discuss compensation. This rule, which implements Executive Order 13665, will take effect on January 11, 2016 and will apply to all federal contractors—including financial institutions—with contracts exceeding $10,000 in value that are entered into or modified on or after the effective date. Under the rule, financial institutions that are federal contractors must, among other things:
- Include certain information in covered federal contracts and subcontracts
- Eliminate formal or informal policies preventing the discussion of compensation among employees
- Update employee handbooks to include the “pay transparency policy statement” set forth in the rule, protecting employees and applicants from discrimination for inquiring about, discussing, or disclosing their own pay or the pay of another employee or applicant
- Post or otherwise disseminate the non-discrimination provision to employees or applicants, in addition to updating the employee handbook
Notably, while federal contractors are prohibited from retaliating against employees or applicants who discuss or inquire about compensation, federal contractors are not required to affirmatively disclose the pay information of other employees. Furthermore, this rule does not permit employees who have access to compensation information as part of their essential job functions to disclose other employees’ compensation except for in certain enumerated circumstances.
What Should Financial Institutions Do Now?
Financial institutions should take the steps necessary to ensure that they are compliant with these and other rules that apply to federal contractors. Banks and financial institutions subject to these rules and orders should promptly review their formal and informal policies regarding the discussion of employee compensation, update employee handbooks to include the pay transparency policy statement, provide any necessary training regarding this non-discrimination provision, and otherwise ensure compliance with the new pay transparency rule. In addition, financial institutions should review and update their sick leave and/or paid time off policies as applicable to meet the minimum requirements of Executive Order 13706 after the implementing regulations are issued. For more information from Stinson Leonard Street about recent laws and regulations affecting federal contractors, please see below.
By: Lindsay Johnson
On Wednesday, the Federal Trade Commission (FTC) announced that it will ban telemarketers from using certain payment methods, including remotely created checks and remotely created payment orders. Although the purpose of the rule is to protect consumers by banning “payment methods that scammers like, but honest telemarketers don’t use,” some banking industry groups believe that the rule goes too far. They argue, for instance, that there is no proof remotely created checks are associated with increased fraud and that the regulatory regime places unnecessary monitoring burdens on the banking industry.
Other payment methods that will be prohibited for telemarketers under the final rule include cash-to-cash money transfers and cash reload mechanisms on prepaid cards. The FTC’s apparent reasoning for singling out these four payment products is that they are difficult to trace and/or difficult to reverse, making them ideal scamming tools for con-artists. For more information, click here to view the American Banker article discussing this topic.