Written by: Evan Berquist
During the last two weeks, the Consumer Financial Protection Bureau (Bureau) announced two new policies that will significantly expand the agency’s reach. First, on July 16, the Bureau proposed a new policy that would allow consumers to publish detailed narratives of their complaints on the Bureau’s online consumer complaint database. Then on July 21, the Bureau began accepting complaints related to prepaid cards and several nonbank financial products, including debt settlement services, credit repair services, and pawn and title loans. Bankers and nonbankers who provide financial services should be aware of the increased legal and reputational risks that these new Bureau policies bring.
New Types of Complaints Accepted
The addition of prepaid cards and certain nonbank financial services expands the list of consumer complaints the Bureau already handles. The existing list includes complaints related to credit cards, mortgages, bank accounts and services, private student loans, auto and other consumer loans, credit reporting, debt collection, payday loans, and money transfers.
When consumers file a complaint with the Bureau, the Bureau forwards the complaint to the relevant company, and requests that the company respond within 15 days. The company’s response should include a description of the actions the company has taken or plans to take to address the complaint. The Bureau expects companies to close all but the most complicated complaints within 60 days. Consumers are given a tracking number that they can use to check the status of their complaint by logging on to the Bureau’s website.
The Bureau will now accept complaints for prepaid gift cards, employee benefit cards, and “general purpose reloadable cards,” which customers often use in lieu of traditional checking accounts. In the coming months, the Bureau also plans to issue a proposed rule that would increase federal consumer protections for general purpose reloadable prepaid cards. Consumers can now submit prepaid card complaints to the Bureau about problems with:
managing customer accounts
- overdrafts, incorrect or unexpected fees
- frauds, scams or unauthorized transactions
- advertising, disclosures, and marketing practices
- adding money and savings or rewards features.
Debt Settlement and Credit Repair Services
The Bureau has already taken a number of enforcement actions against debt settlement and credit repair services companies for engaging in deceptive practices and charging illegal up-front fees. Consumers can now submit complaints about these types of companies for problems related to:
Excessive, unexpected or unjustified fees
- Advertising and marketing practices
- Customer service
- Frauds or scams
Pawn and Title Loans
Consumers can now submit complaints about pawn and title loan services for problems such as:
Unexpected charges or interest fees
- Loan application problems
- Incorrect charging and crediting payments by the lender
- Damages from the lender repossessing, selling, or damaging the consumer’s property or vehicle
- Inability to contact lender
Detailed Consumer Narratives to Appear on Website
As the Bureau expands the types of complaints it accepts, it is also moving to increase the amount of information consumers can share on its customer complaint database. Under a new policy proposed by the Bureau on July 16, consumers will be able to publish detailed narratives of their complaints on the database. Until now, the Bureau’s database has included only a more limited set of information about consumer complaints, including the date of submission, the consumer’s zip code, the company’s name, the product type, the general category of problem the consumer is complaining about, and the company’s response.
Under the proposed policy, consumers will be given the option of sharing a first-hand account of how they believe they were harmed by a company. The Bureau argues that by making detailed customer narratives publicly accessible, consumers will be able to make more informed decisions when selecting a financial product. The Consumer Product Safety Commission’s saferproducts.gov and the National Highway Traffic Safety Administration’s safercar.gov are two models that the Bureau says already provide this type of valuable consumer information.
Members of the financial services industry have expressed concern about the lack of safeguards in place to verify the truth of these publicly accessible complaints. In its proposed policy, the Bureau acknowledged the risk that factually incorrect information published on its database could harm both consumers and companies. To help mitigate this risk, the Bureau will allow companies to publish their response to a consumer complaint. Companies may request that their response be printed next to the consumer’s complaint, if the response is sent within the 15-day response period mentioned above. Both the customer complaint and the company’s response would delete any references to personal identifying information about the customer.
The Bureau has invited public comments to its proposed policy, a copy of which is available here.
Written by: McGregor K. Johnson
In early July, federal bank regulators and the Conference of State Bank Supervisors issued guidance regarding home equity lines of credit (“HELOC”) that are nearing the end of their draw periods. Typically, a HELOC consists of two periods: a draw period during which the borrower has access to unused amounts under the line of credit and interest only payments are made, followed by a repayment period during which a balloon payment or increased monthly payments are made.
The regulatory guidance reminded banks of key risk management principles when the end of the draw period is approaching for HELOCs. For example, banks should:
• not extend draw periods, modify loans, or establish amortization terms without conducting thorough due diligence on the borrower;
• use loan workout programs when feasible, but only if tailored to the borrower’s financial situation, and identify appropriate troubled debt restructurings;
• in estimating their allowance for loan and lease losses, consider the risks associated with the end of the draw period, such as “payment shock” of the borrower resulting from the increased payments due during the repayment period.
In addition, the guidance delineated specific policies that banks should follow in implementing such principles, including:
• proper identification of the risks associated with the end of the draw period and of the higher risk segments of the portfolio;
• analysis of expected payoffs, delinquencies and other factors that change risk levels;
• complete understanding of the contractual provisions of the HELOCs (such as notifications, payment amounts, interest rates, and amortization terms) and ensuring that the payment processing and servicing systems are controlled and programmed correctly;
• communication by well-trained customer account representatives with the borrowers well in advance of the end of the draw periods, including descriptions of options available for modifications to high risk borrowers;
• tracking of actions taken by type at the end of the draw periods and subsequent account performance and the distribution of such reports to all involved personnel on a frequent basis;
• sufficient staffing and resources to handle all activities within the HELOC portfolio.
This guidance may be found at Interagency Guidance on Home Equity Lines of Credit Nearing Their End-of-Draw Periods.
Kansas Governor Sam Brownback recently signed into law a bill phasing out the mortgage registration tax that requires anyone taking out a mortgage to buy property in Kansas to pay a tax of 0.26% on the principal debt or obligation secured by the mortgage. As summarized in the table below, this phase out will reduce the mortgage registration tax over a five-year period until the tax is completely eliminated in 2019.
Mortgage Registration Tax
0.00% (Totally Repealed)
Click here to view the full text of the amendment.
The Western Independent Bankers’ 2014 M&A Conference to Feature Stinson Leonard Street Partner Ernie Panasci
Ernie Pansasci, a Partner at Stinson Leonard Street LLP, will be a featured speaker at the Western Independent Bankers’ 2014 M&A Conference held June 11-12 in Newport Beach, Calif.
Panasci will be participating in an interactive, hands-on case study exercise, “Getting the Deal Done Right: A ‘Live’ M&A Deal.” In this session, attendees will gain a practical perspective on the mechanics and decisions leading up to an actual M&A deal. From setting the business case, to conducting appropriate due diligence, to following good legal process, to financially analyzing the merger from a shareholder perspective, to uncovering potential compensation surprises, this session is designed to help attendees become well-versed in critical M&A considerations without the pressure of an actual M&A event.
Panasci, who works from the firm’s Denver office, focuses his practice in the areas of financial institutions, mergers and acquisitions, corporate law and counsels financial institutions about federal and state banking matters and related securities law and financing issues. He has been directly involved in more than 100 transactions as counsel for buyers or sellers and the merger and acquisition of businesses in a diverse range of other industries. Panasci focuses his practice throughout the Western United States, including the States of Colorado, New Mexico, Wyoming, Montana, Arizona, Idaho and Washington.
Register to attend the Western Independent Bankers’ 2014 M&A Conference. Save $100 off the conference fees when you register by May 16.
Written by: Tanner Weigel
Increased regulatory scrutiny over the offering, marketing and billing practices used for add-on products has led to a marked increase in the number of regulatory enforcement actions and consent orders imposed on credit card issuers. Add-on products are credit card products that are ancillary to the actual extension of credit; some examples of these products include debt protection products, identity theft protection products and credit score monitoring products. Notably, regulatory scrutiny has increased for all credit card issuers, regardless of size and regardless of the primary regulator for the issuer. Indeed, the CFPB and other regulators are making good on the CFPB’s October 2013 promise to increase scrutiny over the marketing and sale of add-on products.
For example, on April 7, 2014, a large credit card issuer agreed to pay approximately $772 million to settle OCC and CFPB claims that the issuer violated section 5 of the FTC Act, 15 U.S.C. §45(a) (“Section 5″), by using deceptive marketing and billing practices relating to certain add-on products. In the Order, the regulators allege that, among other violations, the issuer 1) billed customers for the full cost of the add-on product even though the customers were not receiving all of the product’s advertised benefits, and 2) enrolled customers in products without obtaining their affirmative consent.
Similarly, the FDIC determined that a small bank issuer engaged in deceptive and unfair acts and practices in violation of Section 5. Some of the criticized practices included add-on products. The FDIC recently imposed a $1 million civil money penalty and ordered the issuer to 1) refund all interest charged by the issuer during a “zero percent interest for 12 month” promotional offer, and 2) clearly and accurately disclose to credit card customers that enrollment in a particular add-on product was not required to obtain or maintain a bank issued credit card.
Card issuers must act now to ensure their practices fully comply with applicable statutes, regulations and regulatory expectations. The following set of considerations is adapted from a CFPB Bulletin and provides an analytical framework for issuers to consult when conducting a compliance review. To ensure the issuer is marketing and selling credit card add-on products in a manner that limits the potential for statutory or regulatory violations, the issuer should take the following actions:
• Adequately disclose important product terms and conditions and always avoid deceptive acts, practices or tactics. Marketing materials, including direct mail materials, telemarketing scripts and electronic and print advertisements, must fully and accurately reflect the terms and conditions of the product and not be deceptive or misleading. Banks are encouraged to evaluate the following factors:
1) Is the statement prominent enough for a reasonable consumer to notice?
2) Is the information presented in an easy-to-understand format that does not contradict other information relating to the product?
3) Is the information in a location where a reasonable consumer can be expected to look?
4) Is the information in close proximity to the claim it qualifies?
• Obtain affirmative consent before enrolling consumers in the add-on product. Banks must not enroll customers in add-on products without clear affirmative consent, which should be obtained only after the consumer has been informed of the terms and conditions of the add-on product.
• Disclose the voluntary nature of the enrollment process. The purchase of add-on products cannot be required as a condition of obtaining credit. Therefore, banks should evaluate their current practices to ensure oral and written statements to consumers do not require enrollment in an add-on product prior to the extension of credit.
• Only bill customers for services that are actually performed. Issuers should only bill for services actually performed and should ensure that customers receive all advertised product benefits when they are charged the full amount of the product’s cost. The failure to provide all advertised benefits without a corresponding reduction in fees will lead to adverse consequences.
• Appropriately design and monitor employee incentive or compensation programs. Employee incentive programs tied to the sale and marketing of add-on products must be designed to ensure that the programs do not create incentives for employees to provide inaccurate information about the products. Issuers must frequently analyze sales tactics, including all scripts and manuals used by the issuer’s customer service centers, to ensure the following obligations are met:
1) The customer service representatives accurately state the terms and conditions of the various products;
2) Attempts to rebut the customer’s attempt to decline the product are made in accordance with established and clearly defined bank guidance. Ideally, such guidance will include the appropriate rebuttal language that may be used, clearly define when such language is appropriate, and limit the number of times rebuttal attempts may be made;
3) Customer service representatives are not regularly deviating from approved scripts;
4) Cancellation requests are handled in an appropriate manner.
• Design and employ effective compliance management programs. Programs should be designed to ensure compliance with prohibitions against deceptive acts and practices, as well as all other Federal and state consumer financial protection laws and regulations, including the Truth in Lending Act and the Equal Credit Opportunity Act. Issuers should:
1) Conduct periodic quality assurance reviews;
2) Engage an independent auditor to objectively evaluate the add-on program;
3) Monitor any affiliates or third-party service providers that perform marketing or other functions related to the add-on products to ensure they are complying with applicable law;
4) Implement an appropriate channel for resolving consumer complaints; and
5) Design and implement a comprehensive training program for employees involved in the marketing, sale and operation of add-on products.
Stinson Leonard Street Partner, Kristin Godfrey, has been chosen to speak at the Independent Bankers of Colorado’s 2nd Annual Commercial Lenders Conference on May 8th and 9th in Golden Colorado. Join Kristin and a host of other great presenters as they provide valuable insight on current hot topics in commercial lending. Click here for more information about the conference and to view the conference brochure.
Written by: Scott Smalley
I heard it from a friend who, who heard it from a friend who, heard it from another that the site is being taken down. The popular website, which was established to help banks market REO (real estate owned) inventory, has been taken offline due to declining REO inventories. The website provided valuable assistance to bankers who were “Ridin’ the Storm Out” and helped them to “Keep Pushin'” REO off of their balance sheets. With that task nearly complete, the website has acknowledged that it’s “Time for Me to Fly.” To help banker’s “Roll with the Changes,” properties advertised on REOdeedwagon.com will be migrated, free of charge, to Promontory Interfinancial Network’s Bank Assetpoint®, which serves as a marketplace for banks and brokers to view listing of loans, commercial real estate and other assets.
Here’s the official statement from REOdeedwagon.com:
REOdeedwagon.com has been taken offline as of February 28, 2014.
This website was established to help bankers advertise their REO inventories beyond local markets and was successful in accomplishing that goal. After researching this extensively, we feel that the REO inventories are returning to near normal levels for the majority of institutions in the country This is a positive sign for the industry. Should there ever be a need for a service like REOdeedwagon.com, we are confident that we will be able to act swiftly to answer the call from the lessons we have learned. It has been an honor to serve bankers and consumers over the past two years.
If you would like further information, please call 800-662-7044.
If you “Can’t Fight this Feeling” to discuss your bank’s strategy to market and sell REO property, please contact a member of our Commercial Lending team or your usual Stinson Leonard Street LLP attorney.