Tag: Consumer Financial Protection Bureau

The Race to Report: DOJ Announces Pilot Whistleblower Program

In recent years, the Department of Justice (DOJ) has rolled out a significant and increasing number of carrots and sticks aimed at deterring and punishing white collar crime. Speaking at the American Bar Association White Collar Conference in San Francisco on March 7, Deputy Attorney General Lisa Monaco announced the latest: a pilot program to provide financial incentives for whistleblowers.

While the program is not yet fully developed, the premise is simple: if an individual helps DOJ discover significant corporate or financial misconduct, she could qualify to receive a portion of the resulting forfeiture, consistent with the following predicates:

  • The information must be truthful and not already known to the government.
  • The whistleblower must not have been involved in the criminal activity itself.
  • Payments are available only in cases where there is not an existing financial disclosure incentive.
  • Payments will be made only after all victims have been properly compensated.

Money Motivates 

Harkening back to the “Wanted” posters of the Old West, Monaco observed that law enforcement has long offered rewards to incentivize tipsters. Since the passage of Dodd Frank almost 15 years ago, the SEC and CFTC have relied on whistleblower programs that have been incredibly successful. In 2023, the SEC received more than 18,000 whistleblower tips (almost 50 percent more than the previous record set in FY2022), and awarded nearly $600 million — the highest annual total by dollar value in the program’s history. Over the course of 2022 and 2023, the CFTC received more than 3,000 whistleblower tips and paid nearly $350 million in awards — including a record-breaking $200 million award to a single whistleblower. Programs at IRS and FinCEN have been similarly fruitful, as are qui tam actions for fraud against the government. But, Monaco acknowledged, those programs are by their very nature limited. Accordingly, DOJ’s program will fill in the gaps and address the full range of corporate and financial misconduct that the Department prosecutes. And though only time will tell, it seems likely that this program will generate a similarly large number of tips.

The Attorney General already has authority to pay awards for “information or assistance leading to civil or criminal forfeitures,” but it has never used that power in any systematic way. Now, DOJ plans to leverage that authority to offer financial incentives to those who (1) disclose truthful and new information regarding misconduct (2) in which they were not involved (3) where there is no existing financial disclosure incentive and (4) after all victims have been compensated. The Department has begun a 90-day policy sprint to develop and implement the program, with a formal start date later this year. Acting Assistant Attorney General Nicole Argentieri explained that, because the statutory authority is tied to the department’s forfeiture program, the Department’s Money Laundering and Asset Recovery Section will play a leading role in designing the program’s nuts and bolts, in close coordination with US Attorneys, the FBI and other DOJ offices.

Monaco spoke directly to potential whistleblowers, saying that while the Department will accept information about violations of any federal law, it is especially interested in information regarding

  • Criminal abuses of the US financial system;
  • Foreign corruption cases outside the jurisdiction of the SEC, including FCPA violations by non-issuers and violations of the recently enacted Foreign Extortion Prevention Act; and
  • Domestic corruption cases, especially involving illegal corporate payments to government officials.

Like the SEC and CFTC whistleblower programs, DOJ’s program will allow whistleblower awards only in cases involving penalties above a certain monetary threshold, but that threshold has yet to be determined.

Prior to Monaco’s announcement, the United States Attorney’s Office for the Southern District of New York launched its own pilot “whistleblower” program, which became effective February 13, 2024. Both the Department-wide pilot and the SDNY policy require that the government have been previously unaware of the misconduct, but they are different in a critical way: the Department-wide policy under development will explicitly apply only to reports by individuals who did not participate in the misconduct, while SDNY’s program offers incentives to “individual participants in certain non-violent offenses.” Thus, it appears that SDNY’s program is actually more akin to a VSD program, while DOJ’s Department-wide pilot program will target a new audience of potential whistleblowers.

Companies with an international footprint should also pay attention to non-US prosecutors. The new Director of the UK Serious Fraud Office recently announced that he would like to set up a similar program, no doubt noticing the effectiveness of current US programs.

Corporate Considerations

Though directed at whistleblowers, the pilot program is equally about incentivizing companies to voluntarily self-disclose misconduct in a timely manner. Absent aggravating factors, a qualifying VSD will result in a much more favorable resolution, including possibly avoiding a guilty plea and receiving a reduced financial penalty. But because the benefits under both programs only go to those who provide DOJ with new information, every day that a company sits on knowledge about misconduct is another day that a whistleblower might beat them to reporting that misconduct, and reaping the reward for doing so.

“When everyone needs to be first in the door, no one wants to be second,” Monaco said. “With these announcements, our message to whistleblowers is clear: the Department of Justice wants to hear from you. And to those considering a voluntary self-disclosure, our message is equally clear: knock on our door before we knock on yours.”

By providing a cash reward for whistleblowing to DOJ, this program may present challenges for companies’ efforts to operate and maintain and effective compliance program. Such rewards may encourage employees to report misconduct to DOJ instead of via internal channels, such as a compliance hotline, which can lead to compliance issues going undiagnosed or untreated — such as in circumstances where the DOJ is the only entity to receive the report but does not take any further action. Companies must therefore ensure that internal compliance and whistleblower systems are clear, easy to use, and effective — actually addressing the employee’s concerns and, to the extent possible, following up with the whistleblower to make sure they understand the company’s response.

If an employee does elect to provide information to DOJ, companies must ensure that they do not take any action that could be construed as interfering with the disclosure. Companies already face potential regulatory sanctions for restricting employees from reporting misconduct to the SEC. Though it is too early to know, it seems likely that DOJ will adopt a similar position, and a company’s interference with a whistleblower’s communications potentially could be deemed obstruction of justice.

© 2024 Bracewell LLP
For more on Whistleblowers, visit the NLR Criminal Law / Business Crimes section.

Compliance Update — Insights and Highlights January 2024

On December 7, 2023, the Consumer Financial Protection Bureau (CFPB) ordered Atlantic Union Bank, an approximately $20 billion bank headquartered in Richmond, Virginia, to pay $6.2 million for “illegal overdraft fee harvesting” and “illegally enrolling thousands of customers in checking account overdraft programs.” The bank was ordered to pay $5 million in refunds and $1.2 million to a victims’ relief fund.

Regulation E provides that a bank may not charge a fee for an ATM or one-time debit card transaction unless it completes four steps. First, the bank must provide the customer with a notice describing the bank’s overdraft services in writing. Then, the bank must provide the customer with a “reasonable opportunity” for that customer to “affirmatively consent” to the payment of the ATM or one-time debit card transaction fee. Third, the customer must provide that “affirmative consent” or opt-in to the bank. And finally, the bank must provide the customer with written confirmation of their consent, including a statement of the right to revoke the consent at any time.

The CFPB alleged that Atlantic Union Bank failed to obtain proper consent when an account was opened in person at a branch. Bank employees orally provided customers with options for opting in to the payment of one-time debit card and ATM transaction fees pursuant to Regulation E. Bank employees asked customers to opt in orallyand then input the option into the bank’s account-opening computer system before printing the written consent form. The consent form was printed at the end of the account-opening process and was pre-populated with the customer’s oral opt-in choice.

In instances in which a customer was given options for opting in to the payment of one-time debit card and ATM transaction fees over the phone, bank employees did not have a script and allegedly provided misinformation and misleading statements about the benefits, costs, and other aspects of opting in to the payment of one-time debit card and ATM transaction fees pursuant to Regulation E.

The CFPB has taken the logical approach that a bank must provide the customer with a written disclosure of its overdraft practices prior to having them opt in. Additionally, without providing the customer with a prior written disclosure, a bank should not pre-populate its Regulation E opt-in form. Now is the time to review the consent order and your bank’s Regulation E opt-in processes and procedures.

© 2024 Jones Walker LLP
by: Memrie M. Fortenberry of Jones Walker LLP
For more news on CFPB Compliance, visit the NLR Financial Institutions & Banking section.

Chamber of Commerce Challenges CFPB Anti-Bias Focus Concerning AI

The end of last month the U.S. Chamber of Commerce, the American Bankers Association and other industry groups (collectively, “Plaintiffs”) filed suit in Texas federal court challenging the Consumer Financial Protection Bureau’s (“CFPB”) update this year to the Unfair, Deceptive, or Abusive Acts or Practices section of its examination manual to include discrimination.  Chamber of Commerce of the United States of America, et al v. Consumer Financial Protection Bureau, et al., Case No. 6:22-cv-00381 (E.D. Tex.)

By way of background, the Consumer Financial Protection Act, which is Title X of the 2010 Dodd-Frank Act (the “Act”), prohibits providers of consumer financial products or services or a service provider from engaging in any unfair, deceptive or abusive act or practice (“UDAAP”).  The Act also provides the CFPB with rulemaking and enforcement authority to “prevent unfair, deceptive, or abusive acts or practices in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service.”  See, e.g., https://files.consumerfinance.gov/f/documents/cfpb_unfair-deceptive-abusive-acts-practices-udaaps_procedures.pdf.  In general, the Act provides that an act or practice is unfair when it causes or is likely to cause substantial injury to consumers, which is not reasonably avoidable by consumers, and the injury is not outweighed by countervailing benefits to consumers or to competition.

The CFPB earlier this spring published revised examination guidelines on unfair, deceptive, or abusive acts and practices, or UDAAPs.  Importantly, this set forth a new position from the CFPB, that discrimination in the provision of consumer financial products and services can itself be a UDAAP.  This was a development that was surprising to many providers of financial products and services.  The CFPB also released an updated exam manual that outlined its position regarding how discriminatory conduct may qualify as a UDAAP in consumer finance.  Additionally, the CFPB in May 2022 additionally published a Consumer Financial Protection Circular to remind the public of creditors’ adverse action notice requirements under the Equal Credit Opportunity Act (“ECOA”).  In the view of the CFPB, creditors cannot use technologies (include algorithmic decision making) if it means they are unable to provide required explanations under the ECOA.

In July 2022, the Chamber and others called on the CFPB to rescind the update to the manual.  This included, among other arguments raised in a white paper supporting their position, that in conflating the concepts of “unfairness” and “discrimination,” the CFPB ignores the Act’s text, structure, and legislative history which discusses “unfairness” and “discrimination” as two separate concepts and defines “unfairness” without mentioning discrimination

The Complaint filed this fall raises three claims under the Administrative Procedure Act (“APA”) in relation to the updated manual as well as others.  The Complaint contends that ultimately it is consumers that will suffer as a result of the CFPB’s new position, as “[t]hese amendments to the manual harm Plaintiffs’ members by imposing heavy compliance costs that are ultimately passed down to consumers in the form of higher prices and reduced access to products.”

The litigation process started by Plaintiffs in this case will be time consuming (a response to the Complaint is not expected from Defendants until December).  In the meantime, entities in the financial sector should be cognizant of the CFPB’s new approach and ensure that their compliance practices appropriately mitigate risk, including in relation to algorithmic decision making and AI.  As always, we will keep you up to date with the latest news on this litigation.

For more Consumer Finance Legal News, click here to visit the National Law Review

© Copyright 2022 Squire Patton Boggs (US) LLP

CFPB Plans to Increase Regulation over “Buy Now, Pay Later” Lenders

The Consumer Financial Protect Bureau (CFPB) issued a release on September 15, 2022, announcing its intent to issue additional interpretive guidance or rules to ensure “Buy Now, Pay Later” (BNPL) lenders comply with the same or similar regulations already established for credit cards following a study on the industry.

In its press release, the CFPB Director Rohit Chopra noted the rapidly growing use of “Buy Now, Pay Later is a rapidly growing type of loan that serves as a close substitute for credit cards.” While credit cards include interest charges, BNPL loans do not, making them more attractive to consumers. Instead, these loans allow consumers to purchase a product and repay the purchase price through several installment payments. As a result, BNPL loans have become prominent over the past several years, particularly during the COVID-19 pandemic. These previously niche loans, typically used for apparel and beauty purchases, are now used in almost all consumer-facing industries.

The CFPB noted several highlights of BNPL loans found through the study, which include:

  • Increased loan approval rates year over year;
  • Increased occurrences of late fee charges;
  • Increased product returns by consumers; and
  • Shrinking profit margins by BNPL lenders.

As a result of the study, the CFPB outlined the following concerns with the BNPL industry, mainly because the marketing of these loans leads consumers to believe the loans are a “zero-risk credit option.”

  • Limited Consumer Protections: While BNPL loans are used as an alternative to credit cards, they lack the standard credit disclosures, dispute resolution rights, etc., that similar consumer credit transactions often require.
  • Data Harvesting: Lower profit margins associated with BNPL loans have pushed the industry to monetize consumer data, potentially impacting consumer privacy.
  • Debt Accumulation: According to the CFPB, BNPL loans encourage consumers to purchase more products and borrow more, resulting in consumers becoming overleveraged. While the CFPB notes that the lenders in this space do not furnish credit data to credit reporting companies, the CFPB is concerned about this industry extending credit to consumers who may not be able to repay the debt.

Takeaways

The CFPB has yet again reinforced its commitment to regulate lenders that extend consumer credit. The CFPB’s decision to either enforce existing consumer laws (i.e., the Truth in Lending Act disclosures already required for credit cards and other consumer loans) or create new rules on the growing BNPL industry is not unexpected. However, the CFPB’s release shows a renewed focus on protecting consumers’ privacy rights and ensuring that consumers can afford to repay their credit lines before offers of credit are extended, and demonstrates once more that the Bureau will seek to regulate emerging forms of consumer credit.

Article By David T. Long Jr. and Andrew J. Narod of Bradley Arant Boult Cummings LLP

For more financial institutions and banking legal news, click here to visit the National Law Review.

© 2022 Bradley Arant Boult Cummings LLP

One Day Left to Share Your Comments about the Closing Process with the Consumer Financial Protection Bureau (CFPB)!

McBrayer NEW logo 1-10-13

 

On January 3, the Consumer Financial Protection Bureau (“CFPB”) issued a notice and request for information in the Federal Register regarding the real estate closing process. Specifically, the CFPB is interested in knowing the consumer “pain points” associated with mortgage closing and how those pain points might be addressed by market innovations and technology.

The bureau wants input from consumers, mortgage lenders, housing attorneys, settlement closing agents, real estate agents, fair lending and consumer advocates – basically anyone and everyone with closing experience. This is your chance to share your perspective, whether good or bad, and help the closing process to be a smoother and more consumer friendly one for your future purchase, sale or refinance. The information collected during the comment period will be used to help the CFPB come up with future improvement initiatives. This is part of the larger “Know Before You Owe” project, which is intended to help consumers understand and navigate the home-buying process.

The CFPB has made it easy to share information by listing seventeen specific questions they would like responses to, including:

1. What are common problems or issues consumers face at closing? What parts of the closing process do consumers find confusing or overwhelming?

2. Are there specific parts of the closing process that borrowers find particularly helpful?

3. What do consumers remember about closing as related to the overall mortgage/home-buying process? What do consumers remember about closing?

4. How long does the closing process usually take? Do borrowers feel that the time at the closing table was an appropriate amount of time? Is it too long? Too short? Just right?

5. How empowered do consumers seem to feel at closing? Did they come to closing with questions? Did they review the forms beforehand? Did they know that they can request their documents in advance? Did they negotiate?

6. What, if anything, have you found helps consumers understand the terms of the loan?

7. What are some common errors you have seen at closing? How are these errors detected, if at all? Tell us about errors that were detected after closing.

8. What changes, diverging from what was originally presented at closing, often surprise consumers at closing? How do consumers react to changes at closing?

9. How, if at all, do consumers typically seek advice during closing? In person? By phone? Online?

10. Where and to whom do consumers turn for advice during closing? Whom do they typically trust?

11. What documents do borrowers usually remember seeing? What documents they remember signing?

12. What documents do consumers find particularly confusing?

13. What resources do borrowers use to define unfamiliar terms of the loan?

14. What, if anything, would you change about the closing process to make it a better experience for consumers?

15. What questions should consumers ask at closing? What are the most important pieces of information/documents for them to review?

16. What is the single most important question a consumer should ask at closing?

17. What is the single most important thing a consumer should do before coming to the closing table?

You can submit answers to these questions, along with your own additional comments, online by visiting this webpage:  http://www.regulations.gov. But time is of the essence! The comment period closes tomorrow, February 7th. Hurry and let your opinions be known!

 

Article by:

Brittany C. MacGregor

Of:

McBrayer, McGinnis, Leslie and Kirkland, PLLC

The CFPB’s Consumer Complaint System: Key Points of Concern for Financial Services Companies

The National Law Review recently published an article by Stephanie L. Sanders and Richard Q. Lafferty of Poyner Spruill LLP regarding CFPB’s Consumer Complaint System:

The Dodd-Frank Act requires the Consumer Financial Protection Bureau (CFPB) to collect, investigate and respond to consumer complaints as part of its work in protecting consumers of financial products and services.  Over the past year, CFPB’s Consumer Response team has gradually begun taking complaints on credit cards, mortgages, private student loans, other consumer loans, and other bank products and services.  Because the complaint process could result in investigation or enforcement actions, financial services companies should be sure they understand the system and are prepared to respond promptly to complaints.  Below is a list of recommendations for financial service companies to deal with the complaint system.

Know How to Use the Complaint System

CFPB’s website now prominently includes a “Submit a Complaint” portal.  Consumers wishing to make a complaint in one of the above categories can simply click on the “Submit a Complaint” icon and follow the directions provided.  In addition, CFPB accepts complaints by telephone, mail, email, and fax.  The portal is the primary means of communication between CFPB and financial service companies, so companies should be familiar with the portal and establish procedures for fielding any complaints in a timely manner.  CFPB has provided aCompany Portal Manual explaining how the portal and the complaint process works.

Once a complaint is submitted, CFPB screens it to determine whether it falls within the agency’s primary enforcement authority, whether it is complete, and whether it is a duplicate submission.  If the complaint passes these tests, it is then forwarded to the company for response.  The company is notified of the complaint and can log into the portal to view all active cases.  Upon receipt of the complaint, the company must communicate with the consumer to determine the appropriate response.  The company’s response is submitted via the portal, and the consumer is invited to review the response.  The consumer can log onto the secure portal or call a toll-free number to receive status updates and review responses.  The consumer is then given an opportunity to dispute the response.

Be Prepared to Respond Quickly

CFPB requests that companies respond to complaints within 15 calendar days and resolve complaints within 60 days.  Failure to provide a timely response may trigger an investigation of the complaint by CFPB.  Since a complete response requires that the company correspond with the complaining consumer, companies should pursue a response quickly to ensure they meet CFPB deadlines.

Understand that Complaints May Result in Investigations or Enforcement Actions by CFPB

The Consumer Response Team prioritizes review and investigation of complaints where a consumer disputes the response or the company fails to provide a timely response.  In addition, the team analyzes groups of complaints to identify issue-specific trends.  In some cases, complaints are referred to CFPB’s Division of Supervision, Enforcement, and Fair Lending and Equal Opportunity for further action.  Financial services companies should thus be vigilant on the same matters, paying greater attention to disputed responses, ensuring that responses are timely, and monitoring for trends in the complaints received so that underlying problems are addressed before they are raised by the agency.

Understand that cCmplaints May Also Result in Investigations By Other Agencies

If a complaint is outside CFPB’s jurisdiction, it may be forwarded to the appropriate regulator (for example, while CFPB handles complaints on private student loans, it forwards complaints received about federal student loans to the Department of Education).

In addition, the Dodd-Frank Act requires CFPB to share consumer complaint information with the Federal Trade Commission (FTC) and other state and federal agencies.  For example, if CFPB receives a complaint about identity theft, it may share that with the FTC, which is the agency that has historically investigated such complaints.  As a result, financial services companies may need to anticipate receiving questions from the FTC about the effectiveness of their Red Flags program, which companies should have fully implemented in response to applicable FTC and other federal agency rules.  In addition, CFPB currently shares its complaints with the FTC’s Consumer Sentinel system, an online database of consumer complaints maintained by the FTC that is accessible by law enforcement.

Be Prepared for an Increase in the Volume of Complaints

Consumer use of the complaint system is off to a strong start.  CFPB recently issued a Consumer Response Annual Report summarizing the use of the complaint system from its launch in July 2011 through December 31, 2011.  The report indicates that CFPB received 13,210 consumer complaints during that time, including 9,307 credit card complaints and 2,326 mortgage complaints.  The most common credit card complaints involved billing disputes, identity theft, and APR or interest rates.  The most common mortgage complaints involved situations in which the consumer was unable to pay (loan modification, collection, foreclosure).  The complaint systems for bank products and services, private student loans, and other consumer loans only began in 2012, so the report did not cover those categories.  By the end of 2012, the CFPB expects that the complaint system will cover all consumer financial products and services.

Financial services companies should monitor these trends to identify issues that may affect their business.  They also should anticipate a significant increase in complaint volume as CFPB adds additional products to the complaint system and more consumers become aware of it.  By comparison, the FTC Consumer Sentinel fielded 1.8 million complaints in 2011.

© 2012 Poyner Spruill LLP