While many today returned to work after the Holiday season, things remained quieter than usual here in the nation’s capital – with many federal workers furloughed until further notice as the federal government continues to be in a partial shutdown.  President Trump is reportedly meeting with congressional leaders today ahead of Thursday’s start to a new congressional session but, at least for now, there’s no immediate end to the shutdown in sight.

Here’s how the shutdown is affecting federal agencies responsible for overseeing and enforcing advertising and privacy laws:

  • The FTC closed as of midnight December 28, 2018.  All events are postponed and website information and social media will not be updated until further notice.  While some FTC online services are available, others are not.  More information here.
  • The CPSC is also closed, although a December 18, 2018 CPSC memorandum summarizing shutdown procedures indicates that certain employees “necessary to protect against imminent threats to human safety” will be excepted employees and continue work during the shutdown.  The CPSC consumer hotline also continues to operate. Companies should remember that obligations to report potential safety hazards are not furloughed, so the mantra of “when in doubt, report” still applies, even if public announcement of a recall may be delayed.
  • Roughly 40% of FDA is furloughed according to numbers released by its parent agency, the Department of Health and Human Services.  In a post on its website, the agency explained that it will be continuing vital activities, to the extent permitted by law, including monitoring for and responding to public health issues related to the food and medical product supply.  The agency is also continuing work on activities funded by carryover user fee balances, although it is unable to accept any regulatory submissions for FY 2019 that require a fee payment.
  • Because the CFPB is funded through the Federal Reserve and not Congress, it remains in operation.

The Senate today confirmed Kathleen Kraninger as CFPB Director by a party-line, 50-49 vote, with Sen. Tillis abstaining.  Kraninger will replace current Acting Director Mick Mulvaney, who also currently oversees Kraninger at the Office of Management Budget (OMB) where she is associate director of general government and Mulvaney is Director. Kraninger is expected to continue deregulatory initiatives launched during Mulvaney’s tenure as Acting Director at the CFPB. 

Kraninger is set to serve a five-year term pursuant to the Dodd-Frank Act.  However, current litigation challenging the constitutionality of the CFPB’s structure raises questions as to whether Kraninger will ultimately serve the full five-year term, particularly if a Democratic president is elected in 2020.  As we previously discussed here, the D.C. Circuit initially ruled that the CFPB was unconstitutionally structured because its single director can only be removed for “inefficiency, neglect of duty, or malfeasance in office,” but subsequently reversed the holding in an en banc decision.  The constitutionality of the CFPB’s structure is also being challenged in the Second and Fifth Circuits – increasing the likelihood that the Supreme Court will take up the issue at some point soon.

 

Yesterday the CFPB released a final rule that will impose a variety of consumer protection requirements on prepaid products, such as requiring specified disclosures before product purchase and compelling financial institutions to limit consumer losses for lost or stolen cards.  The CFPB had previously released a proposed rule, which we discussed here, and the final rule leaves unchanged many of those proposals.  In announcing the rule, CFPB Director Richard Cordray acknowledged that many prepaid companies already offer some of these protections but argued that uniform requirements are necessary to ensure equal treatment and minimize consumer harm across the board.

The rule covers traditional prepaid products like general purpose reloadable cards, as well as mobile wallets, person-to-person payment products, electronic prepaid accounts, payroll cards, and certain federal, state and local government benefit cards.  The rule itself is 1,689 pages and responds to the 65,000 comments received on the proposed rule.  Highlights include the “Know Before You Owe” disclosures, general consumer protections that mirror those imposed under the Electronic Fund Transfer Act for checking account consumers, and credit-like protections when prepaid issuers extend credit to cover transactions that prepaid products would not fully cover.

“Know Before You Owe” Disclosures

The final rule requires two forms of disclosures: (1) a short form disclosure provided before a consumer acquires a prepaid account that includes information about periodic fees, per purchase fees, ATM withdrawal fees, cash reload fees, and balance inquiry fees, amongst others; and (2) a long form disclosure that includes a comprehensive list of fees and other information associated with the account.   The CFPB provided examples of each disclosure type, which are available here.

Additionally, the rule requires prepaid account issuers to post on their websites prepaid account agreements that are offered to the general public to facilitate comparison shopping.  Issuers must also submit all of their prepaid account agreements, including those not publicly posted, to the Bureau.

Prepaid Protections

The final rule requires issuers to provide a number of consumer protections similar to those imposed under the Electronic Fund Transfer Act and Regulation E, such as:

  • Access to account information.  Rather than require periodic statements as required under Regulation E for checking accounts, the final rule permits institutions to make available to consumers certain methods of accessing information about their prepaid accounts, such as free by telephone, online, or in writing upon request.  Financial institutions are also required to provide summary totals of fees assessed to the consumer on a monthly and annual basis.
  • Limited liability and error resolution.  The final rule extends Regulation E’s protections related to limited liability and error resolution to prepaid accounts.  As to limited liability, the rule limits a consumer’s responsibility for unauthorized changes to $50 so long as the consumer promptly notifies the financial institution of potentially fraudulent conduct.  As to error resolution, the rule requires financial institutions to promptly investigate and resolve incidents, including by restoring missing funds and provisionally crediting the disputed amount while it finishes its investigation.  The requirements generally apply regardless of whether the financial institution has successfully identified and verified the consumer holding the account, except that financial institutions are not required to provisionally credit disputed amounts until the consumer’s identity has been verified.

Credit Protections

The final rule also revises Regulations E and Z to regulate how prepaid accounts offer overdraft credit features.

  • Separate accounts.  For so called “hybrid prepaid-credit card” accounts where the consumer can access both a prepaid account and an overdraft credit feature, the issuer must treat the credit features as distinct from the asset account.  The issuer cannot allow a negative balance directly on the prepaid account except for specified limited circumstances (e.g., where the credit is incidental and de minimis and the issuer does not charge credit-related fees).
  • Ability to pay.  The rule requires prepaid companies to consider the consumer’s ability to pay the balance before opening a separate credit account linked to the consumer’s prepaid account.  Issuers must also wait at least 30 days after a prepaid account is registered before soliciting a consumer to link a covered credit feature to the prepaid account.
  • Limitations on fees.  The rule also extends certain protections under Regulation Z related to fee restrictions, such as limits on fees charged in the first year after account opening and limits on penalty fees.  For example, total fees for credit features cannot exceed 25 percent of the credit limit during the first year a credit account is open.  Moreover, issuers are only permitted to raise interest rates on existing balances if a cardholder misses back-to-back payments and, for new purchases, must provide at least 45 days advance notice of the change in interest rate and allow the consumer to close their account during that time.

***
The new rule generally becomes effective October 1, 2017 and financial institutions are not required to pull and replace prepaid account packaging materials prior to that date to comply with disclosure requirements.  Moreover, issuers are not required to submit prepaid account agreements to the Bureau until October 1, 2018.

We expect that the Bureau will issue additional materials to facilitate compliance with the prepaid rule in the coming months and will continue to monitor and post about developments here.

On March 9, 2015, New York Attorney General Eric Schneiderman announced its settlement with the nation’s three largest national credit reporting agencies (“CRAs”): Experian, Equifax, and TransUnion.  This announcement underscores the recent heightened state and federal regulatory scrutiny in this area, and likely is the first of a wave of broad consumer-facing reforms to the credit reporting industry.

The settlement terms will overhaul existing practices in the credit reporting industry that long has been criticized for its lack of transparency.  Indeed, Consumer Financial Protection Bureau (“CFPB”) Director Richard Cordray described the credit reporting industry as a consumer “dead end” last month in a speech to the National Association of Attorneys General.  The industry has been “something of a mystery” for decades due in large part to the lack of transparency in how credit report information is used to access consumers’ credit-worthiness.  A recent CFPB study found that consumers are confused and frustrated about how to check credit reports and scores, what information these include, and how to improve them.  As a result, consumers often do not feel empowered to take action to improve their credit histories, and they rarely apply credit information in their daily lives, such as using their credit reports and scores to negotiate better credit terms.

The settlement seeks to cure the myriad deficiencies that exist in this market.  It requires the CRAs to institute the following national reforms over a three-year period:

  • Improved Dispute Resolution Process

The settlement requires the CRAs to staff specially trained employees to manually review all supporting documentation submitted by consumers for disputes involving fraud, identity theft, or mixed files (for example, when consumer information becomes inadvertently “mixed” into the file of another consumer).  Further, for all categories of disputes, the CRA is prohibited from automatically rejecting the consumer’s dispute when the creditor verifies the challenged information.  These provisions ensure that each dispute is reviewed by personnel and not rejected immediately via an automated process.

  • Improved Processes Related to Medical Debt

The AG reports that over half of all collection items on credit reports are medical debts.  These often result from insurance-coverage delays or disputes.  In light of this, the settlement requires the CRAs to institute a 180-day waiting period before a medical debt is reported on a consumer’s credit report.  This waiting period will provide extra time to permit resolution of delinquencies that result from insurance delays or disputes.  The settlement further requires that the CRAs remove all medical debts from a consumer’s credit report after the debt is paid by the insurer.

  • Provisions Related to the Free Annual Credit Report

The settlement requires the CRAs to include a prominently-labeled hyperlink to the AnnualCreditReport.com website on the CRAs’ homepage.  In addition, the settlement requires the CRAs to provide a second free credit report to consumers who experience a change in their credit report as a result of initiating a dispute.  This requirement will permit consumers to verify that the CRA made the correction to their credit report without having to pay for a second credit report.

  • Furnisher Monitoring

Finally, the settlement requires more accountability by companies furnishing consumer data to the CRAs.  Specifically, the settlement requires the CRAs to create a National Credit Reporting Working Group that will develop a set of best practices and policies to enhance the CRAs’ furnisher monitoring and data accuracy.  Further, the settlement requires that each CRA implement policies to monitor furnishers’ performance and take corrective action against furnishers that fail to comply with their obligations.  It is unclear whether there would be consequences for the furnishers’ non-compliance with their obligations or for the CRAs’ failure to supervise these entities.

The NY AG settlement’s robust measures may be the start of a wave of broad consumer-facing reforms.  The CFPB recently announced it would be exercising, for the first time ever, supervisory authority over credit reporting companies.  The CFPB further intends to establish clear and regular oversight by supervising the larger credit reporting companies as well as their largest furnishers.  Now that the three largest credit reporting agencies have agreed to substantial reform, it is only a matter of time before their furnishers of consumer data follow suit.  It is of vital importance for these companies to closely monitor the impending overhaul of current practices and seek prompt legal advice should CFPB initiate enforcement proceedings.

Please contact Dana Rosenfeld for information regarding this post.

As initially reported, the CFPB and FTC held a public roundtable last week that brought together industry stakeholders, government officials and consumer advocates to discuss the use of consumer data throughout the debt collection process. Participants acknowledged that the transfer and sale of debt presents unique obstacles for the use of consumer data across the life of a debt, but that certain steps could be taken to move towards a more efficient system for all parties.

Providing welcoming remarks along with FTC Commissioner Julie Brill, Acting Deputy Director of the CFPB Steve Antonakes noted that the discussion could be broken down into three “areas of focus.” First, one must consider the initial accuracy of information that debt collectors use to pursue consumers. Second, one should consider the accuracy of the information over time, meaning whether the information “deteriorates as it ages or gets passed down the line to secondary or tertiary buyers.” Third, even accepting the accuracy of the information relied upon, safeguards should be taken to ensure that the consumer can dispute debts believed to be incorrect.

The daylong roundtable generally echoed these themes as various presenters and panels provided their thoughts on the present system and prospective channels for improvement. Most notably, participants from industry and consumer protection groups agreed that moving towards a more uniform system for data standards would facilitate a more efficient market, thus benefitting industry and consumers. While some details concerning potential data standards remained unclear, widespread agreement emerged that certain basic information should be included as part of any debt file, including the identity of the original creditor and the amount owed.

Continue Reading Industry Stakeholders, Government Officials and Consumer Advocates Discuss Data Use in Debt Collection at CFPB-FTC Roundtable

On December 7, 2011, the Consumer Financial Protection Bureau (CFPB) issued a proposed policy statement addressing the public disclosure of certain credit card complaint data.

Since its launch in July, 2011, the CFPB has assumed the role of moderator between credit card consumers and their issuing banks. Consumers file complaints on the CFPB website, inputting their names and addresses, the issuing bank, the type of complaint, and the claimed loss. The CFPB then forwards these complaints to the respective credit card companies and "tracks" the investigations to ensure their proper resolution. Of the more than 5,000 credit card complaints filed with the CFPB since July, approximately 3,100 have been resolved in this fashion.

Continue Reading The CFPB Proposes Public Disclosure of Certain Credit Card Complaint Data

The CFPB released a “progress report” on Monday tracking its achievements over the past year and goals for the immediate future, all part of the lead-up to the transfer of its authority from other agencies on July 21. The full report is available here. Describing itself as a “21st century agency,” the report outlines current projects, such as simplifying mortgage disclosure forms, and pending activities, such as the initial “larger participant” rule. The report also highlights the CFPB’s efforts to engage the public and the financial sector, detailing Elizabeth Warren’s speaking schedule over the past year, and summarized the current organizational structure and key hires. Finally, the report describes several Memoranda of Understanding signed by CFPB with other federal agencies and non-government entities to permit sharing of information and cooperation. Followers of the CFPB’s development during this start-up time will find the report a helpful summary of its activities.

In a change of course, President Obama is considering Raj Date, rather than the current chief architect Elizabeth Warren, to head the newly-formed and soon to be empowered Consumer Financial Protection Bureau (CFPB). Mr. Date has over 10 years of experience as a banker and as a consultant to financial institutions. Since February he has been the CFPB’s Associate Director for Research, Markets & Regulations, heading up the agency’s efforts to develop a regulatory plan for products including credit cards and home mortgages. Mr. Date’s extensive industry experience could make him a more plausible candidate for the post than Ms. Warren, whose candidacy has been adamantly opposed by Senate Republicans.

However, many opponents are likely to remain. As discussed in a prior post, Republicans have led an effort to change the structure of the CFPB. In addition, 44 Republican Senators have vowed to oppose the nomination of any director so long as the structure of the CFPB remains intact. Even for a nominee who has walked in the shoes of banks for years, it would likely be a contentious fight along partisan lines.

A Republican-led U.S. House of Representatives Financial Services subcommittee approved legislation yesterday in an attempt to limit the powers of the new Consumer Financial Protection Bureau (“CFPB”), which is scheduled to open for business on July 21. The legislation, which likely would never become law since it would need to be approved by the Democratic-run Senate and President Obama, would have the CFPB director position replaced by a five-member bipartisan commission and make it easier for the new Financial Stability Oversight Council to overturn CFPB-led regulations. The subcommittee also approved a proposal to prevent the CFPB from exercising certain authorities until a director is in place – a confirmation process that is shaping up to be lengthy and contentious. The Obama administration currently is considering director candidates with Elizabeth Warren, the architect of the CFPB, at the top of the list. Republicans have come out strongly in opposition to Ms. Warren’s nomination.

Some consumer advocates see the goal of these bills as an attempt to send a message to the CFPB to be less aggressive as it moves forward. Others view the legislation as an attempt to ensure that proper checks-and-balances are in place at the new Bureau. The full House committee plans to meet on May 12 to consider these bills.

We should expect lots of vigorous debate along political lines in the months leading up to the July grand opening of the CFPB.

Earlier this week, Bloomberg reported that President Obama has created a short list of candidates to lead the Consumer Financial Protection Bureau (CFPB). The list includes Elizabeth Warren, Assistant to the President and Special Advisor to the Secretary of the Treasury on the CFPB. According to Reuters, the list also includes Federal Reserve Governor Sarah Raskin and close associates of Ms. Warren.

The CFPB is scheduled to become fully operational on July 21. The White House could make a nomination in the next few weeks, which would likely draw a fierce confirmation battle led by Senate Republicans. Alternatively, the administration may wait until the Senate recess in August to make a recess appointment. A recess appointee could serve through the session of Congress which ends in 2012.

At least two prospective candidates have publicly declined to be considered for the position. Former Michigan Governor Jennifer Granholm and former Ohio Governor Ted Strickland both announced that they do not want the position and that they believe Ms. Warren is the best candidate for the job.