During the past year, the Consumer Financial Protection Bureau (CFPB) has started to take a closer look at some of the ways that companies in the ARM industry do business. When the CFPB starts to take a closer look at an industry, it’s a good bet that penalties will follow soon. The CFPB most often issues penalties through the use of consent orders settled in federal court. The penalized parties agree to the consent orders through a “stipulation” that allows them to resolve the dispute and agree to the penalty without admitting guilt.
The CFPB intends for its consent orders to set industry-wide precedents. In March 2016, CFPB Director Richard Cordray referred to consent orders as a guide “to all participants in the marketplace to avoid similar violations and make an immediate effort to correct any such improper practices,” telling the Consumer Bankers Association that any company not following the precedents set by the CFPB’s consent orders is committing “compliance malpractice.”
The CFPB has issued multiple consent orders that regulate certain aspects of the ARM industry in the past year. The Bureau issued orders against EZCORP, Inc. for their practices in connection with attempting to collect debts, Citibank for using altered declarations in collections litigation, Encore Capital Group and Portfolio Recovery Associates for purchasing debts they should have known were inaccurate and attempt to collect those debts through unlawful means and the Student Aid Institute for false advertising and various other misrepresentations made to consumers. Other violations mentioned by the CFPB in multiple consent orders include a failure to properly investigate or report disputes to consumer reporting agencies, furnishing inaccurate information to CRAs, misrepresenting a debt in some way to a consumer, not having permissible purpose to access a consumer’s credit report, among other things.
Given the CFPB’s recent activity, what sort of practices should your company avoid? What is attracting the CFPB’s ire? The Bureau has the authority to issue penalties for violations of a range of laws, but they focus most often on violations of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
The main thing ARM companies are penalized for are so-called “unfair, deceptive, or abusive acts and practices” (UDAAPs), which are prohibited by Sections 1031 and 1036 of Dodd-Frank. An act or practice is considered “unfair” if it can cause substantial injury to consumers, is not reasonably avoidable, and is not outweighed by countervailing benefits to consumers or competition; “deceptive” if it misleads a consumer or could be perceived as misleading in any way; and “abusive” if it materially interferes with a consumer’s understanding of a product or takes unreasonable advantage of a consumer. Most often, ARM companies were penalized specifically for engaging in deceptive practices.
Other laws which are often cited in enforcement actions by the CFPB include the Federal Trade Commission Act, the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, the Equal Credit Opportunity Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act of 1974, the Truth in Lending Act, and the Truth in Savings Act.