The Consumer Financial Protection Bureau (CFPB or Bureau), through its Office of Enforcement, may conduct inquiries of institutions or persons to investigate compliance with the federal consumer financial laws for which it is responsible. The CFPB currently has many such investigations underway. The CFPB’s basic investigative tool is a Civil Investigative Demand (CID), or a demand for documents and written answers to questions. A CID also may seek tangible things, reports, or oral testimony in an investigational hearing. The CID will specify the enforcement staff involved, instructions for dealing with the dreaded electronically stored information (ESI), and the deadline for response (which is typically fairly short).
In a recent decision, Tyler v. Michaels Stores, Inc., the Massachusetts Supreme Judicial Court held that zip codes are “personal identification information” and that a merchant asking for that information during a credit card transaction violates a Massachusetts statute [G.L.c. 93, Section 105(a)] designed to protect consumer privacy, becoming the second state high court, after California, to declare that merchants can no longer request zip codes in credit card transactions with their customers. The Court also made clear that its decision applies equally to electronic and paper transaction forms.
The Court reasoned that a zip code, “when combined with the consumer’s name, provides the merchant with enough information to identify through publicly available databases the consumer’s address or telephone number, the very information Section 105(a) expressly identifies as personal identification information….”
Today, Foley & Lardner LLP issued a Legal News Alert for our clients regarding the recent decision of the Massachusetts Supreme Judicial Court that ZIP Codes are “personal identification information” and therefore it is a violation of Massachusetts law for a merchant to ask for that information during a credit card transaction. See Tyler v. Michael’s Stores, Inc. My original thought was that almost every gas station in Massachusetts will likely have to change its pay-at-the-pump stations that require you to provide your ZIP Code prior to pumping gas. This security feature was originally instituted as fraud protection at un-manned pumps. Less fraud detection typically means that the cost of the good will go up to compensate for the fraud losses. Nevertheless, the practice may be no more, so I feel for my Massachusetts brethren that may eventually have to pay more for gas.
The Consumer Financial Protection Bureau’s (“CFPB”) Escrow Requirements under the Truth in Lending Act rule (“Escrows Rule”) will go into effect on June 1, 2013. The Rule amends Regulation Z (Truth in Lending) to implement certain amendments to the Truth in Lending Act made by the Dodd-Frank Act. The Escrows Rule requires certain creditors to create escrow accounts for a minimum of five years for higher-priced mortgage loans. The Rule, however, exempts high-priced mortgage loans made by certain small creditors that operate predominantly in rural or underserved counties from this requirement. Rural counties are defined by using the USDA Economic Research Service’s urban influence codes, and underserved counties are defined by reference to data collected under the Home Mortgage Disclosure Act.
Consumer complaints are playing a big role in the federal government’s identification of and investigations into violations of consumer protection laws. The Federal Trade Commission (“FTC”) recently released its 2012 annual report of consumer complaints, which revealed that consumer fraud complaints make up over half of all the 2012 complaints received by the FTC.
The FTC enters complaints into the Consumer Sentinel Network (“CSN”), which is a secure online database of consumer complaints that is available only to law enforcement. The CSN contains consumer complaints received by the FTC, the Consumer Financial Protection Bureau (“Bureau”), the Federal Bureau of Investigation’s Internet Crime Complaint Center, the Council of Better Business Bureaus, state law enforcement organizations, and a number of other state and federal entities.
Senator Elizabeth Warren wants regulators to take more banks accused of financial misconduct to trial instead of settling with them before trial. But she is not the only one in Washington looking for ways to send a message to financial institutions that they had better not violate the law. The Justice Department (DOJ) is already implementing a new approach to dealing with banks it is prosecuting. Prosecutors have been pushing for guilty pleas, in addition to fines and reforms, in settling financial fraud cases. See http://dealbook.nytimes.com/2013/02/18/prosecutors-build-a-bett…
Yesterday, CFPB Director Cordray delivered a speech to the Consumer Advisory Board in Washington, D.C. The director’s prepared remarks are revealing and likely foreshadow more of what is to come for our industry.
First, Director Cordray emphasized the importance of the Bureau’s UDAAP duties:
The new financial reform law makes it illegal to engage in unfair, deceptive, or abusive acts or practices in connection with consumer financial products or services, and directs us to enforce this prohibition. More generally, we are charged with the duty of ensuring fair, transparent, and competitive markets. We recognize that a key to protecting consumers is strong and vigilant enforcement.
During the Great Recession courts expressed frustration with sloppy paperwork and borrowers’ inability to get anyone to help them work out problem loans. Many courts refused to allow mortgage foreclosures to proceed because of the perceived mess. The Consumer Financial Protection Bureau just made it clear it was not going to tolerate these problems when it comes to the transfer of mortgage servicing rights.
On Monday, the CFPB issued guidance directing servicers to “make sure consumers are not collateral damage in the mortgage servicing transfer process.” Servicer must be careful when transferring loans servicing rights. The CFPB wants servicers to know that, where appropriate, they will be required to prepare and submit “informational plans describing how they will be managing the related risk to consumers” when making transfers.
Many cities and municipalities have non-emergency “hotlines” designed to provide access to non-urgent municipal services (e.g., tree trimming, dead animal removal, sidewalk repair). As of yesterday, this list of services has expanded to consumer questions and complaints about consumer financial products and services, at least in Newark, New Jersey. The Bureau announced that it is teaming up with the municipality to connect consumers with the Bureau’s Office of Consumer Response. Newark consumers can now simply dial the local 4311 hotline and, voila!, they will be connected with the Bureau.
Does this development raise UDAAP concerns? You bet! Consumer complaints are a key source of information and a potential jumping off point for Bureau investigations. Indeed, in connection with the Bureau’s announcement of this new program, Director Cordray invoked UDAAP sentiments when he said that “[t]he CFPB’s job is to help consumers navigate the often confusing financial marketplace and to hold financial institutions accountable.”
On January 31, 2013, the Consumer Financial Protection Bureau (“CFPB”) published a notice in the Federal Register seeking information regarding the impact of financial products marketed to students enrolled in institutions of higher education (the “Notice”). Although the Credit Card Accountability, Responsibility and Disclosure Act of 2009 includes requirements that financial companies publicly disclose credit card agreements with colleges, universities and alumni associations, less is known about other financial products marketed to students, including debit cards to access student loan funds and bank accounts. At this time, we can only speculate about the outcome of the CFPB’s inquiry, but it is possible that it may lead to requirements, similar to those relating to credit cards, that financial companies publicly disclose these types of agreements with institutions of higher education.