In CFPB news, Mick Mulvaney’s efforts to reshape the Consumer Financial Protection Bureau (CFPB or Bureau) continue apace with more requests for information and improvements to the mortgage servicing rule. Finally, a recent California decision affirms the Bureau’s right to properly tailored civil monetary penalties and injunctive relief, albeit in the more limited forms imposed earlier by the court.
What happened
More RFIs: As part of Acting Director Mick Mulvaney’s efforts to remake the CFPB, the Bureau has released an RFI each week for the past two months. Beginning with the issue of requesting documents from companies under investigation and continuing with topics that include the benefits and impacts of its use of administrative adjudications and enforcement processes, the most recent RFIs cover rulemaking processes and adopted rules.
In the RFI on rulemaking processes, the Bureau requested comment and information from interested parties “to help assess the overall efficiency and effectiveness” of its rulemaking processes. The CFPB clarified it was not seeking input on specific proposed or final rules but instead was querying stakeholders about the mechanisms the Bureau uses to gather information in advance of initiating a rulemaking, the content and structure of notices of proposed rulemaking, the NPRM comment process, and the content and structure of notices of final rules, among other questions.
Comments must be received by June 7.
For the next RFI, the CFPB turned to rules adopted by the Bureau. Should the Bureau amend any rules it has issued since its creation or issue rules under new rulemaking authority provided for by the Dodd-Frank Wall Street Reform and Consumer Protection Act?
The RFI defined “Adopted Regulations” to include “all final rulemakings that the Bureau issued after providing notice and seeking public comment, including any accompanying Official Interpretations (commentary) issued by the Bureau.” Inherited regulations, on the other hand, are those issued by other agencies pursuant to rulemaking authority that was transferred to the CFPB by Dodd-Frank.
More specifically, the Bureau wondered if it should make changes to Adopted Regulations to more effectively meet the statutory purposes and goals set forth in the federal consumer financial laws or that would advance its statutory purposes, as well as whether it could try pilots, field tests, demonstrations or other activities to better quantify the benefits and costs of potential revisions to regulations.
Comments on adopted rules must be submitted by June 19. Still to come: RFIs on inherited rules, guidance and implementation support, consumer education, and consumer inquiries.
Mortgage Servicing Rule: The Bureau also made progress on its clarification of the Mortgage Servicing Final Rule, amending Regulation X. Issued in 2016, the final rule required services to send written notices (known as “early intervention notices”) to certain consumers at risk of foreclosure who requested a cease in communications under the Fair Debt Collection Practices Act.
While consumers have the right under the FDCPA to ask companies to stop contacting them (except for limited purposes), the CFPB’s amendments also required mortgage servicers to send notices every 45 days to borrowers who become delinquent in order to inform them of the available foreclosure prevention options, although the notices may not be sent more than once in a 180-day period.
Members of industry expressed concern that the 180-day prohibition, when read in conjunction with other timing requirements regarding notices, technically required mortgage servicers to provide the notice exactly on the 180th day after providing a prior notice.
As the Bureau did not intend this result, it issued an interim final rule last fall to clarify the timing of communications, particularly when the 180th day falls on a Saturday, Sunday or public holiday.
Now, the CFPB has finalized the rule, which provides mortgage servicers with a ten-day window to provide the modified notice at the end of the 180-day period and “gives mortgage servicers more latitude in providing period statements to consumers entering or exiting bankruptcy,” the Bureau said.
The final rule takes effect April 19.
Court victory: Finally, a California court affirmed a nearly $8 million civil monetary penalty and the imposition of injunctive relief after the California-based company it sued lost several posttrial motions. Pursuant to the company’s Interest Minimizer program, it debited an amount equal to one-half of a consumer’s monthly home mortgage payment every two weeks. The company promoted the financial services product as an opportunity to save thousands of dollars the consumer otherwise would have paid in loan interest, as the format resulted in 26 debits per year or one extra mortgage payment.
The Bureau argued the company engaged in abusive and deceptive practices by minimizing the existence or amounts of the program’s setup fee, misleading customers about the amount of actual savings they would see, and creating a false impression the company was affiliated with lenders.
Following a seven-day bench trial, U.S. District Court Judge Richard Seeborg issued a mixed decision last September. While he found the CFPB adequately showed that some of the defendants’ challenged marketing statements were false or misleading, he also found the Bureau did not meet its burden for all of the counts. The court imposed a civil penalty of $7.93 million, as well as injunctive relief, but declined to order the CFPB’s requested restitution of almost $74 million.
The defendant filed post-trial motions challenging the imposition of the monetary penalty and injunctive relief, as well as seeking reversal of the denial of relief on its counterclaims. Judge Seeborg denied both motions, ruling the company failed to present new evidence that would justify any relief, as its contentions were all premised on previously advanced arguments.
As for the injunctive relief, the court was not persuaded that it improperly impeded the defendant’s ability to engage in comparative advertising. “Particularly in light of the evidence of defendant’s prior practices and the conclusions of the Opinion and Order regarding those practices, the limitations of the injunction reflect appropriate safeguards ‘to avoid deception of the consumer,’” the court wrote.
Nor was the court swayed by the company’s contention it should be allowed to pursue its counterclaims that it was the target of Operation Choke Point or similar backroom pressure tactics by the CFPB, rejecting the defendant’s argument that the federal government publicly acknowledged the errors of the program after the conclusion of the trial.
“While defendants may believe that different conclusions should have been drawn … it simply is not the case that defendants’ evidence and arguments [were] previously overlooked,” Judge Seeborg said.
Why it matters
Together, the new RFIs, the final rule for mortgage servicers communicating with borrowers in bankruptcy and the CFPB victory in California federal court remind financial institutions that the CFPB is rapidly changing and yet remains a powerful body with immense powers under Dodd-Frank.
To read the RFI on rulemaking processes, click here.
To read the RFI on Bureau-adopted rules, click here.
To read the final rule for mortgage servicers, click here.
To read the order in the CFPB case, click here.