CFPB Focuses on Consumer Credit & Lending Issues

CFPB Revises Exam Procedures to Address “Short-Term, Small-Dollar, Lending” Specifically Addressing Action Items for Consumer Protection: The CFPB recently issued revised Examination Procedures focused on Short-Term, Small-Dollar Lending “commonly known as payday lending”. The procedures discuss the kinds of questions examiners should ask, including: (i) with respect to Regulation E compliance, does the lender obtain proper written authorization for preauthorized electronic fund transfers from a consumer’s account and provide a copy of the authorization to the consumer? And (ii) if the lender disburses funds by prepaid card, does it disclose its ATM access fee?

CFPB Denies Indian Tribe Petition to Set Aside Civil Investigation Demands: In June 2012, the CFPB issued civil investigation demands (CIDs) to certain online lenders that are affiliated in some manner with Indian tribes. The CIDs relate to the CFPB’s investigation into several online-lending entities that offer various online small-dollar loan products, including payday loans. Three of those Indian tribes, Great Plains Lending, LLC; MobiLoans, LLC; and Plain Green, LLC petitioned the CFPB to set aside the CIDs. On September 26, 2013, the CFPB denied the petition. The lenders’ petition argued that the CFPB lacks authority to issue CIDs to them given that they are affiliated with Indian tribes, and even if the CFPB did have the authority to issue certain CIDs, tribal sovereign immunity would override that authority with respect to the lenders. The CFPB’s 10 page decision and order set out their basis for denial of the petition, relying heavily on prior court decisions. The CFPB’s investigation is part of a broader effort by federal and state regulators and the Department of Justice to challenge online lenders, particularly those making payday loans and other short-term, small-dollar loans. (See DOJ Investigation Using Banks to Target Online Lenders below).

In September 2013, Cordray Addressed the “Four Ds” that Plague Consumers: CFPB Director Richard Cordray spoke at the American Banker Regulatory Symposium in Arlington, Virginia, during which he discussed the CFPB’s goal of ensuring that consumers are sufficiently educated and informed. To achieve that goal, Cordray discussed the four primary problems that plague consumers, otherwise known as the “Four Ds:” deceptive marketing, debt traps, dead ends and discrimination. During his speech, Cordray stated that the category of deception can include confusion about crucial product information. He emphasized the need to have key terms highlighted so that “… the most important risks will stand out and can be easily comprehended.” With respect to debt traps, Cordray noted that “[p]roducts marketed as short-term solutions to immediate needs can be risky for consumers in the long run” as a result of the vicious debt cycle that can entrap consumers. Cordray ended his speech by discussing the value of the CFPB’s complaint database, noting that many companies are “building into their compliance management systems an increased attention to the broader trends revealed by their analysis of consumer complaints.”