The CFPB has been busy in the last week
Looking at a number of enforcement actions, statements, and guidance.
Thanks to veteran financial services attorney Jonathan Joshua for noting the CFPB’s recent tear of activity in the past week. While there’s nothing necessarily unprecedented about the volume of activities (there are weeks in the year where the CFPB has these bursts of activity), I felt it was the variety of what they were up to that was worth covering in this week’s article. So without further ado, let’s recap and analyze what each of these means for consumers, institutions and others:
Summary: This was a joint statement that stemmed from reports by consumers who suggested they were being rejected for credit cards and auto, student, personal and equipment loans because of their immigration status, in spite of the fact that they were already well-established in the US and even had strong credit histories. The regulation cited was the Equal Credit Opportunity Act. It is noted by the CFPB that ECOA does allow creditors to consider an applicant’s immigration status when necessary to ascertain the creditor’s rights regarding repayment, but unnecessary or overbroad reliance on this status may be against the law.
Analysis: Regarding the source of these reports, here are a few examples from the CFPB’s complaint database:
Regarding the citing of ECOA, the CFPB citing the flexibility is probably the root cause of why this has been occurring. While discrimination of any sort is illegal and unacceptable, the issue appears to be that ECOA in and of itself has gray areas that have led lenders to do whatever they need to in order to protect their portfolios. This point was also raised by our friends at the Consumer Finance Monitor yesterday in their blog post discussing the proposal.
Summary: TransUnion was hit with a $15 million fine related to rental background checks including denying rental applicants the ability to see which third party provided inaccurate information (when it turns out that incorrect background information was furnished), along with how they report evictions in consumers’ credit reports. Separately, they received an $8 million fine for improperly adding or removing security freezes and locks from the reports of tens of thousands of consumers.
Analysis: Of the three major credit bureaus, it seems that TransUnion is drawing the ire of the CFPB in the greatest degree. Last year, they also received a consent order from the CFPB focused on their marketing of fee products (an old issue that the CFPB had previously targeted banks like Discover for in the past, but had moved more towards the actual bureaus themselves for). By comparison, the other two bureaus have not received actions from the CFPB since 2019. This consent order seems to indicate the CFPB is continuing its increasing scrutiny over the bureaus and credit reporting, as its recent proposal to remove medical debt from reports would suggest.
CFPB Issues Guidance to Halt Large Banks from Charging Illegal Junk Fees for Basic Customer Service
Summary: Adding on to Dodd Frank, passed in 2010, the CFPB issued an advisory opinion here acknowledging that in the wake of “relationship banking” becoming more and more a thing of the past, fees that used to exist to govern account-related matters should now essentially be classified under the law’s provision as an obstacle in doing banking. This is specifically targeted to large banks, as noted in Director Chopra’s comments introducing this opinion.
Analysis: The opinion itself is about 17 pages and is worth a read in and of itself. One item of note is its examples of the types of fees they have seen that are levied against customers:
(1) to respond to consumer inquiries regarding their deposit account balances
(2) to respond to consumer inquiries seeking the amount necessary to pay a loan balance
(3) to respond to a request for a specific type of supporting document, such as a check image or an original account agreement; and
(4) for time spent on consumer inquiries seeking information and supporting documents regarding an account
While for most folks, it seems inconceivable that these fees would exist and most folks don’t realize they are even a thing, they actually do exist indirectly by means of minimum deposit balances that are required for fees to be waived. Three of the biggest banks (Bank of America, Chase, Citi) all have this expectation on their consumer accounts, and include “fee schedules” to drive home the point. This war on junk fees is a continuation of what the CFPB itself and the White House have been focusing on for the last few years.
Summary: The CFPB took action against Chime for its Sendwave app, which is primarily used for sending money to Africa and Asia. Specifically, they called out misleading information around the turnaround time, the cost, and poor disclosures including users apparently forfeiting rights without realizing it. There were also delays in resolving disputes and complaints.
Analysis: Interestingly the CFPB didn’t cite Chime by name in their headline, which may be a strategic decision to highlight the name of the app that consumers may most likely know them by especially since Chime only recently bought the app in 2021. While on the surface the app is a great way to solve an underserved market (African and Asian (especially African) immigrants to the US with family back home) using easy to use technology, it seems like the acquisition was a rush job that was created just to have something to claim coverage of the market and there wasn’t a proper post-acquisition review of controls. Interestingly, the similarly-named (and two years younger - founded in 2016 vs Sendwave’s 2014 (before it was bought by Chime)) company Flutterwave, which is an African company that ironically, shortly before the CFPB’s action here, actually announced it was going live with money transfers from the US to Africa. So the space is thriving, but not without the CFPB getting involved.
That’s it for this edition - for those going to Vegas for Money 20/20, send me a message on Linkedin or email me at zarik @ finsolute.consulting! I’d love to meet you and if you’re with a compliance/risk/fraud-focused company and want to share your story, let’s set up a time for an interview! Thanks and see you all on Friday where I’ll give my own Money 20/20 preview before I head out on Saturday.