The CFPB Makes Its Case

CFPB Director Cordray

The Consumer Financial Protection Bureau released its Semi-Annual Report. Given that the Bureau is under attack by Republicans in Congress and in the Trump Administration, one can read this as a defense (a strong defense, I might editorialize) for the work that the Bureau has done on behalf of consumers. The core of the Bureau’s argument is that it levels the playing field for consumers when they deal with financial services companies:

The Bureau has continued to expand its efforts to serve and protect consumers in the financial marketplace. The Bureau seeks to serve as a resource on the macro level, by writing clear rules of the road and enforcing consumer financial protection laws in ways that improve the consumer financial marketplace, and on the micro level, by helping individual consumers get responses to their complaints about issues with financial products and services. While the various divisions of the Bureau play different roles in carrying out the Bureau’s mission, they all work together to protect and educate consumers, help level the playing field for participants, and fulfill the Bureau’s statutory obligations and mission under the Dodd-Frank Act. In all of its work, the Bureau strives to act in ways that are fair, reasonable, and transparent.

*     *     *

When Federal consumer financial protection law is violated, the Bureau’s Supervision, Enforcement, and Fair Lending Division are committed to holding the responsible parties accountable. In the six months covered by this report, our supervisory actions resulted in financial institutions providing approximately $6.2 million in redress to over 16,549 consumers. During that timeframe, we also have announced enforcement actions that resulted in orders for approximately $200 million in total relief for consumers who fell victim to various violations of consumer financial protection laws, along with over $43 million in civil money penalties. We brought numerous enforcement actions for various violations of the Dodd-Frank Act and other laws, including actions against Mastercard and UniRush for breakdowns that left tens of thousands of economically vulnerable RushCard users unable to access their own money to pay for basic necessities; two separate actions against CitiFinancial and CitiMortgage for keeping consumers in the dark about options to avoid foreclosure; and against three reverse mortgage companies for deceptive advertisements, including claiming that consumers who obtained reverse mortgages could not lose their homes. We also brought two separate actions against credit reporting agencies Equifax and TransUnion for deceiving consumers about the usefulness and actual cost of credit scores they sold to consumers, and for luring consumers into costly recurring payments for credit products; and an action against creditor reporting agency Experian for deceiving consumers about the usefulness of credit scores it sold to consumers. The Bureau also continued to develop and refine its nationwide supervisory program for depository and nondepository financial institutions, through which those institutions are examined for compliance with Federal consumer financial protection law. (10-11, footnotes omitted)

Anyone who was around during the late 1990s and early 2000s would know that consumers are much better off with the Bureau than without it. This report provides some of the reasons why that is the case.

Credit Reporting Complaints

photo by Erin Stevenson O'Connor

The Huffington Post quoted me in The Real Reason Everyone Complains About Credit Reporting Agencies. It opens,

The most complained-about financial institutions aren’t banks or credit card companies. They’re credit reporting agencies — and by a wide margin.

In fact, the big three credit agencies topped the latest Consumer Financial Protection Bureau (CFPB) monthly report. Equifax attracted an average of 1,470 complaints during a three-month period from May to July. Experian took second place with 1,272 complaints, and TransUnion had 1,202 complaints. As a category, all of the credit reporting agencies are up by about 30 percent from the same period a year ago.

By comparison, the most complained about bank, Citibank, had only an average of 922 complaints during the same period.

So why all the gripes? To answer that question, you have to take a closer look at a society that’s heavily dependent on credit and at the companies that determine how much credit each member of society gets. But the answer also reveals a broken system and a few workarounds that could help you avoid becoming another statistic.

The CFPB did not respond to a request for a comment about its complaint data. Neither did two credit reporting agencies, Experian and TransUnion. Equifax deferred to the Consumer Data Industry Association (CDIA), the trade association for the credit reporting industry.

Decoding the numbers

A CDIA representative suggested the government’s complaint numbers are inflated because they fail to distinguish between complaints and “innocuous” disputes.

“For example, consumers who are reviewing their credit reports for the first time might question an item they don’t recognize or understand and then lodge a complaint,” says Bill Mashek, the CDIA spokesman. “A consumer might also lodge a complaint against one of the credit reporting agencies when their issue is actually with another entity such as a lender.”

The credit agencies also say the government fails to verify any of the complaints; it simply reports them. And it has no way of weeding out potential errors, such as when consumers question an item they don’t recognize or understand on their credit report.

Consumers have a different perspective. They’re people like Peter Hoagland, a consultant from Warrenton, Va., whose homeowner insurance bill rose unexpectedly this year. He hadn’t made any claims, but soon discovered the reason: His credit rating insurance score taken a hit. He contacted his credit reporting agency. ” I could find no one to give me a credible explanation,” he says.

Hoagland contacted his insurance company and explained the problem, but the company stuck with its rate increase anyway.

“It feels to me that insurance companies are using these ratings as contrived reasons to raise rates,” he says. “They can’t cite claims I have made or increased risk with my home. So they hide behind these dubious insurance score ratings as justification to raise rates.”

It’s complicated

David Reiss, a professor at Brooklyn Law School
, says stories like Hoagland’s are common because credit scores affect almost everyone. They’re also difficult to explain.

“The credit reporting agencies have a big impact on whether someone can get a mortgage to buy a house as well as on setting the interest rate that they will ultimately pay,” he says. “At the same time, they often act in mysterious ways in terms of what they include and do not include on their reports.”

Friday’s Government Reports Roundup

Mortgage Servicer Accountability

Joseph A. Smith, Jr, the Monitor of the National Mortgage Settlement, issued his third set of compliance reports (I blogged about the second here). For those needing a recap,

As required by the National Mortgage Settlement (Settlement or NMS), I have filed compliance reports with the United States District Court for the District of Columbia (the Court) for each servicer that is a party to the Settlement. The servicers include four of the original parties – Bank of America, Chase, Citi and Wells Fargo. Essentially all of the servicing assets of the fifth original servicer party, ResCap, were sold to and divided between Ocwen and Green Tree pursuant to a February 5, 2013, bankruptcy court order. Accordingly, Ocwen and Green Tree are now subject to the NMS for the portions of their portfolios they acquired from ResCap.1 These reports provide the results of my testing regarding compliance with the NMS servicing standards during the third and fourth calendar quarters of 2013, or test periods five and six. They are the third set of reports for the original four bank servicers, the second report for Ocwen and the first report assessing Green Tree. (3)

The Monitor concludes that Bank of America, Citi, Chase, Ocwen and Wells Fargo “did not fail any metrics during the most recent testing periods.” (2) The Monitor also reports on “fourth-quarter compliance testing results for the loans Green Tree acquired from the ResCap Parties. Green Tree implemented the Settlement’s servicing standards after such acquisition. Green Tree failed a total of eight metrics during this time period.” (2) The metrics that Green Tree failed include a number of practices that have made the lives of borrowers miserable during the foreclosure crisis. They are,

  • whether the servicer accurately stated amounts due from borrowers in proofs of claims filed in bankruptcy proceedings
  • whether the servicer accurately stated amounts due from borrowers in affidavits filed in support for relief from stay in bankruptcy proceedings
  • whether loans were delinquent at the time foreclosure was initiated and whether the servicer provided borrower with accurate information in a pre-foreclosure letter
  • whether the servicer provided borrower with required notifications no later than 14 days prior to referral to foreclosure and whether required notification statements were accurate
  • whether the servicer waived post-petition fees, charges or expenses when required by the Settlement
  • whether the servicer has documented policies and procedures in place to oversee third party vendors
  • whether the servicer responded to government submitted complaints and inquiries from borrowers within 10 business days and provided an update within 30 days
  • whether the servicer notified the borrower of any missing documents in a loan modification application within five days of receipt (9, emphasis added)

These metrics seem pretty reasonable — one might even say they are a low bar for sophisticated financial institutions to exceed. Until the servicing industry can do such things as a matter of course, close government regulation seems appropriate. The monitor notes that “work still remains to ensure that the servicers treat their customers fairly.” (2) Amen to that, Monitor.

CFPB Complaints Vary by State, Unsurprisingly

The Baltimore Sun quoted me today in Marylanders Aren’t Shy About Complaining: New Federal Consumer Agency Finds State Residents Quick to Gripe About Mortgages, Credit Cards, Banks. The story opens,

Marylanders are big complainers.

At least when it comes to the financial services they receive.

Maryland ranked No. 2 in the nation in mortgage complaints per capita, second only to New Hampshire, for grievances lodged with the Consumer Financial Protection Bureau. The state came in third for grousing about credit cards and placed fifth for gripes about banks and service.

The CFPB’s database, launched toward the end of 2011, catalogs thousands of gripes about banking, credit cards and mortgages that the newfound agency has received. The agency forwards complaints — ranging from disputes about billing and interest rates on credit cards to incorrect information on credit reports and problems with loan payments — to the businesses involved. Not all complaints are resolved.

Why are Marylanders more motivated to complain? Experts point to the state’s higher education levels, relative wealth and proximity to the do-gooders in Washington, D.C.

“Education level predicts complaint behavior, and this is a very well-educated area,” said Rebecca Ratner, a professor of marketing at the University of Maryland’s Robert H. Smith School of Business.

The more educated consumers are the more likely they are to feel that they can affect outcomes and know what steps to take to complain, Ratner said.

Consumers here also are more aware of the new agency because of our proximity to Washington, the CFPB’s home, she said.

Indeed, Washingtonians also are big whiners, ranking No. 1 in complaints about bank accounts and credit cards and coming in third for mortgage grievances.

Consumers near the Beltway also may have more faith in the government to correct problems, given that they are likely to have friends and neighbors who work for Uncle Sam, said David Reiss, a professor at Brooklyn Law School with an expertise in consumer finance.

“The federal government has a face when you live in Maryland and D.C.,” he said.

Maryland also has the highest median income in the country. Moneyed consumers, Reiss said, are more inclined to speak up when there’s a problem.

“Wealthier people are more likely to expect more from financial institutions,” he said.

They also know that financial institutions are regulated and can be held accountable, he said.

The rest of the story is here.