CFPB issues proposed payday lending rule

The Consumer Financial Protection Bureau today proposed a rule aimed at ending payday debt traps by requiring lenders to take steps to make sure consumers have the ability to repay their loans. The proposed rule would also cut off repeated debit attempts that rack up fees. The proposed rule would cover payday loans, auto title loans, deposit advance products, and certain high-cost installment and open-end loans.

The CFPB says that the proposed rule would put an end to risky practices in these markets that trap consumers in debt they cannot afford. The proposed ability-to-repay protections include a “full-payment” test that would require lenders to determine upfront that consumers can afford to repay their loans without reborrowing. The proposal includes a “principal payoff option” for certain short-term loans and two less risky longer-term lending options so that borrowers who may not meet the full-payment test can access credit without getting trapped in debt. Lenders would be required to use credit reporting systems to report and obtain information on certain loans covered by the proposal. The proposal would also limit repeated debit attempts that can rack up more fees and may make it harder for consumers to get out of debt.

A fact sheet summarizing the rule is here The proposed rule is here.

Capitol Forum Subprime Auto Financing Conference Tomorrow on Capitol Hill

From the announcement:

 

Key Industry and Policymaker Questions to be Addressed at the Conference:

 Is subprime financing fueling a bubble in the market for used cars?

 What are the parallels and differences between subprime auto lending today and subprime mortgage lending leading up to the financial collapse?

 What are bank regulators, the CFPB and state enforcers doing to police the market?

 Even if banks are relatively less exposed to subprime auto than buy-here-pay-here lenders and non-bank finance companies, is the auto supply chain healthy enough to withstand a lending crisis?

 What ripple effects would a sharp downturn in used car prices cause in the auto industry and to consumers?

 What is the current outlook for defaults and repossessions for subprime borrowers?

More information here.

 

The impact (or not) of the new overtime rules

We have discussed the Obama Administration's new overtime rule. It will significantly raise the pay threshold that triggers exceptions to the general rule that entitles workers to time-and-a-half for every hour they work over 40 per week. We also posted about holes in the overtime rules that exempt various workers entirely.

Now, this article by Natalie Kitroeff says that the new rule "probably won’t have much of an economic effect, partly because employers will find legal ways of getting around it." She explains:

The new rule sounds dramatic. Starting in December, anyone who is a salaried worker and makes less than $47,476 must be paid time and a half for any work beyond 40 hours a week. For the last decade, only people who made less than $23,660 automatically had to be paid overtime. Anyone who made more than the threshold and performed executive or administrative tasks at work was exempt from overtime. . . . The White House estimates that 4.2 million people will become eligible for overtime compensation under the rule, and that it will push wages up by $1.2 billion a year for a decade. But about 60% of the 4.2 million workers who will now be eligible for overtime do not work any overtime hours, meaning employers won’t change their pay because of the new rule, the U.S. Department of Labor found. So only the remaining 1.7 million workers will get a raise, about $718 a year on average.

Kitroeff goes on to discuss whether employers will respond by cutting hours so that fewer workers are working over 40 hours a week (or at least not much over 40 hours per week) or even by cutting workers' base pay.

LA Times: Obama's consumer protection legacy defined by aggressive agency

Here.  Here's the beginning of the piece:

Bill Doak and his wife, Linda, were preparing to buy a new house this spring when a mortgage broker made an ominous declaration after scanning their credit report: “Oh my God, you’re in trouble.”

The couple discovered five late payments on the loan on the home they were selling in Springfield, N.H. That threatened to cost them at least a percentage point more in interest for a mortgage in their native Connecticut, where they planned to retire.

 Doak, 63, said he quickly identified the source of the trouble: a snafu last year when their servicer, Nationstar Mortgage, gave them incorrect information about the timing of an escrow increase.

Fixing the problem was much more difficult. After at least 15 calls to Nationstar in a month with no progress, Doak went to an attorney who filed a six-paragraph online complaint with the Consumer Financial Protection Bureau.

“Within five days the thing was resolved,” Doak said of reaching out to the agency. “What they did for me was just simply amazing.”

Launched in the wake of the 2008 financial crisis, the bureau is one of President Obama’s signature accomplishments.

The article has some great quotes and is worth reading in its entirety.

RollCall: Wall Street Eyes Dodd-Frank Changes in Spending Bill

by Jeff Sovern

Here.  Excerpt:

The draft bill approved by the House Appropriations Financial Services Subcommittee on Wednesday included a provision that would change the CFPB from a director-led agency to a bipartisan commission, as well as language that would make funding for the bureau subject to the annual appropriations process. Both measures largely pit supportive Republicans against Democrats.  

Richard Hunt, president and CEO of the Consumer Bankers Association, said Democrats should find such changes palatable with the possibility of presumptive GOP nominee Donald Trump winning the presidency.  

CFPB Director Richard Cordray’s term expires in 2018, when the next president could install someone hostile to financial regulations, Hunt said.

Anyone who thinks this will aid consumers should ask why the FTC hasn't issued the auto dealer regulations Dodd-Frank authorized it to write.  Of course, the FTC has a commission structure and its budget is subject to the appropriations process. 

 

CFPB acts against former Wells Fargo employee for illegal mortgage fee-shifting

The Consumer Financial Protection Bureau has taken action against a former Wells Fargo employee for an illegal mortgage fee-shifting scheme. The CFPB found that David Eghbali referred a substantial number of loan closings to a single escrow company, which shifted its fees from some customers to others at Eghbali’s request. Eghbali could then manipulate loan costs and ultimately increase the number of loans he closed, increasing his commissions. The CFPB filed an administrative consent order requiring Eghbali to pay an $85,000 penalty and banning him from working in the mortgage industry for one year. 

The CFPB's press release, with a link to the consent order, is here.

FTC acts to stop three debt-relief schemes affecting student-loan and mortgage borrowers

This week, the Federal Trade Commission and the State of Florida fled cases against two operations charged with running phony student loan debt relief schemes, and the FTC settled a case brought earlier this year against a operators of a debt-relief scheme.

In the first case, the FTC and the State of Florida allege in their complaint that the operators of Consumer Assistance Project lure borrowers with promises such as “GET RID OF YOUR DEBT TODAY!” and charge illegal up-front fees for their purported services, typically $250, plus monthly fees of up to $303 for as long as 36 months. The FTC alleges that the defendants pretend to evaluate these consumers for eligibility, and then tell them they qualify for government student loan forgiveness programs that will reduce their debt by at least 50 to 70 percent. In fact, the FTC alleges, consumers are not likely to meet the strict requirements of these loan forgiveness programs. According to the complaint, the defendants also have claimed they would audit consumers’ student loans for errors that would invalidate the loans or reduce the balance, and repair consumers’ credit, but then failed to deliver on both of these promises. The defendants allegedly claim that positive reviews of their services on social media are independent reviews by ordinary customers, when at least some were posted by the defendants.

The defendants named in the complaint, Chastity Valdes and her companies, Consumer Assistance LLC, Consumer Assistance Project Corp. and Palermo Global LLC, are charged with violating the FTC Act, the Telemarketing Sales Rule (TSR), the Florida Deceptive and Unfair Trade Practices Act (FDUTPA), and the Credit Repair Organizations Act.

In the second case, the FTC and the State of Florida allege that an operation called Student Aid Center Inc., and it’s owners, Damien Alvarez and Ramiro Fernandez-Moris, also known as Ramiro Moris enticed people with promises such as “Get Your Student Loans Forgiven Now!” and “$17,500 in Up Front Forgiveness?” Student Aid Center also allegedly told consumers they were “approved” or “pre-approved” for loan forgiveness or lower monthly payments, which they could get by paying up-front monthly fees, typically $199 or more for five months. The defendants’ websites, including studentloanforgiveness.org, included more false claims, and their telemarketers deceived people with promises of a 100 percent money-back guarantee, the complaint alleges. However, consumers who sought refunds often got a much lower amount or obtained refunds only after complaining to the Better Business Bureau or a state or federal agency. Some people complained that, instead of issuing refunds after they canceled their enrollment, the defendants threatened to send their accounts to collection.

In the third case, the operators of another student debt relief scheme have agreed to a settlement with the FTC that will permanently ban them from the debt relief business. In that case, the FTC alleged that Tobias West and his wife, Komal West, the owners of Good EBusiness, Select Student Loan Help LLC, and Select Document Preparation Inc., charged consumers up-front fees of $500 to $800 based on phony claims that they could renegotiate, settle, or alter payment terms on student loan debt. In addition, the FTC charged that two of the defendants deceptively marketed home loan and student modification services under the name “AAP Firm,” illegally charging advance fees ranging from $1,000 to $5,000. The FTC settlement also bars the defendants from representing the benefits or performance of a product or service unless is it not misleading and based on evidence. The stipulated order also prohibits the defendants from profiting from consumers’ personal information and failing to dispose of it properly, and imposes a $2,329,456 judgment that will be suspended when they have surrendered any remaining business assets. The full judgment will become due immediately if they are found to have misrepresented their financial condition.

FDA issues new rule to protect against food adulteration

The Food and Drug Administration today finalized a new food safety rule under the landmark, bipartisan FDA Food Safety Modernization Act. The rule requires companies in the United States and abroad to take steps to prevent intentional adulteration of the food supply. Although the FDA says that intentional adulteration is unlikely, the new rule advances mitigation strategies to protect the food supply.

Under the new rule, both domestic and foreign food facilities are required to complete and maintain a written food defense plan that assesses their potential vulnerabilities to deliberate contamination where the intent is to cause wide-scale public health harm. Facilities now have to identify and implement mitigation strategies to address these vulnerabilities, establish food defense monitoring procedures and corrective actions, verify that the system is working, ensure that personnel assigned to these areas receive appropriate training and maintain certain records.

The FDA's press release, with links to a Q&A and the rule itself, is here.

Appeals court reverses DOJ's win in fraud case against Bank of America

ThinkProgress reports:

Bank of America does not have to pay a $1.3 billion penalty assessed years ago, an appeals court ruled Monday.

A jury found the megabank guilty of fraud in 2013, after Department of Justice (DOJ) officials decided not to settle a case involving a program run by its subsidiary Countrywide.

Countrywide employees created a program known as “Hustle,” a bastardization of an acronym for “High-Speed Swim Lane,” and used it to knowingly sell substandard loans to Fannie Mae and Freddie Mac. Staffers packaged up low-quality mortgage securities and sold them to government-backed housing finance companies that later had to be bailed out by taxpayers.

After the jury’s verdict in 2013, a federal judge decided the bank would have to pay $1.27 billion — more than prosecutors had reportedly sought — to make the government whole and to dissuade it from cheating taxpayers again.

The bank immediately appealed, leading to Monday’s ruling voiding the penalty. Bank lawyers persuaded a three-judge appeals panel that Hustle amounted to mere breach of contract rather than outright fraud.

The blog's full story is here.

How Long Does Reading the Terms of Your Phone Apps Take?

by Jeff Sovern

From a BBC News report:

The average Norwegian has 33 apps, the Norwegian Consumer Council says, whose terms and conditions together run longer than the New Testament.

To prove the "absurd" length, the council got Norwegians to read each of them out in real time on their website.

The reading finished on Wednesday, clocking in at 31:49:11.

Some of the world's most popular apps were chosen, including Netflix, YouTube, Facebook, Skype, Instagram and Angry Birds.

(HT: Nancy Kim of ContractsProf Blog). It's hard to reconcile this with the fiction courts engage in--that consumers read contracts--to justify binding consumers by them.