Preparing for the CFPB - COHEAO by yaohongmeiyes

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									         Preparing for the CFPB
    and other Consumer Credit Issues




                      2011 COHEAO Mid-Year Conference




                Presenters




    Lori Hartung:       Walter Witthoff:
   Todd, Bremer &      Iowa Student Loan
    Lawson, Inc.




                 Purpose



The Consumer Financial Protection Bureau
opened its doors for business on July
21, 2011. The CFPB is responsible for
enforcing and drafting implementing
regulations to certain consumer credit
protection laws such as the Truth in Lending
Act. This session intends to provide a high
level overview of the CFPB and the Truth in
Lending Act.




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                      Also…




Lori Hartung will provide an analysis of The
     Telephone Consumer Protection Act.




                 DISCLAIMER



The information presented in this session represents
the views and opinions of the presenters and does not
constitute the opinion or endorsement of, or promotion
by, Iowa Student Loan, Todd, Bremer & Lawson, Inc. or
COHEAO. Also, this session is for information purposes
only and should not be construed as legal advice. The
reader or audience participant is encouraged to consult
with legal counsel before making any policy decisions
based on the information contained herein.




  The Consumer Financial Protection
             Bureau
              (CFPB)




The Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010 established
the CFPB.




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             Scope Of CFPB’s Duties


   The CFPB supervises banks with more than
    $10 billion of assets, credit unions, and other
    non-bank financial companies
   Non-banks include payday lenders, mortgage
    brokers, student loan lenders
   The CFPB enforces federal consumer laws
    such as the Truth in Lending Act




        Scope Of CFPB’s Duties, cont’d

    The CFPB is prohibited from beginning
    supervision of non-bank financial firms, such
                          student
    as those that provide student, payday and
    mortgage loans, until it has a confirmed
    director. But its power to supervise firms such
    as Bank of America Corp., Citigroup Inc. and
    J.P. Morgan Chase & Co. went into effect on
    July 21, 2011.




                Elizabeth Warren



   Loved by Democrats

   Feared as a regulatory zealot by Republicans




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                Richard Cordray

    President Obama nominated Richard
    Cordray, former Ohio Attorney General, to run
    the CFPB




             A recess appointment?



    For the bureau to be fully empowered, it must
     be headed by a Senate-confirmed director.




       GOP Demands Changes To CFPB

   In a letter to President Obama 44 Republican
    senators said they won't confirm anyone as
    director until certain changes are made

   Since Senate confirmation requires 60
    votes, the Republican resistance ensures no
    nominee will be confirmed




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              Republicans want to:



   Replace the position of CFPB director with a
    five-member commission

   Give Congress authority over CFPB
    funding, and

   Design ways to make it easier to overturn
    CFPB rules




      What Can The CFPB Do Without A
                 Director?



   Investigate financial firms

   Bring enforcement actions for violating
    existing laws




          There Would Be Restrictions



    Any investigation would have to be based in
    the powers being transferred from the Federal
    Trade Commission, the Federal Deposit
    Insurance Corp. and other federal regulators.




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     CFPB Has A Mighty War Chest



The CFPB receives up to 10 percent of the
operating budget of the Federal Reserve ― as
much as $500 million. The CFPB will be
somewhat a part of the Federal Reserve
Board, but not subject to the Fed’s authority.




      CFPB Will Be Self-Directing




The CFPB will decide its own budget and will
not be required to ask Congress for money.
The CFPB will have no governing board, only a
director whose rulings can’t be vetoed.




Where Will CFPB Focus Its Resources?



Professor Warren told a group of community
bankers in San Antonio that the biggest part
of its budget will be used to police 80,000
nonbank firms that are involved in payday
loans, student lending, debt collecting and the
mortgage business.




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What The CFPB Is Empowered To Target:
 Unfair Or Deceptive Acts Or Practices


   “Unfair or deceptive acts or practices” have
    been subject to federal jurisdiction. Since
    1938 the Federal Trade Commission has
    enforced the rule

   For the CFPB, the word “abusive” was added

   The CFPB will define what is abusive and what
    isn’t




               What is “abusive”?


    Any financial service or activity that takes
                    consumer s
    advantage of a consumer’s inability to
    understand the risks, costs or conditions of
    loans, mortgages and credit cards.




                  CFPB priorities

   Reg Z/RESPA
   Credit card rule changes
   Rules on practices considered by the CFPB to
    be unfair and deceptive
   Mortgage rules: Servicing
    standards, prepayment penalties
   Arbitration




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            What Might The Future Hold?

Walter’s crystal ball:

   CFPB will gain the capability to gather more data and build the
    capability to analyze it to detect violations

   All lenders and servicers will be required to obtain a federal license

   The licensed lender will be required to provide information to the
    CFPB about its activities. These documents must be sent by request
    from the CFPB and they will also be used by other regulatory
    agencies to monitor transaction activities. Failure to send a report
    upon request would be grounds for legal penalties, as student loan
    companies will be expected to comply with regulatory rulings
    designed to facilitate monitoring, regulation, and consumer safety




                    Student Loan Report




    Conventional wisdom has it that student loans
    will not on the CFPB’s radar screen until next
    summer when the student loan report is due.
    Of course, it is likely that the report has
    already been written.




               How To Prepare For CFPB



   Strengthen the compliance function
   Punitive loan provisions? Be conservative
   Get a feel for the flow of regulatory direction
   Know your appetite for risk
   Stay in touch with colleagues and your trade
    associations




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    CFPB And The Truth in Lending Act




What does the CFPB have to do with the Truth in
                 Lending Act?




     What is the Truth in Lending Act?



  The TIL Act (15 USC 1601 et seq; 82 Stat. 146; Pub L.
  90-321) was enacted to “assure a meaningful
          )                                   g
  disclosure of credit terms so that the consumer will be
  able to compare more readily the various credit terms
  available to him [sic] and avoid the uninformed use of
  credit, and to protect the consumer against inaccurate
  and unfair credit billing and credit card practices.”

                            ―TIL Act




 The Truth in Lending Act Has Grown In
                 Scope


  The Truth in Lending Act was originally
  conceived to provide an apples-to-apples
  comparison of loan products, but the “Private
  Student Loan Transparency and Improvement
  Act of 2008” added enhanced student loan
  disclosure requirements and prohibited
  certain practices for creditors making student
  loans.




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               The Truth in Lending Act
                  Is a Complex Law

    The TIL Act arguably permeates the student
    loan lender’s loan making process more so
    than any other federal law. Student Loan
    providers must create complex electronic and
    manual systems designed to issue accurate
    and timely notices to consumers. APR
    calculations are particularly complex in
    student loans because of the nature of interim
    (generally in-school) periods.




                 What is Regulation Z?



    Regulation Z (12 CFR part 226) is the implementing
         l i   f    h
    regulation for the TIL A
                           Act. P
                                Practically speaking, we refer
                                     i ll       ki         f
    to Reg Z to understand the timing and content of
    disclosures for student loans. In addition, Reg Z
    prescribes how lenders can advertise and outlines
    requirements for the calculation of annual percentage
    rate under the actuarial method, found within Appendix
    J.




     What Federal Agency Issues Regulation Z?



   Until now, the Board of Governors of the Federal Reserve
    System had statutory responsibility for implementing Reg Z

   The CFPB now has responsibility for implementing Reg Z

   It is important to note that, except for certain aspects of the
    self-certification form, the U.S. Department of Education has
    no rule-making authority relative to private student loans and
    Regulation Z. Your guidance regarding Reg Z, even
    concerning the student loan provisions, should come from the
    CFPB




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       What is the Official Staff Commentary?



    The TIL Act is implemented by Reg Z. The Fed Board
    has delegated to officials in the Board’s Division of
    Consumer and Community Affairs authority to issue
    official staff interpretations of Reg Z. Of course, the
    CFPB will now do this. Generally good faith compliance
    with the Commentary affords creditors protection from
    liability under section 130(f) of TIL Act. The
    Commentary is a substitute for individual staff
    interpretations; it is updated periodically to address
    significant questions that arise.




              Putting It All Together…


   Congress made the Truth in Lending Act into law. Reg Z
    implements the TIL Act. The CFPB is required to issue
    regulations for Reg Z and will write the staff
    interpretations of Reg Z in the form of the Commentary

   Moreover, the CFPB will absorb enforcement
    responsibilities relating to Reg Z. For schools, this
    enforcement responsibility shifted from the Federal
    Trade Commission to the CFPB




             Transparency Act of 2008

    Senator Christopher Dodd (D-Connecticut)
    proposed legislation which found its way into
    the federal Higher Education Opportunity Act
    (HEOA) as title X of the Act, entitled “Private
    Student Loan Transparency and Improvement
    Act of 2008”.




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     What Does the Private Student Loan
Transparency and Improvement Act of 2008 Do?


The “Private Student Loan Transparency and
  Improvement Act of 2008”:

   Technically adds new subsection 128(e) and section
    140 to the federal Truth in Lending Act (TIL Act)

   Creates a new regime of disclosures

   Adds certain consumer “protections” such a 30 day
    waiting period and a 3 day rescission period




    If You’re A School, This Is How It Works


    As a general rule, if the school is a
    creditor, and if the loan is not excluded or
    exempt from being a private education
    loan, then the school-as-lender must provide
    the new disclosures and collect the self
    certification form for that loan.




    Why are private student loans special?

Students are considered a vulnerable population

 The
“The problems are particularly prevalent in the for-profit higher
   education sector where all too often, schools prey on
   vulnerable students’ dreams of betterment through
   education.”
         — Written testimony of Deanne Loonin, Director of National Consumer
    Law Center’s Student Loan Borrower Assistance Project




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The “Great Private Education Loan Scare”




            "This is the West, sir.”



“When the legend becomes fact, print the
                legend."
                l    d"

          —From The Man Who Shot Liberty Valance




           Neither Fish Nor Foul…

 Private student loans now have their very own rank in
 the banking hierarchy, which makes them the duckbill
 p yp                  g
 platypus of the banking world…

 …and these animals are entitled to their very own
 section of the Truth in Lending Act


 Wow!




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           THE TELEPHONE CONSUMER
                PROTECTION ACT




                      TCPA BASICS

   Telephone Consumer Protection Act of 1991

   Primary law governing the conduct of telephone
    solicitations

   Established the following:
     – Do Not Call Registry
     – Limit on Automated Dialer use
     – Limit # of abandoned calls by telemarketer
     – Clearly identify electronic prerecorded messages
     – Modified the unsolicited facsimile advertising
       requirements




              DO NOT CALL REGISTRY

   Prohibit initiating any telephone solicitation to anyone
    who placed their number on a do-not-call list

   Exemptions that apply to the credit and collection
    E      ti   th t    l t th      dit   d ll ti
    industry:
     – Established business relationship exemption
     – Prior express permission exemption




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                AUTOMATIC DIALERS

   Auto-dialers, predictive dialers or artificial or
    prerecorded voice may not place calls to emergency
    numbers, health care facilities, wireless services or any
    other number the consumer is charged for the call

   This applies to all parties including collection activity

   Two exceptions:
     – If the call is made for emergency purposes
     – With prior expressed consent of the called party




                EXPRESSED CONSENT

   FCC issued declaratory ruling on 1/4/08:

    –   Consumer provides expressed consent to be called
                                 auto-dialer
        on a wireless number via auto dialer or prerecorded
        message if she knowingly releases the wireless
        number to the calling entity

    –   Also clarifies that a consumer who gives prior
        consent to the creditor also give prior consent to the
        debt collector calling on behalf of the creditor




            EXPRESS CONSENT NOTICE

   No specific language that must be used to obtain prior
    express consent from a consumer to place an auto-dial
    or prerecorded msg.

   ACA has provided sample express consent notice
    language. Fastfax #3065




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                       SAMPLE NOTICE

    You agree, in order for us to service our account or to collect any
    amounts you may owe, we may contact you by telephone at any
    telephone number associated with your account, including wireless
    telephone numbers, which could result in charges to you. We may
                                                   e-mails,
    also contact you by sending text messages or e mails, using any e  e-
    mail address you provide to use. Methods of contact may include
    using pre-recorded/artificial voice messages and/or use of an
    automatic dialing device, as applicable.

    I/We have read this disclosure and agree that the Lender/Creditor
    may contact me/us as described above.




              PRERECORDED MESSAGES

   FCC rules generally restrict the use of
    prerecorded messages

   However, the FCC considers debt collection
    call delivered by a prerecorded message to be
    calls made for a commercial purpose that do
    not include telephone solicitation




              PRERECORDED MESSAGES

   It is acceptable for third party debt collectors
    to leave prerecorded messages with
    consumers
     – As long not including info on other products
       or services or “up-selling”

   Calls made for debt collection purposes that
    include a discussion of payment methods are
    not considered “dual purpose” or “up-selling”
    calls and therefore not prohibited
     –   See ACA Fastfax #9520




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             PRERECORDED MESSAGES

   Credit grantors/merchants may also leave prerecorded
    messages for the purpose of communicating with their
    customers in connection with the collection of a
    receivable for the same reason and same conditions of
    a third party debt collector

   In addition credit grantors/merchants may deliver
    advertisements via prerecorded message of they
    restrict the delivery of such messages to those with
    whom they have an established business relationship at
    the time the call is being made or obtained consumer
    consent in writing




IDENTIFYING PRERECORDED MESSAGES

   It is necessary for the debt collector, credit
    grantor, merchant to satisfy the identification requirements
     – Beginning of message, clearly identify the
         business, individual or entity responsible for initiating
         the call
     – If a business is making the call the same name that is
         registered to the State Corporation Commission
     – After the msg state clearly the telephone # of the entity.
            May not be a 900 number or any number that
             charges exceed local or long distance charges




IDENTIFYING PRERECORDED MESSAGES

   FCC has clarified that parties making calls for the
    purpose of debt collection are not required to identify
    the caller’s state-registered name in msg if doing so
    would conflict with federal or state laws, such as the
                 i i
    FDCPA provisions b i        third    t di l
                        barring thi d party disclosure

    –   Where conflict exits, the debt collector may identify
        by individual name




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                WRONG PARTY CALLS

   Debt collector may face liability under TCPA and
    corresponding FCC regulations for autodialed and
    prerecorded calls placed to the wrong individual

   Different requirements for residential lines versus
    wireless numbers




ERRONEOUS CALLS TO RESIDENTIAL #’S

   Debt collection calls to a consumer’s residential number
    are exempt from the general ban of prerecorded msg

   Conflicting case law calls into question whether
    prerecorded message calls erroneously made to a
    residential # of a non-consumer under the exception for
    debt collection calls

   TCPA and FCC do not directly address this issue, at least
    one court issued erroneous prerecorded msg are subject
    to TCPA




         ERRONEOUS CALLS TO WIRELESS #’S

   Similar to residential calls, the TCPA and FCC do not
    expressly exempt erroneous calls to wireless #’s from
    the TCPA

   These calls most likely subject to TCPA based on the
    following:

    –   Prerecorded or auto-dialed calls can only be made to
        a wireless number if the called party has give
        express consent




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                  ERRONEOUS CALLS

   Until case law, FCC or CFPB provide a definitive answer
    on these issues, entities should take precautions to
    ensure numbers dialed using auto-dialers or
                                      up to date
    prerecorded msg are accurate & up-to-date

   Have policies and procedures to remove numbers after
    an individual notifies the collector the call was placed in
    error




         TCPA FEDERAL JURISDICTION

   The FCC enforces the majority of the
    provisions set forth in the TCPA

   The FCC, State AGs and Individuals may bring
    civil action

   The FCC also has authority to issue citations.
     – For willful violators can reach up to $10,000
       for each violation or each day of a
       continuing violation. Continuing violations
       capped at $75,000




                        Questions?




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