United States: Consumer Financial Protection Bureau Alert - May 2015

Last Updated: May 8 2015
Article by Allyson B. Baker, Andy Arculin and Peter Frechette

CFPB Takes First Enforcement Action on Overdraft and Continues Its Focus on Kickbacks

In This Issue:

CFPB Engages in First Enforcement Action on Overdrafts

On April 28, 2015, the CFPB took its first  enforcement action regarding bank overdraft practices. The administrative order indicates that the CFPB takes two approaches to addressing unlawful overdrafts: (1) enforcing the mandatory affirmative opt-in requirement on overdraft products connected to ATMs and debit cards under the Electronic Fund Transfer Act (EFTA) and Regulation E; and (2) charging an institution for deceptive representations under the CFPB's unfair, deceptive or abusive acts or practices (UDAAP) authority. The CFPB states that the bank:

  • Failed to obtain required opt-ins for certain consumers. The CFPB found that a bank working group charged with implementing the opt-in rule determined that the requirement did not apply to customers with "linked coverage" (meaning that the customer's checking account was linked to a savings account or line of credit, which could be debited to pay a transaction on an otherwise overdrawn account). As a result, the CFPB found that the bank did not obtain opt-ins from these customers; however, if there were insufficient funds in all linked accounts, these customers were charged a linked overdraft fee.
  • Delayed fixing the violation until almost a year after its discovery. The CFPB found that issues with the bank's overdraft program were discovered but not "escalated to senior bank executives" or the bank's legal department for almost a year. The CFPB also noted that an interim attempt to correct the issue was not successful.
  • Misrepresented overdraft and non-sufficient funds fees related to its overdraft and deposit advance products. The CFPB found that the bank's account materials incorrectly stated that customers would not be charged an overdraft fee unless they opted into the program. The bank's account materials for its deposit advance program also included "Frequently Asked Questions", which incorrectly stated that customers would not be charged an overdraft or non-sufficient funds fee for the bank's attempts to automatically debit an overdrawn account.

The CFPB's press release regarding the enforcement action stressed the "critical" importance of the overdraft opt-in rule. The press release indicates continued attention on this issue, as it also highlights the CFPB's July 2014 study of overdraft products. The CFPB notes that "[t]oday, even with the opt-in rule in place, more than half of consumer checking account income comes from overdraft and similar fees."

The bank voluntarily reimbursed approximately 200,000 consumers a total of nearly $35 million in December 2012 pertaining to overdraft fees for which customers had not opted in. The bank returned an additional $12.8 million in December 2013. The CFPB's order requires that the bank:

  • Provide refunds to all remaining affected consumers: The bank must hire an independent consultant to identify all remaining consumers who were charged the overdraft or deposit advance fees incorrectly and refund these fees, if they have not already been refunded.
  • Correct errors on credit reports: The bank must identify and fix all instances of negative credit reporting resulting from the unlawful fees.
  • Pay a $7.5 million civil money penalty: The CFPB ordered the bank to make a $7.5 million penalty payment to the CFPB's Civil Penalty Fund. The CFPB states that the bank's violations and its "delay in escalating them to senior executives and correcting the errors could have justified a larger penalty," but that the bank was credited for making reimbursements to consumers and self-reporting these issues.

CFPB Continues Enforcement Actions against Kickbacks

On April 29, 2015, the CFPB and the Maryland Attorney General filed a  complaint and proposed consent orders (available here) against Genuine Title, its executives, and several named loan officers. The CFPB's joint enforcement action with the Maryland Attorney General follows from the CFPB's January " warning for all those in the mortgage market," when the CFPB and Maryland Attorney General filed a complaint and consent order against two major banks in connection with mortgage-related kickbacks.

The CFPB alleges that the parties engaged in a kickback scheme that violated the Real Estate Settlement Procedures Act (RESPA). According to the CFPB, Genuine Title's executives developed and operated schemes to give loan officers marketing services and cash payments in exchange for referrals of mortgage business. Specifically, the Bureau and Maryland allege that the defendants:

  • Exchanged marketing services, including purchasing, analyzing, and providing data on consumers, and mail marketing, for referrals; and
  • Made cash payments to participating loan officers through corporations set up by those officers.

Genuine Title went out of business in April 2014. Accordingly, the CFPB issued only a perfunctory consent order against the company itself. The CFPB sought redress and civil money penalties against Genuine Title's executives and the named loan officers. The consent orders, if entered by the court, would impose the following sanctions:

  • Genuine Title, LLC would be prohibited from further violations of RESPA.
  • Genuine Title's executives would each be banned from the mortgage industry for five years, required to pay $130,000 and $400,000 in redress and penalties (respectively), and prohibited from further violations of RESPA.
  • The named loan officers would be banned from the mortgage industry for two years, required to pay $30,000-$65,000 in redress (respectively), and prohibited from further violations of RESPA. The named loan officers would also be required to report this action to the Nationwide Mortgage Licensing System & Registry.

CFPB Settles with Property Developer over Misrepresentations to Consumers

On May 1, 2015, the CFPB filed an  administrative consent order against International Land Consultants, Inc., a Florida land development company, and certain named individuals for alleged misrepresentations to consumers related to the roads in a development for which the company sold lots. The CFPB charges that the company violated the Interstate Land Sales Full Disclosure Act (ILSA) by misrepresenting to consumers that International Land Consultants would maintain the roads in the development. The CFPB found that International Land Consultants stated in marketing materials and Department of Housing and Urban Development (HUD)-registered Property Reports that the company would maintain the roads until they were accepted by Van Buren County, Tennessee.

Under the terms of the consent order, International Land Consultants must repair the roads pursuant to a plan prepared in conjunction with an independent engineering report.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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