Consumer Financial Services Alert - March 6, 2012

The CFPB initiated a review of bank overdraft practices.  At its Roundtable in New York City, Director Richard Cordray compared overdraft practices to payday lending, stating “[b]oth disproportionately affect a vulnerable demographic of consumers.”  In an effort to further evaluate overdrafts, the CFPB issued a request for information from consumers, third party processors and financial institutions regarding overdraft programs and their costs, benefits and risks to consumers.  The CFPB also published a model overdraft “penalty fee box,” a disclosure that would appear on customers’ checking account statements and online banking landing pages and would highlight overdraft amounts and fees.  Finally, the CFPB released a Consumer Advisory aimed at educating consumers on the ramifications of opting in to ATM and debit card overdraft coverage and fees under Regulation E, as well as alternatives to reduce overdraft fees.  Click here for Director Cordray’s remarks at the Roundtable, here for the information request, here for the penalty box prototype and here for the Consumer Advisory.  Responses to the information request are due by April 30, 2012.

The CFPB formed a Small Business Review Panel in order to solicit feedback from small businesses that make mortgage loans and conduct mortgage closings.  The CFPB will provide several documents to the Small Business Review Panel, including: (1) a Fact Sheet on the Small Business Review Panel Process, which includes information on the selection process and how the panel will use information provided by small businesses; (2) an outline of proposals under consideration and their impact on small businesses; and (3) a list of questions and issues on which the CFPB seeks input. Click here for the Fact Sheet, here for the outline of proposals, here for a list of the questions, and here for the press release.

The CFPB established a Consumer Advisory Board to advise and consult the CFPB in the exercise of the CFPB’s functions under federal consumer financial protection laws.  The Board is also tasked with providing the Bureau with information on emerging trends and practices in the financial services and products industry.  The Consumer Advisory Board will consist of 16 members with “varied interests.”  In conjunction with the establishment of the Board, the CFPB issued a solicitation seeking nominations for members. Section 1014(b) of the Dodd-Frank Act requires the Federal Reserve Bank Presidents to appoint not fewer than six members. Click here for the related notice.

The CFPB issued revised prototypes of the single mortgage disclosure to replace the HUD-1 Settlement Statement and Truth-in-Lending Good Faith Estimate, as part of its “Know Before You Owe” Campaign, which commenced last summer.  Following this final comment period, the agency will begin drafting the proposed rules for this disclosure.  Click here for the press release.

The CFPB’s Consumer Response Team is now accepting complaints on consumer checking and savings accounts, certificates of deposit, and related services (e.g., cashier’s checks).  The CFPB expects that banks will respond to complaints about consumer checking and savings accounts within 15 days and it seeks to close out the complaint within 60 days. The CFPB anticipates receiving complaints in five categories: (1) account opening, closing, and management; (2) deposits and withdrawals; (3) using a debit or ATM card; (4) making or receiving payments and sending money to others; and (5) problems related to low account funds. Click here to access the online complaint system.

The CFPB Ombudsman for private student loans is now accepting all complaints and concerns related to private student loans.  Private student loans, which historically have been overseen by various agencies, will now be in the sole province of the CFPB.  The Ombudsman's office will work as an intermediary between students, and their families, and financial institutions to raise students' concerns and questions.  Click here for the press release.

The FRB released action plans for supervised financial institutions to address issues in residential loan servicing and foreclosure processing, in accordance with formal enforcement actions issued last year.  The action plans require nine mortgage loan servicers regulated by the FRB, and the servicers’ parent holding companies, to implement plans that strengthen communications with borrowers, improve oversight of servicing and foreclosure processing conducted by bank and nonbank subsidiaries, and provide remediation for borrowers who suffered financial injuries. Click here for the FRB’s release and here for the action plans.

The White House released a white paper, Consumer Data Privacy In a Networked World:  A Framework for Protecting Privacy and Promoting Innovation in the Global Digital Economy, to fill what it sees as two gaps in the current United States consumer data privacy framework – a clear statement of basic privacy principles and a continued commitment to address consumer privacy issues as technology changes.  The framework has four elements:  (1) the Consumer Privacy Bill of Rights; (2) a multi-stakeholder process for implementation; (3) enforcement; and (4) a commitment to increase interoperability.

In furtherance of its authority under the Dodd-Frank Act to prescribe rules with respect to unfair or deceptive acts or practices by motor vehicle dealers, the FTC is still seeking information regarding consumers’ experience with motor vehicle sales, financing and leasing.  Interested parties must submit comments by April 1, 2012.  Click here for the FTC’s release.

The California Attorney General and six of the leading mobile application developers have agreed to a statement of principles regarding the disclosure of privacy policies in connection with the use of mobile applications.  The principles require mobile applications to (1) conspicuously disclose their privacy policy as well as the process for collecting and sharing consumer information; (2) provide an optional data field that will provide a hyperlink to the privacy policy, a statement describing the privacy policy or the text of the privacy policy; (3) a means for consumers to report non-compliance and for the companies to handle such reports; and (4) work with the Attorney General and re-convene in six months.  Click here for the statement of principles.

The District Court for the District of Columbia found that plaintiffs failed to meet their burden of showing that the arbitration provision in their credit card agreements was invalid and unenforceable.  The arbitration provision, which could be invoked by either party, contained a class-action waiver, preventing class representation or the consolidation of claims as part of the arbitration.  The Court held that Utah law controlled and that, under Utah law, the class-action waiver was valid.  The Court also found that under the Federal Arbitration Act, the provision was enforceable because (1) it did not prevent individual plaintiffs from pursuing injunctive relief under the Right to Financial Privacy Act; and (2) the provision was not in conflict with the RFPA, as class-wide injunctive relief was not mandated by the RFPA.  Click here for the opinion.

The United States Court of Appeals for the Eleventh Circuit reversed a lower court decision and ordered members of the putative class action to arbitration.  Named plaintiffs challenged SunTrust’s deposit agreement arbitration provision. The lower court held that the arbitration clause was procedurally and substantively unconscionable because the clause was not conspicuous and the provisions allowing SunTrust to recover its arbitration expenses disproportionately allocated the risks of error and loss inherent in dispute resolution to plaintiffs.

In reversing the district court’s ruling, the Eleventh Circuit rejected the district court’s finding that the arbitration clause was “not conspicuous,” reasoning that the district court “overlook[ed] other aspects of the document that make apparent the agreement to arbitrate.” Particularly, that the arbitration clause was capitalized in the table of contents and the introductory paragraph to the clause “urged” account holders in capital and bold typeset to read the provision carefully because of the “substantial impact” on how legal claims are resolved. The Eleventh Circuit also ruled that the clause was substantively conscionable because, under Georgia law, a contract allowing a bank set-off of indebtedness to a depositor against the depositor’s indebtedness to it is not unconscionable.

Click here for the opinion.