Blog LenderLaw Watch May 05, 2020

CFPB Holds Public Advisory Committees Meeting on Impact of COVID-19

On May 1, 2020, the Consumer Financial Protection Bureau (Bureau or CFPB) held a joint virtual meeting of its four advisory committees:  the Consumer Advisory Board, the Community Bank Advisory Council, the Credit Union Advisory Council, and the Academic Research Council.  The meeting—the Bureau’s first public event since the onset of the coronavirus—concerned the impact of COVID-19 on consumers, the financial marketplace, and special populations, such as military, student, and minority borrowers.  The meeting included remarks from agency staff—including Director Kathleen Kraninger—and members of the advisory committees, which include representatives from the consumer finance industry, academia, and consumer advocacy groups.

Below, we discuss the key takeaways for consumer finance companies from the Bureau’s statements, followed by a more fulsome summary of the Bureau’s presentations and remarks from members of the advisory committees.

Key Observations

The Bureau previewed no new guidance or proposed rulemakings related to COVID-19. Director Kraninger offered prepared introductory and closing remarks, and other Bureau staff presented on issues related to COVID-19 and its effects on consumers and the marketplace (full slide deck available here).  However, the Bureau did not tip its hand as to any future guidance or rulemakings related to COVID-19.  To date, the Bureau has issued guidance clarifying that consumers can exercise their rights to modify or waive certain required waiting periods under the TILA-RESPA Integrated Disclosure Rule and Regulation Z rescission rules, extending the temporary exception to remittance disclosures required under the Remittance Rule that it intends to finalize this month, and announcing enforcement priorities under the Fair Credit Reporting Act (FCRA), including that it “does not intend to cite in an examination or bring an enforcement action against a consumer reporting agency or furnisher making good faith efforts to investigate disputes as quickly as possible, even if dispute investigations take longer than the statutory timeframe.”  For a complete list of Bureau announcements related to COVID-19, see Goodwin’s Consumer Financial Services Industry COVID-19 Hub.

Consumer complaints will drive the Bureau’s COVID-19 rulemaking and enforcement agenda. It is no secret that consumer complaints often serve as the impetus for the Bureau launching an investigation or initiating a rulemaking.  The coronavirus is no exception.  The Bureau devoted a majority of its air time to discussing insights it has obtained from the 4,600 COVID-19-related complaints received to date.  And the Bureau noted that the announcements by the Federal Housing Finance Agency (FHFA) and U.S Department of Housing and Urban Development (HUD) that consumers will not be required to make a lump sum payment following forbearance for federally backed mortgages was the result of CFPB advocacy following the Bureau’s receipt of complaints from consumers.  Director Kraninger urged consumers to submit complaints to the Bureau if they continue to have trouble securing forbearance relief.

A primary focus of the Bureau’s COVID-19 efforts will be using its position to persuade companies to voluntarily provide consumer relief, and on educating consumers to advocate for themselves. Director Kraninger and other Bureau staff lauded the agency’s efforts to educate consumers, particularly as to their rights to forbearance under the CARES Act.  In response to comments from consumer groups concerned about a lack of “best practices” or consumer relief standards outside of the mortgage sphere, Director Kraninger said that it was the Bureau’s “role . . . to bring these issues to companies,” and that companies have been taking voluntary actions to provide consumer relief.  The presentation by the Bureau’s Division of Research, Markets, and Regulations documented the array of “relief offered by industry and firms.”  The clear implication of the focus on educating consumers and persuading companies to provide voluntary relief is that the Bureau intends to tread lightly, at least at this stage of the crisis.  Director Kraninger also noted, in response to the concern expressed over the lack of standards, that states have passed guidance regulating companies’ relationships with consumers in light of COVID-19.

The Bureau has initiated investigations related to COVID-19, although the number of such actions and the affected products are not clear. Director Kraninger said that the Bureau is taking action against companies who have engaged in unfair, deceptive, or abuse acts or practices, implying that it has already launched investigations  related to COVID-19.  Though Director Kraninger did not provide additional details, the Director also said that the Bureau has learned of “scams” where, for an up-front fee, third parties offer to serve as brokers for consumers or businesses applying for COVID-19-related relief and offer to obtain that relief quicker than the consumer or business otherwise could.  The Federal Trade Commission (FTC) has frequently targeted similar practices in the student loan debt relief arena, even under the Trump administration’s more laissez faire enforcement agenda, so similar “scams” may be in the Bureau’s crosshairs.

Summary

Bureau Presentations

Director Kraninger began the meeting by providing a brief overview of the agency’s response to the COVID-19 pandemic.  Director Kraninger said that the Bureau has been active in protecting consumers since the start of the pandemic.  The Bureau’s understanding of how the COVID-19 pandemic has been affecting consumers comes from its database of consumer complaints.  The Bureau received 36,390 consumer complaints in March, and 42,774 consumer complaints in April—the most of any month in the nearly ten-year history of the CFPB’s consumer complaints database.  As of April 30, the Bureau had received 4,600 complaints that mentioned COVID-19 or other keywords associated with the pandemic.

Traditionally, credit reporting and debt collection are the two product types that receive the most complaints.  So far, however, the complaints mentioning COVID-19 most frequently concern mortgage and credit card products.  According to staff from the Bureau’s Office of Consumer Response (OCR), which provided a detailed overview of COVID-19-related consumer complaints, this variance is to-be-expected, as there is a typically a lag in complaints about second-order impacts on consumers, such as debt collection and credit reporting.  The OCR did note that while the number of COVID-19 consumer complaints has remained steady at approximately 800 per week, the number of complaints related to credit reporting has been increasing.

For mortgages, the majority of complaints relate to the consumer’s difficulty in paying their mortgage.  Nearly 7% of mortgages were in a forbearance plan as of April 19, compared to 0.19% pre-crisis.  For both mortgages and credit cards, consumers have complained about issues they have encountered in seeking to change the terms of their loans or lines of credit in order to postpone or lower their monthly payments.  As the crisis has dragged on, the Bureau has observed an increase in the number of complaints from consumers concerning their difficulty in reaching their lender’s customer service staff, as consumers have been faced with long hold times.  According to the presentation by the OCR, despite the operational difficulties faced by companies related to COVID-19, there is no “clear evidence that companies are having difficulty meeting the timeline” for responding to consumer complaints submitted to the Bureau.

Director Kraninger said that the Bureau took action in response to one type of frequent consumer complaint during the early days of the crisis.  As the mortgage relief provisions of the CARES Act did not specify whether, for federally backed mortgages, consumers would have to make a lump sum payment at the end of the forbearance period, the Bureau coordinated with HUD and FHFA, who subsequently announced that no balloon payment would be required.

The presentation from the Bureau’s Division of Research, Markets, and Regulations identified additional issues that the industry and consumers have been facing as a result of the crisis.  As to servicing, challenges include long wait times due to staffing difficulties and the high volume of requests, operational difficulties in implementing novel forms of consumer relief, and liquidity management, as servicers are forced to draw on lines of credit to pay investors.  As to originations, traditional credit channels have dried up, due to a combination of social distancing orders, adjustments to credit standards, and difficulty in obtaining required loan documentation.

Director Kraninger emphasized that the Bureau would continue to be vigilant and issue new guidance relevant to communications that companies were having with consumers related to the effects of COVID-19.  She also said that the Bureau would not hesitate to take public enforcement actions against companies who engage in unfair, deceptive, or abusive acts or practices.

Stakeholder Remarks

Several bank and credit union representatives echoed the Bureau’s observation that social distancing requirements have either blocked or hampered the ability of lenders to obtain required loan documentation.  State laws and regulations, provisions in insurance contracts, and local register of deeds’ offices often require “wet” signatures or notarized documents, which necessitates face-to-face interactions.  Yet, as more segments of the economy move online, consumers expect that financial transactions such as mortgage closings can be performed entirely remotely.  Though participants acknowledged that many of these requirements are beyond the scope of the Bureau’s rulemaking authority, bank and credit union representatives wanted to alert the Bureau to the operational difficulties they were experiencing as a result of these requirements, and to urge the Bureau to use its voice to provide visibility on the issue.

Consumer representatives urged the Bureau to promulgate additional guidance containing minimum standards for companies dealing with consumers affected by COVID-19.  There are few standards, outside of mortgage forbearance issues, that consumers can look at to understand their options when communicating with companies concerning their credit card or checking account, for example.

Other comments focused on the issue of credit impairment, particularly in the mortgage space.  COVID-19 has devastated the creditworthiness of wide swathes of consumers, and those impacts are likely to last for years.  The Bureau noted in its presentation that credit inquiries have plunged in the wake of the coronavirus.  Though partially caused by uncertainty and lenders’ inability to meet demand, another key reason for the decline is that fewer consumers qualify for loan products under traditional credit standards.  At the same time, some companies have attempted to manage their risk by tightening their credit standards, including by lowering certain borrowers’ credit limits.  How companies will adjust their models to account for COVID-19-related impacts will affect both access to credit and the strength of their short-term income streams.

*The information presented in this summary is not a verbatim recitation of all views and opinions expressed during the call.