CFPB Interprets Statute of Limitations & Other Stories Every Compliance Officer Needs to Read
In recent months, we've been keeping an eye on a few developing compliance stories. Here are some that could have the most impact on 2016 compliance.
We've been keeping an eye on industry news and regulatory guidance in order to identify any emerging trends. These compliance trends are still developing - so we'll be watching them closely for you.
Based on these stories and their implications, we'd like to draw your attention to the following areas of compliance, which will likely become influential and important in the coming years:
CFPB May Have Found A Way Around the Statute of Limitations
A controversial decision in a RESPA-related action against PHH Corp. in June 2015 is now influencing another action, this time against a payday lender. The Consumer Financial Protection Bureau (CFPB) alleges that Integrity Advance, a payday lender that offered its last loan in late 2012, violated UDAAP.
In the earlier PHH case, the Bureau decided to pursue their claims using an administrative action, rather than in federal court; both routes provide access to civil money penalties and other remedies. However, the CFPB said that pursuing it as an administrative action meant that the Statue of Limitations outlined in the Consumer Financial Protection Act (Title X of Dodd-Frank) wouldn't apply. The CFPB's Office of Administrative Adjudication is handling these and other administrative actions.
In that case, CFPB Director Richard Cordray argued that “the CFPB maintains that the term 'action' means court litigation only, and points to the fact that the three-year SoL [Statue of Limitations] appears in the section authorizing litigation, not the section authorizing administrative proceedings.”
Last week, the Bureau said that their claims against the payday lender again aren’t restricted to the CFPA's 3-year statute of limitations, because they are again acting administratively rather than in a federal court. It's worth noting that different regulations have different statutes of limitation.
If this PHH decision holds - it’s currently in appeals - it could mean that the CFPB may begin to favor administrative action rather than pursue complaints in federal court.
TRUPOINT Viewpoint: If the CFPB is successful in continuing down this path, the statue of limitations as it relates to some regulations could become less definitive. In that event, your institution's historical performance and response to risks will become even more important. That means retrospective data analysis, risk analysis and complaint management may be more relevant.
UDAAP's Influence is Evolving
By now, compliance officers are familiar with UDAAP, the enhanced version of an earlier regulation known as UDAP. Increasingly, they are having to become familiar with UDAAP and its many intersections with other areas of consumer protection.
UDAP and UDAAP are not new concepts, even though UDAAP presents new challenges. UDAP first appeared in FTC Act of 1938, which prohibited “unfair or deceptive acts or practices in or affecting commerce.” In 1985, Reg. AA, the Unfair and Deceptive Acts or Practices Act, was passed. Finally, UDAP became UDAAP in 2010, when the Dodd-Frank Act introduced the idea of “abusive.” The Dodd-Frank Act also provided more regulatory muscle: its passage authorized the Consumer Financial Protection Bureau (CFPB) to regulate both banks and non-bank lenders.
2015 saw the continued “UDAAPification” of RESPA with a consent order against New Day Financial last February.
TRUPOINT Viewpoint: The emphasis on UDAAP and consumer protection will likely continue through 2016 - and it’s not too far a stretch to imagine that UDAAP will be applied to other areas of consumer protection.
Please click here or the image at left to get a Free UDAAP Risk Assessment Info Kit.
We also offer UDAAP compliance training for institutions of all sizes.
Auto Lending in the Regulatory Spotlight
Toyota's $22 million settlement earlier this week is the most recent in a series of regulatory actions against auto lenders.
This settlement is the result of a 3-year long joint CFPB-DOJ investigation. As part of the agreement, Toyota will cap dealer markup at 1.25 percent for loans less than five years, and 1 percent for loans longer than five years.
Earlier this month, the Bureau finalized a $700,000 settlement with a "buy-here, pay-here" dealership for allegedly misleading marketing and advertising. The dealership advertised loans with a 9.99 percent APR, allegedly without disclosing hidden fees and finance costs that could total thousands.
[Read Also: 9 Steps of Indirect Auto Lending Analysis]
Last June, the CFPB also expanded its supervisory authority to include larger non-bank auto finance companies. With this expansion, the Bureau is now able to oversee all activity for compliance with consumer protection regulations like Fair Lending, ECOA, UDAAP and more.
TRUPOINT Viewpoint: For indirect auto lenders, dealer discretion is a primary risk area. Sparked by either a complaint or a red flag identified by data analysis, the regulators are likely to focus on markups and discretion. If you are an indirect auto lender, you need to be analyzing your data for risk; if you're a larger lender, you may need to consider regression analysis. You'll also be expected to have the basics of a Fair Lending compliance program in place: a Fair Lending policy statement, an annual risk assessment, regular risk monitoring and a strong compliance management system.
If you'd like to learn more about how we help auto lenders improve compliance, please click here. We've worked with auto lenders across the country and would be glad to discuss your risks and needs.
Sources & Additional Reading:
- 5 Regulatory Priorities to Know As You Set 2016 Compliance Goals:
- A Brief Review of Recent News Shows Redlining Risk is Red-Hot
- CFPB Sues Online Payday Lender
- Title X
- Office of Administrative Adjudication
- CFPB Director's Divisive View of RESPA Limitations Period is Central to Ongoing UDAAP Action
- CFPB Director Cordray Issues Final Decision in PHH Corp. Administrative Enforcement Action
- 3 Simple Steps to Manage UDAAP Risk
- A New Day for RESPA; The UDAAPification of Section 8
- CFPB, DOJ and Toyota Settle Over Discriminatory Dealer Pricing
- U.S. Regulator Cracks Down On Ads for Poor-Credit Auto Loans
- 9 Essential Steps of Fair Lending Indirect Auto Analysis
- What the CFPB's Move to Regulate Non-Bank Auto Financers Really Means
- Auto Lending's Dangerous Trio of Fair Lending Risk Factors