1. The Wall Street Journal reported that the CFPB has been issuing “subpoenas” to auto lenders concerning the sale of extended warranties, auto loans and other financial products associated with auto financing. A link to the Wall Street Journal article is here.
It is very clear to me that the CFPB is looking into the manner in which these products are marketed to consumers. Specifically, the CFPB is looking for potential UDAP issues with respect to advertising and the information disclosed to consumers when they apply for an auto loan or purchase “add on” products like warranties. I will not be surprised if we hear about an enforcement action against an auto lender in which the CFPB will make allegations similar to the allegations that it made against Capital One, Discover and American Express. The main difference between the credit card companies and the auto lenders, however, is that the CFPB has jurisdiction to conduct supervisory examinations over credit card companies while it does not conduct supervisory examinations of auto lenders. The CFPB nonetheless has the authority to initiate investigations and serve Civil Investigation Demands (CIDs) on individuals and companies pursuant to its broad authority to enforce federal “consumer financial law.” The CFPB is obviously going through this process now. If you need help navigating your way through this process, please let me know by sending me an e-mail or calling me. In any event, we will keep an eye on this issue.
2. Dennis Shaul, Chief Executive Officer of Community Financial Services Association of America (CFSA) sent a scathing letter to Richard Cordray on behalf of payday lenders in response to the CFPB’s white paper concerning payday loans. We discussed the CFPB’s white paper in last week’s weekly update. Mr. Shaul’s letter is here.
In his letter, Mr. Shaul makes it very clear that he is disappointed with the CFPB’s analysis and conclusions—especially in light of the fact that payday lenders have been more than gracious with the CFPB during their supervisory examinations. Mr. Shaul states, “[n]ot only are the data demonstrably incomplete and misleading, but the tone, conclusions, and specific language within the report seem aligned with the type of rhetoric that more often comes from advocacy groups that are not always driven by facts, but rather are driven by agendas and unsupported, anecdotal information.” Mr. Shaul’s criticism did not stop there. He added that the CFPB based its “findings on narrow examinations of a small segment of the industry and conjectures about credit alternatives for consumers without consideration of the impact varying state laws and regulations would have on the data.” Here are some specific points that Mr. Shaul made:
Some people who live paycheck to paycheck need payday loans, and payday loans are much better options for some consumers that other borrowing options
The CFPB’s report is inconsistent with other publications that analyzed the payday lending process and the effect on the consumers
The CFPB’s report does not include information about payday loan customers who had only obtained one payday loan. “As a result, the paper paints an incomplete and inaccurate picture of the product, its use and the consumer’s experience.”
The CFPB ignores or omits the consumers’ positive experiences with payday lenders
The CFPB does not take into account the quality of the payday lender or provide any information about which payday lenders were CFSA members. According to the letter, CFSA members “offer loans in a safe and responsible manner, with important consumer protections in place.” These consumer protections include issues that the CFPB raised in its white paper (clear terms and conditions, transparency, the “right to rescind, a limitation on rollovers, and an Extended Payment Plan that allows customers to repay their payday loan over a longer period of time at no additional charge.”)
The letter concludes by stating that the consumers will borrow money from “unlicensed, offshore lenders who do not offer the same consumer protections as our members” if the CFPB restricts access to payday loans.
My take on this: Mr. Shaul is expressing what others are thinking. So far, we have seen the CFPB extract consent orders from entities that it supervises. I am not aware of any supervised entity litigating against the CFPB. Mr. Shaul punched the bully in the nose, but will anyone else punch the bully by litigating against the CFPB in the near future? My law partner, Brian Rubin, publishes a yearly article in which he analyzes whether it is more cost efficient for a company to litigate against the SEC or FINRA instead of executing a consent order and paying a hefty fine. More often than not, Brian concludes that it is better to litigate. We need to do similar analysis for the CFPB. We just need a supervised entity to fight back. I think that will happen soon.
Have a good weekend and remember that all of the prior updates are on our website, www.cfpaguide.com/weeklyupdates and you can follow me on Twitter @cfpbattorney.