Terrible acts by American Express lead to them having to pay a settlement with FDIC and CFPB

The Federal Deposit Insurance Corporation (FDIC) and the Consumer Financial Protection Bureau (CFPB) have reached a settlement with American Express Centurion Bank (Bank), Salt Lake City, Utah, for deceptive debt collection and credit card marketing practices, in violation of section 5 of the Federal Trade Commission Act.

This action results from a FDIC and Utah Department of Financial Institutions examination, in which the Consumer Financial Protection Bureau (CFPB) joined last year. The CFPB, the Office of the Comptroller of the Currency (OCC), the Utah Department of Financial Institutions, and the Board of Governors of the Federal Reserve System took separate actions against various entities related to the Bank (collectively referred to as American Express). Under the settlements, American Express agreed to the issuance of Consent Orders, Orders for Restitution, and Orders to Pay (Orders) which result in total restitution from all entities of approximately $85 million to more than 250,000 affected consumers, and the imposition of civil money penalties totaling approximately $27 million.

The FDIC and the CFPB determined that the Bank violated federal law prohibiting unfair and deceptive practices by, among other things:

• Misrepresenting to consumers that if they entered into an agreement to settle old debt (that was no longer being reported to consumer reporting agencies), such settlement would be reported to consumer reporting agencies and thereby improve the consumers' credit scores. In fact, no such reporting occurred.
• Using settlement solicitations that implied that consumers who entered into settlement agreements to partially pay such debts would have the remaining balance of their debts forgiven, when in fact the balance remained a debt owed to American Express.
• Using solicitations that misrepresented the points and awards consumers would receive upon enrollment in one of American Express' credit card products.

In addition to restitution and CMP, the Consent Order requires the Bank to correct all violations, provide clearly written disclosures on debt collection statements, and stop using deceptive credit card solicitations. In addition, the Bank will improve its compliance management system and improve board oversight of affiliates and third-party service providers in order to adequately manage third-party risk.

CFPB to start supervising credit bureaus

Finally, the Consumer Financial Protection Bureau is going to start supervising the credit bureaus.  The legislation creating the CFPB was enacted shortly after President Obama took office but the CFPB is just now getting up to cruising speed, having survived attacks by the Republican side of the aisle regarding its purpose and who would lead it.

Below is the official reaction by the National Consumer Law Center to the CFPB's supervision of the credit bureaus:

WASHINGTON─Advocates at the National Consumer Law Center (NCLC) applauded today’s announcement by the Consumer Financial Protection Bureau (CFPB) that the agency would begin oversight of the nation’s largest credit reporting agencies on September 30. “The fact that the CFPB will oversee the large credit reporting agencies is a game changer,” stated Chi Chi Wu, staff attorney at National Consumer Law Center. “This could potentially improve the economic lives of millions of Americans by improving the accuracy of the system and its responsiveness to consumers.”

A credit report is a record of how a consumer has borrowed and repaid debts. About 200 million Americans have their credit reports on file with the three largest credit reporting agencies (CRAs)–Equifax, Experian and TransUnion (also known as the “Big Three”). These reports also form the basis of credit scores, the three-digit numbers from FICO and VantageScore.

Credit reports and scores have an enormous impact on the economic lives of Americans, because they are used by the vast majority of lenders in the U.S., as well as by insurers, employers, landlords, and others. Yet until today, these three companies were not subject to supervision by any federal agency. The Federal Trade Commission (FTC) had the ability to take law enforcement actions against the Big Three CRAs, but such actions were difficult, rare, and costly.

“The CFPB will have far stronger tools to regulate the Big Three CRAs,” explained Lauren Saunders, managing attorney of National Consumer Law Center’s office in Washington, D.C. “The CFPB will have the authority to examine the policies and procedures of these companies, to go deep in its supervision, and to require changes much more quickly through the supervision process than the FTC could.”

Wu expressed hope that oversight by the CFPB would lead to better accuracy and a better credit reporting system. She noted that there have been longstanding complaints about the accuracy of credit reports, as well as the handling of disputes over errors. Studies by consumer groups have found errors in 25% of credit reports serious enough to cause a denial of credit, while studies funded by the industry have claimed that this rate was less than 1%. Even an error rate of 1% is problematic, given that means that two million consumers would be affected. Consumers can check their credits reports for errors and are entitled to one free report from each of the Big Three CRAs each year, available through www.annualcreditreport.com.

As for the dispute process, the Fair Credit Reporting Act (FCRA) requires that credit reporting agencies conduct a “reasonable investigation” when a consumer files a dispute over an error in their credit reports. Yet a 2009 report by NCLC (http://www.nclc.org/images/pdf/pr-reports/report-automated_injustice.pdf) found that the Big Three CRAs have turned the FCRA dispute process into a travesty by conducting investigations in an automated and perfunctory manner. The Big Three translate the detailed written disputes submitted by desperate consumers into two or three digit codes, and limit their role to little more than selecting and sending these codes off to the creditor or other entity that furnished this information.

“This week, the CFPB celebrates its one-year anniversary, and it is the bureau that is giving the American public a great birthday gift,” noted Wu. “We are thrilled that consumers finally have a government agency on their side whose mission is to make sure that the credit reporting system works for them.”

Consumer Financial Protection Bureau

Really good article about the Consumer Financial Protection Bureau, which I think is one of the crowning achievements of the Obama administration.  The CFPB now enforces several of the consumer protection statutes formerly enforced by the FTC, who really didn't do that much enforcing.  These statutes include the Fair Credit Reporting Act ("FCRA"), Truth in Lending Act ("TILA"), Electronic Funds Transfer Act ("EFTA"), the Fair Debt Collection Practices Act ("FDCPA") and the Real Estate Settlement Procedures Act ("RESPA").

The article can be found here - http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2012/05/09/investopedia6687.DTL.

CFPB to supervise credit bureaus and debt collectors?

Looks like the credit bureaus are in for some oversight (finally):

WASHINGTON, D.C. — The Consumer Financial Protection Bureau (CFPB) today announced a proposed rule to include debt collectors and consumer reporting agencies under its nonbank supervision program. This would mark the first time these important and far-reaching consumer financial market participants are subject to federal supervision.

“Consumer financial products and services have become more complex over the years and they have expanded well beyond traditional banks,” said Richard Cordray, CFPB Director. “Our proposed rule would mean that those debt collectors and credit reporting agencies that qualify as larger participants are subject to the same supervision process that we apply to the banks. This oversight would help restore confidence that the federal government is standing beside the American consumer.”

The Dodd-Frank Wall Street Reform and Consumer Protection Act, which created the CFPB, authorizes the CFPB to supervise nonbanks in the specific markets of residential mortgage, payday lending, and private education lending. In addition, for other nonbank markets for consumer financial products or services, the CFPB has the authority to supervise “larger participants.” As directed by Dodd-Frank, the Bureau must define such “larger participants” by rule, and an initial such rule must be issued by July 21, 2012. Last summer, the CFPB sought public comment about possible markets to include in the initial rule and available data sources the Bureau could use to define larger participants in nonbank markets.

Debt collectors and consumer reporting agencies touch millions of American consumers. About 30 million Americans have debt under collection. For these consumers, the average amount under collection is $1,400. Three main kinds of debt collection firms dominate the market: firms that collect debt owned by another company in return for a fee; firms that buy debt and collect the proceeds for themselves; and debt collection attorneys and law firms that collect through litigation. A single company may collect through any or all of these activities.

Under the proposed rule, debt collectors with more than $10 million in annual receipts from debt collection activities would be subject to supervision. Based on available data, the CFPB estimates that the proposed rule would cover approximately 175 debt collection firms -- or 4 percent of debt collection firms -- and that these firms account for 63 percent of annual receipts from the debt collection market.

The consumer reporting market plays a critical role in the consumer financial services marketplace and in consumers’ financial lives. It includes the largest credit bureaus selling comprehensive consumer reports, consumer report resellers, and specialty consumer reporting agencies. According to the Consumer Data Industry Association, each year there are 36 billion updates to consumer files, and three billion reports are issued. The three largest consumer reporting agencies alone maintain information on 200 million American consumers.

Lenders use consumer reports, which are commonly called credit reports, when evaluating applications for credit cards, home mortgage loans, automobile loans, and other types of credit. Specialty consumer reporting agencies collect and provide information used to make eligibility decisions for a variety of products, such as checking accounts.

Under the proposed rule, consumer reporting agencies with more than $7 million in annual receipts from consumer reporting activities would be subject to supervision. This would include approximately 7 percent of consumer reporting agencies based on available data. The proposed threshold would allow the CFPB to cover about 30 consumer reporting agencies. The CFPB estimates that these 30 companies account for about 94 percent of the annual receipts from consumer reporting.

This is the CFPB’s first in a series of rulemakings to define larger participants. The CFPB chose annual receipts as the criterion for both debt collection and consumer reporting because it approximates market participation in these two markets. As the CFPB adds new markets, it will choose the best criteria and the appropriate thresholds for each market.

The proposed rule is open for comment for 60 days after the rule is published in the Federal Register. The CFPB welcomes comment from the public on the proposed rule.

The proposed rule will be published online on Thursday at 11 a.m. here: http://www.consumerfinance.gov/notice-and-comment/

More information about the CFPB’s Nonbank Supervision Program is available here: http://www.consumerfinance.gov/pressrelease/consumer-financial-protection-bureau-launches-nonbank-supervision-program/

Below are the contents of a letter I received yesterday from Elizabeth Warren, Assistant to the President and Special Advisor to the Secretary of the Treasurey on the Consumer Financial Protection Bureau (CFPB) that was created in the first portion of President Obama's term.  Apparently, they are hard at work getting the CFPB up and running.

Dear Colleague,

In July 2010, Congress created a new federal agency to protect American consumers. The Consumer Financial Protection Bureau will be a cop on the beat, working to make consumer financial markets work better for American families. As the first new consumer agency of the 21st century, we can communicate directly with the people we serve.

Today, that work is just beginning. We’re moving quickly—building a terrific team, finding office space, and unpacking a lot of boxes.

Things aren’t all in place yet, but we don’t want to delay reaching out to the people who care about this agency. We’re excited to announce the launch of our website, ConsumerFinance.gov, for one very important reason – to start a conversation with you. With the launch of our site, we will be Open for Suggestions.

We hope you are eager to learn what this new agency will do and how it might affect you. In turn, we are definitely eager to hear what you have to say. Starting today, you can use the Internet to send us your best suggestions and questions for the bureau:

If you have a video camera, record a YouTube video and upload it as a response to our welcome video at http://www.youtube.com/CFPB.

If you like Twitter, tweet your suggestion using the hashtag #CFPB. You can also follow us at http://www.twitter.com/CFPB.

If you are on Facebook, you can “Like” us at http://www.facebook.com/CFPB, and post your suggestion on our wall.

If you want to use our website, you can post suggestions at http://www.consumerfinance.gov/openforsuggestions.

In the coming days and weeks, staff who are building this new agency will record direct video responses to some of the most frequent questions and most interesting suggestions. You’ll see the faces and meet the people who come to work every day to make a difference for the American people. We look forward to getting to know a little more about you, too. More is coming, so be sure to check back at http://www.consumerfinance.gov/openforsuggestions throughout the coming weeks.

Open for Suggestions is just one way that we plan to keep our conversation going with you. Be funny! Be creative! Most of all, be real about what matters to you. This is a great chance to go into your community with a camera, laptop, or mobile phone, or just a pen and paper, and help others participate. Involve your friends, your family, your colleagues and classmates, your faith community, and anyone you know who might be counting on this agency for information and help.

If you aren’t ready with a specific comment, that’s OK. Just let us know you are there—and stay in touch.

We can’t do it without you.

Thanks,

Elizabeth Warren

Go to their new website and make your concerns heard.