Oct. 18: CFPB Recent Updates

Published 

CFPB Sues Student Lender Climb Credit and Investment Firm 1/0 for Deceiving Borrowers About Coding Bootcamps and Vocational Programs

The Consumer Financial Protection Bureau (CFPB) sued student lender Climb Credit, and its largest shareholder 1/0 (“one zero”), for inducing students to take out loans by misrepresenting the quality of the training programs at their partner schools and making false claims about graduates’ hiring rates and salaries. The lawsuit alleges Climb Credit and 1/0 claimed to have vetted its partners’ schools for “outcomes and value” but in fact offered loans for programs that had failed the defendants’ own return-on-investment analysis or which they had not analyzed at all. The lawsuit also alleges that the defendants failed to properly disclose annual percentage rates in online marketing materials and illegally hid loan origination fees in disclosures. The CFPB is asking the court to order Climb Credit and 1/0 to stop their illegal practices, compensate the borrowers they harmed, and pay a civil penalty to the CFPB’s victim relief fund.

The CFPB alleges that the defendants maximized revenue by enticing potential customers into borrowing money for various vocational programs, including coding bootcamps. The lawsuit alleges that the defendants violated federal law, including by:

  • Deceiving borrowers about its partner schools: The defendants told borrowers they had vetted partner schools’ programs for outcomes and value, and touted a “return-on-investment” analysis. Partner schools put “Quality Verified” badges on their websites, and the defendants also operated a program comparison tool that made similar claims about return on investment. In reality, the defendants often did not vet programs for outcomes or value or used unreliable data in doing so.
  • Exploiting consumers’ trust by holding itself out as a reliable intermediary: Climb caused consumers to rely on it in identifying and choosing quality educational programs that they could pay for with Climb loans. And when consumers took out Climb loans to attend these programs, the defendants profited from consumers’ trust even as they failed to vet programs for quality.
  • Illegally ignoring red flags: In over 700 cases, the defendants told potential borrowers that a school had passed the return-on-investment analysis even when the defendants internally acknowledged they had low confidence in the school’s claimed job placement rate.
  • Hiding true costs of its loans: The defendants failed to accurately disclose finance charges on loan documents and failed to disclose the annual percentage rates when required to do so in marketing materials. Read more

Today, the Consumer Financial Protection Bureau (CFPB) and the Justice Department (DOJ) took action to end Fairway Independent Mortgage Corporation’s illegal mortgage lending discrimination against majority-Black neighborhoods in the greater Birmingham, Alabama area. The CFPB and DOJ allege that Fairway illegally redlined Black neighborhoods, including through its marketing and sales actions. Fairway’s actions discouraged people from applying for mortgage loans in the Birmingham metropolitan area’s Black neighborhoods. If entered by the court, the settlement announced today would require Fairway to pay a $1.9 million civil penalty to the CFPB’s victims relief fund. Fairway would also be required to provide $7 million for a loan subsidy program to offer affordable home purchase, refinance, and home improvement loans in majority-Black neighborhoods.

The CFPB and DOJ allege that Fairway violated the Equal Credit Opportunity Act, the Consumer Financial Protection Act, and the Fair Housing Act. Specifically, the government alleges problematic conduct by Fairway including:

  • Failing to address known signs of discrimination: Fairway’s own data showed that it was failing to serve majority-Black neighborhoods in the Birmingham area, but, before October 2022, it took no steps to address redlining risk other than telling loan officers not to discriminate. Only 3.7% of Fairway’s applications from 2018 through 2022 were for properties in majority-Black areas, compared to 12.2% for Fairway’s peer lenders. This disparity was even higher in neighborhoods with 80% or more Black residents, where Fairway made loans at less than an eighth of the rate of its peer lenders. Despite these figures, Fairway failed to adopt any written plan for marketing or growth to address the concern.
  • Redlining Black neighborhoods: From 2015 through 2022, Fairway operated three retail loan offices and three loan production desks located in real estate offices in the Birmingham metropolitan area, all of which were in majority-white areas. Fairway also relied on referrals from real estate professionals and others to generate applications, and the vast majority of Fairway’s referral sources and referred consumers were located in majority-white areas. Fairway predominantly directed its marketing to majority-white areas. By taking these actions, Fairway unlawfully discouraged mortgage loan applications for properties in majority-Black neighborhoods. Read more
Published 

The CFPB has announced three rulemakings related to threshold adjustments.

The first rule is a joint rulemaking between the CFPB, the Federal Reserve Board, and the Office of the Comptroller of the Currency to adjust the threshold for exempting loans from special appraisal requirements under the TILA Higher Priced Mortgage Loan Appraisal rule. This adjustment is effective January 1, 2025.

The second and third rules are joint rulemakings between the CFPB and the Federal Reserve Board to adjust the thresholds in Regulation Z and Regulation M for determining the exempt consumer credit transactions under TILA and the exempt consumer lease transactions under the Consumer Leasing Act. These adjustments are effective January 1, 2025.

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