Dec. 20: CFPB Recent Updates
Today, the Consumer Financial Protection Bureau (CFPB) sued the operator of Zelle and three of the nation’s largest banks for failing to protect consumers from widespread fraud on America’s most widely available peer-to-peer payment network. Early Warning Services, which operates Zelle, along with three of its owner banks—Bank of America, JPMorgan Chase, and Wells Fargo—rushed the network to market to compete against growing payment apps such as Venmo and CashApp, without implementing effective consumer safeguards. Customers of the three banks named in today’s lawsuit have lost more than $870 million over the network’s seven-year existence due to these failures.
The CFPB’s lawsuit describes how hundreds of thousands of consumers filed fraud complaints and were largely denied assistance, with some being told to contact the fraudsters directly to recover their money. Bank of America, JPMorgan Chase, and Wells Fargo also allegedly failed to properly investigate complaints or provide consumers with legally required reimbursement for fraud and errors. The CFPB is seeking to stop the alleged unlawful practices, secure redress and penalties, and obtain other relief.
Bank of America, N.A. is a national bank and subsidiary of the Bank of America Corporation, headquartered in Charlotte, North Carolina. As of June 30, 2024, Bank of America had over $2.5 trillion in consolidated total assets.
Zelle allows near-instant electronic money transfers through linked email addresses or U.S.-based mobile phone numbers, known as “tokens.” Users can create multiple tokens across different banks and quickly reassign them between institutions, a feature that has left consumers vulnerable to fraud schemes.
The CFPB alleges widespread consumer losses since Zelle’s 2017 launch due to the platform’s and the defendant banks’ failure to implement appropriate fraud prevention and detection safeguards. The CFPB alleges that Bank of America, JPMorgan Chase, Wells Fargo, and Early Warning Services violated federal law through critical failures including:
- Leaving the door open to scammers: Zelle’s limited identity verification methods have allowed bad actors to quickly create accounts and target Zelle users. For example, criminals often exploited Zelle’s design and features to link a victim’s token to the fraudster’s deposit account, which caused payments intended for the consumer’s account to instead flow to the fraudster account.
- Allowing repeat offenders to hop between banks: Early Warning Services and the defendant banks were too slow to restrict and track criminals as they exploited multiple accounts across the network. Banks did not share information about known fraudulent transactions with other banks on the network. As a result, bad actors could carry out repeated fraud schemes across multiple institutions before being detected, if they were detected at all.
- Ignoring red flags that could prevent fraud: Despite receiving hundreds of thousands of fraud complaints, the defendant banks have failed to use this information to prevent further fraud. They also allegedly violated the Zelle Network’s own rules by not reporting fraud incidents consistently or on time.
- Abandoning consumers after fraud occurred: Despite obligations under the Electronic Fund Transfer Act and Regulation E, the defendant banks failed to properly investigate Zelle customer complaints and take appropriate action for certain types of fraud and errors.
Published DEC 18, 2024
The Consumer Financial Protection Bureau (CFPB) announced major actions today to protect consumers from illegal credit card practices and help people save money on interest and fees. In a circular to other law enforcement agencies, the CFPB warned that some credit card companies operating rewards programs may be breaking the law, including by illegally devaluing rewards points and airline miles. The CFPB also published new research finding that retail credit cards—which typically offer store-specific rewards and loyalty programs—charge significantly higher interest rates than traditional cards. The CFPB further launched a new tool, Explore Credit Cards, to help consumers find the best credit card rates across both rewards cards and traditional cards. This first-of-its-kind tool enables consumers to compare more than 500 credit cards using unbiased, comprehensive data.
The CFPB’s actions arrive during the busy end-of-year shopping and travel season; for instance, retail card originations tend to be seasonal, peaking in November and December as retail sales volumes and promotions are high during the holidays.
CFPB Moves to Stop Credit Card Rewards Program Schemes
The circular released by the CFPB addresses practices in credit card rewards programs, which companies increasingly use to encourage consumers to apply for and use specific cards. Since 2019, more than 90 percent of general-purpose credit card spending occurred on rewards cards. In today’s marketplace, credit card issuers often promise cash, points, and miles sign-up bonuses to consumers, as well as rewards for certain types of spending. Consumers have reported to the CFPB that these rewards can be difficult to redeem or are sometimes devalued by policy changes by partners. Read more
Today, the Consumer Financial Protection Bureau (CFPB) issued a report on the experiences of homeowners dealing with their mortgage company after divorce or the death of an original borrower. Many homeowners report that their servicers push them to take on new, higher-interest loans instead of keeping their existing mortgage. Homeowners also report recurring requests from servicers for the same or updated documents extending over months and sometimes years, at the same time they are dealing with the death of a loved one or a divorce. Domestic violence survivors face additional challenges, including mortgage companies continuing to send critical mortgage information to the abuser and thus putting the survivor’s safety at risk. Servicers generally blame investor requirements, processing volumes, or “systems issues,” rather than taking responsibility for their shoddy customer service.
Each year, many Americans become homeowners following the death of a spouse or family member, or through divorce. If there is a mortgage on the home, these homeowners must make sure the mortgage payments are made on time to avoid foreclosure. Federal rules and mortgage program guidelines require servicers to help these successor homeowners get information on the existing mortgage, including how to make payments and evaluation for help making their payments through a loan modification, if necessary. Homeowners who want to modify their loan payments or remove a borrower from the mortgage must typically accept legal responsibility for the payments or “assume” the mortgage, and they may need to go through an investor or federal mortgage agency’s underwriting process. Read more
Today, the Consumer Financial Protection Bureau (CFPB) finalized a rule mandated by Congress that applies existing residential mortgage protections to Property Assessed Clean Energy (PACE) loans. PACE loans are used by homeowners for clean energy upgrades and disaster readiness that are paid back through their property tax bills. Because of concerns about subprime-style lending that puts homeowners at risk of losing their home, Congress required the CFPB to enhance protections.
The rule will ensure that PACE borrowers have the right to receive standard mortgage disclosures that allow them to compare the cost of the PACE loan with other forms of financing, and the lender will be responsible for ensuring that the borrower is not set up to fail with an unaffordable loan.
Most PACE loans are marketed to homeowners, typically through door-to-door sales, by a company who brokers financing and contracts for clean energy installation or other home improvements. These companies may promise that the improvements will pay for themselves with energy savings or through enhanced disaster preparedness.
While PACE financing can provide quick cash for home improvements, CFPB research shows that:
- Most PACE borrowers are eligible for other forms of financing, often at much cheaper rates than PACE loans.
- PACE loans caused borrowers’ property taxes to increase by about $2,700 per year or an 88 percent increase.
- PACE borrowers were more likely to fall behind on their first mortgage than people who chose not to finance home improvements with PACE.
- PACE loans tend to be more expensive – around five percentage points higher — than first mortgages, even though PACE loans get paid at a foreclosure sale before first mortgages. Read more
Published
Today, the CFPB issued a Final Rule related to residential Property Assessed Clean Energy (PACE) transactions.
The final rule:
- amends Regulation Z’s exclusion of tax assessments and tax liens from the definition of credit to clarify that voluntary tax assessments and tax liens, such as PACE financing, are not excluded under TILA and Regulation Z;
- recognizes PACE financing as meeting the definition of credit under TILA and Regulation Z;
- prescribes ability-to-repay requirements for residential PACE financing; and
- makes other amendments and exemptions to make clear how other rules in Regulation Z apply to PACE financing.
The Final Rule includes model Loan Estimate and Closing Disclosure forms to be used to comply with the TILA-RESPA Integrated Disclosure (TRID) Rule for PACE transactions.
You can access the Final Rule, the Executive Summary, and the TRID forms here: www.consumerfinance.gov/compliance/compliance-resources/mortgage-resources/property-assessed-clean-energy-pace-transactions/.
CFPB Uncovers Illegal Practices Across Student Loan Refinancing, Servicing, and Debt Collection
The Consumer Financial Protection Bureau (CFPB) released a special edition of its Supervisory Highlights describing a range of unlawful activities identified by CFPB examiners across student loan markets. The report covers violations related to student loan refinancing, private lending and servicing, debt collection, and federal loan servicing.
“Companies break the law when they mislead student borrowers about their protections or deny borrowers their rightful benefits,” said CFPB Director Rohit Chopra. “Student loan companies should not profit by violating the law.”
Student loans represent the second-largest form of U.S. consumer debt at more than $1.7 trillion in total outstanding balances. Within the past year, many student borrowers faced challenges, including as 28 million federal student loan borrowers returned to repayment following the end of the COVID-19 payment pause. Today’s report details how CFPB examiners identified instances of companies engaging in illegal practices across student loan markets, including:
- Lenders misleading borrowers and failing to carry out their instructions for refinancing: Refinancing or consolidating federal loans through a private lender results in the loss of important federal protections. CFPB examiners found that lenders gave misleading impressions that borrowers who refinance might not lose access to federal loan cancellation programs. Lenders also failed to re-amortize consolidated loans following borrowers’ requests to exclude federal loans.
- Private lenders deceiving borrowers or denying benefits: Supervision found that lenders unfairly denied discharge applications for borrowers who were eligible based on Total and Permanent Disability status. Lenders also inaccurately claimed certain borrowers were ineligible for autopay discounts or falsely advertised to borrowers that they could suspend their loan payments if they lost their job but later eliminated this benefit. Read more