Jan. 10: CFPB Recent Updates
CFPB Approves Application from Financial Data Exchange to Issue Standards for Open Banking
The Consumer Financial Protection Bureau (CFPB) issued an order recognizing Financial Data Exchange, Inc. (FDX) as a standard setting body under the CFPB’s Personal Financial Data Rights rule. The order of recognition is the first to be issued under the rule. The Personal Financial Data Rights rule, which was released in October 2024, requires financial institutions, credit card issuers, and other financial providers to unlock an individual’s personal financial data and transfer it to another provider at the consumer’s request for free. The CFPB established a formal application process outlining the qualifications to become a recognized industry standard setting body, which can issue standards that companies can use to help them comply with the CFPB’s rule. The CFPB also issued updated procedures for companies seeking special regulatory treatment, such as through “no-action letters.”
FDX is a standard-setting organization, operating in the United States and Canada. It has over 200 member organizations, including depository and non-depository commercial entities; data providers and data recipients; data aggregators; service providers to open banking participants; trade and industry organizations; and other non-commercial members, including consumer groups. FDX’s stated primary purpose is to develop, improve and maintain a common, interoperable standard for secure consumer and business access to financial records.
In September 2024, the CFPB received the application for recognition from FDX. CFPB published the application from FDX for public comment later that month. The application was then the first to be published for public comment.
The CFPB approved the application, subject to a number of conditions, including:
- Ban on “pay-to-play” and other conflicts of interest: The approval order ensures that FDX will develop standards to promote open banking without regard to sponsorships or other financial incentives to give certain market players secret information or any other advantage. FDX would need to ensure that the organization and its staff do not have any side arrangements that skew its financial incentives toward particular players in the industry.
- Mandatory reporting on market adoption: The approval order would require FDX to report to the CFPB on market use of its consensus standards and/or maintain a publicly available resource where companies can disclose their use of standards as well as any certifications of adherence to standards, for the benefit of open banking participants, regulators, and the public.
- Transparency and availability of standards: The approval order requires FDX to make freely available to the public any consensus standards that it adopts and maintains, subject to reasonable safeguards, and to ensure that non-members have the same access as members do. FDX must also make publicly available information about its standards development and issuance processes.
CFPB Sues Experian for Conducting Sham Investigations of Consumer Report Errors
The Consumer Financial Protection Bureau (CFPB) sued Experian, the nationwide consumer reporting agency, for unlawfully failing to properly investigate consumer disputes. The CFPB alleges that Experian does not take sufficient steps to intake, process, investigate, and notify consumers about consumer disputes, resulting in the inclusion of incorrect information on credit reports. Inaccurate or false information on consumer reports can threaten consumers’ access to credit, employment, and housing.
The CFPB alleges that Experian has violated the FCRA’s requirements for handling consumer disputes in numerous ways. Specifically, the CFPB alleges that Experian is harming consumers by:
- Conducting sham investigations that fail to properly address consumer disputes: When handling disputes, Experian uses faulty intake procedures and does not accurately convey all relevant information about disputes to the original furnisher. Experian routinely and uncritically accepts the original furnisher’s response to the disputed information, even when that response was improbable or illogical on its face, or when Experian has other information available that suggests the furnisher is unreliable. At the conclusion of the investigation, Experian sends consumers notices that fail to inform them of the investigation results, and instead provides information that is confusing, ambiguous, incorrect, or internally inconsistent.
- Improperly reinserting inaccurate information on consumer reports: Experian has failed to implement basic matching tools that prevent or greatly reduce the likelihood of reinsertion by a new furnisher of a previously deleted tradeline. Instead, Experian improperly reinserts inaccurate information into consumer reports because it fails to match newly reported information with records of previously deleted information. Consumers who have disputed the accuracy of an account and thought that their consumer report had been corrected, instead see the same inaccurate information reappear on their consumer report without explanation under the name of a new furnisher.
CFPB Sues Vanderbilt for Setting Borrowers Up to Fail in Manufactured Home Loans
The Consumer Financial Protection Bureau (CFPB) sued Vanderbilt Mortgage & Finance for setting families up to fail when they borrowed money to buy a manufactured home. The CFPB alleges that Vanderbilt’s business model ignored clear and obvious red flags that the borrowers could not afford the loans. As a result, many families found themselves struggling to make payments and meet basic life necessities. Vanderbilt charged many borrowers additional fees and penalties when their loans became delinquent, and some eventually lost their homes. The CFPB is seeking to stop Vanderbilt’s illegal practices and obtain relief for the harmed homeowners.
The CFPB alleges that Vanderbilt failed to make reasonable, good-faith determinations of borrowers’ ability to repay loans, as legally required. Specifically, the lawsuit alleges Vanderbilt:
- Manipulated lending standards when borrowers did not make sufficient income: In its underwriting process, Vanderbilt often disregarded evidence that borrowers did not have sufficient income or assets (other than the value of their home) to pay their mortgage and cover recurring obligations and basic living expenses, like food and health care. Sometimes, Vanderbilt originated loans for borrowers who were already struggling, making their financial situation worse. For example, Vanderbilt approved a loan for a family with 33 debts in collection and two young children. The borrowers fell behind only eight months after getting the mortgage.
- Fabricated unrealistic estimates of living expenses: Vanderbilt justified its determination that borrowers could pay the loans by using artificially low estimates of living expenses that made no adjustment for higher expenses in different geographic areas. Vanderbilt’s estimated living expenses were about half of the average of self-reported living expenses for other, similar, Vanderbilt loan applicants. These families were left with little or no buffer to cover unexpected expenses. For example, Vanderbilt left one family of five with only $57.78 in net income after Vanderbilt applied its estimate of living expenses. That family first missed a payment only a year after signing the mortgage.
- Made loans to borrowers it projected could not pay: In some cases, Vanderbilt violated its own policy and made loans to borrowers who, even under the company’s overly optimistic estimates, did not have enough income to cover the mortgage and basic living expenses. For example, Vanderbilt approved a mortgage for a single mother with two dependents after estimating she had insufficient income, and then sent her loan to collections when she missed a mortgage payment after only four months in the home.