Alston & Bird Consumer Finance Blog

Archives for February 25, 2020

CFPB Deputy Director Brian Johnson to Join Alston & Bird as Partner in Washington, D.C.

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Alston & Bird is expanding its consumer financial services and public policy capabilities with the addition of Brian Johnson, deputy director of the U.S. Consumer Financial Protection Bureau (CFPB), who will join the firm in March as partner in Washington, D.C.

“Brian’s impressive combination of experience and leadership in government regulation and oversight in the financial services industry is second to none,” said Chris Frieden, Alston & Bird partner and co-chair of the firm’s Financial Services & Products Group. “He will be a strong voice and advocate for our clients on legal and policy issues at the most senior levels in the CFPB and across Washington.”

Johnson has served as the CFPB’s deputy director since May 2019. As second-in-command of the agency and principal advisor to CFPB Director Kathy Kraninger, he has been responsible for all policy development and strategic planning and execution of the CFPB’s examination, enforcement, rulemaking, and research activities. He has served as the director’s representative in high-level and sensitive matters involving Congress; the Departments of the Treasury, Housing and Urban Development, and Education; federal regulatory agencies such as the Federal Housing Finance Agency, Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation; as well as state organizations, including the Conference of State Bank Supervisors and National Association of Attorneys General.

Johnson is also credentialed in the FinTech regulatory space. He developed and led the implementation of the CFPB’s Office of Innovation, which launched in 2018 as a regulatory framework designed to reduce potential barriers to innovation as the financial services industry develops new products and services related to cryptocurrencies, blockchain technologies and microlending, and loans by individuals.

“The CFPB’s legal and regulatory framework, which is mirrored by numerous state regulators and attorneys general, continues to be a significant challenge for many in the industry,” said Nanci Weissgold, Alston & Bird partner and co-leader of the firm’s Consumer Financial Services Team. “Brian brings an insider’s view of the CFPB and its relationships with the executive branch and Congress that will serve our clients well on matters ranging from regulatory and compliance issues and examinations to enforcement and related litigation.”

Johnson first joined the CFPB in December 2017 as senior advisor to then-Acting Director Mick Mulvaney and was named policy director in April 2018. He became acting deputy director and principal advisor to the agency’s current director in July 2018.

Earlier in his career, Johnson served on the House Financial Services Committee, where he spent more than five years in various positions, including senior counsel, chief financial institutions counsel, and policy director. While on the committee, he led the policy and legislative work for the Financial Institutions and Consumer Credit Subcommittee on issues related to consumer protection and credit, mortgage origination, credit reporting, banking, and data security.

Before joining Congress, Johnson served on the staff of former Ohio Attorney General Mike DeWine, now governor, and the White House Domestic Policy Council.

Johnson also clerked for the Hon. Terrence O’Donnell, former justice of the Supreme Court of Ohio.

“Brian’s experience both at the CFPB and in Congress will be a boost to our clients as they pilot the consumer finance regulatory and enforcement cross-currents at both the federal and state levels,” said Dennis Garris, partner in charge of Alston & Bird’s Washington, D.C. office. “Brian’s addition will complement our other recent arrivals, adding to our deep and dynamic bench of attorneys whose insights and knowledge serve our clients’ most important business needs in Washington and nationally.”

Johnson is the most recent addition to Alston & Bird’s Washington, D.C. office. He follows Jason Levine, who arrived from Vinson & Elkins in January as litigation partner; Kathleen Benway, a former Federal Trade Commission official who joined in December from Wilkinson Barker Knauer as government investigations partner; Richard Slowinski, who arrived from Baker McKenzie as tax partner in October; and Jane Lucas, who joined in September from the White House as public policy and health care counsel.

 

CFPB Issues Winter 2020 Supervisory Highlights

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A&B ABstract:

The Winter 2020 Supervisory Highlights identifies the CFPB’s findings from recent examinations, noting violations that resulted in compliance management system weakness.

CFPB Issues New Edition of Supervisory Highlights:

The Winter 2020 edition of the Consumer Financial Protection Bureau (“CFPB”) Supervisory Highlights details recent examination findings relating to debt collection, mortgage servicing, and student loan servicing, among other topics.

Debt Collection

 With respect to debt collection, the CFPB focused on:

  • Failure to disclose in communications subsequent to the initial written communication that the communication is from a debt collector, in violation of Section 807(11) of the FDCPA; and
  • Failure to send a written validation notice within five days after the initial communication with the consumer, in violation of Section 809(a) of the FDCPA.

As a result of these deficiencies, the CFPB reported that servicers revised their policies and procedures, and monitoring and training programs.

Mortgage Servicing and Loss Mitigation

With a focus on compliance with the loss mitigation provisions of Regulation X, the CFPB’s first finding was that servicers failed to notify borrowers in writing of the servicer’s determination that the loss mitigation application is complete or incomplete within five business days of receiving a loss mitigation application.  Second, the CFPB found that servicers failed to provide borrowers with a written notice of available loss mitigation options within 30 days of receiving the complete loss mitigation application.

Finally, the CFPB cited servicers’ failure to comply with Regulation X’s requirements, including providing a written notice to borrowers, for offering a short term loss mitigation option to a borrower based on an evaluation of an incomplete loss mitigation application. In this instance, the servicers granted short-term forbearance if the borrower in a disaster area experienced home damage or loss of income from the disaster. The borrowers received such accommodation after speaking with the servicer over the phone and responding to certain questions.

In response to that finding, the CFPB reminded servicers that an application for loss mitigation can be oral or written.   Because the servicer’s efforts to respond to a natural disaster were the partial cause of violations, the CFPB only required the servicer to develop plans to ensure staffing capacity in response to any future disaster-related increases in loss mitigation applications. The CFPB also reminded servicers of its September 2018 Statement on Supervisory Practices Regarding Financial Institutions and Consumers Affected by a Major Disaster or Emergency, which provides flexibility for servicers to assist borrowers during a major disaster or emergency but does not lift the Regulation X requirements.

Payday Lending

With a focus on Regulation Z, Regulation B, and unfair acts or practices, the CFPB found that lenders engaged in unfair acts or practices when they: (1) processed borrowers’ payments, but did not apply such payments to borrowers’ loan balances in lenders’ systems; (2) lacked systems to detect unapplied payments; and (3) incorrectly treated borrowers accounts as delinquent. The CFPB found that the injury was not reasonable avoidable by the borrowers because lenders conveyed incorrect information to them about their accounts and failed to follow up on borrower’s complaints. Furthermore, because the cost to lenders to implement appropriate accounting controls to reconcile payments would have been reasonable, countervailing benefits did not outweigh the injury.

Additionally, the CFPB found that a payday lender engaged in unfair acts or practices by assessing consumers a fee as a condition of paying or settling a delinquent loan when the underlying loan contract required the lender to pay that particular fee. The lender mischaracterized the fee as a court cost (which would have been paid by the borrower) or did not disclose it. According to the CFPB, a lack of monitoring and/or auditing of the lender’s collection practices caused the error. In response to this finding, the lender refunded the fee to affected consumers and made changes to its compliance management system.

Other Payday Lending Observations

Further, the CFPB found that payday lenders:

  • Violated Regulation Z by relying on employees to manually calculate APRs when the lender’s loan origination system was unavailable. The CFPB found that errors made in calculating the term of the loan, which resulted in misstated APRs, were caused by weaknesses in employee training.
  • Violated Regulation Z by charging a loan renewal fee to consumers who were refinancing delinquent loans and omitted such fee from the finance charge, resulting in inaccurate disclosure of the APR and finance charge. The CFPB found that a lack of detailed policies and procedures and training contributed to the Regulation Z violations. In response, the lender refunded the fee to the consumer explaining the reason for the refund and strengthened its policy and procedures and training program.
  • Violated record retention requirements of Regulation Z by failing to maintain evidence of compliance for two years. The CFPB found that the violation resulted in part from a lack of training and detailed policies and procedures on record retention.
  • Violated Regulation B by providing consumers with an adverse action notice that incorrectly stated the principal reason for taking an adverse action as a result of a coding error. In response, the lenders sent corrected adverse action notices to consumers and made changes to the system that generate the notices.

Student Loan Servicing

With a focus on unfair practices, the CFPB found that servicers engaged in an unfair act or practice caused by a data mapping errors during the transfer of private loans between servicing systems that resulted in inaccurate calculations of monthly payment amounts. As a result, borrowers may have made payments based on the inaccurate amounts, incurred late fees on such inaccurate amounts, or had inaccurate amounts debited from their account. In response to the examination findings, the CFPB required servicers to remediate affected consumers and implement new processes to eliminate data mapping errors.

 Takeaways

Highlighting debt collection, mortgage servicing, payday lending and student loan servicing, the Supervisory Observations in the Winter 2020 Supervisory Highlights showcase the importance of adequate policies and procedures, training, monitoring and auditing and system controls to avoid consumer harm and violation of consumer financial laws.  Although they cut across multiple industries, the CFPB’s findings highlight common themes – such as entities’ liability for violations that result from system errors or the assessment of unauthorized fees, and the need for careful monitoring in connection with servicing transfers.