Author Archives: consumerfinancewatchblog

Mortgage Lenders’ and Servicers’ Catch 22 in Connecticut

Posted on by
Reply

By: Jonathan M. Robbin and Adam M. Swanson

Ambiguities in Connecticut Public Act 2013-156, and the courts construing them, have created a Catch-22 for lenders and servicers. Connecticut Public Act 2013-156 and recent Court decisions allow condo associations to pursue serial foreclosures stripping more of the scant equity securing a first mortgage and shifting all of the associations’ losses. As a result, lenders and servicers are left with a difficult decision: Continue to pay associations and their fees and lose more equity in properties – many of which are underwater – or take title and risk affirmative claims by borrowers and/or regulatory scrutiny.

The attached article examines the Connecticut Act and the effect it has recently had on lenders and servicers.

Flagstar Bank Agrees to $37.5 Million Settlement with CFPB

Posted on by
Reply

By:  Joshua A. Huber

On September 28, 2014, Flagstar Bank, FSB (“Flagstar”) agreed to a Consent Order, under which it will pay $37.5 million to resolve allegations that it engaged in unfair acts or practices by impeding borrowers’ access to loss mitigation. Flagstar’s settlement with the Consumer Financial Protections Bureau (CFPB) marks the CFPB’s first major enforcement action under the new Mortgage Servicing Rules, which became effective January 1, 2014.[i]

The CFPB’s allegations encompassed five (5) areas of Flagstar’s default servicing practices. Specifically, the CFPB found that:

  1. Flagstar systematically failed to review loss mitigation applications in a reasonable amount of time which often caused required documents to expire. The CFPB specifically referenced Flagstar’s insufficient staffing, a significant backlog of loss mitigation applications, call wait times exceeding twenty-five (25) minutes and a ninety (90) day timeline to review a single borrower application.
  2. Flagstar withheld information that borrowers needed to complete their loss mitigation applications, such as “missing document letters” which are designed to inform borrowers of deficiencies in pending applications.
  3. Flagstar lacked a systemized, controlled process for calculating borrower income, which led to the improper denial of a large number of modifications.
  4. Flagstar impermissibly extended trial period plans beyond the timeframe permitted by investors, causing borrowers to lose out on permanent modifications.
  5. Flagstar’s ongoing administration of loss mitigation programs does not comply with the Mortgage Servicing Rules.

Flagstar consented to the issuance and enforcement of the Consent Order but neither admitted nor denied the CFPB’s findings of fact or conclusions of law. The remedial aspects of the Consent Order include a damages payment of $27.5 million ($20 million of which will be paid to foreclosed borrowers), a $10 million civil penalty pursuant to 12 U.S.C. § 5565(c) and a temporary prohibition on Flagstar’s ability to acquire servicing rights to any third-party originated loans which are in default.

The Consent Order demonstrates the CFPB’s continued focus on loss mitigation practices during the peak of the financial crisis. In light of this Consent Order, mortgage servicers would be well-served by reviewing and re-evaluating their loss mitigation processes.

[i] See 12 C.F.R. § 1024.41(b), et seq.

Second Circuit Holds that Liens Incident to Property Ownership are not “Debt” Under the FDCPA

Posted on by
Reply

By: Shane Biffar

A recent Second Circuit Court of Appeals decision ruled that mandatory water and sewer charges are not subject to the Fair Debt Collection Practices Act (“FDCPA”). In Boyd v. J.E. Robert Co., Inc., 2014 U.S. App. LEXIS 16620 (2d Cir. Aug. 27, 2014), the Second Circuit affirmed a New York district court’s holding that liens for mandatory water and sewer charges, which are imposed as an incident to property ownership, do not involve a “debt” as that term is defined in the FDCPA and therefore are not subject to the statute.

In Boyd, the defendants purchased water and sewer lien certificates from the City of New York before commencing foreclosure actions on the plaintiffs’ properties. The putative class action plaintiffs were property owners who alleged that the defendants violated the FDCPA by obtaining unauthorized attorneys’ fees and costs in connection with the foreclosure actions. The district court granted summary judgment for defendants and dismissed the FDCPA claims on the basis that, inter alia, the liens did not involve a “debt” as defined by the FDCPA.

On appeal, the plaintiffs argued that the district court erred in dismissing their FDCPA claims. The Second Circuit rejected plaintiffs’ argument and denied FDCPA recovery, noting that any violation of the FDCPA must occur in connection with the collection of a “debt,” which is defined as “any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which [] the subject of the transaction [is] primarily for personal, family, or household purposes . . . .” (emphasis added).

In its analysis, the Second Circuit cited its prior decision in Beggs v. Rossi, 145 F.3d 511 (2d Cir. 1998), which held that “municipal taxes levied automatically in connection with ownership of personal property do not involve a ‘transaction’ as that term is understood under the FDCPA and, accordingly, are not “debt” for purposes of the FDCPA.” Applying this reasoning, the Court similarly concluded that water and sewer charges, like property taxes, “are levied, in some amount, as an incident to property ownership in New York” and therefore “do not involve ‘debt’ under the FDCPA.”

Further, the Second Circuit distinguished the Third Circuit’s holding in Piper v. Portnoff Law Assoc., Ltd., 396 F.3d 227 (3d Cir. 2005), which held that certain water and municipal charges are subject to the FDCPA. Specifically, the Second Circuit highlighted that the water and sewer services in Piper were first requested by the property owner before they could be charged by the City. Accordingly, the payment obligation in Piper arguably arose out of the “transaction” of requesting water services and therefore constituted “debt” within the meaning of the FDCPA.

“Totality of the Circumstances” Standard Used in New York to Sanction Mortgagee for Lack of “Good Faith” Negotiation in Foreclosure Matter

Posted on by
Reply

By: Jill E. Alward and Timothy W. Salter

New York’s Appellate Division, Second Department, recently ruled that a mortgagee’s conduct in evaluating a borrower’s loan modification application should be judged using the “totality of the circumstances” standard to determine whether the mortgagee negotiated in good faith during mandatory foreclosure settlement conferences. Applying that standard in US Bank N.A. v. Sarmiento, 2014 NY Slip Op 05533 (2d Dep’t July 30, 2014), the Appellate Division affirmed a lower court’s holding that a foreclosing plaintiff failed to negotiate in good faith.

In Sarmiento, the plaintiff, over the course of a series of settlement conferences, offered the borrower an in-house loan modification but denied the borrower’s HAMP application four times. The borrower, after refusing to accept the in-house modification, moved for sanctions, which sought to bar the plaintiff from collecting any interest, costs, or attorneys’ fees from the date of the first settlement conference (December 1, 2009). In addition, the borrower asked the court to direct the plaintiff to review the borrower’s loan for HAMP “using correct information and without regard to interest or fees that have accrued on the subject loan since December 1, 2009.” The lower court granted the borrower’s motion in its entirety.
On appeal, the plaintiff argued that the lower court lacked the authority to impose sanctions for violating the good faith requirement of CPLR 3408(f) and further applied the wrong standard in support of its holding. The Second Department rejected both arguments.

In summarizing the offending conduct, the Second Department held that “[w]here a plaintiff fails to expeditiously review submitted financial information, sends inconsistent and contradictory communications, and denies requests for a loan modification without adequate grounds…such conduct could constitute the failure to negotiate in good faith to reach a mutually agreeable resolution.” The court further held that while “any one of the plaintiff’s various delays and miscommunications, considered in isolation, [did] not rise to the level of lack of good faith,” the plaintiff’s conduct, when reviewed using the “totality of the circumstances” standard, “evidenced a disregard for the settlement negotiation[,]” regardless of whether the borrower ultimately qualified for a HAMP modification.

While the court warned that its holding should be construed as a deviation from the principal limiting a court’s role in a foreclosure action “to interpretation and enforcement of the terms agreed to by the parties,” it ultimately alters and expands the standard of review for determining a mortgagee’s “good faith” during the foreclosure settlement process. The court’s holding has already been cited by at least one court, and does not appear to be an isolated ruling.

California District Court Clarifies the Extent of TILA and Regulation Z’s Disclosure Requirement Regarding Initial “Teaser” Interest On Adjustable Rate Mortgages

Posted on by
Reply

By: Brendan F. Hug

On July 10, 2014, a federal judge in the Central District of California ruled in favor of defendant JPMorgan Chase Bank, N.A. (“Chase”) in connection with the March trial of a class action lawsuit that posed novel questions about the scope of the federal Truth in Lending Act (“TILA”) and California’s Unfair Competition Law (“UCL”) (Cal, Bus. & Prof. Code §17200 et seq.). Among other claims, the class alleged that the lender defendant was liable for damages under the UCL for failing to properly disclose interest pursuant to TILA and Regulation Z.

In Schramm et al. v. JPMorgan Chase Bank NA et al., case no. 2:09-cv-09442, the Plaintiff homeowners accused Chase of deceiving them by securing higher interest payments than disclosed in the documentation for their adjustable rate mortgage. The lawsuit was filed in December 2009, and the class of homeowners was certified in late 2011. The UCL claim survived summary judgment in October 2013.

Plaintiffs alleged that they paid Chase an initial interest or “teaser” rate of 3.875 percent for a fixed period of time after the origination of their loans. They alleged that they accepted this teaser rate relying on Chase’s claim that the rate reflected the sum of a specified index and a fixed margin. However, that sum was actually 3.5 percent. Plaintiffs alleged that the disclosures they received failed to state that the initial interest rate could exceed the sum of the index and margin. The basis for achieving an interest rate in excess of the sum is termed a “premium.”

U.S. District Judge John A. Kronstadt ruled after trial that the Plaintiffs failed to prove that the bank’s practices violated the unlawful, fraudulent, or unfair prongs of the UCL. While TILA and Regulation Z requires that lenders make certain disclosures regarding the interest rate, the Judge found that the regulation was silent on the issue of “whether the initial interest rate may be discounted or based on a premium.” The decision further held that nothing in the regulation requires any specific disclosure about how such initial teaser rates are calculated. Without an underlying TILA or Regulation Z violation, the court dispensed with the attendant UCL claim.

New Foreclosure Rules In New Jersey Concerning the Foreclosure of Vacant and Abandoned Properties

Posted on by
Reply

By: Daniel A. Cozzi

On July 22, 2014 the Supreme Court of New Jersey adopted amendments to the Rules Governing the Courts of the State of New Jersey. The majority of the amendments became effective on September 1, 2014, the remaining amendments take effect on January 1, 2015. Among the amendments is a new rule governing the foreclosure of vacant properties, N.J. Rule 4:64-1A, “Foreclosure of Vacant and Abandoned Residential Property.” A full copy of the new rules and amendments can be found Here. Rule 4:64-1A sets out the rules and requirements for summary foreclosure of vacant and abandoned property.

In order to proceed summarily the mortgagee must file a Verified Complaint and Order to Show Cause which establish the vacancy of the property. Vacant and abandoned properties are defined by N.J.S.A. 2A:50-73. Real property shall be deemed “vacant and abandoned” if:

The court finds that the mortgage property is not occupied by a mortgagor or tenant as evidenced by a lease agreement entered into prior to the notice of intention to commence foreclosure … and at least two of the following conditions exist:

(1) overgrown or neglected vegetation;
(2) the accumulation of newspapers, circulars, flyers or mail on the property;
(3) disconnected gas, electric, or water utility services to the property;
(4) the accumulation of hazardous, noxious, or unhealthy substances or materials on the property;
(5) the accumulation of junk, litter, trash or debris on the property;
(6) the absence of window treatments such as blinds, curtains or shutters;
(7) the absence of furnishings and personal items;
(8) statements of neighbors, delivery persons, or government employees indicating that the residence is vacant and abandoned;
(9) windows or entrances to the property that are boarded up or closed off or multiple window panes that are damaged, broken and unrepaired;
(10) doors to the property that are smashed through, broken off, unhinged, or continuously unlocked;
(11) a risk to the health, safety or welfare of the public, or any adjoining or adjacent property owners, exists due to acts of vandalism, loitering, criminal conduct, or the physical destruction or deterioration of the property;
(12) an uncorrected violation of a municipal building, housing, or similar code during the preceding year, or an order by municipal authorities declaring the property to be unfit for occupancy and to remain vacant and unoccupied;
(13) the mortgagee or other authorized party has secured or winterized the property due to the property being deemed vacant and unprotected or in danger of freezing;
(14) a written statement issued by any mortgagor expressing the clear intent of all mortgagors to abandon the property;
(15) any other reasonable indicia of abandonment.

N.J.S.A. 2A:50-73. Additionally, a residential property shall not be considered “vacant and abandoned” if, on the property:

(1) there is an unoccupied building which is undergoing construction, renovation, or rehabilitation that is proceeding diligently to completion, and the building is in compliance with all applicable ordinances, codes, regulations, and statutes;
(2) there is a building occupied on a seasonal basis, but otherwise secure; or
(3) there is a building that is secure, but is the subject of a probate action, action to quiet title, or other ownership dispute.

Id.

An important provision of the new rule is the procedure for the Entry of Judgment. If the court determines that residential property is vacant and abandoned as established by N.J.S.A. 2A:50-73, the court may enter final judgment on the return date of the Order to Show Cause. Rule 4:64-1A(c)(3). Ordinarily, an application for final judgment in uncontested matters must be made, “on motion with 10 days notice if there are no other encumbrancers and on 30 days notice if there are other encumbrancers.” Rule 4:64-1(d)(2).

In addition to N.J. Rule 4:64-1A, several other New Jersey Rules have been enacted or amended. Any party interested in Consumer Finance Litigation should review the changes to Rules 4:64-1 (Foreclosure Complaint, Uncontested Judgment Other Than In Rem Tax Foreclosures); 4:64-2 (Proof; Affidavit) and 4:64-9 (Motions in Uncontested Matters).

Ninth Circuit Affirms that FIRREA Stripped Court of Jurisdiction Over Claims Against JPMorgan Related to WaMu Loan

Posted on by
Reply

By:      Diana M. Eng

The Ninth Circuit Court of Appeals recently issued an opinion affirming the dismissal of claims by borrowers Todd and Michele Rundgren (“Borrowers”) against JPMorgan Chase, N.A. (“JPM”) for the alleged fraudulent conduct of now-defunct Washington Mutual Bank, F.A. (“WaMu”).  Rundgren v. Washington Mutual Bank, FA et al., No. 12-15368 (9th Cir. July 29, 2014).  The Ninth Circuit found that the district court properly determined that it lacked subject matter jurisdiction over Borrowers’ claims related to WaMu’s pre-failure conduct due to Borrowers’ failure to exhaust the administrative claims process mandated by the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (“FIRREA”).

FIRREA provides a comprehensive claims process that allows the Federal Deposit Insurance Corporation (“FDIC”), as Receiver, to determine claims against failed banks.  See id., at 6 (citing 12 U.S.C. § 1821(d)(3)-(10)).  Further, FIRREA unequivocally strips courts of jurisdiction over claims that have not been exhausted through this administrative claims process.  Specifically, section 1821(d)(13)(D) of FIRREA provides that “no court shall have jurisdiction over—(i) any claim or action for payment from, or any action seeking a determination of rights with respect to, the assets of any depository institution for which the [FDIC] has been appointed receiver . . . ; or (ii) any claim relating to any act or omission of such institution . . . .” (Emphases added).

In Rundgren, Borrowers refinanced their mortgage on their Hawaiian property with WaMu in 2008 for approximately $3,000,000.  Later that year, WaMu was seized by the Office of Thrift Supervision, and the FDIC was appointed Receiver.  The FDIC then transferred substantially all of WaMu’s assets, including the Rundgrens’ mortgage, to JPM pursuant to a Purchase and Assumption Agreement (“P&A”); the FDIC retained most liabilities associated with those assets under the P&A.  Since Borrowers defaulted on their mortgage, JPM accelerated the payments and notified them that a non-judicial foreclosure sale was scheduled for August 26, 2009.

Borrowers filed suit in Hawaii state court against WaMu and JPM, alleging that WaMu engaged in deceptive and fraudulent acts in connection with the refinancing, including securing a false appraisal and exaggerating Borrowers’ income. JPM removed the action to federal court, and the district court dismissed the case against JPM for lack of jurisdiction, because Borrowers had failed to exhaust their claims against the FDIC through the FIRREA claims process. The district court held that, alternatively, Borrowers failed to sate a claim.

On appeal, the Ninth Circuit affirmed, holding that because “WaMu was placed into receivership of the [FDIC], and the Rundgrens failed to exhaust the administrative remedies provided by FIRREA, the district court correctly determined it lacked authority to hear the Rundgrens’ claims.” Borrowers asserted two arguments that were flatly rejected by the Court.

First, Borrowers argued that their claims are not the sort of claims contemplated by section 1821(d)(13)(D), because Borrowers are not WaMu’s creditors.  The Court examined the purpose of FIRREA and explained that section 1821(d)(13)(D) “is drafted broadly to preclude courts from exercising jurisdiction over ‘any claim or any action for payment from, or any action seeking a determination of rights with respect to’ the assets of a failed bank in the hands of the FDIC, or ‘any claim relating to any act or omission’ of a failed bank, without respect to the identity of the claimant.”  The Court emphasized that nothing in the section suggests that “any claim” is limited to claims by creditors.  The Court also noted that although Congress specifically referred to “creditors” in other sections of FIRREA, section 1821(d)(13)(D) does not refer to “creditors,” which further supports the conclusion that federal courts should be precluded from exercising jurisdiction over any claims by a claimant who has failed to exhaust the FIRREA claims process.

Second, Borrowers argued that their complaint should be construed as raising affirmative defenses, because they are attempting to prevent a nonjudicial foreclosure.  This argument was based on Borrowers’ belief that section 1821(d)(13)(D) does not preclude the district court from exercising jurisdiction over an affirmative defense.  The Court disagreed, indicating that since Borrowers’ had contractually agreed to allow the lender to proceed to foreclosure without judicial proceedings, the lender “had no need to pursue foreclosure through a court action” and therefore, Borrowers “could not block a foreclosure by raising affirmative defenses.”  Rather, Borrowers chose to bring an affirmative lawsuit against WaMu and JPM for common law and statutory claims based on WaMu’s alleged fraud.  The Court found that nothing in FIRREA supports Borrowers’ argument that such a lawsuit should be construed as an affirmative defense.

Lastly, the Court concluded that Borrowers’ complaint alleges claims “relating to any act or omission” of WaMu, but does not assert any independent claims against JPM.  In reaching this conclusion, the Court found that all the claims in Borrowers’ complaint “rest on the theory that WaMu took deceptive and fraudulent actions to induce them to enter into a loan agreement.”  Importantly, the Court emphasized that “a claimant cannot circumvent the exhaustion requirement [of FIRREA] by suing the purchasing bank based on the conduct of the failed institution.”  Indeed, “[w]here a claim is functionally, albeit not formally, against a depository institution for which the FDIC is receiver, it is a ‘claim’ within the meaning of FIRREA’s administrative claims process.’” (Emphases in original).

Entities that purchase assets out of receivership and entities that subsequently acquire such assets should be mindful of the jurisdictional defense based on FIRREA.

Maryland Court Rejects Borrowers’ Attempt to Expand FCRA Requirements on Mortgage Servicers

Posted on by
Reply

By Joe Patry

Recently, in Bartlett v. Bank of Am., NA, CIV.A. MJG-13-975, 2014 WL 3773711 (D. Md. July 29, 2014), a Maryland federal court rejected borrowers’ argument that their mortgage servicer violated the FCRA by accessing their credit reports without notifying them that it had done so in connection with a loan modification application.  Id. at *1.

The Fair Credit Reporting Act (the “FCRA”), 15 U.S.C. 1681 et seq. requires that credit reporting agencies make a number of disclosures when financial institutions access a borrower’s credit report.  See, e.g., 15 U.S.C. § 1681g.  The FCRA also imposes certain requirements directly on mortgage lenders.  15 U.S.C. §1681g(g)(1).  In particular, when a consumer applies for a new mortgage loan on a residential property, the mortgage lender must notify the consumer “as soon as reasonably practicable” that the lender accessed that consumer’s credit report.  See Id.

The borrowers argued that because an application for a loan modification is an application for credit under the Equal Credit Opportunity Act (“ECOA”), 15 U.S.C. 1691 et seq., Bartlett, 2014 WL 3773711 at *4, an application for a loan modification requires that lenders must provide borrowers with the disclosures that mortgage lenders must provide under the FCRA.  Id.  Notably, ECOA is silent regarding notifying borrowers that lenders have accessed borrowers’ credit report in connection with a modification review.  However, ECOA requires that a creditor must inform a borrower of its action on a borrower’s application for a loan modification within thirty days of the receipt of a completed loan modification application. See Piotrowski v. Wells Fargo Bank, N.A., CIV.A. DKC 11-3758, 2013 WL 247549, *6 (D. Md. Jan. 22, 2013).

The Bartlett court rejected borrowers’ argument, noting that ECOA and FCRA have different requirements, and holding that an application for a loan modification is not an application for a new loan.  Bartlett, 2014 WL 3773711 at *4.  Thus, when the mortgage servicer in Bartlett accessed the borrowers’ credit reports while it was reviewing them for a loan modification, the mortgage servicer was not required to notify the borrowers that it had done so.  Id.

The Bartlett decision clarifies the interplay between ECOA and the FCRA and provides some guidance to lenders and consumers regarding what disclosures a lender must make when consumers apply for loan modifications.   

CFPB Bulletin Offers Guidance on Mortgage Servicing Transfers

Posted on by
Reply

By: Michael J. Meehan

On August 19, 2014, the Consumer Financial Protection Bureau (CFPB) issued a fifteen-page bulletin addressing mortgage servicing transfers, and specifically, the potential risks to consumers that arise in connection with transferring loans that are the subject of loss mitigation efforts. This bulletin replaces the bulletin that was released in February 2013.

Under the new CFPB servicing rules (specifically, 12 C.F.R. § 1034.38(b)(4)), servicers are required to maintain policies and procedures that are reasonably designed to facilitate the transfer of information and documentation during servicing transfers. According to the bulletin, the CFPB expects that contracts governing servicing transfers will require the transferor to provide all necessary documents and information upon transfer. Further, the bulletin indicates that to facilitate the transfer, the transferor and transferee servicer should have compatible technology and data mapping systems to allow the transferee servicer to identify, among other things, applicable loan terms, relevant document indexing, and “specific regulatory or settlement requirements applicable to some or all of the transferred loans.”

The bulletin stresses these requirements in the context of loans approved for, or under review for, a loss mitigation option. It discusses the “heightened risk inherent in transferring loans in loss mitigation” and emphasizes the need to prevent loss mitigation documentation and information from being lost or insufficiently reviewed upon transfer. In addition, the bulletin indicates that the CFPB expects transferor servicers to flag loans with pending and approved loss mitigation applications (including trial modifications) and to send the information and documentation through a system that ensures the transferee can process the loss mitigation data upon transfer. In particular, the bulletin highlights that a transferee servicer should have policies and procedures requiring the transferor servicer to provide a detailed list of all loans with pending loss mitigation applications or approved plans.

Among its notable loss mitigation directions, the bulletin requires a transferee servicer to have policies allowing it to distinguish partial loan payments from payments made pursuant to a trial or permanent loan modification. It is advisable for a transferee servicer to seek missing loss mitigation information or documentation directly from the transferor servicer prior to requesting the information from borrower; the bulletin adds, “A transferee that requires a borrower to resubmit loss mitigation application materials is unlikely to have policies and procedures that comply with 12 C.F.R. 1024.38(b)(4).” Moreover, the bulletin states that a transferee servicer is also expected to adhere to the early intervention requirements under amended Regulation X and should contact the borrower on the 36th and 45th day of delinquency regardless of whether the delinquency commenced during the transferor’s servicing. Generally speaking, the bulletin anticipates that the CFPB will “carefully scrutinize” any instance where a loss mitigation evaluation takes longer than 30 days from when the transferor servicer receives the application, particularly where a borrower suffers negative consequences because of the delay.

Servicers transferring or acquiring servicing rights to consumer mortgage loans should review their policies for compliance with the recent CFPB guidance.

CFPB Extends Time for Public Comment on Proposed Policy Statement on Disclosure of Consumer Complaint Narrative Data

Posted on by
Reply

By: Chrissy M. Dunn

On July 29, 2014, the Consumer Financial Protection Bureau (CFPB) announced that it would provide additional time for public comment on its recently released Notice of Proposed Policy Statement on Disclosure of Consumer Complaint Narrative Data.

The CFPB seeks comments related to the proposed extension of the policies to include complaint narratives. With that scope, the Bureau is specifically seeking public comment on the following:

  • Consumer Consent to Disclose Narratives
  • Company Response
  • Personal Information Scrubbing Standard and Methodology

The CFPB currently discloses limited information regarding complaints received about consumer financial products and services through its web-based, public-facing Consumer Complaint Database. The CFPB now proposes to expand the disclosed information to include consumer complaint narrative data (“narratives”). The CFPB states that only narratives for which opt-in consumer consent is obtained, and that have been scrubbed of personal identifying information, will be subject to disclosure.

The CFPB acknowledges certain risks related to the proposed narrative disclosures. Specifically the CFPB acknowledges the following risks in its notice of proposed policy statement:

  1. Possible re-identification of actual consumers within the Consumer Complaint Database. To de-identify data is to remove personal information from a dataset, thereby obscuring individual identities. Re-identification generally occurs when separate datasets are combined to reestablish some number of individual identities.
  2. Narratives may contain factually incorrect information. This may occur where a complainant misunderstands or misrecollects what happened. If consumers were to rely without question on all narrative data, it is possible that subsequent purchasing decisions may be based on misinformation. To the extent this risk may be realized, both consumers and the financial institutions that lose business due to misinformation would be disserved. The CFPB also notes the risk that financial institutions could incur intangible reputational damage as a result of the dissemination of complaint narratives.

The CFPB contends that these risks are mitigated because the proposed policy provides for public release of the company’s response to the consumer’s complaint, side-by-side and scrubbed of any personal information.

The CFPB initially invited public comment on the proposed policy for a period of thirty days. On July 29, 2014, it posted on its blog that, due to feedback and requests received, the comment period has been extended to September 22, 2014, 60 days from the date the proposed policy was published in the Federal Register.

Comments may be submitted as follows:

  1. Electronically at http://www.regulations.gov.
  2. Mail: Monica Jackson, Office of the Executive Secretary, Consumer Financial Protection Bureau, 1700 G Street NW, Washington, DC 20552.
  3. Hand Delivery/Courier: Monica Jackson, Office of the Executive Secretary, Consumer Financial Protection Bureau, 1275 First Street NE, Washington, DC 20002.

All submissions, including attachments and other supporting materials, will become part of the public record and will be subject to public disclosure. As such, sensitive personal information, such as account numbers or Social Security numbers, should not be included. Comments will not be edited to remove any identifying or contact information, such as name and address information, email addresses, or telephone numbers.