Consumer Finance: Kraninger Testifies, CFPB Reports, DOJ Enforces SCRA

Financial Services Law

Making headlines in consumer finance news, Consumer Financial Protection Bureau (CFPB or Bureau) Director Kathy Kraninger paid Congress another visit, while the CFPB published its latest Supervisory Highlights, a first-time homebuying servicemembers report and an advanced notice of proposed rulemaking (ANPR) on Property Assessed Clean Energy (PACE) financing.

In addition, the Department of Justice (DOJ) continued its focus on the Servicemembers Civil Relief Act (SCRA) by entering into a consent order with a California-based subprime auto lender for $80,000.

What happened

Kraninger Testifies—After facing criticism during her appearance before the House Financial Services Committee, Kraninger returned to Congress for a second dose, this time before the Senate Banking Committee.

As in her earlier testimony, Kraninger reiterated her focus on supervision and prevention of harm, not enforcement. Again, Democrat lawmakers took the opportunity to criticize the CFPB under her leadership, from the discontinuation of Military Lending Act (MLA) compliance examinations to the proposal to rescind the ability-to-repay provisions of the controversial payday lending rule.

Sen. Elizabeth Warren (D-Mass.) took issue with the lack of fair lending and student lending enforcement actions since the departure of the Bureau’s first director, Richard Cordray.

Kraninger responded as she did before the House Committee, asserting that the CFPB lacks the authority to supervise financial institutions for MLA compliance and telling legislators she plans to approach the payday lending proposal with an “open mind.”

Supervisory Highlights Issued—In other Bureau news, the CFPB published the Winter 2019 Supervisory Highlights, covering examinations between June 2018 and November 2018. The report discussed auto loan servicing (noting actions involving ancillary products that triggered problems, such as a servicer failing to request refunds on ancillary products after repossession or total loss events) as well as deposits and remittances.

The CFPB also shared details on several actions related to mortgage servicing, including actions against servicers that engaged in unfair practices by charging late fees greater than those permitted by the mortgage notes and against other servicers that engaged in deceptive practices by misrepresenting the conditions for the cancellation of private mortgage insurance.

A second report from the CFPB focused on mortgages made to first-time homebuyers who are serving in the armed forces or are veterans. The CFPB found that the share of first-time homebuying servicemembers using U.S. Department of Veterans Affairs (VA) mortgages increased from 30 percent before 2007 to 63 percent in 2009, with the median loan amount rising from $156,000 in 2006 to $212,000 in 2016.

The greater share of VA loans among servicemembers was part of a larger shift among consumers (both servicemembers and non-servicemembers) away from nongovernment-guaranteed mortgages to government-guaranteed mortgages between 2006 and 2009, according to the “Mortgages to First-time Homebuying Servicemembers Report.”

Delinquency rates decreased from an average of 5–7 percent in 2006 and 2007 to just above 3 percent in 2016 for nonprime servicemember first-time VA-loan borrowers, the CFPB found, with rates lower for active duty VA-loan borrowers than for veteran VA-loan borrowers.

The CFPB also issued an ANPR on residential PACE financing, in an effort to implement the mandate of the Economic Growth, Regulatory Relief and Consumer Protection Act.

PACE financing often takes the form of loans to facilitate residential solar energy and other home improvement projects, the CFPB said, asking for samples of written materials used in PACE financing transactions, input on where liability may be found in such financing transactions, and information on the current standards and practices used in PACE financing originations.

“I look forward to reviewing the comments in response to the questions we are asking to facilitate the required rulemaking,” Kraninger said in a statement about the ANPR, which is now open for public comment.

DOJ Consent Order—The Department of Justice (DOJ) entered into a consent order with a financial institution and indirect auto lending company that the agency alleged to have engaged in a pattern or practice of repossessing motor vehicles from SCRA-protected servicemembers without court orders since at least December 16, 2011.

In one of two violations identified in the order, an army specialist told defendants that he would be entering the military and would have limited means of communication during basic training. According to the DOJ, the defendants nevertheless repossessed the army specialist’s car during his first month of military service, damaging his credit and leaving him unable to purchase a replacement car.

To settle these and related charges, defendants agreed to develop SCRA policies and procedures for motor vehicle repossessions, including checking the Defense Manpower Data Center database to determine whether borrowers have protected status. Defendants must also provide SCRA compliance training to all employees and contractors involved in servicing delinquent motor vehicle loans or repossessing motor vehicles.

The defendants will pay the army specialist $30,000—the highest amount the DOJ has ever recovered for an individual servicemember in an automobile repossession case—as well as $50,000 in civil penalties to the government.

“This case sends a message to financial institutions, large and small, that they must live up to their obligations to our servicemembers,” Assistant Attorney General Eric Dreiband for the Department of Justice’s Civil Rights Division said in a statement. “We will continue to vigorously pursue lenders who fail to take the simple steps necessary to determine, before repossessing a car, whether it belongs to a servicemember.”

To view Kraninger’s testimony before the Senate Banking Committee, click here.

To read the Winter 2019 Supervisory Highlights, click here.

To read the Mortgages to First-time Homebuying Servicemembers Report, click here.

To read the ANPR, click here.

To read the DOJ consent order, click here.

Why it matters

As the CFPB goes on about its business with new reports and rulemakings, questions about the direction of Kraninger’s leadership and sharp criticism from Democrats endure. The DOJ consent order continues the agency’s efforts with regard to the SCRA in recent years. Since 2011, the DOJ has obtained over $469 million in monetary relief for more than 119,000 servicemembers through its enforcement of the statute, the agency noted in its press release.