Presented By: David Stocker, ACT General Counsel

1. What is the CFPB and How Does it Impact You? Presented By: David Stocker, ACT General Counsel

2. Legal Disclaimer Legal Disclaimer The information provided during this session is the opinion of the presenter and is for educational purposes only. It not intended to serve as legal advice. You should seek legal advice from your own legal counsel.

3. Authority The Consumer Financial Protection Bureau (“CFPB”) is the agency created by the Dodd-Frank legislation to implement and enforce the sweeping consumer protections in the banking and non-banking communities. It began operation in July of 2012. During the time since the legislation created it, the CFPB has been gathering data, drafting rules and regulations, as well as setting up its logistical functions and putting in place management and staff teams. The Dodd-Frank Act was initially motivated by the mortgage bubble bursting, but during the two years it took to pass the bill, Congress, went into nearly all areas of consumer financial transactions.

4. The Dodd-Frank bill provides the authority for the CFPB • Details will be provided by regulation Banking Laws by Comparison: • Federal Reserve Act (1913) = 31 pages • Dodd-Frank Act (2010) = 2319 pages • CFPB is a federal agency that was created in the aftermath of the US Economic Meltdown in 2008-2009.  The government felt that it was necessary to create this new bureau to monitor a broad range of businesses that contributed to the problem by not behaving in an appropriate manner, violating the law, or taking advantage of consumers.

5. “The central mission of the Consumer Financial Protection Bureau (CFPB) is to make markets for consumer financial products and services work for Americans — whether they are applying for a mortgage, choosing among credit cards, or using any number of other consumer financial products.” The 3 priorities of the CFPB will to be Educate, Enforce, and Study. http://www.creditaccessbusiness.com/2012/01/24/what-is-the-cfpb-have-you-heard-about-it/

6. Scope Scope The legislation requires numerous reports (55) be made to Congress to study the impact in key areas, and to administer the widespread responsibilities, 29 new administrative offices or agencies were created. The CFPB has been gathering data for a key report in the education arena. This reportwasreleased July 21st of this year. It is a report on the issues and functions of private education loans.

7. Scope Scope Education in general and private loans in specific, have been announced by the CFPB leadership as key focus areas. Attention to Education is high and has become a key issue in the upcoming Presidential election.

8. Legislative Purpose Legislative Purpose The Dodd-Frank Act has several targets in the consumer financial area. Of importance to our conversation is the creation of a consumer protection division originally created to oversee practices in the mortgage lending and banking areas. This was expanded far beyond that starting point to include many other areas of financial transactions and consumer issues. These areas include collection agencies and education institutions; private, public and for profit. The CFPB, the agency created to implement the consumer protection functions, has concurrent authority with the FTC and most other federal consumer protection entities.

9. Organization The CFPB will operate with a single director, appointed by the President, approved by the Senate for a 5 year term. There has been much conversation in Congress about changing this to a 5 member commission to ensure more input into decision making. In a controversial move , the President appointed Mr. Cordray as the initial Director in a “recess appointment”.

10. An additional discussion has focused on funding. Currently, the CFPB is funded as a budget offline item directly from the Federal Reserve. Some in Congress have questioned this as not being sound financial policy because it does not require Congressional approval for funding. The CFPB is divided into 8 units with the following specific functions: Research consumer financial products and develop consumer education programs. Provide information, guidance and assistance to “underserved” consumers and communities.

11. Organization • Track consumer complaints. • Create an Office of Financial Education to provide consumer assistance in making credit choices. • Create an Office of Fair Lending and Equal Opportunity to provide enforcement of federal fair lending laws. • Create a Consumer Advisory Board to advise the CFPB and provide information on issues in the consumer financial products or services industry.

12. Continued Create an Office of Service Member Affairs to provide financial services to armed service members and their families. Create an Office of Financial Protection for Older Americans to assist in financial decisions specific to 62 years or older, such as retirement and related activities. The CFPB thus, continues a common theme started in the financial literacy training of youth as it relates to planning for education costs.

13. Authority The CFPB has been given authority to write rules and enforce them either by exclusive authority or by concurrent jurisdiction for most of the current consumer protection agencies. Those agencies include: The Alternative Mortgage Transaction Parity Act The Fair Credit Reporting Act (FCRA) The Fair Credit Billing Act The Fair Debt Collection Practices Act (FDCPA) The Home Mortgage Disclosure Act (HMDA) The Home Owners Equity Protection Act (HOEPA)

14. Covered Laws Continued The Real Estate Settlement Procedures Act (RESPA) The Secure and Fair Enforcement for Mortgage Licensing Act (SAFE) The Truth in Lending Act (TILA) The Equal Credit Opportunity Act (ECOA) The Unfair and Deceptive Acts and Practices Act of 2009 Omnibus Appropriations Act (UDAAP)

15. Authority The CFPB has jurisdiction over “covered persons”, defined as: “any person that is engaged in offering or providing a consumer financial product or service or any affiliate of such person if acting as a service provider. “

16. Examples of a Consumer Financial Product or Service A. Credit extensions or servicing loans B. Leases C. Real estate closing services D. Receipt of financial deposits Selling or issuing “stored value” cards (credit cards, debit cards and gift cards, ----something currently on their radar)

17. Examples of a Consumer Financial Product or Service F. Check cashing or processing, or debt guaranty services G. Payment processing or other financial data processing H. Financial advisor I. Receiving, analyzing, or maintaining consumer credit report information J. Debt collection

18. Authority The Bureau has the authority to define and enforce unfair, deceptive and “abusive” practices. This new term is used often in the CFPB literature. It is a broad term and little guidance has been given to its meaning. Like “reasonable”, it will likely have its definition developed through usage. Some assistance is given by the language in the law, but that language is vague as well.

19. “Abusive” Dodd-Frank defines a product or service as abusive: “if it materially interferes with the ability of a consumer to understand a term or condition of a product or takes unreasonable advantage of the ability of a consumer to understand it.”

20. Potential Civil Money Penalties Any violation: $5,000 per day Reckless violation: $25,000 per day Knowing violation: $1,000,000 per day

21. Some Entities Not Covered Auto Dealers Mobile-home Sellers Real Estate Brokers Accountants Insurers Stock Brokers Attorneys

22. Covered Entities of Interest Colleges and Universities who extend credit, loan money, arrange for a student loan, service educational debt. First party service providers, data clearing houses, billing services. 3rd Party Collection Agencies Collection Law Firms

23. Private Educational Loans (PEL) Section 1035: Private Education Loan Ombudsman Section 1077: Report on Private Education Loans and Private Education Lenders

24. Report on PEL Within 2 years of enactment, the Bureau and Secretary of Education, in consultation with the FTC and the U.S. Attorney General, will submit a report to Congressional leadership regarding PEL and private education lenders. This report was released on July 22, 2012.

25. Content of Report The report required by this section shall examine, at a minimum – • The growth and changes to the PEL market; • The factors influencing the above; • The extent to which borrowers and families use PEL to finance higher education and the level of borrower indebtedness.

26. Content of Report (Continued) The characteristics of PEL borrowers, including: • The types of institutions they attend; • Borrower socioeconomic characteristics; • Other forms of financing used in addition to PEL; • Whether Title IV loans were exhausted; • Dependency status of borrowers to parents; • Type of program (certificate, AA, BA, etc.); • Employment and repayment behavior.

27. Content of Report (Continued) • The characteristics of private educational lenders (for-profit, NFP, school lenders); • Underwriting criteria, including CDR; • Terms, conditions and pricing of PEL; • Consumer protections, including effectiveness of disclosures and borrower awareness of terms and conditions.

28. Content of Report Continued Content of Report (Continued) • Whether Fed regulators and the public have adequate access to PEL information to ensure that fair lending laws are being heeded; • Recommendations for new laws or regulations that better protect consumers and enable Fed regulators to ascertain compliance with fair lending laws.

29. What is a “Larger Participant” ? Dodd-Frank Act gave CFPB authority to examine certain non-banks for compliance with federal consumer financial laws and exclusive authority (relative to any other federal agency other than FTC) to enforce such laws as to those non-banks. In addition to mortgage originators, payday lenders, and private student lenders, CFPB can examine non-banks identified by CFPB as “larger participants of a market for other consumer financial products or services”.

30. What is a “Larger Participant” ? (Continued) On February 16, 2012, CFPB issued a proposed rule covering third party debt collectors (including collection attorneys and law firms) and debt buyers with more than $10 million in annual receipts from debt collection activities.

31. Who will the CFPB examine? A debt collector or debt buyer that qualifies as a “larger participant” under the CFPB’s final rule. Regardless of its size, a debt collector that acts as a service provider by collecting debts for: • an insured depository institution or insured credit union with total assets of more than $10 billion • a substantial number of insured depository institutions or insured credit unions with total assets of $10 billion or less

32. Who will the CFPB examine? (Continued) Regardless of its size, a debt collector that acts as a service provider by collecting debts for: • a mortgage originator, payday lender or student lender • a company that qualifies as a “larger participant” in another market (e.g. consumer finance companies) under future CFPB rulemaking

33. Who will the CFPB examine first? CFPB stated in its first annual report to Congress on FDCPA activities filed March 20, that it is currently conducting nonpublic investigations of debt collectors. The CFPB has indicated that debt collectors and debt buyers are of special interest in their oversight process. They have indicated that complaint volume will be a key factor in who they examine.

34. Who will the CFPB examine first? (Continued) Companies identified by CFPB as presenting a heightened risk to consumers based on information CFPB collects from various sources. Those sources include other federal or state regulators (FTC, state AGs, other state regulators such as state licensing authorities in states with debt collector licensing requirements).

35. Who will the CFPB examine first? (Continued) CFPB has said it plans to start taking complaints about debt collection on its online system by the end of 2012. Those complaints will be a key factor in who they examine. Other sources include the FTC Consumer Sentinel database (which can include complaints filed with state AGs and other state regulators) and litigation filings (enforcement and private actions).

36. Who will the CFPB examine first? (Continued) Other sources: • Mainstream media (articles in newspapers or other publications) • Web postings and social media (web articles, blogs, Twitter, Facebook, consumer “gripe sites”) • Who the company collects debts for or buys debts from (e.g. payday or for-profit student lenders)

37. What will the CFPB do in an exam? Evaluate the quality of the company’s compliance risk management system for avoiding violations of applicable federal consumer financial laws (e.g. FDCPA, FCRA, UDAAP) How system is rated may affect scope and depth of CFPB’s review of company’s collection practices (e.g. number of employees interviewed, number of collection files reviewed)

38. What will the CFPB do in an exam? (Continued) Determine if the company has violated applicable federal consumer financial laws Collection practices CFPB identifies as presenting an increased risk of a violation (e.g. use of autodialers) are likely to receive closer review.

39. What compliance program documents will CFPB review? To evaluate a compliance program, the documents the CFPB will expect to see include: • Written compliance policies and procedures • Schedules, training manuals, comprehension tests, and records of completion for compliance training • Documents evidencing a risk assessment or other basis for the monitoring and testing program • A monitoring and self-testing schedule • Monitoring, self-testing and corrective action reports

40. CFPB Bulletin 2012-03 (April 13, 2012) The Consumer Financial Protection Bureau ("CFPB',) expects supervised banks and non-banks to oversee their business relationships with service providers in a manner that ensures compliance with Federal consumer financial law, which is designed to protect the interests of consumers and avoid consumer harm. The CFPB's exercise of its supervisory and enforcement authority will closely reflect this orientation and emphasis. This was an area of focus in the first CFPB settlement just released against CapitalOne—for $210 million dollars.

41. CFPB Bulletin 2012-03 (April 13, 2012) (Continued) The CFPB stated their recognition that the use of service providers is often an appropriate business decision for supervised banks and non-banks. Supervised banks and non-banks may outsource certain functions to service providers due to resource constraints, use service providers to develop and market additional products or services, or rely on expertise from service providers that would not otherwise be available without significant investment.

42. CFPB Bulletin 2012-03 (April 13, 2012) CFPB Bulletin 2012-03 (April 13, 2012) (Continued) A service provider that is unfamiliar with the legal requirements applicable to the products or services being offered, or that does not make efforts to implement those requirements carefully and effectively, or that exhibits weak internal controls, can harm consumers and create potential liabilities for both the service provider and the entity with which it has a business relationship.

43. CFPB Bulletin 2012-03 (April 13, 2012) CFPB Bulletin 2012-03 (April 13, 2012) (Continued) Title X grants the CFPB supervisory and enforcement authority over supervised service providers, which includes the authority to examine the operations of service providers on site. The CFPB will exercise the full extent of its supervision authority over supervised service providers, including its authority to examine for compliance with Title X's prohibition on unfair, deceptive or abusive acts or practices.

44. CFPB Bulletin 2012-03 (April 13, 2012) (Continued) The CFPB expects supervised banks and non-banks to have an effective process for managing the risks of service provider relationships. The CFPB will apply these expectations consistently, regardless of whether it is a supervised bank or non-bank that has the relationship with a service provider.

45. CFPB Bulletin 2012-03 (April 13, 2012) (Continued) To limit the potential for statutory or regulatory violations and related consumer harm, supervised banks and non-banks should take steps to ensure that their business arrangements with service providers do not present unwarranted risks to consumers. These steps should include, but are not limited to: Conducting a through due diligence audit to verify the service provider is capable of understanding and complying with federal financial consumer law.

46. CFPB Bulletin 2012-03 (April 13, 2012) (Continued) Requesting and reviewing the service provider's policies, procedures, internal controls, and training materials to ensure that the service provider conducts appropriate training and oversight of employees or agents that have consumer contact or compliance responsibilities; Including in the contract with the service provider clear expectations about compliance, as well as appropriate and enforceable consequences for violating any compliance-related responsibilities, including engaging in unfair, deceptive, or abusive acts or practices;

47. CFPB Bulletin 2012-03 (April 13, 2012) (Continued) Establishing internal controls and on-going monitoring (to determine whether the service provider is complying with Federal consumer financial law; and Taking prompt action to address fully any problems identified through the monitoring process, including terminating the relationship where appropriate.

48. CFPB Bulletin 2012-03 (April 13, 2012) (Continued) Establishing internal controls and on-going monitoring to determine whether the service provider is complying with Federal consumer financial law; and Taking prompt action to address fully any problems identified through the monitoring process, including terminating the relationship where appropriate.

49. Thank you for taking the time to participate in our session. Please feel free to contact me at: DStocker@accountcontrol.com