CFPB enforcement chief speaks at State Attorneys General National Conference

Richard Cordray, the Consumer Financial Protection Bureau's new chief of enforcement, addressed the States' top legal officers this week at the National Association of Attorneys General ("NAAG") Winter conference in Washington, D.C. The text of Mr. Cordray's comments is attached here, and it outlines the CFPB's top five areas of focus.

Broadly stated, according to Mr. Cordray, the CFPB's vanguard missions are: (1) to ensure that consumers are provided with timely and clear information so they can make responsible decisions about financial transactions; (2) to protect consumers from unfair, deceptive, or abusive acts and practices, and from discrimination; (3) to reduce unwarranted regulatory burdens by identifying and addressing outdated, unnecessary, or unduly burdensome regulations (e.g. "Two distinct federal agencies are responsible for administering the Truth in Lending Act and the Real Estate Settlement Procedures Act. These two agencies have had discussions, going back for fifteen years, about harmonization and simplification of the mortgage disclosure forms mandated under each law – which you no doubt have noticed kills whole forests to provide the paper for ordinary real estate closings. Now, the Consumer Bureau is aiming to accomplish within one year what has been contemplated but not achieved for a decade and a half – and we think we have made real progress even before that one-year clock has started ticking. Success in this enterprise will mean clearer and more focused information for consumers, along with reduced costs for lenders – a true win-win for the American economy."); (4) to enforce Federal consumer financial law consistently, without regard to the status of a financial services provider as a depository institution, in order to promote fair competition; (5) to make sure that markets for consumer financial products and services operate transparently and efficiently to facilitate access and innovation.

In closing, Mr. Cordray emphasized the partnership that the CFPB intends to and, in fact, has begun to forge with the State Attorneys General, which he indicated is "not just because the Dodd-Frank Act generally provides for [Attorney General] authority to enforce the consumer bureau’s governing statute and related regulations, but also because we can be more effective and efficient by working with [the Attorneys General] to police the financial marketplace."

Recent U.S. history is replete with examples of turf protection and unwillingness of even intra-federal agencies to cooperate fully and share information with one another (think SARs, Hurricane Katrina, 9-11 and the Christmas Day bomber). The State Attorneys General will each have their own individual focus and their attention will be given to those issues that are most prevalent in their State. It will be interesting to see what happens when the CFPB priorities do not correlate with a State Attorney General's priorities.

Not all fees are equal

In the world of consumer finance, not all fees are equal. Overdraft fees, payday loan fees, credit card fees, mortgage related fees and debit card fees are just a small handful of the types of fees that customers have historically paid. And, they are all considered relatively soft targets for law makers and regulators because, let's face it, no one likes paying fees. The Consumer Financial Protection Bureau is already taking aim at the "fee" related profit centers, and it doesn't even have oversight power yet.

However, lest we forget, major financial players are not the only ones issuing debit cards or charging related fees. Their availability is now ubiquitous, which means that curbing fees will hurt mid-market players like credit unions and community banks. Turns out though, even mid-market players have lobbying help. Thusly, as reported here, yesterday, William Cheney of the Credit Union National Association, appeared and testified before Congress regarding the impact that new Dodd-Frank regulations, including reductions in debit card fees, would have on what was characterized as a segment of the industry that serves 92 million Americans, and that had little to do with the financial crisis. A colleague, Gerber Federal Credit Union President John Buckley Jr., also testified. He explained that the debit card fee reductions would result in an annual $210,000 loss for Gerber Federal. Whether and to what extent $210,000 annually means more to Gerber Federal than repeated $2 or $3 debit card fee means to the average American is unclear.

Regardless, it is beyond reasonable dispute providing the convenience of debit cards is not free. There are associated costs, and why exactly is it wrong for provision of such a service to be a profit center? Customers are not forced to take or use debit cards, and certainly are not forced to withdraw cash from other bank's ATM machines. Can fees be high as a percentage of withdrawal? Sure. Depending upon the size of the withdrawal. Then again, there is no fee if one just goes to the bank, which was the only option until the 1990s.

Now, we aren't trying to pull a muscle racing to the defense of credit unions, however, it may be worthwhile to remember that debit cards are not a right. They are a service that customers choose to use. There are less expensive alternatives available. And, there is nothing complex, hidden, deceptive or secret about most or all of the fees attendant to the convenience of debit cards. When we are at ATM machines, we are forced to manually "accept" them. If we choose to punch the "yes" button instead of the "no" button, do we retain the right to later complain or demand that they be reduced?

There are many arenas within consumer finance in which there is a demonstrated need for protection, and we have a new 1200 person agency cranking itself up to do just that. But, should debit card fees really be a focus?

Heck, if a customer doesn't like debit card fees, then she can always go buy checks....oh, wait...

Group Think: When is the sum less than its parts?

Pursuit as a group has its advantages. One need look no further than wolves or porpoises to understand the advantage of pack hunting. And, it can be appealing to apply pack hunting mentality to consumer finance disputes and claims. Consumer finance class actions are on the rise, and even the most defensible have well-known and largely unavoidable risks.

However, consumer class action is not the subject of this post. No, this one goes instead to the wisdom of banding together a disparate group of Plaintiffs whose claims are factually connected, but all of which have sufficient uniqueness to preclude certificaton of a class, and whose claims are based upon individualized conduct and advanced against different defendants.

This is the circumstance in the companion cases of Thompson v. Bank of America, et al. and 2433 South Blvd. v Bank of America, et al. now pending in the Federal Court for the Eastern District of North Carolina, and which were recently the subject of motions to dismiss. The Plaintiffs, a group of over 60 different individuals hailing from 20 different States and the District of Columbia, and many of whom have different counsel, banded together and sued several different defendants on the basis of numerous claims, many of which require specificity in pleading. Their claims arose out of three different failed coastal land development projects, two of which are in North Carolina and one of which is in South Carolina.

Are there efficiencies to be gained by banding together and pursuing defendants as a pack of like minded individuals? To be sure. Are there cost savings to be had? Likely, yes. However, when pleading misrepresentation and fraud claims, which enjoy a heightened level of practical scrutiny and which require specificity of pleading, the attendant problems should quickly become apparent. How do different property owners plead fraud-related actions against lenders for an alleged scheme arising from alleged statements, representations, action, reliance, etc... that allegedly emanated from different people at different times to different people at different times, concerning different properties and all toward the same end? The answer is it's tough. So tough, in fact, that the 4th Circuit has rejected group pleadings in precisely the type of context the Thompson and 2433 South Blvd. plaintiffs have attempted. (Juntti v. Prudential-Bache Securities, Inc., 1993 WL 138523 (4th Cir., May 1993)). The message? Aggregated allegations fail two of the essential purposes of the Rule 9(b) specificity requirement: (1) they are insufficient to provide a defendant with fair notice of the claim against him; and (2) they are insufficient to protect a defendant from harm to his reputation or good will.

The moral? Group litigation can be a siren song. If your plaintiffs are not sufficiently similarly situated to be certified as a class, then pleading complex claims together will be, at best, difficult and, at worst, a nightmare that results in a Memorandum and Recommendation to dismiss all claims by all plaintiffs, as the Thompson and 2433 South Blvd. plaintiffs recently experienced.

Caveat emptor.