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The Consumer Financial Protection Bureau may be signaling that lenders can avoid fines if they self-report, following actions taken against Citibank last week, Richard Gottlieb, partner in the financial services group at Chicago-based Manatt, Phelps & Phillips, LLP, told Auto Finance News.
Citibank is refunding $335 million to 1.75 million accounts after allegedly violating the Truth in Lending Act by miscalculating interest rate charges over eight years. However the lender avoided having to pay any additional fines, the Consumer Financial Protection Bureau announced.
Citibank’s “self-policing or self-reporting policies warranted the CFPB decision not to impose penalties,” Gottlieb said, adding that the bureau is attempting to encourage self-reporting as a way to avoid costly penalties. “Even during the Cordray era, companies avoided substantial civil monetary penalties by self-reporting.”
In fact, acting CFPB Director Mick Mulvaney’s predecessor, Richard Cordray, published a bulletin in June 2013 taking the position that consumers would benefit if organizations self-reported violations. The bulletin claimed that organizations doing so could “favorably affect the ultimate resolution of a bureau enforcement investigation.”
Despite the 2013 bulletin, under Cordray, the bureau seemed to “rarely reward such behavior” and the “benefits were impossible to quantify,” Justin Hosie, partner at Hudson Cook LLC, told AFN. “There was never a clear quantifiable metric, and in many instances, the bureau merely announced that civil penalties were less as a result of self-reporting, but the bureau never quantified the benefit.”
That often left organizations wondering how to calculate the costs and benefits of self-reporting. However, if the bureau is willing to waive all potential civil penalties, it sends a much clearer signal to organizations to detect, remediate, and report errors promptly. Ultimately, Hosie advises that it makes more sense for lenders to self-report.
However, avoiding additional fines may not always occur in the event that a lender self-reports. Citibank’s deal contrasts with the bureau’s $1 billion fine imposed on Wells Fargo & Co. in April for allegedly forcing unneeded insurance on customers who took out car loans and already held the insurance, as well as imposing additional charges to lock in mortgage rates.
The contrasting decision did not go unnoticed on Capitol Hill as Sen. Sherrod Brown (D-Ohio), Ranking Member on the Senate Banking Committee, expressed his imposition toward the Citibank decision.
“When a bank cheats over a million customers out of more than $300 million, there should be a penalty, not an ‘attaboy’ for confessing,” Brown said in a statement. “The CFPB should be aggressively fighting for consumers, not looking the other way when banks take advantage of customers.”
Source : AutoFinanceNews
