The revelation that the Consumer Financial Protection Bureau is investigating Bank of America over opening credit card accounts without consumers’ authorization immediately triggered thoughts of the long-running Wells Fargo consumer products sales scandals which cost Wells huge penalties, two CEOs’ jobs and incalculable loss of reputation. The scandal succeeded in blackening the term “cross selling” as well.
That’s exactly the kind of nightmare scenario that Bank of America wanted to avoid.
“Existence of the BofA investigation came out because, while investigations are confidential, federal law requires disclosures be published when an institution petitions for changes to a CID.”
Ironically, the existence of the pending Bank of America investigation came to light through the bank’s own petition, filed in the course of requesting changes to a Bureau “Civil Investigative Demand” (CID). CIDs are Bureau fact-finding requests that are issued by its enforcement arm. Bureau enforcement investigations are generally non-public. A standard response from any federal banking regulator regarding rumors of anything involving a specific institution is usually along the lines of “we do not comment on pending examinations or investigations.”
In the wake of the Wells Fargo debacle, the Office of the Comptroller of the Currency performed an intensive examination of sales practices at a group of very large national banks that has never been published. Few details have emerged beyond those gleaned by financial trade publications.
But the existence of the Bank of America investigation came out because, while investigations are confidential, federal law requires disclosures be published when an institution petitions for changes to a CID. And in BofA’s case, this included publication of the megabank’s request that its proposed changes be treated as confidential — a request that obviously wasn’t granted. The news was initially unearthed by Bloomberg Law.
Looking at CFPB’s Bank of America CID
CFPB issued the initial CID to BofA on March 1, 2019. In late March BofA’s outside counsel, Wilmer Cutler Pickering Hale & Dorr LLP, petitioned the Bureau to drop the CID or substantially modify its information requests.
The initial petition also states that “The information already provided to the Bureau and other regulators shows that the Bank’s corporate culture and controls worked as intended. And yet, the Bureau Staff continues to ignore this evidence by seeking an alternative set of data on which they hope to base a different conclusion. It is inexplicable how a fair assessment of the previous produced evidence could have led the Staff to issue yet another sweeping CID for information about potential unauthorized credit card accounts.”
More specifically, the initial petition indicates that a file review performed at the Bureau’s behest “to tally specific instances of potentially unauthorized credit card accounts” has “consistently identified a vanishingly small number of such accounts.”
The document also notes that “the Bank did not provide incentive credit for accounts that were never used.” It also noted, citing “OCC’s aforementioned conclusion of the lack of systemic sales practices issues,” that there was no basis to continue the Bureau’s own investigation.
The document devotes considerable space to the time, effort, and expense that a banking institutions faces in compiling all the data requested in a CID. Under Acting CFPB Mick Mulvaney the CID process was one of many CFPB procedural areas that the Bureau requested input about. An American Bankers Association comment letter filed on that matter indicated that several of the group’s members responding to CIDs had each spent over $1 million solely on outside counsel fees, with staff hours and other internal costs adding to the total.
The ABA comment letter also made the point that a “substantial obstacle to filing a Petition is the fact that the Bureau routinely makes the Petition public and thereby makes the underlying investigation public.”
BofA’s filings made it clear it wanted to avoid publicity about the matter. In the initial petition, it stated that: “In the wake of Wells Fargo, the Bank understands the Bureau’s desire to ensure that other institutions did not engage in similar abuses, and respects the Bureau’s right to conduct an investigation of its own design. But [when] the facts refute an investigation’s initial hypothesis, as they do in this case, the right approach is to acknowledge those findings and conclude the investigation.”
Bank of America’s legal team appears to have anticipated the possibility of the matter going public, and tried to avert it. In its separate request for confidential treatment, the bank stated more explicitly: “There is also a significant risk that the Bank could be prejudiced by public disclosure of the petition. The issue of sales practices misconduct has received substantial political and public attention, largely due to the Wells Fargo action. Disclosure of the Bureau’s continuing investigation of the Bank could cause significant harm, as it could be understood to suggest (erroneously) that similar systemic issues exist at the Bank. That misperception could cause unwarranted reputational harm to the Bank and significantly complicate closure of the Bureau’s investigation.”
The petition went so far as to request that Bank of America be notified should any party attempt to access documents dealing with the CID under the Freedom of Information Act or other means. “We expect that the Bank will be given the opportunity to object to such disclosure,” the document states.
Looking at BofA’s Record in the Bureau’s Consumer Complaint Database
During Mulvaney’s temporary stint at the Bureau, he frequently took aim at the Bureau’s Consumer Complaint Database. He said that he saw no obligation to maintain a government-operated variation on Yelp for financial services.
The banking industry made it plain it didn’t like the database and hoped he’d kill it. While it covers a lot of different kinds of consumer complaints, and tracks the response of institutions to those beefs, frequently critics pointed to a lack of context for the complaints. Many lack detail, and some are basically formalized and repetitious rants. Among the latter are duplicates of earlier complaints about the same institution, just ramped up more and with more capital letters thrown in.
The Bureau announced steps to improve the way the database operates in mid-September 2019, but declined to end it.
Looking at the top five banks by assets, Bank of America led the group in mid-September 2019. The following numbers are cumulative since the database was created in 2012 and cover all complaints of all types in the database.
- Bank of America: 85,179 (6% of the total in the database.)
- Wells Fargo: 73,829 (5.3%)
- JPMorgan Chase: 63,434 (4.6%)
- Citibank: 51,669 (3.7%)
- U.S. Bancorp: 18,070 (1.3%)
The database can be searched. It includes multiple filters for both products and services and for a multitude of issues. The closest one to sales practices for new accounts, though not an exact fit, is “Account Opening, Closing, or Management.” In mid-September 37,961 such complaints had been filed for all institutions. Of those, 5,860 were filed against Bank of America — about 15%.
The CID does not mark the first time the Bureau and Bank of America have tussled. In 2014, for example, the bank and a credit card marketing agency agreed to pay $727 million in consumer relief for deceptive marketing and unfair credit card billing practices in connection with credit card add-on products.
Regarding the current CID, a request to Bank of America for a statement or other response was not answered. A BofA spokesman was quoted by American Banker as follows: “These issues have been thoroughly investigated and we have worked with regulators to confirm that we have the right processes and controls in place to govern our sales practices, and that we have not experienced any systemic issues. We will continue to cooperate with the CFPB and look forward to demonstrating why they should reach the same conclusion.”
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Not Quite the CFPB Some Were Expecting
Kathleen Kraninger became official Director at CFPB in December 2018, taking over from Mick Mulvaney. The Bureau, founded during the Obama Administration under the Dodd-Frank Act, has been a thorn in the banking industry’s side for much of its life. When President Trump came in, and especially after the temporary appointment of Mulvaney, there were hopes in the industry that he would kill the Bureau. That went by the boards, and the Bureau’s structure became the more realistic target.
Longtime supporters of the Bureau’s often controversial methods and views worried that Kraninger would carry out the gutting of the Bureau that Mulvaney seemed to be organizing. Mulvaney, head of the Office of Management and Budget and Acting White House Staff Director, had been gunning for CFPB since his days in Congress.
In various ways, however, Kraninger’s approach has been more nuanced. In an interview with Bloomberg TV, she said, in response to those criticisms, that “We all care about protecting consumers. We just have different ways to do it.”
In a blog written around the same time, frequent Bureau critic Alan Kaplinsky, Co-Practice Leader for the Consumer Financial Services Group at Ballard Spahr LLP, observed that Kraninger had consistently been supporting specific CIDs, with minor changes.
This continued, and it is just what she did in the case of the BofA CID. She somewhat reduced the scope of the information demanded. She declined to close the investigation, though she gave away nothing regarding any findings thus far. In response to the request for confidentiality, she rejected it, instead providing for the extensive redacting that went on prior to the materials being placed on the Bureau website. No press release announcing the posting was issued.
“I do not find that any potential prejudice to the Bank otherwise constitutes ‘good cause’ to keep the Petition confidential…,” Kraninger stated. “I emphasize, however, that the issuance of a CID or the existence of an investigation is not a finding that a company has actually violated the law.”
Something financial marketers at smaller institutions might bear in mind: While CFPB has direct authority over the largest institutions, the Bureau is empowered to go after a broad swath of financial providers, including institutions not under its direct supervision.