On March 5, the U.S. District Court for the Western District of Texas approved a settlement agreement between the FTC and a Texas-based mortgage relief company and its owners (Defendants) to resolve allegations that they charged customers up-front fees for services that were promised to reduce their mortgage interest rates or monthly payments. According to the complaint filed last year, the FTC alleged that the Defendants (i) misled consumers into believing that they would obtain mortgage loan modifications or help consumers avoid foreclosure; (ii) deceived consumers by instructing them to stop payment of their mortgages so that they could afford Defendants’ fees without disclosing that if they did so, consumers “could lose their homes or damage their credit ratings;” and (iii) failed to make required disclosures and illegally charged an upfront fee of, on average, $2,550. Among other requirements, the Order (i) requires the Defendants to pay more than $1.2 million in “equitable monetary relief,” and (ii) prohibits the Defendants from advertising, marketing, promoting or selling debt relief products or services. However, based on an assessment of the Defendants’ financial statements, the judgment will be partially suspended after the FTC receives approximately $68,000.
On March 26, the FTC announced the results of Operation Ruse Control, “a nationwide and cross-border crackdown” on the auto industry with the intent to protect consumers who are purchasing or leasing a car. Efforts taken jointly by the FTC and its law enforcement partners resulted in over 250 enforcement actions, including the six most recent cases that involved (i) fraudulent add-ons; (ii) deceptive advertising; and (iii) auto loan modification. According to the press release, the FTC recently took its first actions against two auto dealers for its add-on practices, which allegedly violate the FTC Act by failing to disclose the significant fees associated with offered programs or services and misrepresenting to consumers that they would save money. Three auto dealers recently “agreed to settle charges that they ran deceptive ads that violated the FTC Act, and also violated the Truth in Lending Act (TILA) and/or Consumer Leasing Act (CLA).” Finally, at the FTC’s request, the U.S. District Court for the Southern District of Florida temporarily put an end to the practices of a company that charged consumers an upfront fee to “negotiate an auto loan modification on their behalf, but then often provided nothing in return.” The FTC’s recent actions are indicative of its ongoing efforts to prevent alleged fraud within the industry.
On March 25, the Conference of State Bank Supervisors (“CSBS”) and the American Association of Residential Mortgage Regulators (“AARMR”) issued a proposal seeking public comment on its Proposed Regulatory Prudential Standards for Non-bank Mortgage Servicers. According to the CSBS, the proposal is in response to an increasing number of non-bank servicers that continue to acquire mortgage servicing rights, and subsequently, require enhanced state regulation to (i) provide better safeguards for borrowers, investors, and other stakeholders, (ii) increase regulatory oversight and market discipline over non-bank mortgage servicers, and (iii) enhance transparency, accountability, risk management and corporate governance standards. Comments on the proposal must be received by June 25, 2015.
On March 26, the CFPB announced that it is considering proposing a rule to “end payday debt traps” and released several related documents, including a fact sheet and an outline of the proposal that will be presented to a panel of small businesses pursuant to the Small Business Regulatory Enforcement Fairness Act (SBREFA). The proposal sets forth ability to repay requirements for “short-term” and “longer-term” loans, and then provides alternative options for lenders to provide both types of loans in lieu of complying with the general ability to repay requirements.
Under the SBREFA process, the CFPB first seeks input from a panel of small businesses that likely will be subject to the forthcoming rule. A report regarding the input of those reviewers is then created and considered by the CFPB before issuing its proposed rule.
Questions regarding the matters discussed in this Alert may be directed to the lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.
On March 19, the CFPB announced the publication of its Final Policy Statement on disclosure of complaint narratives. The Final Policy allows consumers who file complaints with the CFPB to “opt-in” to have the actual narrative of the complaint disclosed in the CFPB’s consumer complaint database, with private information scrubbed out of the narrative. Until now, the database contained only general information. The company identified in the complaint will have the option, for a 180 day period, to select from a pre-set list of structured responses to accompany the consumer complaint narrative. Further, the CFPB will disclose the consumer narrative when the company provides its public-facing response or after the company has been in receipt of the complaint for 60 calendar days, whichever occurs first. On the same day, the CFPB issued a Request For Information regarding the potential collection, identification, and sharing of consumer feedback specific to positive interactions with banks and non-banks in conjunction with the complaint handling process.
On March 17, the CFPB announced a Request for Information (RFI) seeking public comment on key aspects of the credit card market. This RFI is a part of a review mandated by the Credit Card Accountability, Responsibility, and Disclosure Act (the CARD Act)—a law passed in 2009 that requires the CFPB to conduct a review of the credit card market every two years. The review seeks feedback on how the credit card market has functioned over the last two years and the impact new credit card protections have had on consumers. Specifically, the review solicits input on the changing patterns of credit card agreement terms, unfair or deceptive practices within the credit card market, the use of third-party debt collection agencies, and how consumers understand credit card reward products. Information obtained from the review will culminate in a public report to Congress.
On March 12, the FTC announced its coordination with the CFPB to reauthorize for a three-year term their memorandum of understanding (MOU), which outlines the two agencies’ coordination under the Consumer Financial Protection Act. The interagency agreement outlines processes for, among other things, coordinated law enforcement activities, commencement of or settling investigations and actions and proceedings, intervention in law enforcement actions, consultation on rulemaking and guidelines, sharing supervisory information, sharing consumer complaint information, and coordination to minimize duplicative or burdensome oversight or administrative proceedings.
On March 18, the FHFA Inspector General released a white paper detailing the challenges faced by the government-sponsored enterprises (GSEs) that could adversely affect their future profitability. According to the white paper, the GSEs’ return to profitability in 2012 was linked significantly to non-recurring sources of income such as the release of valuation allowances against deferred tax assets, settlements of disputed representation and warranty claims, and settlements of legal claims relating to mortgage-backed securities. Specifically, the OIG reported that non-recurring sources accounted for 60% and 45% of net income in 2013 and 2014 respectively. In addition, the white paper cites the GSEs’ requirement to decrease its retained portfolio annually by 15%, requirements to pay a quarterly dividend to Treasury, the possibility of lower guaranty fees, congressional inaction to adopt housing finance reform, and market conditions such as changes in interest rates and home prices as factors that could force the GSEs to draw on the Department of Treasury for a taxpayer-funded bailout.
On March 12, the Legislative Assembly of North Dakota approved legislation H.B. 1346 amending the North Dakota Retail Installment Sales Act to grant enforcement authority to a state attorney or to the North Dakota Attorney General. Under the new law, the Attorney General has all powers provided under the Act, in addition to powers provided under the state’s Unlawful Sales or Advertising Practices law. The law as amended will be effective August 1, 2015.
CFPB Releases Winter Issue of Supervisory Highlights, Schedules Date for Field Hearing on Payday Lending
On March 11, the CFPB released its seventh issuance of Supervisory Highlights, which highlights the CFPB’s supervision work completed between July 2014 and December 2014, detailing examination findings and observations in consumer reporting, debt collection, deposits, mortgage origination, and fair lending examinations. The winter issue also reveals recent supervisory resolutions reached in the areas of payday lending, mortgage servicing, and mortgage origination have resulted in remediation of approximately $19.4 million to more than 92,000 consumers during the time reported. Other notable information included within the report is the addition of Credit Card Account Management examination procedures to the CFPB’s Supervision and Examination Manual. In a separate announcement, the CFPB also announced it will host a field hearing on payday lending, scheduled for Thursday, March 26 in Richmond, VA.
On March 10, the CFPB announced the release of its final arbitration study, accompanied by a fact sheet, to coincide with its field hearing held in Newark, NJ. The study examined approximately 850 consumer financial agreements, of which almost 50% were credit card agreements, to analyze the prevalence of arbitration clauses and their terms. Among other data, the Bureau also reviewed over 1,800 arbitration disputes, more than 3,400 individual federal court lawsuits, 42,000 credit card cases filed in small claims court, and 420 class action settlements filed in federal courts.
On March 9, New York AG Eric Schneiderman announced a settlement agreement with three national credit reporting agencies. Schneiderman noted that inaccuracies in credit reports, such as the collection of debts not owed, misrepresentations of medical debt, identity theft or fraud, and identity mistakes on behalf of the agencies, continue to negatively affect consumers, most notably preventing minority and low-income individuals from gaining access to jobs and housing. The agencies fully cooperated with the NY AG’s office to find solutions to the credit report issues and, per the terms of the agreement, will (i) hire specially trained employees to review consumer documentation concerning identity theft or fraud and mixed files; (ii) review all disputes and supporting documentation submitted via the automated dispute resolution system; (iii) put into effect a 180-day waiting period before reporting any medical debts; (iv) increase the visibility of consumers’ right to access one free annual credit report via annualcreditreport.com; and (v) develop a National Credit Reporting Working Group to put in place a set of best practices and policies that will strengthen furnisher monitoring and data reporting. The full version of the settlement agreement provides additional requirements that the agencies must observe to increase fairness and effectiveness within credit reporting system.
On March 5, Missouri AG Chris Koster announced an agreement to cease operations with eight unlicensed online payday loan businesses, provide $270,000 in restitution, and forgive all loan balances for Missouri consumers. According to Koster, an individual ran the numerous payday loan businesses from a Native American reservation in South Dakota and sold short-term loans to Missouri consumers, taking advantage of Missouri residents “through outrageous fees and unlawful garnishments.” The judgment obtained “permanently prohibits” the individual and his businesses from “making or collecting on any loans in Missouri, and it cancels existing loan balances for his Missouri customers.” Additionally, the judgment requires that the individual running the businesses inform all credit reporting agencies to remove the information they received on the customers who were negatively affected by the short-term loan sales.
On March 4, the Pennsylvania Department of Banking and Securities (DOBS) entered into a consent order with four payday loan companies for allegedly violating three Pennsylvania state laws: the Consumer Discount Company Act (CDCA), the Loan Interest Protection Law, and the Money Transmitter Act. From 2007 through January 2015, the companies allegedly acted together to sell short-term loans. According to the DOBS, the interest rate on some of the loans sold exceeded the statutory limit. The consent order also states that the company (i) was not licensed under the CDCA at the time of the marketing or selling of the loans; and (ii) did not have a money transmitter license. Immediately upon issuance of the order, the companies agreed to “cease and desist from engaging in the consumer discount business,” and within ninety days of the issue date of the order, the companies must remit to Pennsylvania consumers the balance of open and active accounts.
On March 9, the Supreme Court unanimously ruled that the Administrative Procedure Act (APA) does not require federal agencies to go through the formal rulemaking process when making changes to rules interpreting regulations, or “interpretive rules,” even if those changes are significant. This decision, Perez v. Mortgage Bankers Association, is of impactful significance to federal agencies and regulated entities alike because it overrules long-standing precedent—known as the D.C. Circuit’s Paralyzed Veterans doctrine—that required agencies to engage the public in the formal notice-and-comment period before issuing new interpretations of previously promulgated regulations. Here, the Court held that the Paralyzed Veterans doctrine is contrary to the APA’s rulemaking previsions and imposes unwarranted procedural obligations on federal agencies.