CFPB and FTC Announce Settlement with National Mortgage Servicing Company

On April 21, the CFPB and the FTC announced a joint enforcement action against a national mortgage servicing company, ordering the company to pay roughly $63 million in relief and penalties for allegedly mishandling home loans for borrowers who were trying to avoid foreclosure. Both regulators allege that from 2010 to 2014, the servicing company failed to honor modifications made to loans it acquired from other firms. According to the complaint, the company allegedly insisted that homeowners make the higher monthly payments and also make payments before providing loss mitigation options. Moreover, the CFPB and FTC claim the company illegally harassed borrowers who fell behind, made false threats, and revealed debts to the borrowers’ employers. The servicing company will pay $48 million in relief to eligible homeowners and a $15 million civil money penalty to the CFPB.

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CFPB Tackles Payment Processor for Charging Servicemembers Hidden Fees, Orders Over $3 Million in Consumer Relief

On April 20, the CFPB announced an enforcement action against a Kentucky-based third-party processor of military allotments and its subsidiary – together “Respondents” – for allegedly charging servicemembers millions of dollars in hidden fees. According to the Bureau, servicemembers set up allotment arrangements with the Respondents, and the Respondents were to pay creditors – auto lenders, installment lenders, and retail merchants – on behalf of deployed servicemembers. The Bureau alleges that from 2010 to 2014, the company violated UDAAP provisions of the Consumer Financial Protection Act by failing to (i) adequately disclose information about various fees associated with the Respondents’ services; and (ii) inform servicemembers when they were being charged residual-balance fees. The consent order requires that the Respondents pay approximately $3.1 million in relief to the affected servicemembers.

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FHFA: G-Fees to Remain at Current Levels

On April 17, FHFA released the results of its Fannie Mae and Freddie Mac Guarantee Fee Review. The FHFA’s review considered the public responses to its June 2014 request for input, and according to the agency’s fact sheet, sought to reach a balance of (i) ensuring the safety and soundness of Fannie Mae and Freddie Mac; and (ii) fostering a liquid national housing market. Because the analysis of the fees showed that “the current average level of guarantee fees appropriately reflects the current costs and risks associated with providing [Fannie and Freddie’s] credit guarantee,” the agency will make only minor adjustments to the fees and does not expect the changes to impact Fannie and Freddie’s loan volume. The fee adjustments will fall into two categories: (i) elimination of the 25 basis point upfront adverse market charge; and (ii) addition of small fee increases for certain loans with risk-layering attributes, such as loans with secondary financing or investment properties.

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FHFA Announces Fannie and Freddie’s Revised Requirements for Private Mortgage Insurances Companies

On April 17, the FHFA announced that Fannie and Freddie have revised the requirements for private mortgage insurance companies insuring mortgage loans that Fannie and Freddie either own or guarantee. By setting financial and operational standards for the mortgage insurers seeking approval with Fannie and Freddie, the new requirements are designed to reduce risk to the GSEs. The new requirements are effective immediately for new applicants and will become effective December 31, 2015 for existing insurers already approved by Fannie and Freddie.

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U.S. Files Complaint Against Leading Non-Bank Mortgage Lender For Alleged Improper Underwriting Practices on FHA-Insured Loans After Lender Files Suit Against U.S. Alleging Arbitrary and Capricous Investigation Practices

On April 17, Quicken Loans filed a preemptive lawsuit against the DOJ and HUD in the Eastern District of Michigan against HUD, the HUD-IG, and DOJ, asserting that it “appears to be one of the targets (due to its large size) of a political agenda under which the DOJ is “investigating” and pressuring large, high-profile lenders into paying nine- and ten-figure sums and publicly ‘admitting’ wrongdoing, including conceding that the lenders had made ‘false claims’ and violated the False Claims Act.” Specifically, the complaint alleged that HUD, the HUD-IG, and DOJ retroactively changed the process for evaluating FHA loans, from an individual assessment of a loan’s compliance, taking into account a borrower’s individual situation, the unique nature of each property, and the specific underwriting guidelines in effect, to a sampling method which extrapolates any defects found in a small subset of loans across the entire loan population, contrary to HUD’s prior guidance and in violation of the Administrative Procedures Act. The complaint further alleged that the sampling method used by the government was flawed, and asked for declaratory and injunctive relief against the government’s use of sampling. Quicken also asked the court to rule that the FHA loans it made between 2007-2011 in fact were “originated properly in accordance with the applicable FHA guidelines and program requirements, and pose no undue risk to the FHA insurance fund,” asserting that “HUD reviewed a number of these loans and, except in a few rare instances, either concluded the loans met all FHA guidelines or that any issues were immaterial or had been cured.” Read more…

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CFPB and Navajo Nation Partner in UDAAP Action Against Companies Involved in Alleged Tax Refund Scheme

On April 14, the CFPB along with the Navajo Nation jointly announced an enforcement action against two companies and their respective owners (Defendants) for running an alleged tax-refund scheme, marking the CFPB’s “first enforcement action taken in conjunction with a tribal government.” According to the complaint, the Defendants operated several tax-refund franchises in New Mexico and in the Navajo Nation territory in which clients were offered short-term, triple-digit APR loans secured by the consumer’s anticipated tax refund, also known as refund anticipation loans (“RALs”). The CFPB and Navajo Nation contend, among other things, that the Defendants (i) steered low-income and vulnerable consumers toward high-cost RALs; (ii) understated the APR of the RALs in disclosure agreements to consumers; and (iii) failed “to disclose that consumers’ tax refunds had been received and would soon be available, but instead persuaded consumers to take out additional RALs.” Under the terms of the proposed consent order, the Defendants would, among other things, (i) pay approximately $438,000 in total consumer redress, which consists of $256,267 in redress fees in addition to roughly $184,000 that has already been paid to affected consumers; (ii) incur $438,000 in civil money penalties; and (iii) be barred, for five years, from offering products associated with tax refunds. The consent order also would prohibit the Defendants from investing, financing, or working for an entity that offers tax refund products.

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CFPB Issues Guidance on Housing Counselor Requirement

On April 15, the CFPB issued an interpretive rule clarifying requirements for providing a list of housing counselors to mortgage borrowers, as required under the Bureau’s 2013 Home Ownership and Equity Protection Act final rule. Among other things, the interpretive rule expounds upon how to provide applicants living abroad with homeownership counseling lists, permissible geolocation tools, conditions under which the homeownership counseling list may be combined with other disclosures, and determining which of the borrower’s addresses (e.g. current address, mailing address, or the address of the property securing the mortgage) should serve as the loan applicant’s location for purposes of generating the list. In addition to clarifying counselor qualifications for high-cost mortgage counseling and parameters, the interpretive rule also provides guidance regarding lender participation during the borrower’s housing counseling sessions to ensure that counselor independence and impartiality is preserved and to prevent violation of anti-steering provisions.

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CFPB Grants Credit Card Issuers One-Year Suspension From Filing Card Agreements

On April 15, the CFPB issued a final rule temporarily suspending credit card issuers’ obligation to submit their card agreements to the CFPB, as required by the Credit Card Accontability, Responsibility, and Disclosure Act (CARD Act). The CARD Act, as implemented by TILA and Reg. Z (12 C.F.R. 1026.58), requires credit card issuers to submit credit card agreements to the Bureau on a quarterly basis. The first submission was set to be the first business day on or after April 30, 2015, but under the one-year reprieve, credit card issuers will not be required to begin submitting credit card agreements to the Bureau until April 30, 2016. According to the CFPB, during the temporary suspension, the regulator will “work to develop a more streamlined and automated electronic submission system.” The CFPB contends that the new system will allow for easier submission of credit card agreements than the manual submission system currently in place. Other requirements in Section 1026.58, including the requirement that credit card issuers post their credit card agreements on their own public website, remain unaffected by the temporary suspension.

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DOJ Submits 2014 Equal Credit Opportunity Act Annual Report to Congress

On April 13, the DOJ released its 2014 Annual Equal Credit Opportunity Act (ECOA) Report highlighting its activities to address credit discrimination. The twenty-page report highlights discrimination lawsuits and settlements in the automobile lending and credit card industry, as well as a consent order resulting from alleged discrimination on the basis of disability and the receipt of public assistance. It also includes information on the DOJ’s work under other federal fair lending laws including the Fair Housing Act (FHA) and the Servicemember Civil Relief Act (SCRA). According to Vanita Gupta, Acting Assistant AG for the Civil Rights Division, in the five years since the Fair Lending Unit was established, the Civil Rights Division has filed or resolved 37 lending matters under the ECOA, FHA, and SCRA. Total settlements in these matters, including enforcement actions from 2014, have resulted in over $1.2 billion in monetary relief for affected borrowers and communities.

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FTC Releases 2014 Annual Highlights Report

On April 15, the FTC released its 2014 Annual Highlights Report (Report), summarizing the FTC’s work during the prior year to protect consumers and promote competition in industries such as mobile technology, healthcare, and consumer products and services. The Report notes a range of policy actions, including filing eight amicus briefs on topics such as debt collection and children’s online privacy. It also publicizes the FTC’s work in pursuing over 150 enforcement actions resulting in $640 million in consumer refunds, highlighting the actions against mobile carriers’ “cramming” activities and companies that misrepresented the security features of their mobile applications and failed to disclose hidden in-app charges.

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GA Department of Banking and Finance Orders Florida Mortgage Lender to Shut Down for Unlicensed Lending Activities

On April 8, the Georgia Department of Banking and Finance issued an Order to Cease and Desist (Order) to a Florida-based mortgage lender. The lender allegedly engaged in residential mortgage origination, brokering, and/or lending activities without having a valid license or the appropriate exemption from the state’s licensing requirements in violation the Georgia Residential Mortgage Act. The Order is final 30 days from the issuance date, but the Department can rescind the Order if, within that 30 day period, the company provides adequate documentation showing that it is either properly licensed or qualifies for exemption.

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Georgia Banking Regulator Revokes License of Pennsylvania Mortgage Lender

On April 13, the Georgia Department of Banking and Finance (Department) entered into a Consent Order (Order) with a Pennsylvania-based mortgage lender and its owners for failing to file a timely application with the state regulator. Specifically, the Order was entered into with the lender to resolve a Notice of Intent to Revoke and proposed Orders to Cease and Desist for allegedly, among other things, allowing the acquisition of 10 percent or more of the ownership of a Georgia licensed entity without first filing an application with the Department, conducting business with an unlicensed person who is not exempt from licensing, employing a felon, and making false statements or misrepresenting material facts in mortgage loan documents. Under terms of the Order: (i) the lender must surrender its mortgage license and pay a $5,000 fine; (ii) one of its owners must surrender his MLO license, must pay two fines of $1,000 each to both the Department and the State Regulatory Registry, and is prohibited from being employed by a licensed Georgia mortgage broker or lender for five years; and (iii) another owner must contribute $1,000 to the State Regulatory Registry and is prohibited for five years from acquiring more than 10% voting shares of a Georgia licensed company. The Order also prohibits both aforementioned owners from: (i) applying for mortgage loan originator, mortgage broker, or mortgage lender licenses; (ii) serving as a director, officer or any other equivalent role for a Georgia licensee; and (iii) acting as a branch manager for a Georgia branch of a Georgia licensed mortgage broker or lender.

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Arkansas Amends Penalties for Unlicensed Collection Agency Activities

On April 8, the Arkansas General Assembly approved H.B.1668, which amends its collection agencies law to allow unlicensed collection agencies operating within the state to pay a $10,000 civil penalty to be considered retroactively licensed by its State Board of Collection Agencies. The legislation defines “retroactively licensed” as the date in which the collection agency first became subject to licensure. The legislation removes the criminal penalty for operating without a license but preserves the board’s right to impose a minimum fine of $50 up to a maximum of $500 for each day a collection agency participates in collection activities without a license. The opportunity to opt for retroactive licensure will take effect 90 days after the state legislature has adjourned.

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CFPB Files Suit and Obtains Injunction Against Participants of Alleged Illegal Debt Collection Scheme

On April 8, the CFPB announced that it filed a lawsuit in the United States District Court for the Northern District of Georgia on March 26 against participants in an allegedly illegal debt collection operation, involving certain payment processors and a telephone broadcast service provider. The complaint alleges that several individuals and the companies they formed, based in New York and Georgia, attempted to collect debt that consumers did not owe or that the collectors were not authorized to collect. The complaint further alleges uses of  harassing and deceptive techniques in violation of the CFPA and FDCPA. Specifically, the collectors allegedly placed robo-calls through a telephone broadcast service provider, also named in the complaint, to millions of consumers stating that the consumers had engaged in check fraud and threatening them with legal action if they did not provide payment information. The CFPB asserts that as a result, the debt collectors received millions of dollars in profits from the targeted consumers. The complaint also names certain payment processors used by the collectors to process payments from consumers. The CFPB obtained a preliminary injunction to halt the debt collection activities and freeze the assets of all defendants named in the lawsuit. Consistent with prior enforcement actions and guidance, the CFPB’s complaint in this matter underscores the importance of exercising thorough due diligence and ongoing oversight of third parties engaged to provide material services in connection with the offering or provision of a consumer financial product or service.  For an in-depth analysis of the CFPB’s expanding scrutiny in this area, please see the recently published article Regulatory Blue Pencil: CFPB Guidance, Enforcement Actions Signal Expanding Focus on Vendor Management, authored by BuckleySandler Partner Elizabeth McGinn and Counsel Moorari Shah.

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FTC Settles with Technology Company for Allegedly Misleading Consumers about Refunds

On April 7, the FTC announced a proposed settlement of an administrative complaint alleging that a web hosting provider violated the Federal Trade Commission Act. According to the press release, the company offered web hosting packages to consumers with the guarantee of receiving their money back if they canceled within 30 days. The company allegedly did not adequately disclose that customers who had purchased a new annual or multi-year web hosting package and registered an included domain name would receive only a partial refund if they canceled within 30 days. The proposed settlement prohibits the company from misleading consumers about its cancellation and refund policies.

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