On July 14, the CFPB sued a Georgia-based law firm and its three principal partners for allegedly using high-volume litigation tactics to collect millions of dollars from consumers who may not actually have owed the debts or may not have owed the debts in the amounts claimed. The suit relates to the firm’s attempts to collect, directly or indirectly, consumer credit-card debts on behalf of both credit-card issuers and debt buyers that purchase portfolios of defaulted credit-card debts. The CFPB alleges the defendants violated the FDCPA and engaged in unfair and deceptive practices by: (i) serving consumers with deceptive court filings generated by automated processes and the work of non-attorney staff, without any meaningful involvement of attorneys; and (ii) introducing faulty or unsubstantiated evidence through sworn statements even though some signers could not have known the details they were attesting to. The CFPB is seeking to permanently enjoin the firm from engaging in the alleged activity, restitution to borrowers, disgorgement, civil money penalties, and damages and other monetary relief.
CFPB Expands Complaint Collection To Include Prepaid Cards, Additional Nonbank Products And Services
On July 21, the CFPB announced that it is now accepting consumer complaints regarding (i) prepaid products, including gift cards, benefit cards, and general purpose reloadable cards; (ii) credit repair services and debt settlement services; and (iii) pawn and title loans. The CFPB’s decision to field prepaid card complaints comes as the agency prepares a proposed rule related to those products. The press release states that the CFPB is planning to initiate the prepaid card rulemaking “in the coming months.” Director Cordray recently stated the rule would be proposed at the “end of the summer.”
The CFPB provides the following options for consumers to identify the nature of their complaints:
- Prepaid Cards – (i) managing, opening, or closing your account; (ii) fees; (iii) unauthorized transactions or other transaction issues; (iv) advertising, marketing or disclosures; (v) adding money; (vi) overdraft, savings or rewards features; or (vii) fraud or scam.
- Credit Repair and Debt Settlement – (i) advertising and marketing; (ii) customer service/customer relations; (iii) disclosures; (iv) excessive fees; (v) unexpected/other fees; (vi) incorrect exchange rate; (vii) lost or stolen money order; (viii) lost or stolen check; or (ix) fraud or scam.
- Pawn and Title Loans – (i) charged fees or interest I didn’t expect; (ii) can’t stop lender from charging my bank account; (iii) received a loan I didn’t apply for; (iv) applied for a loan, but didn’t receive money; (v) lender charged my bank account on wrong day or for wrong amount; (vi) lender didn’t credit payment to my account; (vii) can’t contact lender; (viii) lender sold the property / repossessed or sold the vehicle; or (ix) lender damaged or destroyed property / vehicle.
As with all of the CFPB’s complaint categories, consumers also have an opportunity to describe their complaints regarding these new products and services in narrative form. Last week, the CFPB proposed a policy change under which it would publish those consumer complaint narratives, a move it hopes will increase the number of complaints the CFPB fields. At the same time the CFPB released its latest “snapshot” of consumer complaints, which provides an overview of the complaint process and summary analyses of complaints handled by the CFPB since July 21, 2011.
On July 15, Fannie Mae and Freddie Mac announced the availability of additional documentation to support the mortgage industry with the implementation of the Uniform Closing Dataset (UCD), the common industry dataset that supports the CFPB’s closing disclosure. The documents provide information to supplement the MISMO mapping document released in March 2014. Fannie Mae and Freddie Mac intend to collect the UCD from lenders in the future, but have not yet determined the method or timeline for that data collection.
Recently, the Massachusetts Division of Banks published final amendments to its regulation concerning documentation and determination of borrower’s interest to establish an additional safe harbor for any home loan that meets the definition of a “Qualified Mortgage” under the CFPB’s ability-to-repay/qualified mortgage rule. A Qualified Mortgage now will be deemed to be in the borrower’s interest under the regulation. The amendments also clarify that the exemption under the borrower’s interest regulation applies to all Qualified Mortgages which are eligible for safe harbor consideration under TILA, including the small creditor exemption, provided that the Qualified Mortgage is not higher cost. The amendments became effective July 18, 2014.
Yesterday, in advance of a field hearing being held today on consumer complaints, the CFPB released a proposal to expand the amount of information that will be included in the Consumer Complaint Database to include certain consumer complaint narratives, along with any response to the complaint submitted by the identified financial institution. The CFPB already collects the narrative information as part of the complaint intake process, but to date has not published narratives over privacy concerns it believes it now has addressed. The CFPB describes the proposed change as a natural extension of a policy designed to “provide consumers with timely and understandable information about consumer financial products and services, and improve the functioning, transparency, and efficiency of markets for such products and services.” The CFPB will accept comments on the proposal for 30 days following publication in the Federal Register. Read more…
On July 8, the CFPB released guidance designed to ensure equal treatment for legally married same-sex couples in response to the Supreme Court’s decision in United States v. Windsor, 133 S. Ct. 2675 (2013). Windsor held unconstitutional section 3 of the Defense of Marriage Act, which defined the word “marriage” as “a legal union between one man and one woman as husband and wife” and the word “spouse” as referring “only to a person of the opposite sex who is a husband or a wife.”
The CFPB’s guidance, which took the form of a memorandum to CFPB staff, states that regardless of a person’s state of residency, the CFPB will consider a person who is married under the laws of any jurisdiction to be married nationwide for purposes of enforcing, administering, or interpreting the statutes, regulations, and policies under the Bureau’s jurisdiction. The Bureau adds that it “will not regard a person to be married by virtue of being in a domestic partnership, civil union, or other relationship not denominated by law as a marriage.”
The guidance adds that the Bureau will use and interpret the terms “spouse,” “marriage,” “married,” “husband,” “wife,” and any other similar terms related to family or marital status in all statutes, regulations, and policies administered, enforced or interpreted by the Bureau (including ECOA and Regulation B, FDCPA, TILA, RESPA) to include same-sex marriages and married same-sex spouses. The Bureau’s stated policy on same-sex marriage follows HUD’s Equal Access Rule, which became effective March 5, 2012, which ensures access to HUD-assisted or HUD-insured housing for LGBT persons.
This afternoon, the CFPB issued policy guidance on supervision and enforcement considerations relevant to mortgage brokers transitioning to mini-correspondent lenders. The CFPB states that it “has become aware of increased mortgage industry interest in the transition of mortgage brokers from their traditional roles to mini-correspondent lender roles,” and is “concerned that some mortgage brokers may be shifting to the mini-correspondent model in the belief that, by identifying themselves as mini-correspondent lenders, they automatically alter the application of important consumer protections that apply to transactions involving mortgage brokers.”
The guidance describes how the CFPB evaluates mortgage transactions involving mini-correspondent lenders and confirms who must comply with the broker compensation rules, regardless of how they may describe their business structure. In announcing the guidance, CFPB Director Richard Cordray stated that the CFPB is “putting companies on notice that they cannot avoid those rules by calling themselves by a different name.”
The CFPB is not offering an opportunity for the public to comment on the guidance. The CFPB determined that because the guidance is a non-binding policy document articulating considerations relevant to the CFPB’s exercise of existing supervisory and enforcement authority, it is exempt from the notice and comment requirements of the Administrative Procedure Act. Read more…
This afternoon, the CFPB announced that a nonbank consumer lender will pay $10 million to resolve allegations that it engaged in certain unfair, deceptive, and abusive practices in the collection of payday loans. This action comes exactly one year after the CFPB issued guidance that it would hold supervised creditors accountable for engaging in acts or practices the CFPB considers to be unfair, deceptive, and/or abusive when collecting their own debts, in much the same way third-party debt collectors are held accountable for violations of the FDCPA. Read more…
On July 8, the CFPB issued an interpretive rule stating that the addition of a successor as an obligor on a mortgage does not trigger the Ability-to-Repay/Qualified Mortgage Rule (ATR/QM Rule) requirements if the successor previously received an interest in the property securing the mortgage by operation of law, such as through inheritance or divorce. Creditors may rely on the interpretive rule as a safe harbor under section 130(f) of TILA.
In adopting the interpretations described below, it appears that the CFPB primarily intended to respond to inquiries from the industry and consumer advocates about situations where one family member inherits a home from another and, in order to keep the home, requests to be added to the mortgage and to modify its terms, such as by reducing the rate or payments.
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Questions regarding the matters discussed in the Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.
On July 3, the CFPB published a report on its study of the use of remittance histories in credit scoring, which found that (i) remittance histories have little predictive value for credit scoring purposes, and (ii) remittance histories are unlikely to improve the credit scores of consumers who send remittance transfers. The report follows a 2011 CFPB report on remittance transfers, which was required by the Dodd-Frank Act and assessed, among other things, the feasibility of and impediments to using remittance data in credit scoring. At that time, the CFPB identified a number of potential impediments to incorporating remittance history into credit scoring, and noted the need for further research to better address the potential impact of remittance information on consumer credit scoring. Read more…
Supreme Court Holds President May Make Recess Appointments During Intra-Session Recesses Of Sufficient Length
On June 26, the Supreme Court rejected the federal government’s challenge to a January 2013 decision by the D.C. Circuit that appointments to the National Labor Relations Board (NLRB) made by President Obama in January 2012 during a purported Senate recess were unconstitutional. NLRB V. Noel Canning, No. 12-1281, 2014 WL 2882090 (U.S. Jun. 26, 2014). A five-member majority of the Court held that Presidents are permitted to exercise authority under the Recess Appointments Clause to fill a vacancy during both intra-session and inter-session recesses of sufficient length, and that such appointments may fill vacancies that arose prior to or during the recess.
The Court determined that the phrase “recess of the Senate” is ambiguous, and that based on the functional definition derived from the historical practice of past presidents and the Senate, it is meant to cover both types of recesses. Further, the court held that although the Clause does not indicate how long a recess must be before a president may act, historical practice suggests that a recess less than 10 days is presumptively too short. The Court did not foreclose the possibility, however, that appointments during recesses of less than 10 days may be permissible in unusual circumstances. The Court also validated the Senate’s practice of using pro forma sessions to avoid recess appointments, holding the Senate is in session when it says it is, provided it retains capacity to conduct business. Because the Senate was in session during its periodic pro forma sessions, and because the recess appointments at issue were made during a three-day recess between such sessions, the appointments were invalid.
A minority of the Court concurred in the judgment, but endorsed a narrower reading of the President’s authority to make recess appointments and the Senate’s ability to avoid triggering the President’s recess-appointment power. Writing for that minority, Justice Scalia explained that the plain constitutional text limits the President’s recess appointment power to filling vacancies that first arise during the recess. The minority reading of the Clause also limits the President’s recess appointment power to recesses between legislative sessions, and not intra-session ones. CFPB Director Richard Cordray was appointed in the same manner and on the same day as the NLRB members whose appointments were at issue in this case, but was subsequently re-nominated and confirmed for the position. He later ratified CFPB actions taken during the period he served as a recess appointee.
On June 27, the GAO released a May 2014 report regarding virtual currency. The leaders of the Senate Homeland Security and Governmental Affairs Committee asked the GAO to examine potential policy issues related to virtual currencies and the status of federal agency collaboration in this area. The report summarizes virtual currency policy developments to date, and provides an overview of various interagency working groups and the ways each has so far addressed virtual currencies. The GAO concludes that consumer protection issues have largely not been addressed by the working groups, and recommends that the CFPB identify and join existing interagency working groups to ensure that consumer protection issues are considered as those groups develop virtual currency policies. In response to the report, the CFPB stated that it has been doing its own work on virtual currency, and has collaborated informally, but agreed that it should participate formally in interagency working groups.
On June 23, the ICBA and The Clearing House published a white paper on virtual currency that (i) defines virtual currency and describes the current regulatory environment; (ii) describes key players in the Bitcoin system; (iii) discusses the application of certain functional and prudential payment system regulations that may be applied to the Bitcoin system and other convertible decentralized virtual currencies; and (iv) evaluates potential regulation of virtual currency, virtual currency investment programs, and exchanges. The paper concludes, among other things, that: (i) credentials used to transact in Bitcoin are functionally similar to prepaid cards and arguably fall within the definition of such cards provided in Regulations E and II; and (ii) the CFPB may determine that cross-border transactions in Bitcoin fall within the scope of the CFPB’s Remittance Transfer Rule, which would require entities facilitating such transfers to comply with the rule’s disclosure, reversibility, and error-resolution requirements. The paper discusses potential safety and soundness oversight for entities in the Bitcoin system. It also suggests that existing regulations intended to protect consumers and market participants in the event of the failure of a securities or commodities exchange may be inapplicable to Bitcoin exchanges, and that alternative means of protecting investors and accountholders—such as disclosure requirements and coordinated state-level registration of exchanges—should be explored.
On June 17 the DOJ, the CFPB, HUD, and 49 state attorneys general and the District of Columbia’s attorney general announced a $968 million consent judgment with a large mortgage company to resolve numerous federal and state investigations regarding alleged improper mortgage origination, servicing, and foreclosure practices. The company agreed to pay $418 million to resolve potential liability under the federal False Claims Act for allegedly originating and underwriting FHA-insured mortgages that did not meet FHA requirements, failing to adhere to an effective quality control program to identify non-compliant loans, and failing to self-report to HUD the defective loans it did identify. The company also agreed to measures similar to those in the National Mortgage Settlement (NMS) reached in February 2012. In particular, the company will (i) provide at least $500 million in borrower relief in the next three years, including by reducing the principal on mortgages for borrowers who are at risk of default, reducing mortgage interest rates for current but underwater borrowers, and other relief; (ii) pay $50 million to redress its alleged servicing violations; and (iii) implement certain changes in its servicing and foreclosure activities to meet new servicing standards. The agreement is subject to court approval, after which compliance with its terms, including the servicing standards, will be overseen by the NMS Monitor, Joseph A. Smith Jr.
CFPB Director Announces Indirect Auto Finance Proxy Methodology White Paper, Discusses Numerous Other Initiatives
On June 18, in an appearance before the House Financial Services Committee, CFPB Director Richard Cordray stated that later this summer the CFPB hopes to release a white paper on the proxy methodology it employs to identify alleged discrimination in indirect auto financing. The white paper follows repeated attempts by members of the Committee to force the CFPB to reveal more details about its approach to indirect auto finance enforcement. Director Cordray also revealed that the CFPB is working on a white paper regarding manufactured housing finance.
The hearing covered numerous additional topics, some of which overlapped with those addressed during Mr. Cordray’s recent appearance before the Senate Banking Committee. Among the new issues raised before the House Committee, Mr. Cordray expressed openness to developing a limited advisory opinion process for the CFPB. In response to a question from Rep. Ed Royce (R-CA), Mr. Cordray explained that the CFPB regularly provides informal advisory opinions. He acknowledged other agencies’ use of advisory opinions and their potential benefit, and indicated that advisory opinions could be a useful tool for the CFPB on certain specific issues. Nevertheless, he resisted committing to the implementation of a formal advisory opinion process. The Committee recently approved, along party lines, legislation that would require the CFPB to establish an advisory opinion process. Read more…