On June 23, the CFPB published its eighth edition of Supervisory Highlights, covering supervisory activities from January 2015 through April 2015. The latest edition identifies issues with dual-tracking at mortgage servicers and the need for improved quality control measures at consumer reporting agencies. The report also provided supervisory observations related to debt collection, student loan servicing, mortgage origination and servicing, and fair lending. Notably, the report reveals that non-public supervisory actions and self-reported violations at banks and nonbanks in the areas of mortgage origination, fair lending, mortgage servicing, deposits, payday lending, and debt collection resulted in $11.6 million in remediation to more than 80,000 consumers during the first four months of 2015.
Today, the CFPB expanded its consumer complaint database, publishing for the first time over 7,700 consumer narratives which provide descriptive details of issues consumers face with respect to mortgages, bank accounts, credit cards, and debt collection, among other topics. As previously covered in InfoBytes, the Bureau finalized its Policy earlier this year requiring consumers who file complaints to “opt-in” to have the actual narrative of the complaint disclosed in the CFPB consumer complaint database. In addition, the Bureau issued a Request For Information seeking feedback on how complaint information contained within the database can be more easily identified and “normalized.” The Bureau also announced that it had received more than 627,000 complaints as of June 1, with mortgages and debt collection among the most frequent sources of complaints.
On June 18, the CFPB announced an enforcement action against a third-party medical debt collection company for allegedly failing to issue debt validation notices to customers, mishandling consumer credit reporting disputes, and preventing customers from exercising certain debt collection rights. According to the Bureau, from 2011 through 2013, the company failed to properly investigate consumers’ complaints with respect to information furnished to credit reporting agencies, and lacked internal policies and procedures on how to handle and respond to the complaints, resulting in a violation of the Fair Credit Reporting Act (FCRA). In addition, the Bureau contends that the company did not properly inform consumers of the amount of medical debt owed before commencing efforts to obtain payment on the debt, subsequently violating the Fair Debt Collection Practices Act (FDCPA). The CFPB ordered the medical debt collector to, among other things, (i) provide over $5 million in restitution to affected consumers, (ii) correct errors in consumer credit reports, (iii) pay a $500,000 civil money penalty, and (iv) improve its business practices.
2nd Circuit Reinstates Consumer Class Action Against National Debt Buyer Through Preemption Decision
On May 22, the U.S. Court of Appeals for the Second Circuit ruled against a debt collection firm, holding that “non-national bank entities are not entitled to protections under the National Bank Act (“NBA”) from state-law usury claims merely because they are assignees of a national bank.” Madden v. Midland Funding, LLC, No. 14-2131-cv, 2015 WL 2435657 (2nd Cir. May 22, 2015). The Second Circuit’s holding reversed the Southern District of New York’s decision, which held that it was permissible for the firm to charge a consumer an interest rate of 27%—a rate exceeding New York’s 25% usury limit—because the firm was an assignee of a national bank. The Second Circuit vacated the District Court’s judgment “[b]ecause neither defendant is a national bank nor a subsidiary or agent of a national bank, or is otherwise acting on behalf of a national bank, and because application of the state law on which [the plaintiff’s] claim relies would not significantly interfere with any national bank’s ability to exercise its powers under the NBA.” Id. at *1. According to the court, extending “NBA preemption to third-party debt collectors such as the defendants would be an overly broad application of the NBA” which “would create an end-run around usury laws for non-national bank entities that are not acting on behalf of a national bank.” Id. at *5. The Second Circuit also vacated the District Court’s judgment as to the plaintiff’s FDCPA claim and the denial of class certification because those rulings were predicated on the District Court’s preemption analysis. The case, which has been argued on the premise that New York state usury law applies, has been remanded back to the district court to determine choice-of-law based on a Delaware choice-of-law clause in the original debt agreement.
On May 12, the Ninth Circuit held that a debt collection letter did not violate the FDCPA or California’s Rosenthal Act where the amount of the debt was certain, even though the debt collector had not yet obtained a judgment. Diaz v. Kubler Corp., 2015 WL 2214634 (9th Cir. May 12, 2015). The debt collector sent a collection letter demanding that the debtor pay an amount reflecting the principal owed plus interest at an annual rate of 10%, which was the rate set forth in California law for contracts that do not stipulate a legal rate of interest. The district court granted summary judgment, holding that the debt collector could not seek to collect prejudgment interest at the statutory rate without first obtaining a judgment for breach of contract. Therefore, the court held, the debt collector had violated the FDCPA and the Rosenthal Act by attempting to collect an amount not authorized by the contract creating the debt or permitted by law. The Ninth Circuit reversed, holding that California Civil Code §3287(a) allows recovery of prejudgment interest from the time that the creditor’s right to recover is “vested,” which occurs at the time “the amount of damages become certain or capable of being made certain, not the time liability to pay those amounts is determined.” Damages “become certain or capable of being made certain” when “there is essentially no dispute between the parties concerning the basis of computation of damages if any are recoverable but where their dispute centers on the issue of liability giving rise to damage.” At that time, prejudgment interest becomes available as a matter of right. Accordingly, the debt collector’s demand for prejudgment interest did not violate the FDCPA or the Rosenthal Act.
On April 29, the CFPB revealed via blog post that it will host a field hearing focusing on issues related to student debt. The hearing will be held in Milwaukee, Wisconsin and is scheduled to occur on Thursday, May 14. The hearing will feature remarks from CFPB Director, Richard Cordray, in addition to testimony from consumer groups, industry representatives, and members of the public.
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.
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.
On March 30, the CFPB announced an enforcement action against a nationwide debt collection operation and its CEO for allegedly violating the FDCPA. The Bureau’s complaint alleges that the debt collection operation (i) posed as state or district attorneys by sending communication letters on prosecutors’ letterheads; (ii) threatened consumers with criminal prosecution for bounced checks before a state or district attorney had determined if a violation had occurred; and (iii) deceived consumers into believing that they must enroll in and pay for a financial education class to avoid potential criminal prosecution for bad checks. In addition to the $50,000 civil money penalty the company will pay, the proposed consent order requires that the debt collection operation: (i) end its deceptive communication practices; (ii) stop threatening customers with imprisonment; (iii) no longer use district attorney letterhead; and (iv) increase its supervision – to include state and district attorneys – of communicating with consumers about diversion programs.
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 February 26, the FTC and the New York State Attorney General announced joint lawsuits to cease certain practices of two debt collection operations based in upstate New York. The complaints allege that the defendants unlawfully used threats and abusive language, including false threats that consumers would be arrested, to collect more than $45 million in supposed debts. The FTC and the State of New York are also seeking monetary relief to provide refunds to consumers. FTC v. 4 Star Resolution LLC, No. 1:15-cv-00112-WMS (W.D.N.Y. Feb. 9, 2015), FTC v. Vantage Point Services, LLC, No. 1:15-cv-00006-WMS (W.D.N.Y. Jan. 5, 2015). The District Court has temporarily enjoined the defendants’ practices in both cases.
On December 4, the U.S. Court of Appeals for the Eighth Circuit held that a debt collector did not violate the FDCPA by informing a consumer reporting agency (CRA) that a consumer owed a debt without also expressly indicating that the consumer had disputed it. McIvor v. Credit Control Services, Inc., No. 14-1164 (8th Cir. Dec. 4, 2014). According to the opinion, the plaintiff brought a claim under § 1692e(8) of the FDCPA, which prohibits debt collectors from using “any false, deceptive, or misleading representation or means in connection with the collection of any debt,” and deems as a violation the conduct of “[c]ommunicating . . . to any person credit information which is known . . . to be false, including the failure to communicate that a disputed debt is disputed.” The court reasoned that no violation occurred here because (i) the CRA already knew that the debt was disputed, and (ii) the debt collector communicated with the CRA “with the purpose of complying with the FCRA, not as an elective report of credit information.”
CFPB & State Attorneys General Fine Retailer and Debt Collectors for Alleged Illegal Debt Collection Practices Against Military Servicemembers
On December 18, the CFPB and the Attorneys General of North Carolina and Virginia announced an enforcement action against three affiliated companies offering credit and financing services to military servicemembers. The complaint filed in the Eastern District of Virginia alleges that the companies used illegal tactics to collect debts in violation of Dodd-Frank, including by (i) filing illegal lawsuits; (ii) debiting consumers’ accounts without authorization; and (iii) contacting servicemembers’ commanding officers. The complaint also charges that one of the companies violated the EFTA by failing to properly disclose the terms of preauthorized transfers, while another company violated TILA by failing to properly disclose terms and interest rates on the loans it offered to servicemembers. The CFPB and the Attorneys General filed a consent order in the district court to require the companies and their owners and chief officers to provide over $2.5 million in consumer redress, pay a $100,000 civil penalty, and undergo ongoing compliance monitoring for a period of five years.
Recently, the U.S. District Court for the District of Florida denied a major bank’s motions to vacate and modify a judgment that awarded a Florida couple a total of $1,051,000 – approximately $1,500 per unauthorized call. Coniglio v. Bank of America, N.A., No. 8:14-CV-01628-EAK-MAP (M.D. Fla. December 4, 2014). In a complaint filed in July, the couple claimed the bank violated the Telephone Consumer Protection Act after they received over 700 calls in four years, including calls from an automated telephone dialing system, without their consent. The calls began as a result of the couple falling behind on their mortgage payments in 2009. In October, the Court agreed with the couple’s claims and ordered the bank to pay the awarded amount.
CFPB Addresses Medical Debt Collection, Requires Consumer Reporting Agencies To Provide Accuracy Reports
On December 11, the CFPB held a field hearing on medical debt collection and how it affects consumer credit reports. In his prepared remarks, Director Cordray announced the release of a white paper focused on the specific issue of medical debt collection. According to Cordray, medical debt collection presents unique challenges as compared to other industries due to inconsistent debt collection practices by medical service providers, insurance companies, and collection agencies. More broadly, Cordray addressed issues within the consumer reporting system and announced that major consumer reporting agencies will now be required to submit “regular, standardized accuracy reports” as part of its ongoing examinations efforts. Specifically, consumer reporting agencies will have to (i) identify furnishers with the most disputes; (ii) identify industries with the most disputes, and (iii) provide peer group ranking of furnishers consumer disputes relative to their industry.