On December 3, the ABA sent a letter to HUD’s General Deputy Assistant Secretary for the Office of Housing requesting guidance on the use of form HUD-92070 under the Servicemembers Civil Relief Act. HUD Form 92070 relates to the debt protections servicemembers receive under the SCRA. However, the most current version of the form expired on November 30, 2014. The letter seeks guidance regarding (i) compliance requirements now that the form has expired; and (ii) how to provide an accurate notice to servicemembers since the current form will be inaccurate effective January 1, 2015. Finally, the letter requests that HUD advise lenders as to how they should remain in compliance with the Congressional mandate until a new form is published.
On December 18, after passing unanimously in both houses of Congress, President Obama signed into law S.3008, the Foreclosure Relief and Extension for Servicemembers Act of 2014. Previously, the SCRA’s protection for servicemembers against foreclosure for one year after the end of active duty was set to expire at the end of 2014. The Act extends this protection until the end of 2015, at which point the foreclosure protection is scheduled to revert to the period of active duty plus 90 days that was in effect in 2008.
On November 25, 2014, the U.S. District Court for the Eastern District of Michigan applied the state’s three-year statute of limitations for conversion in granting a motion to dismiss a servicemember’s claims of wrongful foreclosure and eviction under the SCRA. Johnson v. MERS, Inc., No. 14-CV-10921, 2014 WL 6678951 (E.D. Mich. Nov. 25, 2014). The plaintiffs argued that, because the SCRA does not explicitly provide its own limitations period within which a suit must be brought, there was no limit for SCRA-based claims; however, the court rejected this argument. Following Supreme Court precedent, the court looked to the most analogous state law and applied its limitations period to the plaintiffs’ SCRA claim. The court considered, and ultimately rejected, plaintiffs’ argument to apply Michigan’s unlimited limitations period for egregious acts under the state’s criminal law. Similarly, the court held that both the ten-year limitations period for breach of contract and the six-year catch-all limitations period did not apply. Ultimately the court concluded that Michigan’s three-year statute of limitations for civil conversion claims was the most analogous to plaintiffs’ SCRA claims. As a result, plaintiffs’ claims were dismissed as time-barred.
BuckleySandler LLP is pleased to announce the availability of the 2015 edition of the “Consumer Financial Services Answer Book,” published by the Practising Law Institute. Twenty-one BuckleySandler attorneys contributed to 12 chapters in this leading desk reference, which uses an easy question and answer format to address matters involving consumer financial services law. BuckleySandler Partner Richard Gottlieb also served as lead editor, a role he has held since publication of the first annual edition in 2011.
The 2015 edition of this publication continues to provide practitioners with a core understanding of the laws governing consumer financial services, addressing the latest developments in Consumer Financial Services Bureau (CFPB) enforcement activities, regulations and guidelines, fair lending, auto lending, the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA), among others.
New chapters in the 2015 edition address:
- Credit Cards
- Electronic Records and eSignatures
- Short-Term Lending
- Unfair and Deceptive Acts and Practices (UDAAP)
- Servicemembers Civil Relief Act (SCRA)
- Telemarketing and the Telephone Consumer Protection Act (TCPA)
From compliance counseling to enforcement, BuckleySandler has been handling precedent-setting CFPB matters since the Bureau was established in 2011 — experiences which enabled its attorneys to contribute the added insight and advice on current and emerging CFPB developments, trends, and expectations for the Answer Book.
The Consumer Financial Services Answer Book is for sale in hard copy format by the Practising Law Institute at www.pli.edu.
On August 26, the Obama Administration announced a new partnership with residential mortgage servicers designed to enhance protections under the Servicemember Civil Relief Act (SCRA). Speaking to the American Legion convention in Charlotte, North Carolina, President Obama observed that under the SCRA, service members and veterans are entitled to certain protections and benefits “but the burden is on them to ask for it and prove they’re eligible.” Under the new partnership, mortgage servicers will proactively identify eligible consumers and inform them of their rights and benefits under the law. Participating servicers will identify eligible participants by regularly checking their servicing portfolios against the Defense Manpower Data Center searchable database of military personnel. The initiative also aims to simplify the process for enrolling and satisfying the SCRA written notice requirements. The announcement was made as part of a White House effort to bolster services for service members, veterans, and their families.
Department Of Education Encourages FFEL Lenders To Adopt New Procedures For Determining SCRA Eligibility
On August 25, the U.S. Department of Education (ED) released a “dear colleague” letter authorizing and encouraging Federal Family Education Loan (FFEL) lenders and lender-servicers to use the new procedures adopted by ED for determining which borrowers are eligible for benefits under the Servicemembers Civil Relief Act. The new ED procedures require ED loan servicers to use the Department of Defense’s website to access the Defense Manpower Data Center (DMDC) database. From there, the ED loan servicers compare their list of borrowers against the DMDC database to identify borrowers who are eligible for the SCRA interest rate limitation. Once the borrower’s status and service dates have been confirmed using the DMDC, the FFEL lenders and lender-servicers using this process may use the DMDC-generated certification information in lieu of having a servicemember submit a copy of his military orders and a written request to receive the SCRA benefits. When the FFEL lender or lender-servicer applies the SCRA interest rate limitation to the borrower’s account, it must notify the borrower of the interest rate change.
On August 18, in a speech to the Association of Military Banks of America, Deputy Comptroller for Compliance Policy Grovetta Gardineer described the OCC’s increasing supervisory and enforcement focus on SCRA compliance. Ms. Gardineer explained that given the significant risks presented by a bank’s failure to comply with the SCRA, the OCC has “stepped up its focus on compliance” and “now requires . . . examiners to include evaluation of SCRA compliance during every supervisory cycle”—even though this closer scrutiny is not required by statute. Ms. Gardineer also highlighted the OCC’s concern regarding potential unfair and deceptive practices associated with overdraft and other administrative fees, especially when “poorly worded disclosures about fees” are contained in “page after page of legal notices and disclaimers.” And while Ms. Gardineer stated that the OCC itself is willing to take enforcement actions where necessary, she also stressed the importance of coordination between regulators to more effectively implement rules and help create a “culture that encourages . . . financial readiness” among servicemembers.
On July 23, Delaware Governor Jack Markell signed SB 206, which incorporates federal protections for servicemembers under the Servicemembers Civil Relief Act into state law, extends those protections to members of the Delaware National Guard who are called into active military service for the State of Delaware for a period of more than 30 consecutive days, and gives the state attorney general authority to enforce the new protections. The bill took effect immediately upon enactment.
On June 9, President Obama announced numerous initiatives related to federal student loans and signed a presidential memorandum directing the Education and Treasury Departments to execute certain of those initiatives. The central directive instructs the Education Department to initiate a rulemaking that will allow students who borrowed before October 2007 or who have not borrowed since October 2011 to cap their payments at 10 percent of their monthly incomes. The Education Department aims to finalize the program by December 2015. In addition, the President announced that, among other things, (i) the Education Department will renegotiate its contracts with federal loan servicers to alter financial incentives “to help borrowers repay their loans on time, lower payments for servicers when loans enter delinquency or default, and increase the value of borrowers’ customer satisfaction when allocating new loan volume”; (ii) the Education Department will proactively apply SCRA protections by reducing interest rates automatically for eligible servicemembers and will also provide additional guidance to Federal Family Education Loan program servicers to provide for a similar streamlined process; (iii) Treasury and the Education Department will work with tax preparation companies to communicate information about federal student loan repayment options; and (iv) the Education Department will expand other existing efforts to identify borrowers who may be struggling to repay and provide them with information about repayment options. The President also called on Congress to pass federal student loan refinance legislation championed by Senator Elizabeth Warren (D-MA). On June 11, the Senate failed to advance that bill, which was designed to allow federal loan borrowers to reat rates set last year by the Bipartisan Student Loan Certainty Act, and allow private loan borrowers to refinance loans into the federal program at the same rates.
Senator Durbin Presses Student Loan Servicers On SCRA; Consumer Group Wants More Student Borrower Information
On May 14, Senator Dick Durbin (D-IL) sent a letter to student loan servicers calling on them to voluntarily establish a liaison for servicemembers with student loan accounts to assist those servicemember with obtaining SCRA protections. On May 12, the National Consumer Law Center sent a letter to Education Secretary Arne Duncan complaining about the Department of Education’s alleged inadequate responses to NCLC inquiries seeking (i) information and data about why borrowers default and incidence of re-default; (ii) information about the Department’s commission and compensation system for servicers and collectors and performance evaluation metrics; (iii) copies of guidance to servicers and collectors; (iv) information about servicer performance broken down by percentage of loans in various stages of delinquency, percentage of borrowers enrolled in income-driven repayment (IDR), retention rates for those enrolled in IDR, re-default rates, and percentage of borrowers in deferments and forbearances; (v) information about collection and servicer complaint systems; and (vi) breakdown of accounts sent to the Department of Treasury for offset, including by type of benefit program and by demographic information including age. The letter also outlines NCLC’s operational concerns, including with regard to loan rehabilitation and affordable repayment, collection agency oversight, and servicing performance metrics.
On March 27, Washington Governor Jay Inslee signed HB 2171, which amends the Washington Service Member’s Civil Relief Act (WSCRA) to provide that a violation of the federal Servicemembers Civil Relief Act is a violation of the WSCRA and applies in proper cases in all Washington courts. The bill also provides a private right of action for servicemembers or their dependents to enforce the WSCRA, and grants the state attorney general civil litigating authority, with penalties of up to $55,000 for a first violation and up to $110,000 for each subsequent violation. The changes take effect on June 12, 2014.
On February 7, the U.S. Court of Appeals for the Ninth Circuit held that the attempted collection of past due foreclosure-related fees from a borrower in active duty military service is a violation of section 533 of the Servicemembers Civil Relief Act (SCRA). Brewster v. Sun Trust Mortg., Inc., No. 12-56560, WL No. (9th Cir. Feb. 7, 2014). The district court dismissed an active duty servicemember’s suit against the current and former servicer of his mortgage loan after the current servicer failed to remove fees associated with a foreclosure initiated, but then withdrawn, by the prior servicer. SCRA section 533 bars the “sale, foreclosure, or seizure of property” for the breach of certain obligations relating to a mortgage made before a servicemember’s military service, unless such action is pursuant to a court order or a valid SCRA waiver, and also establishes criminal penalties for a person who knowingly makes, causes to be made, or attempts to make such a prohibited sale, foreclosure, or seizure of property. On appeal, the Ninth Circuit concluded that the failure to remove the fees incidental to the previous foreclosure’s Notice of Default was a continuation of the previous “foreclosure proceeding,” and, therefore, a violation of section 533. The court did not consider whether the Notice of Default had been initially filed in violation of section 533. The court’s reasoning hinged on its reading of what the word “foreclosure” encompassed and based its interpretation on (i) a state-law statutory definition of foreclosure that the court determined included the attempted collection of foreclosure fees as part of the foreclosure proceeding, and (ii) the U.S. Supreme Court’s unambiguous requirement that courts broadly construe the statutory language of the SCRA. The court declined to determine whether SCRA allows punitive damages, as the DOJ had urged it to do in an amicus brief. The court reversed the district court’s dismissal of the borrower’s suit and remanded for further proceedings.
On January 28, the GAO issued a report on SCRA mortgage protections required by the 2012 legislation that extended those protections. Using data from three large mortgage servicers and a large credit union, the GAO examined changes in the financial well-being of servicemembers who received foreclosure-prevention and mortgage-related interest rate protections under SCRA, including the extent to which they became delinquent and the impact of protection periods. The report states that the number of servicemembers with mortgages eligible for SCRA mortgage protections is unknown because servicers have not collected this information in a comprehensive manner. For those identified as SCRA-eligible at the two servicers, delinquency rates ranged from 16 to 20 percent and from four to eight percent for other military borrowers. Delinquencies at the credit union were under one percent. GAO concluded that some servicemembers appeared to have benefitted from the SCRA interest rate cap of six percent, but that many eligible borrowers had not taken advantage of the protection. GAO also determined that the data were insufficient to assess the impact of SCRA protections after servicemembers left active duty, although it believes one institution’s limited data indicated that military borrowers had a higher risk of delinquency in the first year after leaving active duty. GAO also reviewed documentation on DOD’s partnerships and relevant education efforts related to SCRA mortgage protections and found relevant information to be limited because DOD has not undertaken any formal evaluations of the partnerships’ effectiveness. Given its finding that many servicemembers did not appear to be taking advantage of the SCRA interest rate cap, GAO concluded that DOD’s SCRA education efforts could be improved and that an assessment of the effectiveness of these efforts is still warranted.
On October 3, Delaware Attorney General Beau Biden (DE AG) announced that his office sent letters to nearly 30 lending institutions asking for information about their compliance with the Servicemembers Civil Relief Act (SCRA). The letters ask the financial institutions to provide by October 16: (i) documentation of any internal SCRA compliance review, including the findings of any such review; (ii) all written policies, procedures and practices in place used to verify SCRA compliance; (iii) the number of customer files reviewed for SCRA compliance, both in Delaware and nationwide; (iv) documentation concerning any SCRA violations identified during reviews; (v) all written policies, procedures, and practices in place concerning the provision of remediation to account owners to address any judgments obtained in error or other actions taken in violation of the SCRA; (vi) documentation of steps taken to prevent future SCRA violations; and (vii) all SCRA employee training materials. The DE AG also sent a letter to the chairmen of the U.S. House and Senate veterans’ affairs committees, urging the lawmakers to change federal to allow state attorneys general to prosecute SCRA violations.
On September 19, the CFPB and the OCC announced parallel enforcement actions against a national bank to resolve allegations that the bank engaged in the unfair and deceptive marketing, sale, and billing of “add-on products” across multiple consumer products, and the OCC announced a separate order that resolves claims related to the bank’s non-home loan debt collection litigation practices and compliance with the SCRA.
Under the CFPB’s consent order, the bank will pay a $20 million penalty to resolve allegations that over a seven year period ending in March 2012, the bank, through its vendor, enrolled customers in credit monitoring and identify theft products, and charged some customers for these products without or before having received written authorization to perform the monitoring services. The CFPB order also requires restitution to affected customers, and numerous requirements to enhance compliance, including with regard to vendor oversight. Under the OCC’s parallel action, the bank entered a consent order similar to the one entered with the CFPB, and consented to pay a $60 million penalty.
The CFPB order acknowledges the bank’s representations that it no longer offers the scrutinized products and that it already has credited or refunded affected customers. The bank’s press release also reaffirms its commitment to holding its vendors to high standards.
In a separate action announced by the OCC on the same day, the bank also entered a consent order to resolve allegations of unsafe or unsound practices with regard to its non-mortgage debt collection litigation practices and its non-mortgage SCRA compliance. As the bank pointed out in a press release, the consent order relates to only a slight percentage of credit card, student loan, auto loan, business banking and commercial banking customers who defaulted on their loan or contract and the resulting collections litigation that followed several years ago. The press release explains that the bank uncovered the issue in internal reviews that began in 2010 and took several steps in response, including: (i) halting new credit card collections litigation in 2011, (ii) dismissing the impacted lawsuits, and (iii) improving SCRA controls.