On July 29, the CFPB and 13 state AGs announced a consent order that requires a consumer lender currently in Chapter 7 bankruptcy to provide $92 million in debt relief for about 17,000 U.S. servicemembers and other consumers harmed by the company’s alleged predatory lending scheme. The lender offered credit to consumers purchasing computers, videogame consoles, televisions, or other products, which typically were purchased at mall kiosks near military bases. In some cases the lender was the initial creditor, and in other cases, the lender provided indirect financing by agreeing to buy the financing contracts from merchants who sold the goods. Read more…
On August 12, the CFPB announced a consent order with a nonbank mortgage lender, its affiliated appraisal management company (AMC), and the individual owner of both companies to resolve allegations that the lender deceptively advertised mortgage rates to consumers, improperly charged fees before providing consumers with Good Faith Estimates (GFE), and failed to disclose its affiliation with the AMC while allowing the AMC to charge inflated fees.
As explained in the consent order, the lender primarily conducts business online through its own website, and also advertises its mortgages through display ads on independent websites and the website of an unaffiliated third-party rate publisher. The CFPB asserts that, over a roughly two-year period, a “systemic problem” caused the lender to list on the rate publisher’s website lower rates for certain mortgages than the lender was willing to honor, and that the lender supplied other rates to the rate publisher that were unlikely to be locked for the majority of the lender’s borrowers. The CFPB claims that the lender failed to perform systematic due diligence or quality control to ensure the accuracy of listed rates, even though the lender was made aware through consumer complaints that certain rates were inaccurate. Read more…
This week, the CFPB and 25 states filed amicus briefs in Jesinoski v. Countrywide Home Loans, Inc., No. 13-684, a case pending before the U.S. Supreme Court that may resolve a circuit split over whether a borrower seeking to rescind a loan transaction under TILA must file suit within three years of consummating the loan, or if written notice within the three-year rescission period is sufficient to preserve a borrower’s right of rescission. In short, the CFPB argues, as it has in the past, that no TILA provision requires a borrower to bring suit in order to exercise the TILA-granted right to rescind, and that TILA’s history and purpose confirm that a borrower who sends a notice of rescission in the three-year period has exercised the right of rescission. The state AGs similarly argue that TILA’s plain meaning allows borrowers to preserve their rescission right with written notice. In so arguing, the government briefs aim to support the borrower-petitioner seeking to reverse the Eighth Circuit’s holding to the contrary. The majority of the circuit courts that have addressed the issue, including the Eight Circuit, all have held that a borrower must file suit within the three-year rescission period.
Ninth Circuit Holds Plaintiffs Not Required To Plead Tender Or Ability To Tender To Support TILA Rescission Claim
On July 16, the U.S. Court of Appeals for the Ninth Circuit held that an allegation of tender or ability to tender is not required to support a TILA rescission claim. Merritt v. Countrywide Fin. Corp., No. 17678, 2014 WL 3451299 (9th Cir. Jul. 16, 2014). In this case, two borrowers filed an action against their mortgage lender more than three years after origination of the loan and a concurrent home equity line of credit, claiming the lender failed to provide completed disclosures. The district court dismissed the borrowers’ claim for rescission under TILA because the borrowers did not tender the value of their HELOC to the lender before filing suit, and dismissed their RESPA Section 8 claims as time-barred.
On appeal, the court criticized the district court’s application of the Ninth Circuit’s holding in Yamamoto v. Bank of New York, 329 F.3d 1167 (9th Cir. 2003) that courts may at the summary judgment stage require an obligor to provide evidence of ability to tender. Instead, the appellate court held that borrowers can state a TILA rescission claim without pleading tender, or that they have the ability to tender the value of their loan. The court further held that a district court may only require tender before rescission at the summary judgment stage, and only on a case-by-case basis once the creditor has established a potentially viable defense. The Ninth Circuit also applied the equitable tolling doctrine to suspend the one-year limitations period applicable to the borrower’s RESPA claims and remanded to the district court the question of whether the borrowers had a reasonable opportunity to discover the violations earlier. The court declined to address two “complex” issues of first impression: (i) whether markups for services provided by a third party are actionable under RESPA § 8(b); and (ii) whether an inflated appraisal qualifies as a “thing of value” under RESPA § 8(a).
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…
On May 28, the U.S. Court of Appeals for the Seventh Circuit affirmed a district court’s holding that required two borrowers who prevailed on their TILA rescission claims to tender the amounts advanced to them before requiring the banks to release their security interests. Iroanyah v. Bank of Am., No. 13-1382, 2014 WL 2198562 (7th Cir. May 28, 2014). After becoming delinquent on two mortgage loans and facing foreclosure actions, the borrowers filed suit, prevailing on their rescission and certain statutory claims but failing on other statutory claims. The district court ruled that the borrowers would be required to return the enumerated tender amounts prior to requiring the banks to release their security interests. On appeal, the Seventh Circuit held that this was a proper exercise of discretion under TILA. The court explained that “rescission is a process involving two parties, each with their own obligations” and that “[t]ender is inherently part of rescission, not an occasional effect of it.” The court joined the First, Fourth, and Eighth Circuits in holding that “a borrower’s inability to satisfy his tender obligations may make rescission . . . impossible.” Further, the court held that the district court did not abuse its discretion when it refused to allow the borrowers to repay in installments over the life of the original loans and instead required them to tender in 90 days.
On April 28, the U.S. Supreme Court granted certiorari in Jesinoski v. Countrywide Home Loans, Inc., No. 13-684, an appeal of the U.S. Court of Appeals for the Eighth Circuit’s September 2013 holding that a borrower seeking to rescind a loan transaction under TILA must file suit within three years of consummating the loan, and that written notice within the three-year rescission period is insufficient to preserve a borrower’s right of rescission.
TILA Section 1635 grants borrowers the right to rescind a transaction “by notifying the creditor” and provides that a borrower’s “right of rescission shall expire three years after the date of consummation of the transaction” even if the “disclosures required . . . have not been delivered.” In Jesinoski, the Eighth Circuit cited its July 2013 holding in Keiran v. Home Capital, Inc., 720 F.3d 721 (8th Cir. Jul. 12, 2013), in which the court reasoned that the text of the statute, as explicated by the Supreme Court in Beach v. Ocwen Federal Bank, 523 U.S. 410 (1998), established a strict limit on the time for filing suits for rescission. The Eighth Circuit expressly rejected an argument presented in an amicus brief filed by the CFPB that the lender, rather than the obligor, should be required to file suit to prevent rescission. To adopt the CFPB’s position, the court explained, “would create a situation wherein rescission is complete, in effect, simply upon notice from the borrower, whether or not the borrower had a valid basis for such a remedy. Under this scenario, the bank’s security interest would be unilaterally impaired, casting a cloud on the property’s title, an approach envisioned and rejected by Beach.”
In holding in favor of the lender, the Eighth Circuit joined the majority of the circuit courts that have addressed the issue—the First, Sixth, Ninth, and Tenth Circuits all previously have held that a borrower must file suit within the three-year rescission period, while the Third, Fourth, and Eleventh Circuits have held that written notice is sufficient to preserve a borrower’s statutory right of rescission. BuckleySandler filed an amicus brief in Keiran on behalf of a group of industry trade groups, as it has done in three other circuit court cases on this issue.
The Supreme Court now may resolve this circuit split. Like the prior circuit court cases, the Supreme Court’s review of the issue likely will draw attention and briefs from lenders, the CFPB, and consumer groups.
On April 17, the CFPB issued a guide to completing the disclosure forms required by its November 2013 TILA-RESPA integrated disclosures rule, which generally applies to transactions for which a creditor or broker receives an application on or after August 1, 2015. The guide provides instructions for completing the Loan Estimate and Closing Disclosure and highlights common situations that may arise when completing the forms. The CFPB states in addition to serving as a resource to creditors, the guide also may assist settlement service providers, software providers, and other service providers. The disclosure forms guide follows the release last month of a small entity compliance guide, which summarizes the rule and highlights issues that small creditors, and their partners or service providers, might find helpful to consider when implementing the rule.
On March 10, the U.S. District Court for the Southern District of Florida held that a mortgage assignee “may only be held liable for violations that are apparent on the face of disclosure documents that exist at the time of the assignment.” Alaimo v. HSBC Mortg. Servs., Inc., No. 13-62437-CIV, 2014 WL 930787 (S.D. Fla. Mar. 10, 2014). In this case, a borrower sued his current servicer alleging that the servicer violated Section 1641 of TILA by failing to disclose, upon the borrower’s request, the identity of the owner and master servicer of the loan, as well as the total outstanding balance that would be required to satisfy the mortgage loan in full as of a specified date. The court determined that TILA’s plain language demonstrates that “Congress intended assignees to be responsible only for violations within documents that existed prior to assignment.” While acknowledging the potential policy implication of its decision that could allow assignees to avoid liability for certain TILA violations, the court declined to go beyond congressional intent. The court rejected the borrower’s argument that TILA’s requirement that an assignee provide written notice to the borrower upon acquiring the loan includes an exception to the prerequisites for a suit against an assignee. The court dismissed the borrower’s suit.
On March 19, the U.S. Court of Appeals for the Seventh Circuit held that a retailer’s credit card upgrade program that replaced existing customers’ limited use store charge cards with unsolicited general use credit cards did not violate TILA, and affirmed the district court’s dismissal of a putative class action. Acosta v. Target Corp., No. 13-2706, 2014 WL 1045202 (7th Cir. Mar. 19, 2014). Under the upgrade program, the retailer automatically issued new general purpose cards to existing store card customers and closed the old account upon either the activation of the new account or rejection by the consumer of the new card. The class representatives claimed that the program constituted an offer to change the underlying account relationship and violated TILA’s prohibition on the mailing of unsolicited credit cards. The court held that the program fell within TILA’s exemption for substitute cards based on the common understanding of “substitution” and the Federal Reserve Board staff’s Regulation Z commentary. The court also rejected the cardholders’ argument that they were fraudulently induced to accept the new card. The court determined that the retailer disclosed the reasons for a change in the APR and did not raise the rate unless payments were missed, and sufficiently disclosed the potential for a change in credit limit. The court also held that the retailer’s omission of the fact that cardholders could take steps to retain their store card account was not fraudulent, and added that to hold otherwise would require the retailer “to disclose any condition that could theoretically be negotiated with the card issuer.” The court also affirmed the dismissal of the cardholders’ breach of contract and tortious interference claims.
On February 26, the CFPB filed its first enforcement action against a for-profit higher-education company, alleging that the company engaged in unfair and abusive private student loan origination practices.
In a civil complaint filed in the U.S. District Court for the Southern District of Indiana, the CFPB asserts that the company offered first-year students no-interest short-term loans to cover the difference between the costs of attendance and federal loans obtained by students. The CFPB claims that when the short-term loans came due at the end of the first academic year and borrowers were unable to pay them off, the company forced borrowers into “high-rate, high-fee” private student loans without providing borrowers an adequate opportunity to understand their loan obligations. Moreover, the CFPB claims that the company’s business model is dependent on coercing students into “high-rate, high-fee” private loans, despite the low average incomes and credit profiles of the students, and a 64 percent default rate on such loans.
The company issued a statement denying the charges, criticizing the CFPB’s decision to file suit, and challenging the CFPB’s jurisdiction. The statement describes the suit as an “aggressive attempt by the Bureau . . . to extend its jurisdiction into matters well beyond consumer finance” and expresses the company’s intent to “ vigorously contest the Bureau’s theories in court.” Read more…
On January 14, the U.S. Court of Appeals for the Eleventh Circuit affirmed dismissal of a suit seeking rescission of a mortgage loan based on the lender’s alleged failure to disclose the “real lender” and improper disclosure of the interest rate, the yield spread premium, the payments schedule and the processing and administrative fees. Wane v. The Loan Corp., No. 13-11597, 2014 WL 114688 (11th Cir. Jan. 14, 2014). The court held that the allegation that the borrower was not informed of the real lender did not support a right to rescind because (i) it was not a material disclosure under the TILA; and (ii) the borrowers were, in fact, apprised of the party financing the mortgage. Similarly, the court held the allegations that other terms were improperly disclosed did not give rise to a right to rescind because they were either properly disclosed or, in the case of the yield spread premium and the processing and administrative fees, did not constitute material violations of TILA’s disclosure requirements. The court also affirmed the district court’s order denying the borrower’s motion for summary judgment to quiet title, and granting the lender’s motion for summary judgment for breach of contract and money lent.
On January 9, the Department of Veterans Affairs (VA) issued Circular 26-14-1, which clarifies lender requirements for home loans guaranteed by the VA under the TILA and the CFPB’s Ability to Repay and Qualified Mortgage (ATR/QM) rule. Given that the CFPB’s ATR/QM rule took effect on January 10, 2014, and the VA has not yet finalized its own ATR/QM requirements for VA-guaranteed loans, the circular states that all lenders must comply with the requirements of TILA, as established by CFPB’s ATR/QM Rule. Further, all loans made in compliance with existing VA requirements will continue to be guaranteed by VA, regardless of their QM status. The VA expects to publish its ATR/QM rule in the “near future.”
On January 6, the U.S. District Court for the District of Utah held that the model TILA rescission disclosure, form H-8, does not clearly and conspicuously disclose the three business day rescission period. Simmons v. Citimortgage Inc., No. 11-171, 2014 WL 37623 (D. Utah Jan. 6, 2014). In this case, two borrowers sued their lender, claiming that the lender improperly refused to rescind the borrowers’ loan within the statutory three-day rescission period. The borrowers, who closed on a Wednesday and sought rescission the following Monday, claimed that their rescission attempt fell within the three business day window granted by TILA. The lender countered that Regulation Z defines Saturday as a business day and therefore the borrowers’ request was untimely. On summary judgment, the court determined that the rescission disclosure the lender provided to the borrowers, model disclosure form H-8, did not clearly and conspicuously disclose the date the rescission period expired. The court explained that the model disclosure is subject to more than one sensible reading and required the borrowers to conduct further research into the meaning of “business day.” The court reasoned that the fact that the borrowers were required to do anything to understand the notice is sufficient to disqualify the notice from being “clear and conspicuous.” The court granted partial summary judgment to the individual borrowers, holding that the borrowers are entitled to the three-year rescission period, and invited further briefing as to whether the borrowers have otherwise met their rescission burden.