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CFPB bans two companies for reverse mortgage servicing violations
On June 18, the CFPB issued an order against two reverse mortgage servicing companies (along with certain affiliates and subsidiaries), after determining that the companies misrepresented loan defaults and failed to respond appropriately to borrower communications to effectively service their reverse mortgages, leading to unnecessary costs and foreclosure fears for borrowers. Specifically, the CFPB alleged the companies failed to respond to borrower communications – including requests for information and payoff statements – in violation of RESPA. The companies also sent false repayment letters to older adult homeowners stating that their reverse mortgage loans were due and must be paid within 30 days due to a default, when no such trigger event had occurred. Further, the companies allegedly had inadequate resources and staffing to handle as many as 150,000 borrowers, leading to systematic regulatory failures.
Both companies were ordered to permanently cease reverse mortgage servicing activities and pay a civil money penalty (although for one company, the civil money penalty was $1 due to an inability to pay). The other company was ordered to pay over $11 million in consumer redress and $5 million in civil money penalties.
CFPB sues student loan servicer over discharged student loan collections
On May 31, the CFPB announced its lawsuit against a Pennsylvania-based student loan servicer (the defendant) for allegedly collecting on discharged loans. According to the complaint, the defendant lacked policies and procedures for identifying serviced loans that were discharged by bankruptcy courts. The CFPB alleged that the defendant continued to collect on discharged non-qualified education loans by making misrepresentations to consumers through repayment schedule letters and billing statements. Furthermore, the Bureau alleged that the defendant’s failure to establish policies for private student loans that were discharged resulted in its furnishing inaccurate information to consumer reporting agencies. The Bureau added that even if consumers did not continue to pay on their discharged loans, they were not reasonably able to avoid the defendant’s collection attempts and the credit information it furnished. The CFPB also claimed that consumers were unable to protect their interests because they could not choose their loan servicer and had no control over its collection practices. The defendant’s actions were in violation of the CFPA based on several violation of Regulation V. The defendant allegedly violated the FCRA, too. The Bureau sought injunctive relief, consumer redress, a civil money penalty, and other relief.
CFPB orders debt relief servicer to pay $400,000 for charging advanced fees
On May 20, the CFPB released its consent order and stipulation against a debt relief provider for alleged deceptive acts and practices in violation of the CFPA and for alleged deceptive telemarketing practices and collection of advance fees in violation of the Telemarketing Sales Rule (TSR). The CFPB alleged the violations began in January 2016 and ordered a civil money penalty of $400,000. Specifically, the CFPB found the company harmed 5,970 consumers with student loans in the amount of a total of $974,590 in at least three ways: (1) by charging advance fees of $99 to $199 for debt relief services in violation of the TSR, regardless of success in loan relief; (2) by misrepresenting that the fees would be applied to student loans when they were not often used to pay off the student loans; and (3) by misleading consumers that would consolidate student loans, lower monthly payments, and achieve loan forgiveness – especially when the company did not fulfill any of these claims in many instances.
The Bureau nullified all agreements relating to the company’s debt relief services between a consumer and the debt relief company. The Bureau also ordered the company to cease fee collections or attempts and permanently restrained the company from advertising or marketing its debt relief services or receiving any consideration from holding an ownership interest in, providing services to, or working in any capacity for any person engaged in or assisting others in the advertising, marketing, promoting, offering for sale, or selling debt relief services. If the company failed to disclose any material asset or if any sworn statements contain any material representation or omission, the Bureau will require an additional $5 million fine. The company neither admitted nor denied these findings.
CFPB sues online lending platform for alleged CFPA, FCRA violations
On May 17, the CFPB announced a lawsuit against an online lending platform through which consumers could obtain small-dollar, short-term loans through a brokering arrangement with lenders. The CFPB alleged the platform violated the CFPA through its deceptive advertisements to consumers on the platform’s alleged promotion of financing terms which included “no interest,” “0% APR,” or “0% interest” but instead invited consumers to provide “tips” and “donations” to lenders, which, would increase the likelihood of a loan being funded. The CFPB further alleged that while the platform marketed zero-interest loans, the platform did not provide users an option for a $0 donation fee or to skip the fee altogether. The Bureau claimed, “almost all of [the platform’s] loans carry an equivalent annual percentage rate of over 36% APR, and many loans carry an APR in excess of 300%, with some over 1,000%.” The Bureau also claimed the platform violated the CFPA by providing misleading TILA disclosures that did not contain the cost of the additional fees and tips in the quoted total payments.
The complaint alleged further violations of the CFPA where the platform (i) obscured whether and how borrowers can select the option for no donation or tip; (ii) stated or implied through its practices that consumers were obligated to repay loan amounts although the loans violated the applicable states’ lender-licensing or usury laws that declared such loans void ab initio or limited consumers’ obligation to repay; (iii) requested to collect and collects on void loans consumers were not obligated to repay for the aforementioned reason; (iv) misleadingly implied that it will furnish negative information to the credit bureaus unless the consumer makes a payment, without actually intending to do so; and (v) violated the FCRA.
The CFPB’s complaint stated that because the platform was a consumer reporting agency under the FCRA and therefore would be required to “follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates.” The CFPB will seek, among other things, injunctions against the platform to prevent future violations, monetary relief for borrowers, forfeiture of ill-gotten gains, and a civil money penalty.
CFPB publishes the mortgage servicer edition of its Supervisory Highlights
On April 24, the CFPB published its 33rd edition of its Supervisory Highlights which covers select examinations and violations regarding mortgage servicing from April 1, 2023, through December 31, 2023. This edition of Supervisory Highlights focused on alleged violations of law identified in CFPB examinations including (i) charging illegal junk fees including impermissible property inspection and late fees; (ii) UDAAP violations; and (iii) violations of Regulation X loss mitigation requirements. The Bureau made clear in its press release that it plans to continue its focus on combatting junk fees within and beyond the mortgage servicing space.
The CFPB highlighted several violations of law resulting from mortgage servicers’ payment processing practices including the charging of property inspection fees in connection with certain Fannie Mae loans in violation of investor guidelines. To rectify this, servicers addressed system errors causing the fees in question, enhanced oversight, and were instructed to compensate affected borrowers. Other payment processing-related violations identified by the Bureau included failure to adequately describe fees in periodic statements by using the term “service fee” to describe 18 different fee types and failure to make timely disbursements from escrow accounts in violation of Regulation X.
The Bureau also identified unfair practices relating to the charging of late fees in excess of the amount authorized in the loan agreement or after consumers had entered into loss mitigation agreements, which should have prevented late fees. Servicers identified as having engaged in such violations were required to refund the fees to consumers and improve internal processes in response to the findings.
The CFPB also identified violations of law relating to loss mitigation and loan modifications. Examiners noted that some servicers failed to provide a written notice confirming the receipt of loss mitigation applications and informing consumers of whether the application was complete or incomplete. Further, some servicers failed to provide timely and complete notices of loss mitigation options. Additionally, some servicers, in violation of Regulation X, failed to waive existing fees after borrowers had accepted Covid-19 hardship loan modifications.
Examiners also found that certain servicers committed deceptive practices by sending out delinquency notices incorrectly stating that consumers had missed payments and needed to apply for loss mitigation when those consumers were actually up to date on their payments, enrolled in trial modification plans, or had inactive loans (such as those already paid off or in the process of a short sale).
Finally, the Bureau identified violations of law relating to (i) live contact and early intervention requirements in connection with delinquency and (ii) failure to retain adequate records.
District Court grants full remedies to CFPB, State AGs
On March 31, the U.S. District Court for the Western District of Virginia entered an order granting the plaintiff state attorneys general and CFPB’s requested remedies in full against a defendant accused of violating consumer protection laws in administering “immigration bonds” for indigent consumers facing deportation. As previously covered by InfoBytes, in 2021 the CFPB, and the Massachusetts, New York, and Virginia State Attorneys General filed a 17-count complaint against the defendant, a subsidiary of a bond service for non-English speaking U.S. Immigration and Customs Enforcement (ICE) detainees. The complaint accused the defendant of misrepresenting the cost of immigration bond services and deceiving migrants into continuing to pay monthly fees by making false threats of deportation for failure to pay. Last May, the court entered default judgment against defendants (covered by InfoBytes here). In the court’s most recent order, it granted the plaintiff’s request for injunctive relief, stating that the CFPB met the standard for injunctive relief under the CFPA, and it would “undoubtedly serve the public interest.” The court also noted that the plaintiffs’ claims supported injunctive relief under state laws as well. The order also included (i) $230.9 million in restitution to the CFPB; (ii) a $111 million civil money penalty to the CFPB; (iii) a $7.1 million civil money penalty to Virginia; (iv) a $3.4 million civil money penalty to Massachusetts; and (v) a $13.89 million civil money penalty to New York.
CFPB warns remittance transfer providers against falsely advertising the costs and speed of transfers
On March 27, the CFPB issued a circular cautioning remittance transfer providers against falsely advertising the costs or speed of sending transfers to avoid violating the CFPA’s prohibition on deceptive acts or practices. The CFPB would administer and enforce the Remittance Rule under the EFTA, but the Bureau noted that remittance providers also can be liable under the CFP Act for deceptive marketing practices, regardless of whether they comply with the Remittance Rule’s disclosure requirements. Through the circular, the CFPB warned against falsely marketing “no fee” or “free” services if the remittance transfer provider actually charges a fee, noting that “[w]ith respect to digital wallets or other similar products, it can be deceptive to market a transfer as ‘free’ if the provider imposes costs to convert funds into a different currency or withdraw funds,” and that “[i]t may also be deceptive to market international money transfers as ‘free’; if the provider is imposing costs on consumers through the exchange rate spread.” The Bureau also warned against “burying” promotional conditions in fine print, and falsely advertising how long a transfer will take especially if transfers may take longer to reach recipients. The circular would apply to traditional international money transfer providers, as well as “digital wallets” that send money internationally from the U.S. and would be part of the Bureau’s initiative to “rein in” alleged “junk fees.”
Trusts are covered persons subject to the CFPA, 3rd Circuit upholds CFPB FDCPA case
On March 19, the U.S. Court of Appeals for the Third Circuit filed an opinion remanding a case between the CFPB and defendant statutory trusts to the District Court. After issuing a civil investigative demand in 2014, the CFPB initiated an enforcement action in September 2017 against a collection of 15 Delaware statutory trusts that furnished over 800,000 private loans and their debt collector for, among other things, allegedly filing lawsuits against consumers for private student loan debt that they could not prove was owed or was outside the applicable statute of limitations (covered by InfoBytes here). Then, early last year, the parties settled and asked the court to enter a consent judgment, which was denied (covered by InfoBytes here).
The 3rd Circuit addressed two questions: (i) whether the trusts are covered persons subject to the CFPA; and (ii) whether the CFPB was required to ratify the underlying action that questioned a constitutional deficiency within the Bureau. On the statutory issue, the court found that the trusts fell within the purview of the CFPA because trusts “engage” in offering or providing a consumer financial product or service, specifically student loan servicing and debt collection, as explicitly stated in the trust agreements each trust entered. Regarding the constitutional question, the defendants argued that the Bureau needed to ratify the underlying suit because it was initiated while the agency head was improperly insulated, and since the Bureau ratified it after the statute of limitations had run, the suit was untimely. The court disagreed and found that the defendants’ analysis of the here-and-now injury “doesn’t go far enough,” therefore the CFPB did not need to ratify this action before the statute of limitations had run because the impermissible insulation provision does not, on its own, cause harm.
Chopra discusses open banking and standard-setting
On March 13, the Director of the CFPB, Rohit Chopra, delivered prepared remarks at the Financial Data Exchange Global Summit and discussed advancing the U.S. towards open banking. Chopra outlined the current efforts and considerations surrounding the development of industry standards that would help transition consumers with switching financial products. The CFPB had been finalizing rules on Section 1033 of the CFPA which would grant consumers the right to access their financial data and would aim to protect sensitive personal financial information while promoting open banking (covered by InfoBytes here).
Chopra highlighted the importance of creating industry standards for data sharing and communication protocols, drawing parallels with existing standards in electronics and financial services. While the CFPB's proposal acknowledged the role of standards, Chopra noted that it intentionally avoided being overly “prescriptive” to avoid stifling innovation, among other things.
The speech also addressed the potential for anticompetitive behavior in the standard-setting process. Chopra noted historical instances of anticompetitive behavior, a concern that the CFPB had been monitoring closely. The Bureau will be working with the DOJ to prevent such practices.
The Bureau sought to codify what standard-setting organizations must demonstrate to be recognized under the proposed rule, then invite those organizations to begin the process of receiving formal recognition from the CFPB. Based on the comments received on the proposed rule, Chopra expects that by this fall, the final rule will “identify the areas where standards are relevant to the requirements of the final rule.” Chopra also noted the CFPB considered whether standard-setting organizations should be balanced so no entity or group of entities can “dominate[] decision making.” He noted that the Bureau will investigate the makeup of entities’ standard-setting/modification groups and funding structure, warning if an entity’s composition or funding suggests favoritism, then “that will be a problem.” Chopra noted that if the CFPB cannot identify standard-setting organizations, it is prepared to implement more detailed guidance.
CFPB warns lead generators, digital comparison-shopping tool operators of potential CFPA violations
On February 29, the CFPB issued a circular to law enforcement agencies and regulators explaining how operators of digital comparison-shopping tools or lead generators can potentially violate the CFPA’s prohibition on abusive acts or practices by steering consumers towards options that best serve the operator or the lead generator. The circular further discussed “how law enforcement agencies and regulators can evaluate operators of comparison-shopping tools… to manipulate results” to appease consumer preferences.
The Bureau explained that while consumers often use these tools to research, compare, and select financial products, some intermediaries also functioned as lead generators that sold consumer information to lenders. These intermediaries may have received compensation, the CFPB said, often termed as “bounties,” from financial providers for preferential treatment or lead generation. The circular recognized that operators of these tools may have engaged in commercial arrangements with financial providers and may have received compensation based on user actions or bids.
The CFPB stated that both digital comparison-shopping tool operators and lead generators can qualify as “covered persons” under CFPA section 1031(d)(2)(C) which prohibits them from engaging in unfair, deceptive, or abusive acts or practices, particularly those that “take unreasonable advantage” of consumers so they may act in the “covered person’s” best interests. The circular outlined elements of CFPA Section 1031(d)(2)(C) and applied the elements including reasonable reliance by consumers on covered entities to act in their interests, to an evaluation of the operator or lead generator activities. Notably, the circular warned that reasonable consumer reliance could be created based on the representations of the tool operator or lead generator, as well as implicit or explicit communications. Further, the Bureau added that steering consumers towards certain products or providers for the financial benefit of the operator or lead generator, rather than consumer interest, constituted unreasonable advantage-taking.
Finally, the circular included a non-exhaustive list of examples of preferencing or steering arrangements and advised law enforcement agencies and regulators to scrutinize bounty or bidding schemes and decision-making processes to identify abusive conduct.