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On May 8, the U.S. Court of Appeals for the 11th Circuit affirmed in part and reversed in part the dismissal of a consumer’s putative class action against her reverse mortgage servicer for the alleged improper placement of flood insurance on her home. The consumer claimed violations of the FDCPA and multiple Florida laws, including the Florida Deceptive and Unfair Trade Practices Act (FDUTPA), based on allegations that the mortgage servicer improperly executed lender-placed flood insurance on her property, even though the condo association had flood insurance covering the property. The lender-placed flood insurance resulted in $5,200 in premiums added to the balance of the loan, and an increase in financing costs on the mortgage. The district court dismissed the action, concluding the mortgage servicer was required by federal law to purchase the flood insurance and the monthly account statements were not collection letters under the FDCPA or state law.
On appeal, the 11th Circuit agreed with the district court that the monthly account statements of the reverse mortgage, which prominently stated “this is not a bill” in bold, uppercase letters, and did not request or demand payment, were not an attempt to collect a debt under the FDCPA. Additionally, the appellate court concluded that the consumer failed to allege the mortgage servicer was a debt collector within the meaning of the FDCPA because the complaint does not allege that the debt was in default. The appellate court also affirmed the district court’s dismissal of the state debt collection claims for similar reasons. However, the appellate court reversed the district court’s dismissal of the consumer’s FDUTPA claims, noting that the mortgage servicer failed to cite to a state or federal law requiring it to purchase flood insurance “when it has reason to know that the borrower is maintaining adequate coverage” in the form a condo association insurance.
On April 9, the U.S. Court of Appeals for the 11th Circuit held that a consumer’s insurance repayment plan on her reverse mortgage did not qualify as an escrow account under RESPA’s Regulation X. According to the opinion, a consumer’s reverse mortgage required her to maintain hazard insurance on her property, which she elected to pay herself, and did not establish an escrow account with the mortgage servicer to pay her insurance and property taxes. After her insurance lapsed, the mortgage servicer advanced her over $5,000 in funds paid directly to her insurance carrier to ensure the property was covered, subject to a repayment agreement. After the consumer failed to make any payments under the agreement, the servicer initiated a foreclosure action against the consumer and obtained a forced-placed insurance policy when the insurance lapsed for a second time. Ultimately, a state-run forgivable loan program brought the consumer’s past due balance current and excess funds were placed in a trust to cover future insurance payments on the property. The consumer filed an action against the mortgage servicer alleging the servicer violated RESPA’s implementing Regulation X when it initiated forced-placed insurance, because the repayment agreement purportedly established an escrow account, which required the servicer to advance the funds for insurance. The district court entered judgment in favor of the servicer.
On appeal, the 11th Circuit agreed with the district court, concluding that no escrow account existed between the consumer and the servicer, emphasizing that nothing in the repayment agreement set aside funds for the servicer to pay insurance or taxes on the property in the future. The 11th Circuit rejected the consumer’s characterization of the repayment agreement as an arrangement under Regulation X “where the servicer adds a portion of the borrower’s payment to principal and subsequently deducts from principal the disbursements for escrow account items.” The 11th Circuit reasoned that not only did the consumer never make a principal payment to the servicer, the consumer’s characterization is “entirely inconsistent” with the reverse mortgage security instrument. Because the servicer never deducted anything from the principal when it disbursed funds to pay the insurance, the repayment agreement did not qualify as an escrow agreement under Regulation X.
State Attorneys General fine national bank $575 million for incentive compensation, mortgage and auto lending practices
On December 28, a national bank reached a $575 million multistate settlement with 50 states and the District of Columbia. Among other things, the settlement resolves allegations that have been the subject of previous litigation concerning the bank’s incentive compensation sales program (covered by InfoBytes here), as well as allegations involving certain practices related to mortgage rate-lock extension fees, auto loan force-placed insurance policies, and guaranteed asset/auto protection products. As previously covered by InfoBytes, the bank reached a settlement last year with the CFPB and the OCC to resolve allegations concerning its auto and mortgage lending practices, which were previously discontinued and for which voluntary consumer remediation was initiated by the bank.
On September 24, the U.S. Court of Appeals for the 11th Circuit affirmed the district court’s dismissal of two class actions on grounds that the “filed-rate doctrine” precludes the plaintiffs’ claims. In their complaints, the plaintiffs alleged that their loan servicers charged “inflated amounts” for lender-placed insurance by receiving “rebates” or “kickbacks” from an insurance company without passing the savings on to consumers. The district court dismissed the actions with prejudice, holding that the filed-rate doctrine barred the plaintiffs’ claims. On appeal, the 11th Circuit upheld the lower court’s decision, finding that the plaintiffs’ allegations challenged the insurance company’s filed rate. As a result, the court determined that the plaintiffs’ allegations were textbook examples of claims barred by the nonjusticiability principle, which provides that duly-empowered administrative agencies have exclusive say over the rates charged by regulated entities because agencies are more competent than the courts at the rate-making process.
On April 20, the CFPB, in coordination with the OCC, announced a $1 billion settlement with a national bank for certain auto and mortgage lending practices the bank had previously discontinued and for which voluntary consumer remediation was initiated by the bank. According to the CFPB consent order, the Bureau alleged the bank inappropriately (i) charged fees for mortgage rate-lock extensions, and (ii) operated a force-placed insurance program in connection with auto loans. Specifically, the CFPB alleged that the bank sometimes charged rate lock extension fees to consumers when it should have absorbed the fees. With respect to auto loans, the Bureau alleged that, due to issues with the vendor employed to monitor for insurance and issue insurance if not maintained by the consumer, certain consumers paid for force-placed insurance premiums and interest that may not have been required resulting in potential consumer harm. The CFPB consent order acknowledges that the bank voluntarily discontinued the above practices and has voluntarily begun consumer remediation. Under the terms of both of the consent orders, the bank will remediate affected consumers and will implement necessary changes to its compliance risk-management program.
On February 20, a federal judge for the U.S. District Court for the Southern District of Florida issued an opinion and order against a borrower after a two-day bench trial, finding that the borrower failed to establish a private right of action for any of her alleged RESPA violations. According to the opinion, one of the defendants, a mortgage company, initiated foreclosure proceedings against the borrower for failing to pay required insurance and tax associated with her reverse mortgage. During this period, the mortgage company purchased force-placed insurance through an insurance intermediary company to protect its collateral for the reverse mortgage. When the borrower later brought the account current, the mortgage company dismissed the foreclosure complaint. However, the borrower filed a suit against the mortgage company for failing to “advance insurance premiums on her behalf through an escrow account” and against the second defendant, an insurance company, for procuring a policy that “tortiously interfered” with her business relationship with the mortgage company. Specifically, the borrower alleged the procedure used to obtain the force-placed rates violated Florida Insurance Code Section 626.916, and were, therefore, “not bona fide and reasonable under RESPA.”
However, the judge ruled that none of the borrower’s claims created a private right of action under RESPA, and furthermore, the borrower could not “bootstrap Section 626.916 through another cause of action.” Additionally, the judge noted that counsel for the borrower was unable to provide case law authority to support the “proposition that [the borrower’s] RESPA claim could be premised on a Florida statue which lacked a private right of action.” Concerning the borrower’s allegations of tortious interference against the insurance company, the judge concluded that the claim failed to show that the insurance company “intentionally or unjustifiably” interfered with her relationship with the mortgage company.
OCC Updates Comptroller’s Licensing Manual to Provide Revised Guidance on Flood Insurance Requirements
On September 7, the OCC released OCC Bulletin 2017-35 announcing a replacement of its handbook titled “Flood Disaster Protection Act” (FDPA)—last issued in 1999—to reflect recent amendments to the FDPA and implement regulations that resulted from the Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters Act) and the Homeowner Flood Insurance Affordability Act of 2014. The booklet, which is part of the Comptroller’s Licensing Manual, clarifies the following changes, among other things:
- flood insurance requirement exemptions for certain detached nonresidential structures;
- a requirement that banks—or servicers acting on behalf of a bank—escrow flood insurance premiums and fees for “any loan secured by a residential improved real estate or a mobile home that is made, increased, extended, or renewed on or after January 1, 2016,” and also lists exemptions to the requirement;
- a requirement that banks and servicers “subject to the escrow requirement” must provide borrowers the option to escrow flood insurance premiums and fees and are required to implement the escrow “as soon as reasonably practicable” after the request has been received;
- FDPA provisions on force-placed insurance, including termination and refund requirements; and
- “examination procedures for determining compliance with the detached structure, escrow, and force placement provisions.”
Notably, the OCC stated that the Biggert-Waters Act provision, which requires the acceptance of private flood insurance policies that meets specified criteria to satisfy the mandatory purchase requirement, has not yet been adopted and will be addressed separately.
On August 11, Massachusetts Attorney General Maura Healey announced that “a major Massachusetts insurance company is paying more than $6.3 million in refunds to more than 4,500 homeowners who were improperly charged” for force-placed property insurance. According to the state’s investigation, the company unnecessarily charged some homeowners by force-placing duplicative insurance products, and overcharged others by force-placing commercial policies instead of less expensive residential policies. The company had settled with the AG’s Office in November 2015, paying $565,000 to the state and agreeing to an audit that would identify affected Massachusetts homeowners for refunds. According to the AG’s press release, the company “cooperated fully with the audit.”
On July 30, consumers accused a national bank of requiring them to pay for unnecessary auto insurance in a class action complaint filed in the Northern District of California. See Hancock v. Wells Fargo & Co., Case No. 17-cv-04324 (N.D. Cal. Jul. 30, 2017). The consumers allege that they paid for protection against vehicle loss or damage while making monthly loan payments, even though many drivers allege that they already had their own policies. According to the complaint, the bank allegedly received kickbacks from an auto insurance company through shared commissions on policies for more than 800,000 auto loans, which resulted in nearly 250,000 loans becoming delinquent and nearly 25,000 “unlawful vehicle repossessions.” The consumers allege that when they took out auto loans, both the bank and the insurance company failed to check whether the consumer already had coverage or ignored the information, and then created Collateral Protection Insurance (CPI) policies which were “secretly” added to the auto loan bills and the costs automatically deducted from consumer bank accounts.
In addition to the costs incurred for the unlawful forced-placed insurance policies, consumers also claim to have experienced financial harm in the form of (i) inflated premiums and interest rates; (ii) delinquency charges and late fees; and (iii) repossession costs and damage to credit reports. Consumers seek restitution, disgorgement of revenues and/or profits, and compensatory damages.
Notably, before the class action complaint was filed, the bank issued a press release on July 27, announcing plans to remediate approximately 570,000 consumers who may have been financially harmed—less than the 800,000 cited in the complaint. The bank stated that it had conducted a review of CPI policies placed between 2012 and 2017 and stated, ““We take full responsibility for our failure to appropriately manage the CPI program and are extremely sorry for any harm this caused our customers, who expect and deserve better from us. . . . Upon our discovery, we acted swiftly to discontinue the program and immediately develop a plan to make impacted customers whole.”
The National Credit Union Administration (NCUA) has issued a regulatory alert to federally insured credit unions regarding recent amendments to the CFPB's 2013 Mortgage Servicing Rule, issued on August 4, 2016, and the Bureau’s FDCPA interpretive rule concerning safe harbors from FDCPA liability. The recent amendments to the Mortgage Servicing Rule clarify (i) Regulation X (RESPA) provisions regarding force-placed insurance notices, mortgage servicing policies and procedures, early intervention, and loss mitigation requirements, and (ii) Regulation Z (TILA) provisions regarding prompt payment crediting and periodic statement requirements. The FDCPA interpretive rule provides safe harbor for servicers acting in compliance with specified mortgage servicing rules set forth in Regulations X and Z.
- Brandy A. Hood to discuss "Lender town hall: Private flood rules and hot topics" at the National Flood Conference
- Buckley Webcast: Trends in e-discovery technology and case law
- Brandy A. Hood to discuss "What the flood? Don’t get washed away by a flood of changes" at the American Bankers Association Regulatory Compliance Conference
- Daniel P. Stipano to discuss "Mitigating the risks of banking high risk customers" at the American Bankers Association Regulatory Compliance Conference
- Daniel P. Stipano, Kari K. Hall, Brandy A. Hood, and H Joshua Kotin to discuss "Regulations that matter in a deregulatory environment" at the American Bankers Association Regulatory Compliance Conference Power Hour
- Buckley Webcast: Data breach litigation and biometric legislation
- Daniel P. Stipano to discuss "A first anniversary: Assessing the CDD final rule’s first year" at a ACAMS webinar
- Hank Asbill to discuss "Pay no attention to the man behind the curtain: Addressing prosecutions driven by hidden actors" at the National Association of Criminal Defense Lawyers West Coast White Collar Conference
- Daniel P. Stipano to discuss "Keep off the grass: Mitigating the risks of banking marijuana-related businesses" at the ACAMS AML Risk Management Conference
- Daniel P. Stipano to discuss "Mid-year policy update" at the ACAMS AML Risk Management Conference
- Christopher M. Witeck and Moorari K. Shah to discuss "The latest in vendor management regulations" at a Mortgage Bankers Association webinar
- Amanda R. Lawrence to discuss "Navigating the challenges of the latest data protection regulations and proven protocols for breach prevention and response" at the ACI National Forum on Consumer Finance Class Actions and Government Enforcement
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program
- Brandy A. Hood to discuss "RESPA Section 8/referrals: How do you stay compliant?" at the New England Mortgage Bankers Conference
- Daniel P. Stipano to discuss "Assessing the CDD final rule: A year of transitions" at the ACAMS AML & Financial Crime Conference
- Daniel P. Stipano to discuss "Lessons learned from recent enforcement actions and CMPs" at the ACAMS AML & Financial Crime Conference
- Douglas F. Gansler to discuss "Role of state AGs in consumer protection" at a George Mason University Law & Economics Center symposium