Skip to main content
Menu Icon
Close

InfoBytes Blog

Financial Services Law Insights and Observations

Filter

Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.

  • District Court decides in favor of bank despite alleged FDCPA and RESPA violations

    Courts

    On February 15, the U.S. District Court for the Central District of California granted a bank defendant’s motion to dismiss certain claims presented in the plaintiff’s complaint alleging violations of the Fair Debt Collection Practices Act (FDCPA) and Real Estate Settlement Practices Act (RESPA).

    With respect to the FDCPA claim, the court found that the defendant did not qualify as a “debt collector” within the meaning of the statute because the defendant acquired the loan through its merger with the original creditor of the plaintiff’s mortgage. The court noted that several other district courts have held that an entity that acquires a debt through its merger with another creditor is not a “debt collector” under the FDCPA even if the merger occurred following the borrower’s default on the debt.

    With respect to the plaintiff’s RESPA claim, the court found that the plaintiff failed to allege a violation of the statute because the plaintiff’s letter to the defendant, which requested a copy of the original promissory note underlying the deed of trust as well as a loan payoff amount, did not constitute a “qualified written request” triggering the defendant’s obligations under RESPA to respond.  

    Courts RESPA FDCPA California Mortgages

  • District Court addresses plain meaning of “pattern or practice of noncompliance” under RESPA.

    Courts

    On February 7, the U.S. District Court for the District of Maryland granted in part and denied in part a defendant mortgage company’s motion to dismiss a class action lawsuit alleging RESPA violations related to escrow account management for borrowers. Class action plaintiffs claim that the defendant’s failure to pay their property taxes in a timely manner, resulting in their homes being potentially subject to local tax sale procedures for unpaid taxes, created a “pattern or practice of noncompliance” within the meaning of RESPA.

    In moving to dismiss, defendant argued that alleged violations of servicing obligations that fall under separate subsections of RESPA cannot create a “pattern or practice of noncompliance” for obligations of the section setting for the escrow-handling obligations.  While noting that “case law interpreting RESPA statutory damages claims is still developing,” the court found that the statute does not require identical violations from the same subsection of RESPA to state a “pattern or practice” claim.  The court reasoned that the absence of the word “subsection” from the statute is noteworthy, and it indicates that Congress did not intend to confine “pattern or practice” to a single subsection, and held that the plain meaning of the provision only requires plaintiffs to allege repeated violations of the “[s]ervicing of mortgage loans and administration of escrow accounts” section of RESPA (i.e., all of the obligations set forth in 12 U.S.C. § 2605). The court also rejected defendant’s argument that plaintiffs failed to state a claim because they “cannot rely upon their own allegations or the existence of public complaints and lawsuits which have not resulted in a judgment against it for violations of RESPA,” finding that allegations of servicing violations from multiple named plaintiffs in separate jurisdictions was sufficient to survive a motion to dismiss.

    Separately, the court dismissed allegations that defendant violated RESPA by failing to respond to plaintiffs’ qualified written requests, finding that plaintiffs’ claims of “emotional distress, without more, do[] not establish the causal link necessary to show actual damages,” and that  plaintiffs did not support claims that voluntary postage costs for sending correspondence to defendants could be recognized as economic damages.

    Courts Mortgages RESPA Maryland

  • CFPB posts guidance on RESPA

    Federal Issues

    On September 1, the CFPB posted guidance to its website that affirms guidance on the Real Estate Settlement Procedures Act (RESPA) that the Department of Housing and Urban Development previously issued. In 2011, the Dodd-Frank Act transferred responsibility for RESPA from HUD to the CFPB. At the time, the Bureau stated that it would apply “the official commentary, guidance, and policy statements” that HUD had issued on RESPA “pending further CFPB action” and would give “due consideration” to other (i.e., informal) guidance and interpretations. Although the Bureau has issued certain consent orders and other statements that may cast doubt on whether it interprets RESPA in the same manner that HUD did, in the most recent posting, the Bureau confirms that the list of documents posted by the Bureau generally “continue to be applied today by the CFPB.”

    Federal Issues Dodd-Frank CFPB RESPA HUD

  • Key Takeaways from the CFPB’s First Public Enforcement Action Alleging Violations of RESPA Section 8 Since 2017

    Federal Issues

    The Consumer Financial Protection Bureau (CFPB) has issued a consent order to a residential mortgage loan originator to resolve allegations that it provided illegal incentives to real estate brokers and agents in exchange for mortgage loan referrals.  This is the CFPB’s first public enforcement action alleging violations of RESPA Section 8 since 2017.

    The CFPB issued a parallel consent order against a real estate brokerage firm for accepting the incentives in exchange for referrals.

    Allegations Against the Lender

    The consent order against the lender alleges that the lender paid for several subscription services – for example, to a service that provided information concerning property reports, comparable sales and foreclosure data – and then provided free access to such services to real estate agents and brokers, which the CFPB determined to be a thing of value. According to the consent order, the agents and brokers who received access to the subscription services also referred mortgage business to the lender, which the CFPB alleges was in exchange for the free services and therefore violated RESPA Section 8(a).

    The consent order also alleges that the lender hosted and subsidized events, including paying for food, beverages and entertainment, for the benefit of real estate agents and brokers. The consent order further alleges that the lender gave real estate agents and brokers free tickets to sporting events, charity galas and other events where the real estate agents and brokers would have otherwise needed to pay for their own admission, food, and alcohol.  The CFPB alleges that these events frequently cost the lender several thousand dollars or more. The CFPB asserts that the lender’s contributions to these events constituted a thing of value to the real estate agents and brokers and were given to create, maintain and strengthen mortgage referral relationships, in violation of RESPA Section 8(a).

    Finally, the CFPB alleges that the lender had marketing services agreements (“MSAs”) with numerous real estate brokerages, and that many of the compensable services were either performed by the lender itself rather than the brokerages or, based on the Bureau’s allegations against the broker, were not performed by the brokerages.

    Also, the consent order noted that the MSAs required the real estate brokers to promote the lender to the broker’s own agents rather than to consumers. The lender also encouraged its MSA partners to use a third-party smartphone app. The real estate agents shared the app with their clients. The app featured a photo of the lender’s loan officer and the lender’s logo and included buttons where consumers could contact the lender’s loan officer for assistance. As a result, the CFPB alleges that the payments the lender made to the brokerages were structured and implemented to generate referrals, rather than to compensate the brokerages for any marketing services they actually performed.

    Allegations Against the Real Estate Broker

    The consent order against the broker alleges that the broker’s real estate agents and brokers accepted the subscription services and subsidized events. It also alleges that the broker received payments in connection with an MSA that was primarily focused on the lender getting referrals from the broker’s brokers and agents rather than the broker marketing the lender to the public, and that the broker failed to perform many of the marketing tasks required by the MSA but received payments anyway. For example, the consent order alleges that the MSA required the broker to send 15,000 marketing emails a month while allocating 50% of the content to the lender, display video advertisements for the lender at its physical locations and create a number of property websites displaying the lender’s content.  However, the broker allegedly failed to perform any of these marketing services.

    Takeaways

    We note several key takeaways from these consent orders:

    • Taken at face value, none of the conduct alleged to violate RESPA Section 8(a) is novel or particularly notable. The crux of the alleged violations involved paying for obvious things of value in exchange for referrals and entering into MSAs where the contemplated marketing services were either not provided or directed to potential referral sources and not consumers. The consent orders, therefore, are largely consistent with prior RESPA enforcement actions involving lenders and real estate brokers.
    • This is the first public CFPB enforcement action alleging violations of RESPA Section 8 since 2017, which makes clear that although the CFPB’s focus on RESPA Section 8 may have waned somewhat from the Cordray era, it is still monitoring for RESPA Section 8 violations and will bring public enforcement actions when violations are discovered. Coupled with February’s Advisory Opinion on Digital Mortgage Comparison Shopping Platforms, the CFPB is clearly still engaged in RESPA compliance.
    • The reference to the mobile app with a loan officer’s photo and the lender’s logo, and the ability for the consumer to reach out to the lender directly, is in accord with longstanding CFPB and HUD guidance that exclusivity is indicative of a referral to the extent that it “affirmatively influences” a consumer to select a particular provider of settlement services. This viewpoint was recently espoused in the CFPB’s Advisory Opinion on Digital Mortgage Comparison Shopping Platforms, and it appears that the CFPB views this principle as generally applicable.

    Penalties

    In addition to agreeing to cease engaging in the conduct alleged, the lender was ordered to pay a civil monetary penalty of $1.75 million and also agreed to implement a compliance program designed to prevent any future violations should the lender resume retail mortgage operations. The lender also agreed to meet certain recordkeeping and reporting requirements. 

    In addition to agreeing to cease engaging in the conduct alleged, the broker was ordered to pay a civil monetary penalty of $200,000 and meet certain recordkeeping and reporting requirements.

    In agreeing to enter into the consent orders, the lender and broker did not admit or deny any findings of fact or conclusions of law related to the violations alleged by the CFPB.

    Read the lender’s consent order.

    Read the broker’s consent order.

    Read the CFPB’s press release.

    Want to learn more? Contact John Kromer or Steve vonBerg.

    Federal Issues CFPB Consumer Finance RESPA Enforcement Referrals Real Estate Mortgages Loan Origination

  • District Court: Servicer’s QWR responses did not violate RESPA

    Courts

    The U.S. District Court for the Western District of Washington recently granted summary judgment in favor of a defendant mortgage servicer related to alleged RESPA violations concerning qualified written requests and notices of error. Plaintiff entered into a permanent loan modification for which she made timely payments until she applied for new financing. One year later, plaintiff noticed a deferred principal balance that she claimed was not listed on her 2019 loan modification agreement. Plaintiff asserted that she called seeking to have the deferred principal balance removed and sent a notice of error (NOE) letter to the defendant, claiming, among other things, that the loan documentation did not mention the deferred amount. Defendant acknowledged the NOE and timely responded that the modification agreement included the deferred principal balance.

    In granting defendant’s motion for summary judgment, the court held that while plaintiff’s allegations “are framed as a RESPA violation … [p]laintiff’s true concern is that [defendant] misrepresented the terms of the 2019 loan modification.” The defendant, however, complied with RESPA by providing “a statement of the reasons for which the servicer believes the account of the borrower is correct as determined by the servicer,” and plaintiff’s “disagreement with the servicer’s determination does not create a claim under RESPA.” Further, the court found that the deferred principal balance was in fact included on the executed loan modification agreement, and that the plaintiff did not suffer any actual harm under RESPA or otherwise.

    Courts RESPA Consumer Finance Mortgages QWR

  • District Court: Plaintiff failed to prove damages in RESPA suit

    Courts

    The U.S. District Court for the Northern District of Texas recently granted summary judgment in favor of a defendant mortgage servicer related to alleged RESPA violations. Plaintiff obtained a refinanced loan that was serviced by the defendant. Plaintiff later sued the defendant after becoming frustrated by receiving repeated calls suggesting he refinance the loan. Once litigation commenced, the defendant began sending the monthly mortgage statements to plaintiff’s counsel. In 2021, plaintiff sent a request for information to the defendant seeking a range of monthly billing statements, which the defendant allegedly only partially provided. Plaintiff’s attorney further claimed to have received an escrow review statement from the defendant referencing an escrow surplus check that the plaintiff also claimed not to have received. The plaintiff claimed violation of RESPA by pointing to the defendant’s alleged failure to adequately respond to his requests for statements or to provide the surplus check. The defendant moved for summary judgment, arguing that neither the facts nor the law supported the plaintiff’s claims.

    The plaintiff eventually conceded that there is no private right of action under RESPA’s escrow payment regulation and withdrew the claim. The court also took issue with his claim that the defendant failed to adequately respond to his request for information. Even if the defendant failed to adequately respond, the plaintiff could not plead or prove actual damages, the court said. “Neither party disputes that RESPA requires plaintiffs to plead and prove actual damages from an alleged violation,” the court wrote. “Instead, they focus their arguments on the sufficiency of the alleged damages. [Defendant] alleges that [plaintiff] provides no evidence to demonstrate how he suffered damages from the fact that it provided only three of the fourteen requested monthly statements.” Plaintiff tried to argue he was owed monetary damages due to being deprived of the escrow surplus funds and by being unfairly assessed convenience fees when making payments through the defendant’s online portal. He further claimed he suffered medical and mental anguish. However, the court concluded that evidence presented by the defendant refuted these claims (the convenience fee claim, the court said, could not be connected to the RESPA claim) and said plaintiff also failed to support his claims of medical and mental anguish. Further, plaintiff failed to present evidence supporting his claim for statutory damages, the court said, finding no genuine dispute of material fact in the record.

    Courts Consumer Finance RESPA Mortgages QWR

  • District Court denies servicer’s claims that it never received QWR

    Courts

    The U.S. District Court for the Eastern District of Missouri recently considered whether a mortgage servicer received a borrower’s qualified written request (QWR) relating to a missed mortgage payment. The borrower sent a money order to cover two monthly mortgage payments, but the payments were not properly credited to her account. The borrower made several attempts to contact the mortgage servicer about the improperly credited payment. After receiving a formal notice of default, the borrower sent a “Request for Information and Notice of Error” (NOE) to the servicer explaining the situation and asking that her account be updated to reflect that all payments had been made and requesting the removal of late fees and charges. She also asked that her loan be removed from default status and sent letters to the credit reporting agencies formally disputing the delinquent payment reports. According to the court’s opinion, the borrower claimed that the servicer violated RESPA by failing to respond and violated the FCRA by failing to conduct a reasonable investigation into her credit disputes and verifying inaccurately furnished information.

    In considering both parties’ motions for summary judgment, the court granted the borrower’s motion on liability with respect to her RESPA claim and denied the servicer’s motion for summary judgment on the FCRA claims on the basis that the borrower provided evidence of actual damages resulting from the servicer’s alleged FCRA violation. The court explained that RESPA requires mortgage servicers to respond to a QWR within five days to acknowledge receipt, and again within 30 days by either correcting the account, providing a written explanation as to why it believes the account is correct, or providing the information requested by the borrower or an explanation of why the information requested is unavailable. Failure to do so entitles a borrower to any actual damages suffered as result of the failure. Claiming the NOE was a QWR, the borrower presented evidence, including a certified mail receipt allegedly showing the NOE was signed for by one of the servicer’s representatives. The servicer countered that because it had no record of the correspondence, its RESPA duties were not triggered. The servicer further argued that the NOE did not qualify as a QWR because it failed to provide sufficient information for it to investigate or respond to the request, and that even if it was a QWR, the borrower had failed to show actual damages.

    The court disagreed, determining (i) that the servicer failed to prove it did not receive the NOE, and (ii) that the NOE constituted a QWR. “The information in the letter alone is sufficient to qualify as a QWR,” the court wrote. “The letter quite specifically states the error [the borrower] believed to have occurred…. This is not an ‘overbroad’ and generalized statement of ‘bad servicing.’ It identifies an error specifically contemplated by RESPA’s regulations.” The court further added that “RESPA does not require that a lender’s violations be the sole cause of a borrower’s emotional distress. It merely requires that damages be causally related to a violation of the statute.” However, the court noted that the borrower still needs to prove at trial the extent of damages caused by the servicer's alleged violation.

    Courts RESPA Qualified Written Request Consumer Finance Credit Reporting Agency Mortgages

  • District Court dismisses RESPA claims that servicer failed on QWRs

    Courts

    The U.S. District Court for the Western District of Washington recently ruled on a loan servicer’s motion for summary judgment concerning claims that the servicer violated RESPA when it failed to respond to multiple qualified written requests (QWR) alleging account errors and improperly reported alleged delinquencies to credit reporting agencies (CRAs). Plaintiffs executed a promissory note and deed of trust, and later entered into a Chapter 11 bankruptcy plan to modify the terms of the loan. Plaintiffs sued, asserting violations of RESPA and various state laws, claiming, among other things, that the servicer failed to timely respond to their QWRs, provided false information to CRAs, and failed to adjust the loan to reflect the modified payment schedule from the bankruptcy plan.

    The court granted summary judgment in favor of the servicer. On the QWR-related allegations, the court found that, “while the [plaintiffs] say that [the servicer] did not address the issues raised in the QWRs, their brief does not identify a single issue that went unaddressed. . . Their brief does not, for example, point to a request in any QWR that went unanswered in [the servicer’s] corresponding response. Merely providing a laundry list of documents—without specifically identifying how [the servicer’s] responses were incomplete—is insufficient.” The court also found that the plaintiffs failed to show that the servicer’s responses were misleading, confusing, or incorrect. Though the plaintiffs provided a list of statements made by the servicer when responding to the QWRs, plaintiffs failed to explain what exactly was inaccurate or confusing about the servicer’s responses, the court said.

    While the court flagged one possible inconsistency in at least one of the servicer’s responses (where the servicer incorrectly stated the monthly principal amount due but corrected the mistake less than a month later), the court determined that “this alone does not suffice under RESPA.”

    With respect to plaintiffs’ allegations of false credit reporting, the court concluded that there was no evidence that the servicer submitted negative information about plaintiffs to a CRA, nor did the plaintiffs demonstrate how any such reports hurt their credit or identify whether the reports were filed within RESPA’s 60-day non-reporting period. Under RESPA, a servicer is prohibited from providing certain information regarding “any overdue payment, owed by such borrower and relating to such period or qualified written request, to any consumer reporting agency” during the 60-day period beginning on the date the servicer receives a QWR. The court further noted that the plaintiffs failed to show that they suffered actual damages “flowing from” the alleged RESPA violations, which is a requirement of the statute.

    The court granted summary judgment on the RESPA claims in favor of the servicer and remanded the remaining state-law claims to state court.

    Courts RESPA Consumer Finance Mortgages Mortgage Servicing Qualified Written Request Credit Reporting Agency State Issues

  • Special Alert: CFPB’s RESPA advisory addresses online mortgage-comparison platforms

    Federal Issues

    The Consumer Financial Protection Bureau (CFPB) issued guidance yesterday making clear that those who operate or participate in online mortgage-comparison shopping platforms will be closely scrutinized for compliance with the prohibition on payments for referrals to mortgage lenders. “Companies operating these digital platforms appear to shoppers as if they provide objective lender comparisons, but may illegally refer people to only those lenders paying referral fees,” the agency said. Here’s what you need to know:

    What happened?

    The CFPB issued an Advisory Opinion on how the Real Estate Settlement Procedures Act (RESPA) applies to online mortgage-comparison platforms. The agency said platform operators violate RESPA “when they steer shoppers to lenders by using pay-to-play tactics rather than providing shoppers with comprehensive and objective information.” Specifically, the agency said operators receive a prohibited referral fee when they use or present information in a way that steers consumers to mortgage lenders in exchange for a payment or something else of value.

    Federal Issues Agency Rule-Making & Guidance CFPB Consumer Finance RESPA Digital Platform Competition Mortgages Referrals Section 8 Advisory Opinion

  • FDIC issues November enforcement actions

    On December 30, the FDIC released a list of orders of administrative enforcement actions taken against banks and individuals in November. The FDIC made public nine orders consisting of “two consent orders; two orders terminating deposit insurance; three orders to pay civil money penalties; one order terminating consent order; and one Section 19 order.” Among the orders is a civil money penalty against a Wisconsin-based bank related to violations of the Flood Disaster Protection Act. The FDIC determined that the bank had engaged in a pattern or practice of violations that included the bank’s failure to: (i) obtain adequate flood insurance on the building securing a designated loan at the time of loan origination; (ii) obtain adequate flood insurance at the time of the origination; (iii) notify borrowers that the borrower should obtain flood insurance where a determination had been made that flood insurance had lapsed or a loan was not covered with the required amount of insurance; (iv) provide borrowers with a Notice of Special Flood Hazard and Availability of Federal Disaster Relief Assistance when making, increasing, extending or renewing a loan; and (v) provide borrowers with a Notice of Special Flood Hazard and Availability of Federal Disaster Relief Assistance within a reasonable time before the completion of the transaction. The order requires the payment of a $39,000 civil money penalty.

    The FDIC also issued a civil money penalty against an Oregon-based bank for allegedly violating Section 8(a) of RESPA “by entering into mortgage lead generation arrangements with the operator of a real estate website and the operator of an online loan marketplace that were used to facilitate and disguise referral payments for mortgage business.” The FDIC also determined that the bank violated the FTC Act “by making deceptive and misleading representations in three of the bank’s prescreened offers of credit” and violated the FCRA “by obtaining the consumer reports of former loan clients with recent credit inquiries without a legally permissible purpose.” The order requires the payment of a $425,000 civil money penalty.

    Additionally, the FDIC issued a consent order against a Tennessee-based bank alleging the bank engaged in “unsafe or unsound banking practices relating to weaknesses in capital, asset quality, liquidity, and earnings.” The bank neither admitted nor denied the allegations but agreed, among other things, that its board would “increase its participation in the affairs of the bank by assuming full responsibility for the approval of the bank’s policies and objectives and for the supervision of the bank’s management, including all the bank’s activities.” The bank also agreed to maintain a Tier 1 Leverage Capital ratio equal to or greater than 8.50 percent and a Total Capital ratio equal to or greater than 11.50 percent. The FDIC also issued a consent order against a New Jersey-based bank claiming the bank engaged in “unsafe or unsound banking practices relating to, among other things, management supervision, Board oversight, weaknesses in internal controls, interest rate sensitivity, and earnings.” The bank neither admitted nor denied the allegations but agreed, among other things, that it would retain a third-party consultant “to develop a written analysis and assessment of the bank’s board and management needs (Board and Management Report) for the purpose of ensuring appropriate director oversight and providing qualified management for the bank.”

    Bank Regulatory Federal Issues FDIC Enforcement Flood Disaster Protection Act Flood Insurance RESPA FTC Act FCRA Consumer Finance

Pages

Upcoming Events