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California’s new mortgage servicer during a “state of emergency” to be effective
Recently, California enacted SB 455 to address mortgage servicing during a state of emergency. SB 455 will require a mortgage servicer (transferring a mortgage secured by a property within a proclaimed emergency zone) to provide the new servicer with written records between the borrower and the old servicer on the borrower’s election to use insurance proceeds to repair or replace property damaged by a disaster. Additionally, SB 455 prevents the new servicer from disregarding any prior written agreements between the original servicer and the borrower regarding property repairs that were approved by the owner of the promissory note. The SB 455 bill will be effective January 1, 2024.
District Court partially dismisses TCPA claims
On December 12, the U.S. District Court for the Northern District of Illinois partially granted a culinary school’s motion to dismiss claims concerning unwanted calls to enroll in cooking classes. According to the memorandum opinion and order, the plaintiff filed suit after the culinary school called her over 30 times, even though she had requested the school to place her on a do-not-call list. The plaintiff claimed the school violated the Telephone Consumer Protection Act (TCPA) by making unwanted calls and leaving prerecorded messages on her cell phone.
According to the court, any calls made to a cell phone cannot violate § 227(b)(1)(B) because the court reasoned that “a cellular phone and a residential phone are not the same thing,” and that § 227(b)(1)(B) of the TCPA expressly covers “residential telephone line[s],” but not cellular telephone services. Regarding the plaintiff’s claim under § 227(b)(1)(A) of the TCPA, although the school argued there was not enough proof that the calls were prerecorded, including because some of the calls came from different states, the court disagreed and provided examples of why the calls could have been prerecorded. The court consequently denied the school’s motion to dismiss the plaintiff’s § 227(b)(1)(A) claim.
Agencies extend Regulation O relief for some companies controlled by funds
On December 15, the Fed, FDIC, and the OCC announced the issuance of an interagency statement to further extend the “Extension of the Revised Statement Regarding Status of Certain Investment Funds and their Portfolio Investments for Purposes of Regulation O and Reporting Requirements under Part 363 of FDIC Regulations.” The original statement was issued on December 22, 2022, with an expiration of January 1, 2024. The new interagency statement effectively extends the prior no-action position (covered by InfoBytes here) until either January 1, 2025 or the effective date of amendments to Regulation O that addresses the treatment of extensions of credit by a bank to fund complex–controlled portfolio companies that are bank insiders.
The agencies noted that they will refrain from acting against banks extending credit to complex-controlled portfolio companies that would otherwise violate Regulation O, provided the company controls (directly or indirectly) less than 15 percent of the bank’s voting securities (or 20 percent under certain circumstances) and does not plan to place representatives or exercise a controlling influence over the bank. Additionally, the agencies will not pursue action against insured depository institutions for failing to report credit extensions that would violate Regulation O but fall under the interagency statement’s coverage. The agencies explained how credit extensions must be on “substantially the same terms as those prevailing for comparable transactions with unaffiliated third parties” and may not “involve more than normal risk of repayment or present other unfavorable features.”
Fed enters into written agreement with Ohio bank
On December 19, the Federal Reserve Board announced a written agreement with an Ohio state-chartered bank and its holding company to address certain deficiencies identified during a recent examination of the bank. Under the agreement, the bank and its holding company agreed to: (i) use the bank’s resources as a “source of strength”; (ii) submit a written plan to enhance board oversight and management; (iii) conduct a third-party assessment of the bank’s staff; (iv) submit an enhanced written investment policy that includes “periodic analysis of the investment portfolio, including, but not limited to the assessment of market risk, credit risk, interest rate risk, and liquidity risk of the underlying investments”; (v) improve the bank’s investment portfolio management and interest rate risk management practices; (vi) implement an enhanced liquidity risk management program; and (vii) submit a written plan regarding sufficient capital (among other corrective actions).
OCC issues cease-and-desist order to NY bank
On December 14, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals that are or were affiliated with such entities. Included is a cease-and-desist order against an upstate New York bank for allegedly engaging in unsafe or unsound practices, including on the bank’s corporate governance, capital planning, interest rate risk management, liquidity risk management, and reports of condition.
Under the order, the bank must appoint a compliance committee to take corrective action, submit a three-year strategic plan to establish objectives for the bank’s risk profile, earnings performance, growth, and balance sheet mix, among other areas, and maintain a capital ratio of at least 15 percent, a common equity tier 1 capital of at least equal to 14 percent, and a leverage ratio of at least ten percent. The order also requires the bank to create an interest rate risk program and a third-party risk management program.
CFPB fines and shuts down debt collector for alleged FDCPA, FCRA violations
On December 15, the CFPB announced a consent order against a Pennsylvania-based nonbank medical debt collection company for alleged violations of the FCRA and FDCPA. According to the order, the company failed to (i) establish and implement reasonable written policies and procedures for ensuring the accuracy and integrity of information furnished to consumer reporting agencies; (ii) conduct reasonable investigations into direct and indirect consumer disputes about furnished information; (iii) report direct dispute investigation results to consumers; and (iv) indicate disputed items when furnishing information to reporting agencies. The company also allegedly lacked a reasonable basis for debt-related representations made to consumers and engaged in collection activities after receiving a written dispute within 30 days of the consumer’s receipt of a debt validation notice but before obtaining and mailing a verification of the debt.
The consent order permanently bans the company from involvement or aid in debt collection, purchasing or selling of any debts, or any consumer reporting activities. The company must also request credit reporting agencies to delete all collection accounts previously reported by the company. Additionally, the company is obligated to pay a $95,000 civil money penalty and must display on its website information that informs consumers about the option to file a complaint with the CFPB.
District Court grants motion to dismiss in FDCPA case regarding an undated Model Validation Notice
On December 5, the U.S. District Court for the Southern District of New York granted a debt collection agency (the defendant) a motion to dismiss an individual’s (plaintiff’s) complaint. The case considers whether an undated Model Validation Notice (MVN) is a material detail that provides standing to sue under the FDCPA. An MVN is a form provided by the CFPB in Appendix B of the Debt Collection Rule to assist debt collection agencies in complying with FDCPA notice and disclosure requirements. However, the CFPB provides an undated MVN, so many debt collectors who use this template fail to provide a date when sending a debt collection letter to individuals, leading to a recipient’s confusion when the debt collector writes “today” or “now.”
In this case, the plaintiff alleges that the undated collection letter suggests the defendant “withheld a material term from [p]laintiff which made it confusing for him to understand the nature of the subject debt.” The plaintiff did not pay the debt, and instead, he alleged that he suffered damages from the defendant’s “suspicious, misleading, deceptive, unfair, and unconscionable actions.”
Before addressing the merits of the plaintiff’s claims, the court applied Article III standing to determine if the plaintiff had a basis to sue. The court considered whether the plaintiff had suffered a “concrete, particularized injury” in receiving an undated letter from the defendant and concluded that the plaintiff did not suffer harm as a result of this act under Article III because “[t]ime and money spent due to concern and confusion are not concrete harms.” The court held the plaintiff had no standing to bring this action and granted the defendant’s motion to dismiss the plaintiff’s claims. The court, however, gave the plaintiff the opportunity to file an amended complaint.
NY enacts the Fair Medical Debt Reporting Act
On December 13, the New York governor signed into law S4907A, or the Fair Medical Debt Reporting Act (the “Act”), a medical debt credit reporting bill that will bar credit reporting agencies from directly or indirectly incorporating medical debt into consumer credit reports. The Act specifically prohibits hospitals, health care professionals, and ambulances from reporting medical debt to credit agencies. The Act defines medical debt as any amount owed or claimed by a consumer “related to the receipt of health care services, products, or devices provided to a person” by a hospital, health care professional, or ambulance service. Notably, obligations charged to a credit card are excluded from medical debts unless the card is specifically designated for health care expenses under an open-ended or closed-end plan.
NY passes law to preserve credit card points and rewards for consumers
On December 10, New York General Business Law § 520-e went into effect according to the Governor’s press release. The new law prevents credit card holders from losing unused earned credit card points and requires credit card issuers to send consumers a notice of any outstanding credit card points or rewards they have accrued in their accounts, even after the account is closed. Specifically, credit card issuers will have 45 days to provide notice of any outstanding credit card rewards or points following the closing of a consumer’s account. From the date of the issuer’s notice, consumers will have a 90-day grace period to redeem their points or rewards.
District Court dismisses FDCPA suit; clarifies debt collector communication on identity theft
On December 5, the U.S. District Court of New Jersey dismissed an FDCPA suit brought against a debt collector. According to the opinion, plaintiff originally filed suit because they received a letter from defendant regarding an outstanding cell phone bill. The letter provided instructions on what to do if the recipient suspected identity theft. Additionally, the letter contained a summary of plaintiff’s account and a QR code that linked to defendant’s website for online payment. Plaintiff contended that the dual approach of offering assistance while simultaneously pursuing collection of a debt was false and misleading. A District Court judge, however, disagreed and dismissed the case, at which point the plaintiff filed an amended complaint.
The amended complaint alleges that the debt collector breached the FDCPA by using false, deceptive or misleading representations regarding the rights of the plaintiff and the obligations of the debt collector with respect to communications concerning identity theft. Specifically, plaintiff argued defendant was in violation of § 1681m(g) of the FDCPA, which obligates a debt collector to take certain steps upon being notified of identity theft, but the court disagreed, finding that the collector’s specific steps taken were in accordance with the Act.
The court emphasized that plaintiff did not introduce any new factual claims in the amended complaint, and merely clarified how the facts already outlined in the initial complaint breached the FDCPA. The judge ruled that the letter not only allows plaintiff to inform defendant about potential identity theft, but also may serve to bring potential identity theft to plaintiff’s attention. The ruling stated that there is no obligation to extensively explain recommended procedures in the case of an identity theft occurrence, and only an “idiosyncratic reading” of the letter would lead to the conclusion that the letter misrepresents defendant’s obligations.