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FDIC Approves Proposed Rule to Amend Large Bank Pricing Assessment System
On March 20, the FDIC approved for publication a proposed rule to amend the large bank pricing assessment system to include revised definitions of nontraditional mortgage loans, subprime consumer loans, and leveraged commercial loans. A February 2011 FDIC rule, among other things, eliminated risk categories and the use of long-term debt issuer ratings and instead adopted scorecards that combine CAMELS ratings and certain forward-looking measures to assess risk posed by an institution to the FDIC insurance fund. One of the financial ratios used in the scorecards involves higher-risk assets, defined as the sum of construction and land development loans, leveraged loans, subprime loans, and nontraditional mortgage loans. The February rule used existing interagency guidance to define nontraditional mortgage loans, subprime consumer loans, and leveraged commercial loans, but refined the definitions to minimize reporting discrepancies. A subsequent FDIC notice added a requirement that covered institutions include nontraditional mortgage loans, subprime consumer loans, and leveraged commercial loans data in their Call Reports. However, institutions generally do not maintain data on those loans consistent with the definitions in the February rule, and therefore were not able comply with the reporting requirements. The proposed rule extensively revises these definitions to allow large banks to report the information needed to conduct the assessments.
Eighth Circuit Limits Reach of FDCPA
On March 16, the U.S. Court of Appeals for the Eighth Circuit rejected a lawsuit under the Fair Debt Collection Practices Act (FDCPA) that was premised on pleadings filed in an unsuccessful state court collection action. Hemmingsen v. Messerli & Kramer, P.A., No. 11-2029, 2012 WL 878654 (8th Cir. Mar. 16, 2012). Plaintiff debtor successfully defended against a collection lawsuit in state court and thereafter commenced an FDCPA action for harassment, false or misleading representations in the state court action, and unfair practices. The claims were based upon defendant debt collection counsel’s summary judgment motion and supporting affidavit; the factual allegations in these documents were deemed unsupportable by the state court when it dismissed the collection lawsuit. A federal district court dismissed the FDCPA action on the ground that representations in the motion and affidavit in the collection action were made to the state court, and not to the plaintiff as required by the FDCPA. On appeal, the Eighth Circuit rejected this broad FDCPA defense and instead embraced a “case-by-case” approach. The court held that these particular FDCPA claims failed because evidence introduced in federal court provided some factual support for the pleadings filed in the state court action.
CFPB Submits First Annual FDCPA Report to Congress
On March 20, the CFPB submitted to Congress its first annual report on the administration and enforcement of the Fair Debt Collections Practices Act (FDCPA). The CFPB inherited the annual reporting function as part of the Dodd-Frank Act’s transfer to the CFPB of the primary regulatory responsibility for the FDCPA. Prior to this report, the FTC prepared the annual report, and this year it submitted a letter to the CFPB detailing its efforts under the FDCPA. The report, as informed by the FTC letter, provides (i) a brief background on the FDCPA, (ii) a summary of consumer complaints about the debt collection industry, (iii) a description of the CFPB’s FDCPA supervision authority, including its rulemaking to expand that authority by defining “larger participant” nonbanks, (iv) an outline of recent FTC and CFPB enforcement activity and amicus briefs filed against entities engaged in debt collection, including ongoing non-public investigations of debt collection practices, and (v) each regulator’s FDCPA-related research and policy initiatives.
FDIC Approves Proposed Rule Regarding Enforcement of Subsidiary and Affiliate Contracts
On March 20, the FDIC approved for publication a proposed rule to implement new authorities granted by the Dodd-Frank Act that permit the FDIC, as receiver for a financial company whose failure would pose a significant risk to financial stability, to enforce certain contracts of subsidiaries and affiliates of the covered company. This proposed rule would include contracts that purport to terminate, accelerate, or provide for other remedies based on the insolvency, financial condition, or receivership of the covered company, so long as the FDIC complies with statutory requirements. The proposed rule would apply broadly to all contracts and make clear that the FDIC’s authority as receiver effectively preserves contractual relationships of subsidiaries and affiliates during the liquidation process.
FTC Releases Survey on Consumer Reporting Agencies and FACTA
On March 12, the FTC released the results of a survey conducted to gauge consumer experiences in dealing with consumer reporting agencies (CRAs) following an identity theft. While the survey indicates that the majority of consumers were satisfied with their experiences, many consumers were unaware of their rights under the Fair and Accurate Credit Transactions Act (FACTA) before contacting a CRA. In response to concerns raised by consumers in the survey, the report recommends that (i) CRAs make it easier for consumers to reach a live person and (ii) the CFPB use its examination and rulemaking authority, and the FTC employ its enforcement authority, to address CRAs’ practice of attempting to sell identity theft products to consumers reporting identify thefts.
FDIC Warns Bank Directors and Officers Regarding Copying and Removal of Institution Information
On March 19, the FDIC issued Financial Institution Letter FIL-14-2012, which warns bank directors and officers that financial institution records belong exclusively to the institution, and supervisory records are the property of the FDIC. As such, directors and officers of failing institutions who make and remove copies of institution and supervisory records for “personal use” in preparing for anticipated litigation or enforcement activity (i) are breaching their fiduciary duty, (ii) are engaging in an unsafe and unsound banking practice, and (iii) may be violating the institution’s information security program. Personal use includes use by directors or officers to defend themselves against administrative, civil, and criminal proceedings or lawsuits based on actions taken in their official capacity. The Financial Institution Letter also reminds outside counsel to financial institutions that their legal and ethical obligations are only to the institution, and not to an institution’s directors or officers. The FDIC threatens bank directors and officers, and outside counsel with legal action for knowing or reckless violations of law or breach of fiduciary duty. In 2011, in a case in which the FDIC sued a law firm for having accepted copies of bank records from a bank prior to its closing to preserve for the defense of bank directors, BuckleySandler prepared an amicus brief for the American Association of Bank Directors asserting the right of bank directors to have free access to bank records that they need to defend themselves against administrative, civil, and criminal proceedings or suits.
Senators Push for CFPB Action on Payday Lending, Propose Federal Legislation
On March 12, Senators Jeff Merkley and Daniel Akaka released a letter sent to CFPB Director Richard Cordray urging that the CFPB take action to address online, offshore, and insured depository payday lending activities and products. The letter specifically pushes the CFPB to adopt rules and partner with state attorneys general to address (i) Internet-based lead generators that collect data on potential customers for payday lenders, (ii) offshore Internet lenders that avoid state laws by relying on loopholes in the rules covering debit transactions and remotely-created checks, and (iii) insured depository institutions that offer payday loan or similar products. In the same announcement, Senator Merkley revealed plans to introduce legislation that will, broadly, (i) require greater disclosure for online lending websites, (ii) address the abusive practice of providing false or misleading data to payday lenders and debt collectors to defraud consumers in paying debts they do not owe, (iii) attempt to limit the activities of offshore payday lenders, and (iv) address bank and insured depository institution payday loan products.
FRB Releases Results of Stress Tests on Large Bank Holding Companies
On March 12 and 13, the Federal Reserve Board (FRB) announced the methodology and results of stress tests it conducted on nineteen large U.S. bank holding companies as part of its 2012 Comprehensive Capital Analysis and Review (CCAR). Through the CCAR, the FRB is evaluating the capital planning processes and capital adequacy of the largest U.S. bank holding companies. One element of this evaluation is a supervisory stress test to evaluate whether firms would have sufficient capital to continue lending in a severely adverse economic environment. The CCAR stress test scenario assumes a severe recession in the U.S. with a peak unemployment rate of 13%, a 50% decrease in U.S. equity prices, and a 20% decline in U.S. house prices. The results, which are based on input from the holding companies, project (i) $534 billion of aggregate losses for the nineteen holding companies tested during the nine quarters of the scenario and (ii) that most of the holding companies will maintain regulatory capital ratios above regulatory minimum levels despite significant declines in capital ratios. The FRB emphasized that the results are not “expected or likely outcomes, but rather possible results under hypothetical, highly adverse conditions.” The FRB stated in its March 13 release that it would notify each bank holding company of any objections it has to the holding company’s current capital plan or planned capital distributions.
CFPB Seeks Complaints Regarding Auto and Installment Loans, Announces Complaint Sharing with FTC
On March 12, the CFPB announced that it launched a system to handle consumer complaints regarding auto loans and installment loans. The new complaint form also allows consumers to submit complaints regarding vehicle leases and personal lines of credit. While the system will accept all such complaints, the CFPB initially can handle only complaints with regard to consumer loans with large banks, those over $10 billion in total assets. Loans issued by small banks or nonbanks will be referred to the appropriate federal or state authority. After it has finalized a rule defining “larger participants” in these markets, the CFPB will be permitted to handle directly complaints regarding covered nonbanks.
On March 14, the CFPB announced on its blog that, pursuant to its Memorandum of Understanding with the FTC, the CFPB now is sharing consumer complaint information with the FTC through the FTC’s Consumer Sentinel system. Consumer Sentinel is an online database of consumer complaints maintained by the FTC that helps law enforcement track and respond to consumer complaints. Many state attorneys general, the U.S. Postal Inspection Service, and the FBI’s Internet Crime Complaint Center also access and provide data to the FTC’s Consumer Sentinel system.
Ninth Circuit Holds Director Personally Liable for Illegal Debt Collection
On March 8, the U.S. Court of Appeals for the Ninth Circuit held that International Collection Corporation (ICC) and its director were liable for violating the Fair Debt Collection Practices Act (FDCPA) by falsely claiming in communications to debtors that ICC was entitled to interest and legal fees. Cruz v. International Collection Corp., No. 09-17449, 2012 WL 742337 (9th Cir. Mar. 8, 2012). In 2006, Cruz wrote two checks to Harrah’s Casino in Reno, Nevada. The checks bounced. Over the course of the next year, ICC sent Cruz eight collection letters, some of which falsely claimed that ICC was entitled to treble damages, interest, and legal fees. The director and sole owner of ICC signed and sent at least one such collection letter. The FDCPA bars the use of any false, deceptive, or misleading representation in connection with the collection of any debt. 15 U.S.C. § 1692e. Cruz filed suit and the district court granted summary judgment for the plaintiff. The Ninth Circuit affirmed the decision against ICC and affirmed that Hendrickson was personally liable. Because the director was personally involved in at least one illegal collection attempt, the court did not need to reach the question of whether an officer who qualifies as a debt collector may be held personally liable based solely on the action of serving in his role as an officer of the company.