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CFPB files amicus brief on FDCPA case regarding scienter
On January 2, the CFPB announced its filing of an amicus brief in the U.S. Court of Appeals for the First Circuit that takes the position that debt collectors can and should be held strictly liable under the FDCPA regardless of whether they knowingly or unknowingly made a false statement. As the administrator and enforcer of the FDCPA, the CFPB cites that under Section 1692e of the FDCPA, debt collectors are prohibited from “us[ing] any false, deceptive, or misleading representation or means in connection with the collection of any debt.” According to the brief, Section 1692e’s general prohibition does not include a scienter requirement and does not require that a “representation be knowingly or intentionally false, deceptive, or misleading to violate that prohibition.” The CFPB continues that since Congress selectively included an express scienter requirement, which is a level of intent or knowledge required to establish liability, in specific provisions of the FDCPA, but did not include one in Section 1692e, that indicates Congress did not implicitly intend for Section 1692e to include a scienter requirement. The CFPB also noted that “every federal court of appeals to have addressed this issue (8 in total) has held that Section 1692e does not include a scienter requirement.”
Biden Administration, DOE withhold payments to student loan servicers
On January 5, the Biden Administration and the U.S. Department of Education (DOE) announced they are withholding payments to three student loan servicers as part of their efforts to strengthen protections for student loan borrowers and ensure accountability among servicers. The three servicers were found to have collectively failed in sending timely billing statements to a total of 758,000 borrowers during their first month of repayment. Consequently, the DOE is withholding $2 million from one servicer, $161,000 from the second, and $13,000 from the third servicer based on the number of affected borrowers.
U.S. Secretary of Education Miguel Cardona emphasized that the DOE “will continue to engage in aggressive oversight of student loan servicers and put the interests of borrowers first.” During this period, borrowers will not be required to make payments, and any accrued interest will be adjusted to zero. Additionally, the months spent in administrative forbearance will count toward forgiveness programs like Public Service Loan Forgiveness or income-driven repayment forgiveness. The DOE aims to ensure that borrowers are not negatively affected by these errors.
Furthermore, to protect borrowers from penalties due to late or missed payments during the repayment transition, the DOE recently sent a letter to credit reporting agencies and credit scoring companies to remind them that borrowers’ current payment behavior may not accurately reflect their ability or willingness to make payments.
CFPB finds student loan servicer issues in new report
On January 5, the CFPB released a report on how student loan borrowers may face customer support challenges as their student loan payments resume. Federal student loan repayments resumed for the first time in over three years, and the Consumer Financial Protection Act directs the CFPB to conduct studies and provide oversight over the servicing process. The CFPB highlights its coverage of servicers because borrowers do not get to pick their servicer and many servicers, especially during the payment pause, often made business decisions to cut costs leading to diminished customer service.
The report found that from August to October 2023, student loan borrowers faced longer hold times when contacting their servicer by phone, significant delays in processing applications for income-driven repayment (IDR) plans, and faulty and confusing billing statements. More specifically, wait times to speak to a live representative rose from 12 minutes to over 70 minutes; the number of pending IDR plan applications totaled more than 1.25 million, with more than 450,000 pending longer than thirty days with no resolution; and borrowers received faulty bills from their servicers, often causing confusion and putting even more strain on customer service resources as borrowers call customer service representatives. The director of the CFPB, Rohit Chopra, accompanied the report with a statement of his own.
Freddie Mac launches pilot program on loan repurchase alternatives
On January 1, Freddie Mac is launching a pilot program intended to improve the quality of performing loans for sellers. This pilot program, titled “Fee-Based Repurchase Alternative for Performing Loans,” is the fourth initiative from Freddie Mac’s Pilot Transparency programs, which included pilot programs on appraisal modernization, shared equity conversion, and asset and income modeler for direct deposits. This fee-based repurchase alternative pilot program for 2024 focuses on replacing Freddie Mac’s current repurchase policy for defective performing loans. “[L]enders will not be subject to repurchases on most performing loans and will instead be subject to a fee-based structure based on non-acceptable quality (NAQ) rates.” According to Freddie Mac, the fee-based structure will be more efficient and transparent and rewards lenders that deliver high-quality loans. Freddie Mac also notes that loans that are non-performing in 36 months or have life of loan defects could be repurchased. The pilot program is active; accordingly, the fee structure will begin rolling out in early 2024 to targeted lenders.
New York Governor highlights NYDFS in 2024 State of the State proposal
On January 2, New York Governor Kathy Hochul revealed a proposed plan focused on consumer protection and affordability as the initial part of the Governor’s 2024 State of the State address. The plan includes changes to New York’s consumer protection laws, regulations for buy now pay later products, increased paid medical and disability leave benefits, measures to eliminate co-pays for insulin in specific insurance plans, and legislation addressing medical debt.
Changes to consumer protection laws would give the Attorney General more power to enforce the laws and help the state to address unfair and abusive business practices. Additionally, proposed legislation would require buy now pay later providers to obtain licenses and introduce regulations focusing on disclosure, dispute resolution, credit standards, fee limits, data privacy, and preventing excessive debt.
NYDFS also detailed Governor Hochul’s plan to update and broaden New York’s hospital financial assistance law to provide increased protection against medical debt. The proposed legislation aims to limit hospitals’ ability to sue low-income patients (earning less than 400 percent of the Federal Poverty Level) for medical debt and expand financial assistance programs. It also seeks to cap monthly payments and interest rates on medical debt while enhancing access to financial aid. This consumer protection and affordability plan builds on Governor Hochul and her administration’s efforts to make New York more affordable and livable.
FDIC releases November enforcement actions
On December 29, the FDIC released a list of administrative enforcement actions taken against banks and individuals in November. The FDIC made 12 orders public including, “five consent orders, three prohibition orders, two orders terminating consent orders, one order to pay a civil money penalty (CMP), and one order dismissing both a notice of assessment of CMPs and an order to pay.” Included is a stipulated order and written agreement with a Tennessee-based bank (the Bank) to resolve alleged violations of the Bank Secrecy Act (BSA) and weaknesses in board and management oversight of its information technology function. The Bank agreed to the conditions of the consent order which requires the Bank to, among other things (i) establish an action plan to correct the bank’s Anti-Money Laundering/Countering the Financing for Terrorism (AML/CFT) program deficiencies and alleged violations; (ii) retain qualified IT management; (iii) perform a cybersecurity assessment; and (iv) designate someone responsible for coordinating and monitoring day-to-day compliance with the BSA.
FTC settles with lead generator for deceiving consumers
On January 2, the FTC filed a complaint against a California-based lead generator (the “Company”), alleging that the Company operated as a “consent farm” that deceived consumers into providing their consent to be contacted for telemarketing purposes, then selling those consents to telemarketers, sellers, or intermediaries. Relying on the Company’s purported consent from consumers, those parties then inundated consumers with telemarketing calls. These calls included robocalls and calls made to telephone numbers on the National Do Not Call Registry. Since 2019, the defendants are alleged to have operated over 50 websites focused on lead generation.
The FTC charged the Company with violating the FTC Act for misrepresenting the collection of consumers’ personal information, and for violating the Telemarketing Sales Rule for assisting and facilitating telemarketers in breaking the Rule.
On the same day the complaint was filed, the FTC announced a proposed settlement in which the Company was ordered to pay $7 million for its alleged use of deception and dark patterns to trick consumers into providing personal information. Additionally, the proposed stipulated order banned the Company from initiating or helping anyone make telemarketing robocalls, calling phone numbers on the National Do Not Call Registry, and selling consumer information connected with lead generation. The stipulated order must first be approved by the court before it comes into effect. The Company neither admits nor denies any of the allegations
Fannie Mae releases notice on loan limit changes
On January 3, Fannie Mae updated its mortgage loan underwriting system, Desktop Underwriter (DU), to support changes made to FHA and VA loan limits. The update will take place during the weekend of January 20. For FHA loan casefiles submitted before the weekend of January 20, the FHA National Low Cost Area Limit amounts will be updated in DU to reflect the new values. For FHA loan casefiles submitted on or after the weekend of January 20, DU will display the 2024 FHA National Low Cost Area Limit. Fannie Mae notes that lenders are responsible for verifying the correct information when determining eligibility. For VA 2024 county loan limits, cases submitted before the weekend of January 20 will be underwritten using the 2023 VA county loan limits. All case files submitted on or after the weekend of January 20 will be underwritten using the 2024 VA county loan limits. Fannie Mae notes since the “2024 VA county loan limits will not be implemented on the date they are in effect[;] lenders are responsible for ensuring that the correct VA county loan limit is applied to all VA loans underwritten through DU from Jan. 1 to Jan. 20.”
Large bank agrees to proposed settlement agreement; to be decided in February
On November 27, 2023, a large Canadian bank agreed to pay $15.9 million to accountholders in a proposed settlement agreement stemming from a class action suit in which the bank allegedly charged improper non-sufficient fund (NSF) fees. NSF fees are charges by a financial institution when they decline to make a payment from an accountholder’s account after determining the account lacks sufficient funds. Plaintiffs alleged that from February 2, 2019, to November 27, 2023, the bank charged accountholders multiple NSF fees on a single attempted transaction. In the agreement, the bank continues to deny liability. While an agreement has been reached between the two parties, the agreement has yet to be approved by the courts. A hearing has been scheduled for February 13, 2024, in the Ontario Superior Court of Justice to approve the settlement and award the payouts. Accountholders will receive their payouts, “estimated to be in the range of approximately $88 CAD,” deposited directly to their account with the bank. Under the proposed settlement agreement, the representative plaintiff will receive an honorarium of $10,000. As previously covered by InfoBytes, the FDIC warned that supervised financial institutions that charge multiple NSF fees on re-presented unpaid transactions may face increased regulatory scrutiny and litigation risk.
INTERPOL seizes $300 million in international financial crime operation
On December 19, INTERPOL announced the conclusion of a transcontinental police operation against online financial crime called HAECHI IV. The operation ended with around 3,500 arrests and seizures of $300 million USD worth of assets across 34 countries. Of the $300 million, about two-thirds of was hard currency and one-third was virtual assets. HAECHI IV targeted seven types of cyber scams, including voice phishing, romance scams, online sextortion, investment fraud, and money laundering associated with illegal online gambling, among others. Through INTERPOL’s stop-payment mechanism to block criminal proceeds, authorities blocked 82,112 “suspicious” bank accounts. Next on INTERPOL’s radar is a new scam in Korea that involves the sale of non-fungible tokens (NFTs) that are a “rug pull,” a crypto scam where developers abandon a project and investors lose their money. Interestingly, the UK team of the operation reported on how scammers used artificial intelligence to create synthetic content, which criminals primarily used for impersonation scams.