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District Court denies dismissal of RESPA "dual-tracking" suit
On November 1, the U.S. District Court for the Northern District of Ohio declined to grant summary judgment in favor of a mortgage servicer defendant in a Regulation X, RESPA, and Ohio Residential Mortgage Lending Act (RMLA) suit against the mortgage servicer and a law firm (collectively, “defendants”). The case concerned a loan modification that plaintiff had allegedly sought from defendants, for which the defendant mortgage servicer ultimately denied, and the defendant law firm initiated a foreclosure action. The defendant mortgage servicer challenged the count in the complaint alleging that the defendant mortgage servicer’s moving for summary judgment in the state foreclosure action violated Regulation X and RESPA’s prohibition on dual tracking. Dual tracking “occurs when a lender ‘actively pursues foreclosure while simultaneously considering the borrower for loss mitigation options.’” The defendant mortgage servicer argued that the prohibition on moving for summary judgment found in Regulation X did not apply because the plaintiff rejected the loan modification. The defendant mortgage servicer based this argument on the fact that it did not receive the plaintiff’s executed modification by a certain date. Because of this, the defendant mortgage servicer argued that it was permitted to move forward with a foreclosure judgment, and its decision to reverse the denial of the modification was at its discretion and not subject to the requirements of 12 C.F.R.1024.41(g).
The court found, however, that there was a genuine dispute as to whether the plaintiff returned the loan modification agreement by the designated date. The court continued, “[the defendant mortgage servicer’s] explanation regarding all three of the exceptions found at §41(g) subsections (1) through (3) each expressly depend upon the factual assertion that [the plaintiff] did not return a signed modification agreement and thereby rejected same. Inasmuch as there is evidence that [the plaintiff] did so, the court cannot conclude that [the defendant mortgage servicer] is entitled to judgment as a matter of law regarding the exceptions in §41(g) of Regulation X.” Among other things, the court also found that the defendant mortgage servicer “failed to act with reasonable care and diligence, in good faith, to safeguard and account for money tendered by [the plaintiff].” The court concluded by finding that the plaintiff sufficiently identified plausible damages as a result of a RESPA violation, further permitting her claims to stand.
Tech company to pay $391.5 million to resolve data tracking allegations
On November 10, forty states and a multinational technology company reached a $391.5 million settlement resolving allegations that the company tracked users’ locations even after they believed the feature was turned off. According to the assurance of voluntary compliance, the company allegedly misrepresented and omitted, among other things, material information regarding the location history and web and app activity settings, which “confused users about how location information would be captured, stored, and used without users’ knowledge or consent.” Additionally, the company allegedly used deceptive and unfair practices in a setting “that purports to allow users to opt out of personalized advertising and allows users to ‘control’ [the company’s] use of their location information.” The company agreed to, among other things: (i) “issue a pop-up notification to users who have location history or web & app activity enabled at the time of the notification”; (ii) “send an email to users who have location history or web & app activity enabled at the time of the notification”; and (iii) design and present a location technologies page “in a clear and conspicuous disclosure.”
OCC senior deputy comptroller discusses fair lending
On November 14, Senior Deputy Comptroller for Bank Supervision Policy Grovetta Gardineer delivered remarks on behalf of acting Comptroller Michael J. Hsu before the CRA & Fair Lending Colloquium to discuss the agency’s ongoing efforts to ensure its regulated institutions provide fair and equitable credit services. Among other topics, Gardineer mentioned the agency’s initiatives to identify and address discriminatory lending practices, including addressing fair lending in advanced analytics and reducing barriers to financial inclusion. Noting that the banking industry has evolved “rapidly,” Gardineer stated that the OCC has “remained focused on the solid foundation of our mission,” and identified “three strategic goals: (1) agility and learning; (2) credibility and trust; and (3) leadership in supervision.”
She also said that the OCC is enhancing its risk-based supervisory approach by, among other things, “[r]ecognizing our strategic goal for ‘agility and learning,’” and by “conducting fair lending risk assessments during every supervisory cycle for each bank that engages in retail lending.” Regarding the agency’s efforts to reduce inequality in banking, Gardineer stated that the OCC has taken an active role on the Interagency Task Force on Property Appraisal and Valuation Equity, or PAVE, which is an initiative to evaluate the causes, extent, and consequences of appraisal bias. As previously covered by InfoBytes in March, the thirteen member agencies and offices of the PAVE Task Force came together in an extraordinary interagency effort to issue the Action Plan to Advance Property Appraisal and Valuation Equity, which represents “the most wide-ranging set of reforms ever put forward to advance equity in the home appraisal process.”
Gardineer also disclosed that the OCC is developing other internal measures to enhance credibility and trust, including measures to “improv[e] supervisory methods for identifying potential discrimination in property valuations.” In regard to addressing fair lending in advanced analytics, Gardineer warned that “the growing use of advanced analytics such as artificial intelligence or machine learning offers both the opportunity to help reduce inequality and to address safety, soundness, and fairness risks,” and emphasized that the agency “supports fair, ethical, responsible, and transparent adoption of advanced analytics, including artificial intelligence and machine learning, in the financial sector.”
In terms of the future, she highlighted that “the OCC is focused on strengthening our supervision processes and resources devoted to compliance with fair lending laws, while enhancing our ability to remain agile and successfully execute our mission to ensure that national banks and federal savings associations operate in a safe and sound manner, provide fair access to financial services, treat customers fairly, and comply with applicable laws and regulations..”
Biden nominates Gruenberg for FDIC chair
On November 14, President Biden announced his intention to nominate Martin Gruenberg to serve as chair and member of the FDIC Board of Directors. Following the resignation of the FDIC’s former chair, Jelena McWilliams (covered by InfoBytes here), Gruenberg has been acting chairman. Since joining the FDIC Board of Directors in 2005, Gruenberg has served as vice chairman, chairman, and acting chairman. Prior to joining the FDIC, Gruenberg served on the staff of the Senate Banking Housing and Urban Affairs Committee as Senior Counsel of the full Committee, and as staff director of the Subcommittee on International Finance and Monetary Policy.
CSBS President and CEO James M. Cooper issued a statement following the announcement: “Today’s announcement from the White House means that none of the nominees to the FDIC Board will meet the requirement for state bank supervisory experience. This requirement is not only the law but also a great benefit for consumers and the banking sector when the dual-banking system is fully represented on the FDIC Board. We encourage Senators, in their role in the confirmation process, to ask nominees how they will work with state bank regulators to benefit from their experience sitting closer to citizens and local economies.”
OCC announces Tropical Storm Nicole disaster relief
On November 9, the OCC issued a proclamation permitting OCC-regulated institutions, at their discretion, to close offices affected by Tropical Storm Nicole in Florida, Georgia, North Carolina, and South Carolina “for as long as deemed necessary for bank operation or public safety.” The proclamation directs institutions to OCC Bulletin 2012-28 for further guidance on actions they should take in response to natural disasters and other emergency conditions. According to the OCC, only bank offices directly affected by potentially unsafe conditions should close, and institutions should make every effort to reopen as quickly as possible to address customers’ banking needs.
District Court approves payday settlement
On November 10, the U.S. District Court for the Southern District of Mississippi issued a final settlement order resolving allegations that a Mississippi-based payday lender violated the CFPA in connection with check cashing services and small dollar loans. As previously covered by InfoBytes, the CFPB filed a complaint against two Mississippi-based payday loan and check cashing companies for allegedly violating the CFPA’s prohibition on unfair, deceptive, or abusive acts or practices.
In March 2018, a district court denied the payday lenders’ motion for judgment on the pleadings, rejecting the argument that the Bureau's structure unconstitutional and that the agency’s claims violate due process. The U.S. Court of Appeals for the Fifth Circuit agreed to hear an interlocutory appeal on the constitutionality question, and, prior to the U.S. Supreme Court’s ruling in Seila Law LLC v. CFPB, a divided panel held that the CFPB’s single-director structure is constitutional, finding no constitutional defect with allowing the director of the Bureau to only be fired for cause (covered by InfoBytes here). The order noted that the 5th Circuit voted sua sponte to rehear the case en banc and issued an opinion in which the majority vacated the district court’s opinion as contrary to Seila Law. The majority did not, however, direct the district court to enter judgment against the Bureau because, though the Supreme Court had found that the director’s for-cause removal provision was unconstitutional, it was severable from the statute establishing the Bureau (covered by a Buckley Special Alert). The majority determined that the “time has arrived for the district court to proceed” and stated it “place[s] no limitation on the matters that that court may consider, including, without limitation, any other constitutional challenges.”
According to the settlement, the owner and president of the company must pay a civil money penalty of $899,350 to the Bureau “by reason of the [UDAAP violations] alleged in the Complaint.” However, the order further noted that the amount is remitted by $889,350 because he paid “that amount in fines to the Mississippi Department of Banking and Consumer Finance.” The district court also entered a separate order dismissing the lawsuit with prejudice.
8th Circuit pauses student debt relief program
On November 14, the U.S. Court of Appeals for the Eighth Circuit granted an emergency motion for injunction pending appeal filed by state attorneys general from Nebraska, Missouri, Arkansas, Iowa, Kansas, and South Carolina to temporarily prohibit the Secretary of Education from discharging any federal loans under the agency’s student debt relief plan (announced in August and covered by InfoBytes here). Earlier in October, the 8th Circuit issued an order granting an emergency motion filed by the states, which requested an administrative stay prohibiting the discharge of any student loan debt under the cancellation plan until the appellate court had issued a decision on the states’ motion for an injunction pending an appeal. (Covered by InfoBytes here.) The October order followed a ruling issued by the U.S. District Court for the Eastern District of Missouri, which dismissed the states’ action for lack of Article III standing after concluding that the states—which attempted “to assert a threat of imminent harm in the form of lost tax revenue in the future”— failed to establish imminent and non-speculative harm sufficient to confer standing.
In granting the emergency motion, the appellate court disagreed with the district court’s assertion that the states lacked standing. The 8th Circuit reviewed whether the state of Missouri could rely on any harm the Missouri Higher Education Loan Authority (MOHELA) might suffer as a result of the Department of Education’s cancellation plan. The appellate court found that the relationship between MOHELA and the state is relevant to the standing analysis, especially as Missouri law specifically directs MOHELA (which receives revenue from the student loan accounts it services) to distribute $350 million into the state’s treasury. As such, “MOHELA may well be an arm of the State of Missouri” under this reasoning, the appellate court wrote, adding that several district courts have concluded that MOHELA is an arm of the state. However, regardless of whether MOHELA is an arm of the state, the resulting financial impact due to the cancellation plan would, among other things, affect the state’s ability to fund public higher education institutions, the 8th Circuit noted. “Consequently, we conclude Missouri has shown a likely injury in fact that is concrete and particularized, and which is actual or imminent, traceable to the challenged action of the Secretary, and redressable by a favorable decision,” the appellate court wrote, adding that since one party likely has standing it does not need to address the standing of the other states. The appellate court also determined that “the equities strongly favor an injunction considering the irreversible impact the Secretary’s debt forgiveness action would have as compared to the lack of harm an injunction would presently impose.” The 8th Circuit explained that it considered several criteria, including the fact that the collection of student loan payments and the accrual of interest have both been suspended. The Missouri attorney general released a statement applauding the 8th Circuit’s decision.
The 8th Circuit’s decision follows a recent ruling issued by the U.S. District Court for the Northern District of Texas, which found that the student loan forgiveness program is “an unconstitutional exercise of Congress’s legislative power.” (Covered by InfoBytes here.)
CFPB finalizes nonbank supervisory rule
On November 10, the CFPB announced a final rule finalizing changes to a nonbank supervision procedural rule issued in April. As previously covered by InfoBytes, the Bureau announced earlier this year that it was invoking a “dormant authority” under the Dodd-Frank Act to conduct supervisory examinations of fintech firms and other nonbank financial services providers based upon a determination of risk. Specifically, the Bureau said it intends to use a provision under Section 1024 of Dodd-Frank that allows it to examine nonbank financial entities, upon notice and an opportunity to respond, if it has “reasonable cause” to determine that consumer harm is possible. Concurrently, the Bureau issued a request for public comment on an updated version of a procedural rule that implements its statutory authority to supervise nonbanks “whose activities the CFPB has reasonable cause to determine pose risks to consumers,” including potentially unfair, deceptive, or abusive acts or practices. Provisions outlined in the procedural rule would exempt final decisions and orders by the Bureau director from being considered confidential supervisory information, thus allowing the Bureau to publish the decisions on its website. Subject companies would be given an opportunity seven days after a final decision is issued to provide input on what information, if any, should be publicly released, the Bureau said.
After reviewing public comments received on the procedural rule, the Bureau incorporated certain changes to clarify the standard that the agency will apply when deciding what information is appropriate for public release, in whole or in part. The Bureau explained that information falling within Freedom of Information Act Exemptions 4 and 6 (which protect confidential commercial information and personal privacy) will not be published. Additionally, the Bureau said it may also choose to withhold information if the director determines there is other good cause to do so. The final rule also extends the deadline from seven to ten business days for nonbanks to submit input about what information should be released. The final rule will take effect upon publication in the Federal Register.
Notably, the Bureau emphasized that the “amended procedures only relate to the initial decision to extend supervision to a nonbank entity” and “do not affect the confidentiality of any ensuing supervisory examination or any other aspect of the supervisory process.”
Fed releases Supervision and Regulation Report
Recently, the Federal Reserve Board released its Supervision and Regulation Report, which summarizes banking system conditions and the Fed’s supervisory and regulatory activities. The current report noted that even though the “vast majority of firms maintained capital above regulatory minimums,” and loan delinquencies were historically low with liquidity levels generally remaining high, increasing economic uncertainty “may create new risks for firms to manage.” In response, firms increased credit loss provisions during the first half of 2022 and started taking measures to prepare for weaker economic conditions. The report also revealed that while the financial condition of large banks generally remains sound, firms should take steps to ensure their stress analyses, liquidity, and capital positions are able to adjust to developing market conditions. The report also highlighted recent regulatory actions, including supervisory guidance issued in August for banks seeking to engage in crypto-asset-related activities (covered by InfoBytes here). The Fed commented that it will continue to work with the OCC and FDIC on crypto-asset-related policy initiatives. The report also discussed operational risks related to the transition from LIBOR to an alternative interest rate benchmark and measures to address climate change implications for banks.
California appellate court affirms arbitration denial
On November 8, the Sixth Appellate District Court in the Court of Appeal in California affirmed a lower court’s decision denying a defendant collection agency’s motion to compel arbitration in a California Rosenthal Fair Debt Collection Practices Act (RFDCPA) suit. According to the order, the defendant was hired to collect unpaid credit card debt from the plaintiff on behalf of a creditor. The plaintiff asserted that the defendant “engaged in a routine practice of sending initial communications that failed to provide notice as required by Civil Code section 1788.14, subdivision (d)(2), which governs attempts to collect ‘time-barred’ debts—those that are ‘past the date of obsolescence set forth in Section 605(a) of the federal Fair Credit Reporting Act.’” The defendant filed a motion to compel arbitration, submitting two cardholder agreements produced by the original creditor that did not reference the plaintiff’s name, account number, or the plaintiff’s signature. The plaintiff opposed the motion, arguing that the defendant failed to link the plaintiff to the “generic documents” and denied ever seeing or receiving the agreements before. The trial court ruled the documents were not admissible because there was no evidence that they were ever sent to the plaintiff. The trial court concluded that failing to show evidence of mutual assent, the defendant “could not show that the card agreements were enforceable binding arbitration agreements, and thus it denied the motion to compel arbitration.” The defendant appealed.
The appellate court noted that while the custodian of records for the original creditor declared that the agreements submitted by the defendant were linked to the plaintiff’s account, the custodian did not declare how or if the agreements were provided to the plaintiff for his review and acceptance. The appellate court further found that since the plaintiff declared that he never received the agreements, the burden to prove the existence of a valid arbitration agreement shifted back to the defendant.