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NYC issues new rules for debt collectors
On August 12, the New York City Department of Consumer and Worker Protection (DCWP) issued a Notice of Adoption regarding amendments to debt collection rules. According to the DCWP, the amendments, effective December 1, will enhance consumer protections and align with changes in federal regulations and industry practices.
Among other things, the amendments will include requirements for debt collectors to provide specific disclosures when collecting on time-barred debt, to maintain comprehensive records of communications, consumer complaints, and other relevant documents, and to obtain consumer consent for electronic communications and provide clear opt-out options. The amendments will also impose restrictions on the frequency and methods of communication with consumers, including the use of email and social media. There will also be enhanced procedure requirements for verifying disputed debts and responding to consumer disputes. The DCWP will also establish specific rules for collecting medical debt, such as prohibiting the reporting of medical debt to consumer reporting agencies.
The notice stated feedback was garnered from public hearings and comments from various stakeholders, including industry associations, consumer advocacy groups, and legal services organizations were reflected in the rules. The DCWP also issued Corresponding FAQs.
Bank faces class action over its overdraft fee practices
Recently, a bank customer and his business filed a class action complaint in the Stamford-Norwalk Judicial District Superior Court against a Connecticut-based bank alleging that bank engaged in unlawful business practices to maximize its fees. According to the complaint, the bank allegedly assessed $37 overdraft fees on “Authorize Positive, Settle Negative Transactions” (APSN Transactions) and accounts that were not actually overdrawn and charged multiple NSF or overdraft fees on a single item. The complaint claims the bank’s practices breached the bank’s consumer and business contracts with the plaintiffs, including the covenant of good faith and fair dealing, and violated the Connecticut Unfair Trade Practices Act.
The complaint details specific instances where the plaintiffs were charged fees they allege were improper and argues that the bank’s practices were deceptive, unfair, and designed to maximize fee revenue at the expense of customers. The complaint references numerous federal agencies and their criticisms of the practices at issue in the complaint. The plaintiffs seek to represent three classes of affected customers: (i) the APSN class; (ii) the overdraft/NSF fee on positive balance class; and (iii) the multiple NSF fee class. The plaintiffs request actual and punitive damages, restitution, pre-judgment interest and attorneys’ fees.
Veterans Affairs releases circular on new electronic system for lenders
On September 9, the U.S. Department of Veterans Affairs (VA) released Circular 26-24-18 announcing the launch of the new Program Participant Management (PPM) system for lenders beginning October 7. The PPM system will replace the current mail-based process and allow lenders to submit and track applications electronically. It will also manage payment accounts for lender maintenance fees and update employment information for underwriters and staff appraisal reviewers. The new system aims to centralize and simplify lender interactions with the VA and improve efficiency for lenders working with the loan guaranty program. Lenders must register for the new system and designate at least one VA relationship manager to manage their information within the system.
The VA plans to release training videos and user guides to help lenders transition to the new system. These materials will be available on the VA’s training website, and lenders are encouraged to enroll in the GovDelivery notifications for updates.
FTC provides annual debt collection activities to CFPB in letter
On September 5, the FTC published a letter to the CFPB on the Commission’s annual summary of debt collection activities in 2023. Addressed to CFPB Director Rohit Chopra, the report aimed to assist the Bureau in preparing its annual report to Congress on implementing the FDCPA.
The letter began by detailing the FTC’s enforcement activities and rulemaking efforts, which included: (i) enforcement actions against small business debt collectors alleging unfair and deceptive debt collection practices; and (ii) actions to prevent the collection of illegal student debt as income-share agreements not compliant with applicable law. The letter also highlighted the FTC’s efforts against certain activities that add to consumers’ debt burden; (i) actions to combat “dark patterns” that prevent consumers from canceling subscriptions by making the cancellation process confusing and misleading; (ii) the proposal of the CARS Rule to ban bait-and-switch tactics and hidden junk fees assessed to customers financing the purchase of a vehicle; and (iii) the proposal of a rule to ban hidden and misleading fees in routine transactions, including booking hotels, buying concert tickets, renting apartments, and paying utility bills (covered by InfoBytes here).
The report also emphasized the FTC’s public outreach and cross-agency coordination, including efforts to coordinate with the CFPB and other law enforcement agencies to pursue consumer protection efforts.
Court approves final settlement in class action against credit union alleging discriminatory loan denial based on DACA status
On August 15, the U.S. District Court for the Northern District of California, issued a final order approving settlement of a loan discrimination class action against a credit union, entering final judgment and ordering dismissal pursuant to the settlement. In this case, the plaintiff claimed that she and other class members experienced discrimination on the basis of immigration status after attempting to finance the purchase of her vehicle with the defendant credit union. According to the complaint, the plaintiff’s auto loan application was denied after disclosing her status as a DACA recipient to a representative of the defendant. The plaintiff alleged that the representative communicated that the defendant does “not lend on DACA status.” In a previous motion to dismiss, the credit union had argued the ECOA and Regulation B allow creditors to consider immigration and residency status in creditworthiness and repayment analyses. The District Court, however, disagreed with the defendant, denying the motion to dismiss, and holding that “Regulation B does not allow a creditor to decline credit solely on the basis of residency or immigration status.”
The approved settlement established an $86,750 settlement fund to be distributed to the 95 members of two settlement classes (a California class and a national class). The settlement provided that each California class member will receive $2,500 from the settlement fund, while other national class members will receive $250 each. The approved settlement will also require the credit union to implement corrective action to ensure that it does not deny consumer credit applications based solely on immigration status.
Several consumer advocacy groups urge presidential candidates to continue CFPB’s work on “junk fees”
On August 15, a coalition of community, civil rights, consumer, and advocacy organizations released a letter urging both presidential candidates to support the CFPB’s ongoing efforts to combat “junk fees.” In a letter addressed to Vice President Harris and former President Trump, the groups emphasized the need for enforcement action and continued regulation of credit card fees, overdraft fees, non-sufficient funds fees and other similar types of fees. The letter highlighted how these fees may affect lower-wage workers, people of color, and small businesses disproportionately and claimed they discourage consumers from obtaining “mainstream” financial products, redirecting them into costlier “fringe” and “predatory” financial services.
The groups argued that such fees caused consumers to fall into debt cycles and accentuated that regulation would help curb these practices. The letter claimed that the CFPB’s actions are “overwhelmingly supported by the public” and called for any future administration to prioritize an economic agenda addressing these alleged financial harms. Specifically, the groups expressed support for an economic justice agenda that would prioritize consumer financial stability and support the CFPB’s role.
CFPB granted default judgment against auto loan servicer
On August 28, the U.S. District Court for the Northern District of Georgia entered an order and opinion granting the CFPB a default judgment in a case against an auto loan servicer (the defendant).
The CFPB alleged the defendant engaged in several unfair and deceptive practices in violation of the CFPA, including wrongful activation of starter-interruption devices (SIDs), mishandling Guaranteed Asset Protection (GAP) premiums, double billing for collateral-protection insurance, misapplying consumer payments, and wrongful repossessions. The defendant filed for Chapter 7 bankruptcy not long after the CFPB filed its complaint, and the courts merged this case with other affiliated debtors. Although the defendant requested a stay pending its bankruptcy filing, the court found that the CFPB’s enforcement action fell under the “police power” exception from the automatic stay, allowing the case to proceed. The court also granted the CFPB’s motion for default judgment regarding liability, finding that the defendant’s practices “caused substantial injury to consumers, which was not reasonably avoidable.” The court agreed to issue injunctive relief to prevent future violations of the CFPA, which was requested by the CFPB.
The CFPB sought restitution for unearned GAP premiums, damages for wrongful SID activations and repossessions, and a civil monetary penalty. The court, however, found the CFPB’s damage estimates flawed and directed the CFPB to supplement its calculations with more expert evidence. On timing, the court directed the Bureau to provide additional evidence within 35 days to support its damages claims. The court granted the motion regarding liability and injunctive relief, and it will require additional information concerning damages.
Fannie and Freddie announce tenant protection policy framework
On August 28, Fannie Mae and Freddie Mac (GSEs) each published a multifamily tenant protection policy framework to require minimum lease standards at multifamily properties financed by new enterprise-backed loans. Introduced by the FHFA in July, the policies will take effect in February 2025 and will include (i) a five-day grace period for rent payments, (ii) a 30-day notice for rent increases, and (iii) a 30-day notice of lease expirations.
According to Freddie Mac’s announcement, the GSEs collaborated with the FHFA to review state landlord-tenant laws and engaged stakeholders to identify best practices. Findings from Freddie Mac’s National Survey of Tenant Protections were also considered. Additionally, the GSEs published FAQs related to the standards and an initial policy grid or policy framework that outlined their policy, applicability, updates to loan documents, implementation requirements for borrowers, and monitoring and enforcement details.
CFPB orders mortgage servicer to pay after violating 2017 order
On August 21, the CFPB announced an administrative proceeding against a residential mortgage servicer (the respondent) for allegedly taking foreclosure actions against borrowers and preventing borrowers from leveraging foreclosure relief options. As previously covered by InfoBytes, the CFPB issued a 2017 consent order to resolve allegations that the respondent failed to provide mortgage borrowers with the required protections against foreclosures, among other things.
According to the 2024 consent order, the respondent failed to implement proper loss mitigation practices and therefore engaged in improper foreclosure activities. Specifically, the respondent allegedly took up to five days to review loss mitigation applications and decide whether the documents made the application complete before placing a foreclosure hold, then placed foreclosure holds retroactively which resulted in prohibited foreclosure activities. The CPFB stated such actions during that up-to five-day period violated Regulation X, 12 C.F.R. § 1024.41(f)(2) or (g).
Other allegations included (i) a violation of the 2017 order and RESPA’s Regulation X due to respondent advancing the foreclosure process improperly for certain borrowers, (ii) failing to terminate borrower-paid private mortgage insurance (PMI) in a timely manner and disbursing PMI premiums from escrow accounts incorrectly, failing to comply with the Homeowners Protection Act and Regulation X, and (iii) assessing late fees that were inconsistent with the terms of borrowers’ promissory notes, in violation of TILA’s Regulation Z. Additionally, respondent’s policies and procedures allegedly were not reasonably designed to ensure compliance with federal regulations and the 2017 order.
As part of the consent order, the respondent agreed to pay a civil money penalty of $2 million and providing $3 million in restitution to affected consumers. The respondent also agreed to invest at least $2 million to update its servicing technology and compliance management systems, establish a Compliance Committee of the Board, which must meet monthly, and engage an independent third-party auditor to conduct an annual comprehensive review and audit of respondent’s compliance with the consent order for the next five years. The order also put compensation limits on Edward Fay, the company’s Chairman of the Board and Chief Executive Officer CEO, if Mr. Fay does not take the necessary actions to comply with the order.
CFPB releases beta platform for small business lending data filing platform
On August 27, the CFPB launched a beta platform for the small business lending data collection rule under Section 1071 of the Dodd-Frank Act. Financial institutions and their technology Participants can upload sample data test files to test the platform, explore its features and provide feedback. The beta platform is for testing purposes only, and data submitted will not count towards compliance with small business lending data reporting requirements. Test files are available in the CFPB’s repository. Finally, the Bureau states that it is imperative that participants avoid using actual customer data.