InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
CFPB issues order against veterans’ mortgage originator, fines it $2.25M
On August 29, the CFPB released a consent order and stipulation against a national mortgage originator for alleged deceptive acts under the CFPA. The CFPB found the respondent misrepresented certain payment terms on a specific worksheet in three states during closings. The worksheet, called the borrower “net benefit” worksheet, accompanied closings on VA cash-out refinance loans. It allegedly misstated how a consumer’s “previous” monthly mortgage payment would compare to a “new” monthly mortgage payment after refinancing with the respondent. Specifically, only principal and interest payments were included in the “new loan payment amount,” making the loans appear less expensive by omitting taxes and insurance from the “new loan payment” calculations. The misstatements were provided to borrowers in North Carolina and Maine through 2020 and in Minnesota through 2018, affecting at least 3,000 cash-out refinances.
As part of the consent order, the company agreed to pay a $2.25 million civil money penalty and to implement a comprehensive compliance plan within 30 days. The plan must ensure that the company’s mortgage lending activities comply with all applicable laws and the terms of the consent order. The company’s executive officers must oversee compliance and submit a written progress report to the Bureau one year after the order’s effective date. Specifically, the consent order will require the company to retain specific business records, sales scripts, training materials, consumer complaints, and to avail these documents to the Bureau upon request. The order will remain in effect for five years, during which the company must provide a copy of the consent order to any persons with responsibilities related to its subject matter. The Bureau may impose additional penalties if the company violates the terms of the consent order. The company neither admitted nor denied any of the CFPB’s findings.
Group of passive securitization trusts filed petition for certiorari with U.S. Supreme Court on CFPB enforcement remedies
On August 16, a group of passive securitization trusts formed between 2001 and 2007 (the petitioners or trusts) petitioned the U.S. Supreme Court for a writ of certiorari to hear its case against the CFPB on the “unaccountable exercise of executive power to target individual companies.” In their cert petition, the petitioners posed two questions: one on whether enforcement actions should be dismissed based on unconstitutional agency structures; and the other on whether securitization vehicles are covered persons under the CFPA. Specifically, the two questions presented were:
- “When should an enforcement action that is insulated by an agency head unconstitutionally insulated from removal be dismissed to remedy that separation-of-powers violation?
- “Whether passive securitization vehicles used to acquire and pool consumer loans are ‘covered persons’ because they ‘engage in offering or providing a consumer financial product or service’ under the CFPA.”
As background, in September 2014, the CFPB issued a civil investigative demand (CID) to each petitioner seeking information on collections lawsuits brought against student loan borrowers. Three years later, the CFPB brought an enforcement action against the petitioner, ultimately moving for a proposed consent judgment following an agreed upon settlement. The district court, however, denied the proposed consent judgment. The case was initially dismissed following the Supreme Court’s decision in Seila Law LLC v. CFPB, which held that the CFPA’s restrictions on removing the CFPB director were unconstitutional (covered by Orrick Insights here). The CFPB then filed the operative complaint alleging both that the trusts were “covered persons” under the CFPA and that the trusts had violated the CFPA. The district court declined to dismiss the amended complaint, finding both that the trusts were “covered persons” under the CFPA and that an unconstitutional removal restriction does not invalidate agency action taken by a properly appointed agency head, relying on the Supreme Court’s decision in Collins v. Yellen. The appellate court affirmed both holdings, finding that the trusts were “covered persons” and that the trusts were not entitled to relief for actions taken by the CFPB while its director was unconstitutionally insulated from removal.
The petitioners argue that a grant of certiorari is appropriate because lower courts are divided on the interpretation of Collins v. Yellen as to the remedies available to targets of enforcement actions brought by an agency with constitutionally subject removal provisions. Additionally, the petitioners argue that the lower court’s interpretation of the CFPA is incorrect and threatens the stability of securitization markets, justifying a grant of certiorari.
CFPB proposes $3M fine in settlement with credit repair software company and CEO
On August 8, the CFPB proposed a stipulated final judgment and order to the U.S. District Court for the Central District of California against a credit repair software company. If approved by the District Court, this order would settle the CFPB’s allegations that a software company and its CEO violated the Telemarketing Sales Rule (TSR), the CFPA and approve a fine $1 million for the company and $2 million for the CEO — as well as enjoin them from future actions. In a complaint previously covered by InfoBytes, the CFPB found the defendants provided credit repair tools and services to businesses who offered these credit repair services to consumers; the CFPB alleged the defendants provided substantial assistance to their customers and violated the TSR and charged advance fees for credit repair services. An advance fee includes any fees charged to a customer enrolled in a credit repair service, monthly fees, or fees charged following removal from a consumer’s credit report. Credit repair services remove derogatory information from a person’s credit history.
The Bureau now seeks to permanently restrain the defendants from assisting anyone knowingly using telemarketing for credit repair services and charging advance fees for those services. It also seeks to enjoin the defendants from violating the TSR related to offering credit repair services. Additionally, the CFPB asked the court for several screening updates to identify suspect companies preemptively, among other compliance duties. The Bureau and the defendants have agreed to this order, which now awaits approval by the District Court. The defendants neither admitted nor denied the allegations in the complaint.
Lease-to-own business files complaint against CFPB’s investigation
On July 22, a lease-to-own company (plaintiff) filed a complaint against the CFPB in the U.S. District Court for the Eastern District of Texas to seek declaratory judgment and injunctive relief to halt the CFPB’s ongoing investigation and pending litigation related to the company’s business. The plaintiff has offered short-term renewable lease solutions to consumers via Rental Purchase Agreements (RPA) for over a decade that allow consumers to take possession of household merchandise and other goods, such as furniture, appliances, and computers, that they would otherwise be unlikely to afford. Lease-to-own transactions have been regulated at the state level for decades and were recognized as distinct from credit transactions, given that the RPAs do not involve a loan of money or a requirement to repay. The RPAs clearly stated that the underlying transaction was “not a loan or a credit transaction.”
The CFPB, after almost four years of investigation incurring “substantial legal fees,” appeared to have taken the position that these transactions were credit transactions subject to consumer financial regulatory laws, including the CFPA, TILA, and the EFTA, to regulate lease-to-own transactions under federal law. The plaintiffs have countered that this equated to “regulatory overreach” for three reasons: (i) the plain language of the CFPA, TILA, and the EFTA were clear in that they do not extend to lease-to-own transactions; (ii) regulation of the lend-to-own industry rests with the states and the federal government has declined to pass its own form of legislation addressing regulation of the same; and (iii) the courts rather than the CFPB as a federal agency must decide whether the statutes permit the CFPB to assert its regulatory power following the Loper Bright ruling. The plaintiff also asserted that the CFPB’s “aggressive and illegitimate” investigation of the plaintiff’s lend-to-lease business was unconstitutional in that it (a) violated due process rights for failure to provide fair notice of federal regulation and (b) stemmed from the funding of the Bureau that was unconstitutional.
The complaint alleged that the CFPB proposed a settlement agreement that the company has deemed “impossible” to accept that subsequent efforts by the company to reach agreeable terms and schedule a settlement meeting have been rejected by the CFPB, and that the Bureau was preparing to file a lawsuit against the company. The plaintiffs sought declaratory relief in that the CFPB investigation has exceeded its statutory authority and that the CFPB’s investigation was unconstitutional.
CFPB sues lease-to-own business
On July 26, the CFPB disclosed a federal lawsuit against a point-of-sale financing company, its subsidiary, and its CEO, alleging multiple counts of consumer finance fraud under the CFPA, TILA, the EFTA, and the FCRA related to the company’s “virtual rent-to-own” product from 2015. This product enabled the identified companies to purchase household goods selected by consumers and then “lease” the goods to consumers through a 12-month term.
The CFPB alleged 19 counts against the company. The first nine counts alleged the companies violated the CFPA by using misleading phrases to advertise its “90 days same as cash” financing, deceptively representing that consumer contracts required the maintenance of “autopay,” unfairly obstructing consumers’ ability to revoke autopay authorizations, misrepresenting consumers’ ability to return goods and the means to do so, creating unfair barriers to returns, providing deceptive statements to and failing to train merchant partners, interfering materially with consumers’ ability to understand the terms of their agreements through a mobile application, misrepresenting the product as credit, and alleging the companies’ CEO assisted in carrying out the aforementioned activities.
The CFPB’s other allegations against the companies involved claims under TILA and Regulation Z (and, by extension, the CFPA) for failing to provide required disclosures in connection with their agreements. The CFPB also alleged that the companies violated the EFTA and Regulation E for impermissibly extending credit on consumers’ repayments and then again violating the CFPA. Moreover, the CFPB claimed the companies violated the FCRA and Regulation V for failing to implement written policies regarding customer information and violated the FCRA, furnishing inaccurate information, failing to conduct reasonable investigations, failing to notify consumers with furnished negative information, and unlawfully obtaining prescreened lists.
The CFPB has requested that the district court, among other things, enjoin the companies permanently from committing future violations, award damages and restitution to consumers, and award civil money penalties to the Bureau.
CFPB circular warns against unlawful NDAs
On July 24, the CFPB issued a circular to law enforcement agencies and regulators clarifying that overly broad confidentiality agreements required by certain employers may violate Section 1057 of the CFPA, which protects whistleblowers. Nondisclosure agreements can violate the CFPA if they discourage employees from reporting suspected financial law violations to governmental authorities or participating in investigations. The Occupational Safety and Health Administration (OSHA) was highlighted as the key entity responsible for addressing retaliation claims under various federal laws, including the CFPA.
The CFPB’s analysis in the circular suggested that confidentiality agreements, when broadly worded and leading individuals to believe that communication with law enforcement regarding potential violations of law would constitute a breach of the agreement, may be seen as a threat of retaliation against whistleblowers, which is prohibited under Section 1057 of the CFPA. Such agreements may imply legal action or job termination for employees who breach confidentiality to report legitimate legal violations.
The circular referenced other regulatory bodies, including the SEC and CFTC, which have acted against companies using confidentiality agreements that obstruct reporting to government agencies. The CFPB advised that the risk of violating whistleblower protections should be reduced. Employers should ensure confidentiality agreements allow free communication with government enforcement agencies and cooperation in government investigations.
CFPB bans two companies for reverse mortgage servicing violations
On June 18, the CFPB issued an order against two reverse mortgage servicing companies (along with certain affiliates and subsidiaries), after determining that the companies misrepresented loan defaults and failed to respond appropriately to borrower communications to effectively service their reverse mortgages, leading to unnecessary costs and foreclosure fears for borrowers. Specifically, the CFPB alleged the companies failed to respond to borrower communications – including requests for information and payoff statements – in violation of RESPA. The companies also sent false repayment letters to older adult homeowners stating that their reverse mortgage loans were due and must be paid within 30 days due to a default, when no such trigger event had occurred. Further, the companies allegedly had inadequate resources and staffing to handle as many as 150,000 borrowers, leading to systematic regulatory failures.
Both companies were ordered to permanently cease reverse mortgage servicing activities and pay a civil money penalty (although for one company, the civil money penalty was $1 due to an inability to pay). The other company was ordered to pay over $11 million in consumer redress and $5 million in civil money penalties.
CFPB sues student loan servicer over discharged student loan collections
On May 31, the CFPB announced its lawsuit against a Pennsylvania-based student loan servicer (the defendant) for allegedly collecting on discharged loans. According to the complaint, the defendant lacked policies and procedures for identifying serviced loans that were discharged by bankruptcy courts. The CFPB alleged that the defendant continued to collect on discharged non-qualified education loans by making misrepresentations to consumers through repayment schedule letters and billing statements. Furthermore, the Bureau alleged that the defendant’s failure to establish policies for private student loans that were discharged resulted in its furnishing inaccurate information to consumer reporting agencies. The Bureau added that even if consumers did not continue to pay on their discharged loans, they were not reasonably able to avoid the defendant’s collection attempts and the credit information it furnished. The CFPB also claimed that consumers were unable to protect their interests because they could not choose their loan servicer and had no control over its collection practices. The defendant’s actions were in violation of the CFPA based on several violation of Regulation V. The defendant allegedly violated the FCRA, too. The Bureau sought injunctive relief, consumer redress, a civil money penalty, and other relief.
CFPB orders debt relief servicer to pay $400,000 for charging advanced fees
On May 20, the CFPB released its consent order and stipulation against a debt relief provider for alleged deceptive acts and practices in violation of the CFPA and for alleged deceptive telemarketing practices and collection of advance fees in violation of the Telemarketing Sales Rule (TSR). The CFPB alleged the violations began in January 2016 and ordered a civil money penalty of $400,000. Specifically, the CFPB found the company harmed 5,970 consumers with student loans in the amount of a total of $974,590 in at least three ways: (1) by charging advance fees of $99 to $199 for debt relief services in violation of the TSR, regardless of success in loan relief; (2) by misrepresenting that the fees would be applied to student loans when they were not often used to pay off the student loans; and (3) by misleading consumers that would consolidate student loans, lower monthly payments, and achieve loan forgiveness – especially when the company did not fulfill any of these claims in many instances.
The Bureau nullified all agreements relating to the company’s debt relief services between a consumer and the debt relief company. The Bureau also ordered the company to cease fee collections or attempts and permanently restrained the company from advertising or marketing its debt relief services or receiving any consideration from holding an ownership interest in, providing services to, or working in any capacity for any person engaged in or assisting others in the advertising, marketing, promoting, offering for sale, or selling debt relief services. If the company failed to disclose any material asset or if any sworn statements contain any material representation or omission, the Bureau will require an additional $5 million fine. The company neither admitted nor denied these findings.
CFPB sues online lending platform for alleged CFPA, FCRA violations
On May 17, the CFPB announced a lawsuit against an online lending platform through which consumers could obtain small-dollar, short-term loans through a brokering arrangement with lenders. The CFPB alleged the platform violated the CFPA through its deceptive advertisements to consumers on the platform’s alleged promotion of financing terms which included “no interest,” “0% APR,” or “0% interest” but instead invited consumers to provide “tips” and “donations” to lenders, which, would increase the likelihood of a loan being funded. The CFPB further alleged that while the platform marketed zero-interest loans, the platform did not provide users an option for a $0 donation fee or to skip the fee altogether. The Bureau claimed, “almost all of [the platform’s] loans carry an equivalent annual percentage rate of over 36% APR, and many loans carry an APR in excess of 300%, with some over 1,000%.” The Bureau also claimed the platform violated the CFPA by providing misleading TILA disclosures that did not contain the cost of the additional fees and tips in the quoted total payments.
The complaint alleged further violations of the CFPA where the platform (i) obscured whether and how borrowers can select the option for no donation or tip; (ii) stated or implied through its practices that consumers were obligated to repay loan amounts although the loans violated the applicable states’ lender-licensing or usury laws that declared such loans void ab initio or limited consumers’ obligation to repay; (iii) requested to collect and collects on void loans consumers were not obligated to repay for the aforementioned reason; (iv) misleadingly implied that it will furnish negative information to the credit bureaus unless the consumer makes a payment, without actually intending to do so; and (v) violated the FCRA.
The CFPB’s complaint stated that because the platform was a consumer reporting agency under the FCRA and therefore would be required to “follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates.” The CFPB will seek, among other things, injunctions against the platform to prevent future violations, monetary relief for borrowers, forfeiture of ill-gotten gains, and a civil money penalty.