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  • CFPB addresses servicers’ obligations to respond to borrower inquiries

    Courts

    On April 4, the CFPB filed an amicus brief in a case on appeal to the U.S. Court of Appeals for the Ninth Circuit concerning a mortgage loan servicer allegedly failing to answer multiple inquiries from two separate consumers regarding their loans despite the requirement under Regulation X that servicers respond when a borrower submits a request for information that “states the information the borrower is requesting with respect to the borrower’s mortgage loan.” The plaintiffs filed suit after the defendant servicer declined to provide the information requested, stating that it would not respond “because the issues raised are the same or very closely related to the issues raised” in pending litigation surrounding the mortgages.

    The U.S. District Court for the District of Oregon dismissed the plaintiffs’ claims, noting that under RESPA, “a mortgage loan servicer only has an obligation to provide a written response to a [qualified written request] that seeks ‘information relating to the servicing of such loan,’” and that the plaintiffs’ inquiries regarding the ownership of their loans and requesting other miscellaneous information did not “trigger[] [the defendant’s] obligations to respond under Regulation X” because a servicer has a ‘duty to respond’ only if a request for information ‘relates to the servicing of the loan.’”

    In urging the appellate court to overturn the decision, the Bureau argued that under Section 1024.36 of Regulation X “servicers generally must respond to ‘any written request for information from a borrower’ that seeks ‘information ... with respect to the borrower’s mortgage loan.’” According to the Bureau, although a servicing-related request would fall under this provision, it is just one type of request that seeks information ‘with respect to’ a loan and thereby triggers a servicer’s obligation to respond” under the rules. The Bureau stated that Regulation X broadly requires servicers to respond to requests that seek information “with respect to” a borrower’s mortgage loan, explaining that it “included explicit language to that effect in the 2013 Rule to make clear that the rule created a unified set of requirements such that servicers’ obligations to respond were the same for a qualified written request as for any other information request,” and that it “did not exclude information requests that do not relate to servicing from the scope of § 1024.36.” The Bureau agreed with the plaintiffs that there is “no litigation exception to a servicer's obligation to respond to information requests under Regulation X.” The Bureau further noted in a blog post that,“[a] pending lawsuit does not take away a borrower’s right to a response from their loan servicer under Regulation X.”

    Courts Amicus Brief Ninth Circuit Appellate CFPB Consumer Finance RESPA Regulation X Mortgages Mortgage Servicing

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  • Agencies file amicus brief on “hybrid” loan MLA protections

    Courts

    On January 6, the CFPB, DOJ, and DOD filed an amicus brief on behalf of the United States in support of a consumer servicemember plaintiff’s appeal in Jerry Davidson v. United Auto Credit Corp, arguing that the hybrid loan at issue in the case, which was used for both an MLA-exempt and non-exempt purpose, must comply with the MLA. The loan included an amount used to purchase Guaranteed Auto Protection (GAP) insurance coverage, and the plaintiff alleged that, among other things, the auto lender (defendant) violated the MLA by forcing the plaintiff to waive important legal rights as a condition of accepting the loan and by requiring him to agree to mandatory arbitration should any dispute arise related to the loan. The plaintiff also alleged that the defendant failed to accurately communicate his repayment obligations by failing to disclose the correct annual percentage rate. The case is before the U.S. Court of Appeals for the Fourth Circuit after a district court held that the plaintiff’s GAP insurance fell within the car-loan exception to the MLA as “inextricably tied to” and “directly related” to the vehicle purchase.

    Arguing that GAP coverage “is not needed to buy a car and does not advance the purchase or use of the car,” the agencies’ brief noted that GAP coverage is identified as “debt-related product that addresses a financial contingency arising from a total loss of the car” and that the coverage can be purchased as a standalone product. According to the brief, the plaintiff’s loan is a “hybrid loan—that is, a loan that finances a product bundle including both an exempt product (such as a car) and a distinct non-exempt product (such as optional GAP coverage),” and the district court erred in failing to interpret the MLA consistent with guidance issued in 2016 and 2017 by the DOD suggesting that such “hybrid loans” are consumer credit subject to the protections in the MLA. The 2017 guidance explained that “a credit transaction that includes financing for Guaranteed Auto Protection insurance … would not qualify for the exception,” and the agencies argued that although the 2017 guidance was withdrawn in 2020, the “withdrawal did not offer a substantive interpretation of the statute that would alter the conclusion” that the plaintiff’s loan was not exempt from the MLA.

    Courts CFPB Department of Defense DOJ Amicus Brief Appellate Fourth Circuit Servicemembers Military Lending Act Military Lending GAP Fees

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  • Agencies file amicus brief on use of term “applicant” in ECOA

    Courts

    On December 16, the CFPB filed a joint amicus brief with the DOJ, Federal Reserve Board, and the FTC arguing that the term “applicant” as used in ECOA and its implementing rule, Regulation B, includes both those seeking credit as well as persons who have sought and have received credit (i.e., current borrowers). (See also a Bureau blog post discussing the brief.) The amicus brief is in support of a plaintiff in an action where the plaintiff consumer sued a national bank for closing his credit card account without providing an explanation for the adverse action as required by ECOA. The case is currently on appeal before the U.S. Court of Appeals for the Seventh Circuit after a district court determined that ECOA protections only apply “during the process of requesting credit and do not protect those with existing credit accounts.”

    The central issue identified in the brief revolves around whether ECOA applies beyond persons seeking credit to persons who have already received credit. The brief focused on this issue by analyzing (i) ECOA’s text, history and purpose; (ii) the application of Regulation B; and (iii) alleged incorrect interpretations in the underlying defendant’s arguments. In looking at the text of ECOA, the brief asserted that ECOA applies to “applicants” without regard to how their credit is resolved because ECOA defines “applicant” as “any person who applies to a creditor directly for an extension, renewal, or continuation of credit, or applies to a creditor indirectly by use of an existing credit plan for an amount exceeding a previously established credit limit.” In further analyzing the statutory text, the brief further explained that ECOA also gives consumers the right to adverse action notices, which include the “revocation of credit” as well as a “change in the terms of an existing credit arrangement”—actions, the brief stated, “that can be taken only with respect to persons who have already received credit.” The brief also stated that legislative history shows it was Congress’s intent to reach discrimination “in any aspect of a credit transaction.”

    In looking at the context of Regulation B, the brief asserted, among other things, that ECOA’s protections continue to apply after an applicant receives credit, explaining that Regulation B “did so by defining ‘applicant’ to include, ‘[w]ith respect to any creditor[,] … any person to whom credit is or has been extended by that creditor.’” Moreover, the brief asserted, ECOA provides a private right of action, which allows aggrieved applicants to file suits for alleged ECOA/Regulation B violations. In this instance, the term “applicant” cannot be meant to refer only to consumers with pending credit applications because otherwise a consumer whose application was denied on a prohibited basis would have no private right of action recourse. These references, the brief emphasized, “further confirm that the term “applicant” is not limited to those currently applying for credit.”

    Courts CFPB DOJ Federal Reserve FTC Amicus Brief ECOA Regulation B Appellate Seventh Circuit Consumer Finance

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  • CFPB, FTC, and North Carolina argue public records website does not qualify for Section 230 immunity

    Courts

    On October 14, the CFPB, FTC, and the North Carolina Department of Justice filed an amicus brief in support of the consumer plaintiffs in Henderson v. The Source for Public Data, L.P., arguing that a public records website, its founder, and two affiliated entities (collectively, “defendants”) cannot use Section 230 liability protections to shield themselves from credit reporting violations. The case is currently on appeal before the U.S. Court of Appeals for the Fourth Circuit after a district court determined that the immunity afforded by Section 230 of the Communication and Decency Act applied to the FCRA and that the defendants qualified for such immunity and could not be held liable for allegedly disseminating inaccurate information and failing to comply with the law’s disclosure requirements.

    The plaintiffs alleged, among other things, that because the defendants’ website collects, sorts, summarizes, and assembles public record information into reports that are available for third parties to purchase, it qualifies as a consumer reporting agency under the FCRA. According to the amicus brief, the plaintiffs’ claims do not seek to hold the defendants liable on the basis of the inaccurate data but rather rest on the defendants’ alleged “failure to follow the process-oriented requirements that the FCRA imposes on consumer reporting agencies.” According to plaintiffs, the defendants, among other things, (i) failed to adopt procedures to assure maximum possible accuracy when preparing reports; (ii) refused to provide plaintiffs with copies of their reports upon request; (iii) failed to obtain required certifications from its customers; and (iv) failed to inform plaintiffs they were furnishing criminal information about them for background purposes. The defendants argued that they qualified for Section 230 immunity. The 4th Circuit is now reviewing whether a consumer lawsuit alleging FCRA violations seeking to hold a defendant liable as the publisher or speaker of information provided by a third party is preempted by Section 230.

    In their amicus brief, the CFPB, FTC, and North Carolina urged the 4th Circuit to overturn the district court ruling, contending that the court misconstrued Section 230—which they assert is unrelated to the FCRA—by applying its immunity provision to “claims that do not seek to treat the defendant as the publisher or speaker of any third-party information.” According to the brief, liability turns on the defendants’ alleged failure to comply with FCRA obligations to use reasonable procedures when reports are prepared, to provide consumers with a copy of their files, and to obtain certifications and notify consumers when reports are furnished for employment purposes. “As the consumer reporting system evolves with the emergence of new technologies and business practices, FCRA enforcement remains a top priority for the commission, the Bureau, and the North Carolina Attorney General,” the brief stated. “The agencies’ efforts would be significantly hindered, however, if the district court’s decision [] is allowed to stand.”

    Newly sworn-in CFPB Director Rohit Chopra and FTC Chair Lina M. Khan issued a joint statement saying “[t]his case highlights a dangerous argument that could be used by market participants to sidestep laws expressly designed to cover them. Across the economy such a perspective would lead to a cascade of harmful consequences.” They further stressed that “[a]s tech companies expand into a range of markets, they will need to follow the same laws that apply to other market participants,” adding that the agencies “will be closely scrutinizing tech companies’ efforts to use Section 230 to sidestep applicable laws. . . .”

    Courts CFPB FTC North Carolina State Issues Amicus Brief FCRA Appellate Fourth Circuit Consumer Reporting Agency

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  • CFPB, FTC argue ECOA “applicant” includes those with existing credit

    Courts

    On October 7, the CFPB and the FTC (collectively, “agencies”) filed an amici curiae brief with the U.S. Court of Appeals for the Second Circuit in an action addressing “whether a person ceases to be an ‘applicant’ under ECOA and its implementing regulation after receiving (or being denied) an extension of credit.” According to the brief, a consumer filed suit against a national bank for allegedly violating ECOA and Regulation B’s adverse-action notice requirement when it closed his line of credit and sent an email acknowledging the closure without including (i) “‘the address of the creditor,’” and (ii) “either a ‘statement of specific reasons for the action taken’ or a disclosure of his ‘right to a statement of specific reasons.’” The district court dismissed the action after adopting the magistrate judge’s Report and Recommendation recommending that the bank’s motion be granted without prejudice to plaintiff, who had leave to brief the court on whether an amended complaint should be permitted.

    The agencies disagreed with the district court and filed the amici brief on behalf of the applicant. Specifically, the agencies argue that ECOA’s protections apply to any aspect of a credit transaction, including those who have an existing arrangement with a creditor, noting there is “‘no temporal qualifier in the statute.’” According to the agencies, ECOA has provisions that cover the revocation of credit or the change in credit terms, and therefore, those provisions “would make little sense if ‘applicants’ instead included only those with pending requests for credit.” Moreover, the agencies argue that the district court’s interpretation of “applicant” would “curtail the reach of the statute,” and introduce a large loophole. Lastly, the agencies assert that the legislative history of ECOA supports their interpretation, such as the addition of amendments covering the revocation of credit, and most notably, Regulation B’s definition of “applicant,” which includes those who have received an extension of credit.

    Courts Amicus Brief Second Circuit Appellate ECOA Regulation B

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  • SEC files Supreme Court brief in favor of disgorgement

    Courts

    On January 15, the SEC filed a brief in a pending U.S. Supreme Court action, Liu v. SEC. The question presented to the Court asks whether the SEC, in a civil enforcement action in federal court, is authorized to seek disgorgement of money acquired through fraud. The petitioners were ordered by a California federal court to disgorge the money that they collected from investors for a cancer treatment center that was never built. The SEC charged the petitioners with funneling much of the investor money into their own personal accounts and sending the rest of the funds to marketing companies in China, in violation of the Securities Act’s prohibitions against using omissions or false statements to secure money when selling or offering securities. The district court granted the SEC’s motion for summary judgment, and ordered the petitioners to pay a civil penalty in addition to the $26.7 million the court ordered them to repay to the investors. The petitioners appealed to the Supreme Court and in November, the Court granted certiorari.

    The petitioners argued that Congress has never authorized the SEC to seek disgorgement in civil suits for securities fraud. They point to the court’s 2017 decision in Kokesh v. SEC, in which the Court reversed the ruling of the U.S. Court of Appeals for the Tenth Circuit when it unanimously held that disgorgement is a penalty and not an equitable remedy. Under 28 U.S.C. § 2462, this makes disgorgement subject to the same five year statute of limitations as are civil fines, penalties and forfeitures (see previous InfoBytes coverage here). The petitioners also suggested that the SEC has enforcement remedies other than disgorgement, such as injunctive relief and civil money penalties, so loss of disgorgement authority will not hinder the agency’s enforcement efforts.

    According to the SEC’s brief, historically, courts have used disgorgement to prevent unjust enrichment as an equitable remedy for depriving a defendant of ill-gotten gains. More recently, five statutes enacted by Congress since 1988 “show that Congress was aware of, relied on, and ratified the preexisting view that disgorgement was a permissible remedy in civil actions brought by the [SEC] to enforce the federal securities laws.” The agency notes that the Court has recognized disgorgement as both an equitable remedy and a penalty, suggesting, however, that “the punitive features of disgorgement do not remove it from the scope of [the Exchange Act’s] Section 21(d)(5).” Regarding the petitioner’s reliance on Kokesh, the brief explains that “the consequence of the Court’s decision was not to preclude or even to place special restrictions on SEC claims for disgorgement, but simply to ensure that such claims—like virtually all claims for retrospective monetary relief—must be brought within a period of time defined by statute.”

    In addition to the brief submitted by the SEC, several amicus briefs have been filed in support of the SEC, including a brief from several members of Congress, and a brief from the attorneys general of 23 states and the District of Columbia.

    Courts U.S. Supreme Court Disgorgement Kokesh SEC Securities Exchange Act Congress Amicus Brief State Attorney General Securities Writ of Certiorari Fraud Tenth Circuit Civil Fraud Actions Regulator Enforcement Civil Money Penalties Liu v. SEC

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  • House tells Supreme Court CFPB structure is constitutional

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    On October 4, the U.S. House of Representatives filed an amicus brief with the U.S. Supreme Court arguing that the CFPB’s structure is constitutional. The brief was filed in response to a petition for writ of certiorari by a law firm, contesting a May decision by the U.S. Court of Appeals for the Ninth Circuit, which held that, among other things, the Bureau’s single-director structure is constitutional (previously covered by InfoBytes here). The House filed its brief after the amicus deadline, but requested its motion to file be granted because it only received notice that the Bureau changed its position on the constitutionality of the CFPB’s structure the day before the filing deadline. As previously covered by InfoBytes, on September 17, the DOJ and the CFPB filed a brief with the Court arguing that the for-cause restriction on the president’s authority to remove the Bureau’s single Director violates the Constitution’s separation of powers; and on the same day, Director Kraninger sent letters (see here and here) to House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Mitch McConnell (R-Ky.) supporting the same argument.

    The brief, which was submitted by the Office of General Counsel for the House, argues that the case “presents an issue of significant important to the House” and, because the Solicitor General “has decided not to defend” Congress’ enactment of the for-cause removal protection through the Dodd-Frank Act, the “House should be allowed to do so.” The brief asserts that the 9th Circuit correctly held that the Bureau’s structure is constitutional based on the D.C. Circuit’s majority in the 2018 en banc decision in PHH v. CFPB (covered by a Buckley Special Alert). Moreover, the brief argues that when an agency is “headed by a single individual, the lines of Executive accountability—and Presidential control—are even more direct than in a multi-member agency,” as the President has the authority to remove the individual should they be failing in their duty. Such a removal will “‘transform the entire CFPB and the execution of the consumer protection laws it enforces.’”

    Courts CFPB Single-Director Structure Dodd-Frank U.S. House U.S. Supreme Court Ninth Circuit Appellate D.C. Circuit Amicus Brief

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  • CFPB argues no “benign language” exception under FDCPA

    Courts

    On September 5, the CFPB filed an amicus brief in a case on appeal to the U.S. Court of Appeals for the Seventh Circuit concerning a debt collector’s use of language or symbols other than the collector’s address on an envelope sent to a consumer. Under section 1692f(8) of the FDCPA, debt collectors are barred from using any language or symbol other than the collector’s address on any envelope sent to the consumer, “except that a debt collector may use his business name if such name does not indicate that he is in the debt collection business.” In the case at issue, a consumer received a debt collection letter enclosed in an envelope stamped with the words “TIME SENSITIVE DOCUMENT” in bold font. The consumer filed a complaint against the defendant asserting various claims under the FDCPA, including that inclusion of “TIME SENSITIVE DOCUMENT” on the envelope was a violation of section 1692f(8). The defendant argued that an exception should be carved out for “benign” language in this instance, and the district court agreed, ruling that the language “‘does not create any privacy concerns for [the consumer] or expose potentially embarrassing information by giving away the fact that the letter is from a debt collector.’”

    On appeal, the 7th Circuit invited the Bureau to file an amicus brief on whether there is a benign language exception to section 1692f(8)’s prohibition, and, if so, whether the phrase “TIME SENSITIVE DOCUMENT” falls within that exception. The Bureau asserted that there is no benign language exception, and stressed that while section 1692f(8) recognizes that debt collectors may be permitted to include language and symbols on an envelope that facilitate the mailing of an envelope, section 1692f(8), by its own terms, does not allow for benign language. Additionally, the Bureau commented that section 1692f’s prefatory text does not “provide a basis for reading a ‘benign language’ exception into section 1692f(8),” nor does the prefatory text suggest that the prohibition applies only in instances where it may be “‘unfair or unconscionable’” in a general sense. Moreover, if Congress wanted to allow for markings on envelopes provided they did not reveal the debt-collection purpose, then it would have done so, the Bureau argued, concluding that if the court did adopt a benign language exception, then whether “TIME SENSITIVE DOCUMENT” would fall within that exception would be a question of fact.

    Courts CFPB FDCPA Amicus Brief Appellate Seventh Circuit

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  • FDIC and OCC critique Madden in amicus brief

    Courts

    On September 10, the FDIC and the OCC filed an amicus brief in the U.S. District Court for the District of Colorado, supporting a bankruptcy judge’s ruling, which refused to disallow a claim for a business loan that carried a more than 120 percent annual interest rate, concluding the interest rate was permissible as a matter of federal law. After filing bankruptcy in 2017, a Denver-based business sought to reject the claim under Section 502 of the Bankruptcy Code, and sought equitable subordination under Section 510 of the Code, arguing that the original promissory note, executed by the debtor and a Wisconsin state chartered bank, and subsequently assigned to a nonbank lender, was invalid under Colorado’s usury law. The bankruptcy judge disagreed, declining to follow Madden v. Midland Funding, LLC (covered by a Buckley Special Alert here). The judge concluded that the promissory note was valid under Wisconsin law when executed as that state imposes no interest rate cap on business loans, and the assignment to the nonbank lender did not alter this, stating “[i]n the Court’s view, the ‘valid-when-made’ rule remains the law.” The debtor appealed the ruling to the district court.

    In support of the bankruptcy judge’s opinion, the FDIC and the OCC argue that the valid-when-made rule is dispositive. Specifically, the agencies assert that the nonbank assignee may lawfully charge the 120 percent annual rate, because the interest rate was non-usurious at the time when the loan was made by the Wisconsin state chartered bank. Moreover, the agencies state that it is a fundamental rule of contract law that “an assignee succeeds to all the assignor’s rights in the contract, including the right to receive the consideration agreed upon in the contract—here, the interest rate agreed upon.” Hence, the nonbank lender inherited the same contractual right to charge the annual interest rate. The agencies also argue that the Federal Deposit Insurance Act’s provisions regarding interest rate exportation (specifically 12 U.S.C. § 1831d) requires the same result, noting that “Congress intended to confer on banks a meaningful right to make loans at the rates allowed by their home states, which necessarily includes the ability to transfer those rates.” The agencies conclude that the bankruptcy judge correctly rejected Madden, calling the 2nd Circuit’s decision “unfathomable” for disregarding the valid-when-made doctrine and the “stand-in-the-shoes-rule” of contract law.

    Courts FDIC OCC Amicus Brief Madden Valid When Made Usury State Issues

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