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Financial Services Law Insights and Observations

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  • Ohio allows dual capacity in real estate transactions

    State Issues

    Recently, the Ohio Division of Financial Institutions released a letter to repeal prior guidance banning mortgage professionals from acting as both a mortgage professional and a real estate agent in the same transaction. This “dual capacity” was originally banned in the Divisions Mortgage Brokers & Lenders Letter 2006-1 to prevent conflicts of interest that might arise when a single person would both complete a sale and obtain financing for that sale. After the repeal, the Ohio Division of Financial Institutions required licensed mortgage loan originators to disclose when they or an associate will act as a realtor in connection with a property’s sale and to inform and obtain a signature from the buyer. Signatures can be obtained on the Dual Capacity Disclosure Form.

    State Issues Ohio Mortgages Mortgage Lenders Disclosures

  • Borrower’s RESPA claim stays afloat in District Court

    Courts

    The U.S. District Court for the Southern District of Ohio, Eastern Division, granted in part and denied in part defendant mortgage servicer’s motion to dismiss claims for RESPA Qualified Written Requests violations. Defendant approved plaintiffs for a trial payment plan for their mortgage loan. After plaintiffs completed that plan, defendants sent an initial modification agreement with a misspelled plaintiff name. Plaintiffs notified defendant of the error but continued making payments pursuant to the initial modification agreement. Defendant then sent a corrected version which plaintiffs signed, and defendants recorded with the Delaware County Recorder’s office. However, defendants did not update the new terms in its billing system and, after realizing the agreement contained terms different from what it intended, sent a third version of the modification agreement to plaintiffs with an adjusted principal balance and interest rate. Plaintiffs refused to sign the third modified agreement, and defendants refused to honor the recorded version or accept payments, stating that plaintiffs were in default on their mortgage.

    In making its judgement, the court considered how defendant handled plaintiffs’ qualified written requests (QWR). Regarding defendant’s response to plaintiffs’ notice of error, plaintiffs claimed defendant did not conduct a reasonable investigation, inadequately explained the discrepancy between the modification agreements’ interest rates and fee charges to their account, and entirely ignored the change in principal balances between the initial and the recorded modification agreements. Defendant argued that its conclusion, that no enforceable loan modification existed, would not change had it conducted the investigation. The court found that defendant could not bypass its responsibility to conduct a reasonable investigation, and that defendant did not address the difference in principal balance between the initial and recorded modification agreements.

    On the issue of defendant’s response to plaintiffs’ request for information (RFI), plaintiffs claimed defendant’s response did not address their claims of missing records, nor did it mention that such records were unavailable. Plaintiffs also claimed defendant failed to produce requested documents. Refuting defendant’s argument that plaintiffs did not “even hint” that they suffered damages from the RFI portion of the QWR, the court found that plaintiffs’ damages were legally cognizable. However, the court dismissed plaintiffs’ claim as to the RFI because it did not satisfy the necessary standing requirements. 

    Courts RESPA Ohio Qualified Written Request RFI Mortgages Consumer Finance

  • Fed enters into written agreement with Ohio bank

    Agency Rule-Making & Guidance

    On December 19, the Federal Reserve Board announced a written agreement with an Ohio state-chartered bank and its holding company to address certain deficiencies identified during a recent examination of the bank. Under the agreement, the bank and its holding company agreed to: (i) use the bank’s resources as a “source of strength”; (ii) submit a written plan to enhance board oversight and management; (iii) conduct a third-party assessment of the bank’s staff; (iv) submit an enhanced written investment policy that includes “periodic analysis of the investment portfolio, including, but not limited to the assessment of market risk, credit risk, interest rate risk, and liquidity risk of the underlying investments”; (v) improve the bank’s investment portfolio management and interest rate risk management practices; (vi) implement an enhanced liquidity risk management program; and (vii) submit a written plan regarding sufficient capital (among other corrective actions). 

    Agency Rule-Making & Guidance Ohio Federal Reserve Enforcement

  • Ohio AG files FDCPA suit against debt collectors

    Courts

    On October 31, Ohio State AG Dave Yost filed a complaint against debt collectors for violations of the FDCPA and Ohio Consumer Sales Practices Act. The complaint alleged that the defendants frequently changed the names they used to engage in collection activities and purposefully used names to sound like law firms to mislead consumers. The AG’s complaint also included allegations that the debt collectors failed to honor written requests to verify debts, threatened legal action, engaged in harassing or abusive behavior, and made false, misleading, and deceptive representations.

    Courts State Attorney General Debt Collection FDCPA Ohio

  • Ohio will grant occupational licenses to applicants experienced in another state

    On January 2, the Ohio governor signed SB 131, which, among other things, requires “an occupational licensing authority to issue a license or government certification to an applicant who holds a license, government certification, or private certification or has satisfactory work experience in another state under certain circumstances.” The Act eases licensing burdens by allowing licensed professionals to apply for and be granted a license to work provided they meet certain criteria. Specifically, a licensing authority shall issue a license or government certification to an applicant if the authority determines that the applicant meets several conditions, including: (i) the applicant holds either a “substantially similar out-of-state occupational license that authorizes the applicant to engage in the same profession, occupation, or occupational activity as the license or government certification for which the applicant is applying in this state” or a “government certification in the same profession, occupation, or occupational activity as the license or government certification for which the applicant is applying in this state from one of the uniformed services or a state that does not issue an out-of-state occupational license for the respective profession, occupation, or occupational activity”; (ii) the applicant possesses a valid out-of-state license for at least one year immediately preceding the date the application is submitted and has been actively engaged in the profession (a licensing authority may choose to waive this requirement); (iii) the applicant is in good standing; (iv) the applicant satisfied minimum education, training, or experience requirements or passed an examination to receive an out-of-state occupational license or government certification (this provision is waived if applicable law does not require these requirements); (v) the applicant has not surrendered or had revoked a license, out-of-state occupational license, or government certification, and does not have any disqualifying criminal history or is the subject of a complaint, allegation, or investigation related to unprofessional conduct or a violation of a law; and (vi) the applicant pays the required fees. The Act also discusses additional pathways for licensure through private certification.

    Licensing State Issues State Legislation Ohio

  • FCC proposes $300 million fine against auto warranty scam robocaller

    Federal Issues

    On December 21, the FCC announced a nearly $300 million fine against an auto warranty scam robocall campaign for TCPA and Truth in Caller ID Act violations, “which is the largest robocall operation the FCC has ever investigated.” According to the announcement, the two individuals in charge of the operation ran a complex robocall sales lead generation scheme, which was designed to sell vehicle service contracts that were deceptively marketed as car warranties. This “scheme made more than 5 billion robocalls to more than half a billion phone numbers during a three-month span in 2021, using pre-recorded voice calls to press consumers to speak to a ‘warranty specialist’ about extending or reinstating their car’s warranty.” As previously covered by InfoBytes, in July, the FCC took initial action by ordering “phone companies to stop carrying traffic regarding a known robocall scam marketing auto warranties.” The FCC noted that the operation is also the target of an ongoing investigation by the FCC’s Enforcement Bureau and a lawsuit by the Ohio attorney general. The Ohio AG filed a complaint against multiple companies for participating in an alleged unwanted car warranty call operation (covered by InfoBytes here). The complaint, filed in the U.S. District Court for the Southern District of Ohio, alleged that the 22 named defendants “participated in an unlawful robocall operation that bombarded American consumers with billions of robocalls.” In addition to the fine, among other things, the individuals who allegedly ran the operations are prohibited from making telemarketing calls pursuant to FCC actions.

    Federal Issues FCC Enforcement Robocalls TCPA Truth in Caller ID Act State Attorney General Ohio State Issues

  • District Court denies dismissal of RESPA "dual-tracking" suit

    Courts

    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.

    Courts Mortgages Foreclosure Loss Mitigation Mortgage Servicing RESPA Regulation X State Issues Ohio Consumer Finance

  • Court grants summary judgment in payday lender suit

    Courts

    On August 23, a Municipal Court in Ohio granted a defendant’s motion for summary judgment in a case involving payday lending. According to the order, the plaintiff’s complaint alleged that the defendant, in April 2019, executed a Line of Credit and Security Agreement with a lender in the amount of $1,101, and agreed to repay amounts advanced within a 30-day billing cycle pursuant to certain fees and a 24.99 percent interest rate. The complaint further alleged that defendant failed to make timely payment, and thereafter plaintiff, as assignee of the lender, sought to enforce the agreement. In her answer, the defendant denied entering any such agreement and characterized the transaction as “a $500 loan,” asserting that this case “involves an illegal scheme by [the short-term cash lender, the mortgage lender, and the plaintiff] to issue and collect illegal payday loans under a scheme to attempt to evade compliance with new state lending laws. The plaintiff asserted counterclaims for violations of the Short-Term Loan Act, the Mortgage Loan Act, Ohio Consumer Sales Practices Act, and for civil conspiracy.

    On motion for summary judgment, the defendant argued that she was entitled to judgment on “Plaintiff's complaint because the parties’ April 2019 agreement ‘is void because it was made in violation of Ohio lending and consumer laws.’” The defendant presented two arguments: (i) the lender is not licensed under the Short-Term Loan Act to issue a loan less than $1000; and (ii) the lender is “prohibited from engaging in acts or practices to evade the prohibition against Mortgage Loan Act registrants issuing loans for $1,000 or less or that have a duration of one year or less.”

    In granting summary judgment for the defendant, the court found that the underlying transaction was an “open-end loan under the plain language” of the Mortgage Loan Act, and that it was not a loan for $1,000 or less or one with a duration of one year or less under the Mortgage Loan Act, but that by using the security agreement framework, the lender engaged in an act or practice to evade the Mortgage Loan Act’s prohibition. The court found that the evidence showed defendant went to the lender for a simple loan under $1,000 and was provided on that day a check for $501. The court found further that, “it would appear [the lender] gave Defendant what she was seeking, namely a short-term loan … but without complying with any of the myriad restrictions applicable to such loans under the Short-Term Loan Act.” The court held that the security agreement framework did not stand because the “legally convoluted” structure did not benefit the parties in any meaningful way, and “the only explanation the Court can discern as to why that structure was used is that it was a stratagem for eluding the restrictions of the Short-Term Loan Act that would have otherwise applied to the parties’ transaction.”

    Courts State Issues Ohio Payday Lending Mortgages Consumer Finance

  • Ohio AG, FCC take action against robocall operation

    State Issues

    On July 7, the Ohio attorney general filed a complaint against multiple companies for participating in an alleged unwanted car warranty call operation. The complaint, filed in the U.S. District Court for Southern District of Ohio, alleged that the 22 named defendants “participated in an unlawful robocall operation that bombarded American consumers with billions of robocalls.” Specifically, the complaint alleged that the defendants “initiated over 77 million robocalls per day for the purpose of generating sales leads, many times in relation to the sale of Vehicle Service Contracts (‘VSCs’) that are deceptively marketed as ‘car warranty’ plans,” totaling at least 800 million call attempts. The defendants allegedly violated the TSR, the Ohio Consumer Sales Practices Act, and the Ohio Telephone Solicitation Sales Act by, among other things: (i) deceptively representing the subject of the call; (ii) misrepresenting caller IDs, or “spoofing”; and (iii) acting as telephone solicitors without having registered as telephone solicitors with the Ohio AG’s Office, as required by law, and without having obtained and filed the required surety bond. The lawsuit coincided with the FCC’s announcement of actions taken to decrease robocalls, including sending cease and desist letters to several carriers in an attempt “to cut off a flood of possibly illegal robocalls marketing auto warranties targeting billions of consumers.” The announcement also noted that the FCC has authorized “all U.S.-based voice service providers to cease carrying any traffic originating from the [named] operation consistent with FCC regulations,” as detailed in a public notice to all U.S.-based voice service providers.

    State Issues Federal Issues Ohio Enforcement VoIP Robocalls State Attorney General

  • 6th Circuit reverses and remands judgment in debt collection suit

    Courts

    On June 15, the U.S. Court of Appeals for the Sixth Circuit reversed and remanded a district court’s summary judgment ruling in favor of a defendant-appellee law firm, holding that it did not first exhaust all of its efforts to collect from the actual debtor. According to the opinion, the plaintiff’s husband was convicted of embezzlement and willful failure to pay taxes and was sent invoices for his legal fees by another law firm, which he did not pay. The law firm hired the defendant to collect on the debt. The defendant filed a lawsuit against the plaintiff and her husband, arguing under the Ohio Necessaries Statute that the husband was liable to third parties for necessaries, such as food, shelter, and clothing that were provided to his wife. An Ohio state court ruled in favor of the plaintiff, and an interlocutory appeal by the defendant was denied. The plaintiff then filed suit against the defendant, alleging that defendant’s underlying suit violated the FDCPA by attempting to collect under the claim that she was liable for her spouse’s debt. The district court granted the defendant’s summary judgment motion, which the plaintiff appealed.

    On the appeal, the 6th Circuit found that the defendant did not follow the express commands of the Ohio Supreme Court's 2018 decision in Embassy Healthcare v. Bell, which held that spouses who are not debtors are liable only if the debtor does not have the assets to pay the debt themselves. The 6th Circuit found that the defendant did not satisfy those prerequisites to collect from the plaintiff when it filed a joint-liability suit against her and her husband. Thus, the collection efforts against the spouse who incurred the debt must be exhausted “before attempting to collect from a spouse.” The 6th Circuit reversed the district court’s judgment and remanded for further proceedings with instructions to enter judgment in favor of the plaintiff.

    Courts State Issues Appellate Sixth Circuit Ohio FDCPA Debt Collection Consumer Finance

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