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Colorado tightens regulations related to debt settlement and collection practices
On June 6, the Governor of Colorado signed into law HB 1380 (the “Act”) which revised the state’s consumer protection laws related to debt collection, credit services organizations, and debt management service providers. Key provisions of the law included:
- Debt collectors must now include their name and the original creditor’s name in legal actions against consumers and possess full authority to settle the debt.
- Credit services organizations will be required to provide the state administrator with essential business information (including name and address) and pay an annual notification fee.
- The state administrator can issue cease-and-desist orders and impose penalties of up to $1,500 per violation of the Code.
- Debt-management service providers cannot provide their services to consumers unless they have prepared a debt management plan for the individual that, among other things, lists all the creditors that the service provider expects to participate, and not to participate, in the plan, as well as those that it expects to participate but will not grant concessions to the consumer.
- Providing the state administrator the ability to adopt rules regarding debt settlement service fees by March 1, 2025, provided the rules do not “unduly limit consumer access to debt management services programs based on available state and national data.”
The Act’s amendments will go into effect 91 days following final adjournment of the General Assembly, subject to approval by Colorado voters if a referendum would be filed.
District Court denies class certification in lending discrimination suit
On May 30, the U.S. District Court for the Eastern District of Virginia entered an opinion denying class certification in a suit accusing a credit union (defendant) of lending discrimination. Each plaintiff applied to defendant for at least one home loan product, including first-lien mortgages, VA-backed loans, and refinancings. Plaintiffs’ complaint alleged that defendant’s mortgage underwriting policies violated the Fair Housing Act (the FHA) and the ECOA because they have had a “disparate impact on minority loan applicants” and defendant’s “refusal to correct those discrepancies constitutes intentional discrimination.” Plaintiffs based their claims on three independent reports analyzing publicly-available HMDA data from 2019-2022.
The court found that plaintiffs failed to establish a disparate treatment claim under the FHA, the ECOA, section 1981, and state law. Among other things, the court found that plaintiffs failed to address defendant’s argument that the data relied on in the reports lacked important metrics relating to credit scores and debt-to-income ratios. The court reasoned that plaintiffs’ sole reliance on reports analyzing defendant’s HMDA data – absent other allegations of evidence of discriminatory intent – did not make out a plausible claim of intentional discrimination. Moreover, the court found defendant’s argument persuasive that some of the plaintiffs attained loans elsewhere at higher interest rates than the loans originally sought from defendant, which suggested that plaintiffs were unqualified for the lower-interest rate loans for which they originally applied.
The court did, however, find that the complaint sufficiently pled a claim for disparate impact under the FHA and the ECOA at the motion to dismiss stage because the statistical analyses cited in the complaint revealed a disparate impact among non-white loan applicants and the underwriting algorithm and process was alleged to have caused the disparity. However, the court cautioned that if plaintiffs later failed to link during discovery the described “secret” underwriting process to the precise disparities and adverse consequences experienced by plaintiffs, the court may revisit whether the claim can survive at summary judgment.
Finally, the court struck the class allegation because the circumstances of plaintiffs’ loan application processes are too varied. Even though the proposed class was denied, plaintiffs may proceed on their FHA and ECOA disparate impact claims.
VA announces its targeted foreclosure moratorium on VA loans
On May 29, the VA announced a targeted foreclosure moratorium on VA-guaranteed loans, which will give servicers time to implement the Veterans Affairs Servicing Purchase (VASP) program. Servicers can implement the VASP program beginning May 31, and the VA expects servicers to fully implement VASP no later than October 1.
According to the circular, which went into effect immediately, the VA is urging servicers to put in place a targeted foreclosure moratorium for VA-guaranteed loans through December 31. During this period, servicers should refrain from initiating, advancing or completing the foreclosure process unless an exception applies. Exceptions include when a property is vacant or abandoned, a borrower has clearly expressed no interest in maintaining homeownership or preventing foreclosure, no mortgage payment has been received for at least 210 days and the borrower is nonresponsive, or after determining no possible home retention option, including VASP, is feasible for the borrower. Additionally, during the targeted moratorium, servicers will be expected to continue loss mitigation efforts for delinquent loans and offer workable solutions to borrowers, as detailed in the VA Servicer Handbook. Servicers are also encouraged to avoid negative credit reporting on affected loans. For borrowers affected by Covid-19, servicers should offer loan deferments, disaster extend modifications, and Covid-19 refund modifications until they implement VASP or through September 30, whichever is sooner.
CFPB says SCRA-related complaints are increasing
On May 23, the CFPB published a blog post reporting that complaints from servicemembers, veterans, and their families significantly increased, with the total number of complaints surpassing 400,000 since the CFPB began cataloging complaints. The Bureau noted a 27 percent rise in complaints from 2022 and a 98 percent increase compared to 2021, with servicemember complaints mostly alleging credit reporting errors, mortgage problems, and financial fraud and scams.
The CFPB’s blog post specifically focused on the application of interest rate protections under the Servicemembers Civil Relief Act (SCRA), which among other protections permitted servicemembers to request a decrease to 6 percent in interest rates on loans they took out before active duty. However, after a review of the complaints, the Bureau found servicemembers who claimed to face challenges in obtaining interest rate reductions. The CFPB noted a significant number of otherwise eligible servicemembers did not receive SCRA benefits. The CFPB suggested possible solutions like automated interest rate reductions, which it argued have been successful for federal student loans. The CFPB also noted instances where the CFPB cannot directly resolve an issue, it would refer complaints to appropriate agencies, such as the DOJ, for potential SCRA violations. The CFPB has also coordinated with other agencies to address military community complaints, including identity theft and financial fraud.
Chopra remarks on how less credit reporting competition may lead to higher mortgage costs
On May 20, CFPB Director, Rohit Chopra, delivered a speech at a trade association event addressing the rising costs in the mortgage lending industry, which may be due to limited competition in the credit reporting sector. According to Chopra, the mortgage industry was dominated by three major conglomerates, and credit scores were provided by a single corporation. These entities have significantly increased the price for credit reports and credit scores in recent years, with increases reaching as high as 400 percent since 2022. These price hikes can increase a lender’s origination fees or interest rates and have impacted both lenders, especially small lenders, and homebuyers disproportionately.
Chopra added how lenders require credit reports and credit scores for loan origination and adhere to secondary market requirements, which would necessitate purchasing these reports multiple times, like for joint applications. Director Chopra also noted that price increases were no longer tied to volume discounts and instead were now based on a flat fee pricing model, exacerbating costs for lenders. Additionally, the CFPB questioned the accuracy of credit reports, with the reporting industry profiting from expedited correction services known as a “rapid rescore.”
Director Chopra emphasized the need for regulatory intervention to address these issues within the mortgage industry. Chopra stated that “limiting chokepoints” was critical. As a result, the CFPB was examining these rising costs and considering regulatory measures to enhance competition and affordability. The Bureau was also promoting “open banking,” which would allow consumers to share their financial data directly with lenders to potentially reduce reliance on traditional credit reports and credit scores.
District court dismisses FDCPA class action for lack of standing
Recently, the U.S. District Court for the District of New Jersey granted defendant debt collectors’ motion to dismiss a FDCPA class action without prejudice. In 2016, the defendants obtained the plaintiff’s credit card debt and then settled that debt with plaintiff for approximately half of the original amount owed. Thereafter, plaintiff initiated a putative class action alleging defendants made false and misleading representations in the collection letter because they did not specify if the total amount owed included interest, costs, or fees. To establish Article III standing, the Court stated that plaintiff must “allege some form of detrimental reliance on the representations made by a defendant in a collection letter.” The Court found that the plaintiff ultimately failed to demonstrate that the alleged missing interest information in defendants' collection letter was detrimental, and that “informational statements in the [c]ollection [l]etter are not an actual injury unless [p]laintiff acted on them.” Accordingly, the Court concluded that the plaintiff failed to allege any adverse effects of the misleading information, and as a result, failed to establish standing.
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.
CFPB’s credit card late fee rule stayed
On May 10, the U.S. District Court for the Northern District of Texas entered an opinion and order granting the plaintiffs, comprising several trade organization, its motion for preliminary injunction and placed a stay on the CFPB’s credit card late fee rule. As previously covered by InfoBytes, a suit was filed against the CFPB by multiple trade organizations to challenge the Bureau’s final rule to amend Regulation Z and limit most credit card late fees to $8.
The court decided not to address the plaintiffs’ arguments regarding the CARD Act, TILA, and APA violations due to the Court of Appeals for the Fifth Circuit opinion that the CFPB's funding structure was unconstitutional; therefore, any regulations promulgated by the CFPB would be unconstitutional. For that reason, due to the CFPB’s unconstitutional structure found by the 5th Circuit, the District Court decided that all factors weighed in favor of issuing a preliminary injunction and thus staying the final rule.
HUD and mortgage lender reach agreement on Montana fair lending complaint
On May 13, HUD announced an agreement with a mortgage lender to resolve allegations of Fair Housing Act violations. According to the redacted agreement, a complaint was filed with HUD last August accusing the mortgage company of engaging in housing discrimination based on race, in violation of the Fair Housing Act. The complainants claim they faced discriminatory housing terms, were denied housing, and were subject to racially discriminatory notices and advertisements. The mortgage company denied all allegations of discrimination, asserted its commitment to fair housing and equal opportunity, and agreed to a Conciliation Agreement to resolve the matter without admitting any wrongdoing or liability.
The mortgage company agreed to a $65,000 settlement and will commit to upholding its fair lending policies, ensuring applicants on Native American reservations are able to obtain residential mortgage loans without fear of discrimination based on race, color or national origin. Respondent will also contribute at least $30,000 towards initiatives designed to enhance housing conditions, financial literacy, and homeownership education for Native Americans near reservations. During the three-year term of the agreement, HUD may review compliance and conduct fair housing tests, among other oversight methods. The terms of the agreement also required the mortgage company to submit a training curriculum on its fair lending training courses for new employees and perform annual trainings with current employees; additionally, the mortgage company must submit an annual report on the mortgage company’s progress and performance in complying with the public interest provisions of the agreement. The agreement has been approved by the regional director of the Office of Fair Housing and Equal Opportunity.
Student loan servicer and trust could pay more than $5M in enforcement action with CFPB
On May 6, the CFPB filed a complaint against a Pennsylvania-based student loan servicer and 15 student loan trusts for alleged failure to properly respond to various borrower requests in violation of the CFPA. The complaint alleged thousands of borrower requests went unanswered from 2015 to 2021. Many of these requests allegedly sought forms of payment relief including: (i) co-signer release; (ii) extension of forbearance or deferment; (iii) loan settlement or forgiveness; (iv) Servicemember Civil Relief Act benefits; and (v) other forms of payment or interest rate reduction.
The CFPB also released two proposed stipulated final judgment orders for the trusts and the servicer to resolve the claims. If agreed upon by the court, the trusts and servicer will have to pay civil money penalties of $400,000 and $1.75 million, respectively, in addition to providing close to $3 million in compensation to impacted consumers. Additionally, the orders required non-monetary relief, such as the approval of outstanding borrower applications, the rectification of credit reports, the suspension of debt collection efforts, and the implementation of a functional process.