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Financial Services Law Insights and Observations


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  • Judges disagree that “psychological states” can never support standing under FDCPA


    On June 8, a majority of judges on the U.S. Court of Appeals for the Seventh Circuit denied a plaintiff-appellee’s petition for rehearing en banc in a case concerning the collection of time-barred debt. In April, the 7th Circuit vacated a $350,000 jury award against a debt collector in an FDCPA action, holding that the plaintiff lacked Article III standing. The defendant sent the plaintiff a letter offering to resolve her defaulted credit card debt at a discount. The letter included a disclosure stating that “because of the age of the debt” it would not sue or report the debt to a credit agency and that payment or nonpayment would not affect her credit score. The plaintiff sued, claiming the letter “surprised and confused” her and was in violation of Sections 1692e(2), 1692e(10), and 1692f of the FDCPA. The district court certified a class and granted summary judgment in favor of the plaintiff “reasoning that the misleading nature of the letter risked real harm to the interests that Congress sought to protect with the FDCPA.” A jury awarded the class $350,000 in damages. On appeal, the panel disagreed, explaining that the plaintiff never made a payment as a result of receiving the letter, nor did she “promise to do so or otherwise act to her detriment in response to anything in or omitted from the letter.” Calling the defendant to dispute the debt and contacting an attorney for legal advice “are not legally cognizable harms” and not enough to provide the “basis for a lawsuit,” the court wrote, adding that “[p]sychological states induced by a debt collector’s letter” are not enough to establish standing.

    The majority of the 7th Circuit agreed with the panel’s ruling and voted not to hold an en banc rehearing. However, four judges dissented, arguing that the plaintiff’s claims “should easily satisfy” standing requirements established by the U.S. Supreme Court. “The emotional distress, confusion, and anxiety suffered by [plaintiff] in response to this zombie debt collection effort fit well within the harms that would be expected from many of the abusive practices,” the dissent said. “That’s true regardless of whether the debtor actually made a payment or took some other tangible action in response to them.” According to the dissent, the majority is “painting with too broad a brush” in finding that “[e]motional distress and other ‘psychological states’ can never support standing under the FDCPA.” This reasoning also overlooks close historical parallels in common and constitutional law that provide remedies for intangible injuries caused by many violations of the FDCPA and other consumer-protection statutes, the dissent added.

    Courts Appellate Seventh Circuit FDCPA Debt Collection Consumer Finance Class Action

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  • CFPB releases guide for accessing HMDA lending patterns

    Federal Issues

    On June 13, the CFPB published a guide to assist a range of stakeholders accessing publicly available HMDA data on lending patterns that may result in racial and economic inequality due to redlining practices or other “unjustified disparities.” Through the Beginner’s Guide to Accessing and Using Home Mortgage Disclosure Act Data, stakeholders can better understand the sources and meanings of various HMDA data types as well as the financial institutions that are required to maintain, report, and publicly disclose loan-level information about mortgage applications and loans. According to the Bureau, HMDA data can provide insights on whether lenders are serving the housing needs of their communities and help guide policy decisions.

    Federal Issues CFPB Mortgages HMDA Consumer Finance Redlining Discrimination

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  • CFPB publishes annual report on servicemember complaints

    Federal Issues

    On June 13, the CFPB's Office of Servicemember Affairs (OSA) released its annual report, which provides an overview of OSA’s activities in fulfilling its statutory responsibilities for fiscal year 2021. The report highlights issues facing military consumers based on approximately 42,700 complaints submitted by servicemembers, veterans, and their families (collectively “servicemembers”). Key takeaways from the report include the following:

    • Credit or consumer reporting. In 2021, servicemembers submitted over 17,000 credit or consumer reporting complaints, making it the most complained about financial product or service. The report found that the most common issue that servicemembers noted in their credit or consumer reporting complaints concern problems with incorrect information on a report.
    • Medical billing. The report found that over half of medical debt collection complaints from servicemembers were about debts the individuals reported they did not owe. Many of these complaints stemmed from breakdowns in communication between private health care providers and TRICARE, the health insurance program for active-duty military. The report also discussed how frequent moves can increase the difficulty in receiving information or resolving the matter.
    • Policy developments. The report noted that earlier this year, the VA published a final rule in the Federal Register amending its regulations around the conditions by which VA benefits debts or medical debts are reported to consumer reporting agencies (CRAs), and creating a methodology for determining a minimum threshold for debts reported to the CRAs (covered by InfoBytes here). According to the report, the final rule by the VA “set a clear and important precedent for the health care industry.”
    • Recommendations. Among other things, the report recommended that there should be “more robust data” on the scope and impact of medical debt on servicemembers, and that “[m]edical providers and third-party billing companies should have adequate systems in place to serve servicemembers.”

    Federal Issues CFPB Consumer Finance Consumer Complaints Servicemembers Consumer Education

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  • DOJ: $4.5 million judgment in case targeting Hispanic homeowners

    Federal Issues

    On June 10, the DOJ announced that the U.S. District Court for the Middle District of Florida entered a consent order against several defendants accused of violating the Fair Housing Act by targeting Hispanic homeowners for predatory mortgage loan modification services. After several Hispanic homeowners filed discrimination complaints with HUD, the agency conducted an investigation, issued charges of discrimination, and referred the matter to the DOJ for litigation. According to the DOJ’s complaint, the defendants targeted Hispanic homeowners with deceptive Spanish-language advertising “that falsely promised to cut their mortgage payments in half” and guaranteed “lower payments in a specific timeframe in exchange for thousands of dollars of upfront fees and continuing monthly fees of as much as $550, which defendants claimed were ‘non-refundable.’” The DOJ further contended that many of the targeted Hispanic homeowners (who had limited English proficiency) were told not to communicate with their lenders and were instructed to stop making monthly mortgage payments; however, the defendants allegedly “did little or nothing to obtain the promised loan modifications,” leading to defaults and foreclosures.

    The consent order, reached in partnership with the Civil Rights Division’s Housing Section, enters a nearly $4.6 million judgment (which is mostly suspended) against the defendants to compensate harmed homeowners. Of this amount, $95,000 in total will go to three individuals who intervened as plaintiffs in the DOJ’s lawsuit. Defendants must also pay a $5,000 civil penalty. In addition to monetary relief, the consent order permanently enjoins defendants “from providing any mortgage relief assistance services, including, but not limited to, mortgage loan modification, foreclosure rescue, or foreclosure defense services.” The consent order also imposes training and reporting/recordkeeping requirements for defendants’ other real-estate activities.

    Federal Issues Courts DOJ Fair Lending Fair Housing Act Discrimination Limited English Proficiency Settlement Mortgages HUD Consumer Finance

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  • Colorado enacts medical debt collection bill

    State Issues

    On June 9, the Colorado governor signed HB 1285, which prohibits hospitals from taking certain debt collection actions against a patient if the hospital is not in compliance with hospital price transparency laws. Specifically, the bill prohibits hospitals that are not in compliance with a price transparency rule that went into effect in January 2021 from placing debts with third-party collection agencies, filing lawsuits to collect on unpaid debts, and reporting debts to credit reporting agencies. The bill also establishes that a patient may file suit if they believe that a hospital was not in material compliance with price transparency laws.

    State Issues State Legislation Colorado Medical Debt Debt Collection Consumer Finance

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  • District Court approves data breach settlement


    On June 8, the U.S. District Court for the Southern District of New York granted a plaintiffs’ motion for final approval of a class action settlement resolving claims that several retail businesses failed to establish reasonable safeguards that led to a data breach. According to the opinion, the plaintiff alleged that a syndicate accessed cardholder information and sold it on the so-called dark web. The plaintiffs also claimed that the breach caused them to spend time monitoring their accounts, safeguarding account information, and, for some plaintiffs, resolving fraudulent charges and withdrawals. The settlement provides for two different levels of payments to affected consumers. Tier 1 claimants, who must provide proof of a payment transaction during the period of the breach and confirm that they spent time monitoring account information after the breach, will receive $30. Tier 2 claimants will be reimbursed for documented out-of-pocket expenses incurred as a result of the breach, such as costs and expenses related to identity theft or fraud, late fees, and unauthorized charges and withdrawals, in an amount not to exceed $5,000. The total amount to be paid to class members is approximately $278,000.

    Courts Privacy/Cyber Risk & Data Security Data Breach Consumer Finance Settlement Class Action

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  • CFPB launches inquiry into employer-driven debt practices

    Federal Issues

    On June 9, the CFPB issued a request for information (RFI) seeking public input on practices and financial products that may cause an employee to owe a debt to their employer. The Bureau’s focus is on debt obligations incurred by consumers in the context of an employment or independent contractor arrangement, including training repayment agreements where employees are required to repay the costs of job training should they voluntarily or involuntarily leave a job within a set time period. Other employer-driven debt products include up-front purchases of equipment or other supplies that are not paid for by the employer—a common occurrence when workers are outsourced or classified as independent contractors. Among other things, the RFI seeks information on “prevalence, pricing and other terms of the obligations, disclosures, dispute resolution, and the servicing and collection of these debts.” The Bureau is particularly interested in whether consumers “have a meaningful choice” in agreeing to these products, what these agreements’ terms and conditions are, and whether they might prevent individuals from seeking alternative employment. “The labor market operates at its best when workers are able to move freely within it,” CFPB Director Rohit Chopra said in the announcement, noting that the inquiry will study “the effects of an emerging form of debt that may have the potential to trap employees in place.”

    Federal Issues CFPB Consumer Finance Employer-Driven Debt Products

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  • CFPB releases HAF flyers in multiple languages

    Federal Issues

    On June 9, the CFPB released Homeowner Assistance Fund (HAF) informational flyers in English, Spanish, Chinese, Vietnamese, Korean, Tagalog, and Arabic. As previously covered by InfoBytes, the HAF program was created to provide direct assistance to consumers for mortgage payments, property insurance, utilities, and other housing-related costs to help prevent delinquencies, defaults, and foreclosures after January 21, 2020 related to the Covid-19 pandemic. Mortgage servicers may voluntarily provide these flyers to their borrowers and are advised that the flyer is not required by regulation. Additional HAF program information is available in multiple languages on the Bureau’s website.

    Federal Issues CFPB Mortgages Mortgage Servicing Consumer Finance Covid-19

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  • CFPB settles with student-loan debt relief company

    Federal Issues

    On June 9, the CFPB filed a stipulated final judgment and order in the U.S. District Court for the Southern District of California resolving allegations that the operator of a student-loan debt relief company engaged in unfair debiting of consumer accounts, in violation of the CFPA. According to the complaint, in 2016, the defendant founded a student debt relief company, which “did not solicit new consumers, but instead obtained student-loan account and billing information for hundreds of former [student debt relief operation] consumers without the knowledge or consent of those consumers.” As previously covered by InfoBytes, in 2016, the CFPB filed a consent order against a San Diego-based student debt relief operation for alleged violations of the CFPA, the TSR, and Regulation P by deceiving borrowers into paying fees for federal loan benefits and misrepresenting to consumers that it was affiliated with the Department of Education. The CFPB alleged that the defendant led a debt collection scheme by withdrawing $39 per month, and collecting hundreds of thousands of dollars in total fees from student borrowers’ bank accounts, without authorization, after previously obtaining their names and account information from the former student loan debt relief business. According to the CFPB, “under this scheme, [the defendant’s] company had unlawfully debited more than $240,000 from hundreds of student borrowers’ accounts.” Under the terms of the settlement, the defendant is permanently banned from engaging in debt relief services and must pay a $175,000 penalty to the CFPB.

    Federal Issues Enforcement CFPB Student Lending Debt Relief Consumer Education CFPA UDAAP TSR Regulation P Consumer Finance

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  • CFPB reports on consumer financial well-being

    Federal Issues

    On June 7, the CFPB published a “Data Spotlight” report regarding financial well-being of consumers between 2017 and 2020. In September 2017, the CFPB published its first report on Financial Well-Being in America, which found a wide variation in how people feel about their financial well-being. The recently released report shows that Americans experienced an average increase in their financial well-being between 2017 and 2020, which was likely due to the government response to the Covid-19 pandemic. Using respondent-level public use data from the Fed’s November 2017 and November 2020 Survey of Household Economics and Decision-making, the Bureau’s report found that despite a national average increase, 36 percent of U.S. adults reported having lower financial well-being in 2020 than in 2017. In analyzing the specific characteristics, including income, education, gender, race/ethnicity, and age, nearly “40 percent of respondents that reported a decline in financial well-being were individuals with incomes of less than $25,000, individuals without a bachelor’s degree or greater, women, and Black/non-Hispanic adults.” The report also found that “five percent of adults with low and very low financial well-being reported moving out of their homes due to immediate or future foreclosure or eviction, compared to only one percent of the general population.” Additionally, the report noted that “between 2017 and 2020, U.S. adults of color, younger adults, and women had smaller increases in financial well-being than white adults, older adults, and men.”

    Federal Issues CFPB Consumer Finance Covid-19

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