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District Court grants motion to dismiss in FDCPA case regarding an undated Model Validation Notice
On December 5, the U.S. District Court for the Southern District of New York granted a debt collection agency (the defendant) a motion to dismiss an individual’s (plaintiff’s) complaint. The case considers whether an undated Model Validation Notice (MVN) is a material detail that provides standing to sue under the FDCPA. An MVN is a form provided by the CFPB in Appendix B of the Debt Collection Rule to assist debt collection agencies in complying with FDCPA notice and disclosure requirements. However, the CFPB provides an undated MVN, so many debt collectors who use this template fail to provide a date when sending a debt collection letter to individuals, leading to a recipient’s confusion when the debt collector writes “today” or “now.”
In this case, the plaintiff alleges that the undated collection letter suggests the defendant “withheld a material term from [p]laintiff which made it confusing for him to understand the nature of the subject debt.” The plaintiff did not pay the debt, and instead, he alleged that he suffered damages from the defendant’s “suspicious, misleading, deceptive, unfair, and unconscionable actions.”
Before addressing the merits of the plaintiff’s claims, the court applied Article III standing to determine if the plaintiff had a basis to sue. The court considered whether the plaintiff had suffered a “concrete, particularized injury” in receiving an undated letter from the defendant and concluded that the plaintiff did not suffer harm as a result of this act under Article III because “[t]ime and money spent due to concern and confusion are not concrete harms.” The court held the plaintiff had no standing to bring this action and granted the defendant’s motion to dismiss the plaintiff’s claims. The court, however, gave the plaintiff the opportunity to file an amended complaint.
NY enacts the Fair Medical Debt Reporting Act
On December 13, the New York governor signed into law S4907A, or the Fair Medical Debt Reporting Act (the “Act”), a medical debt credit reporting bill that will bar credit reporting agencies from directly or indirectly incorporating medical debt into consumer credit reports. The Act specifically prohibits hospitals, health care professionals, and ambulances from reporting medical debt to credit agencies. The Act defines medical debt as any amount owed or claimed by a consumer “related to the receipt of health care services, products, or devices provided to a person” by a hospital, health care professional, or ambulance service. Notably, obligations charged to a credit card are excluded from medical debts unless the card is specifically designated for health care expenses under an open-ended or closed-end plan.
NY state court granted decision to continue its new check cashing fee methodology
On December 7, the Supreme Court of the State of New York granted a motion to dismiss a challenge made to NYDFS’s check cashing regulation and ruled in favor of NYDFS. As previously covered in InfoBytes, the January regulation’s methodology capped the maximum percentage check cashing fee for most check types (social security, unemployment, emergency relief, veterans’ benefits) at 2.2 percent or $1, whichever is greater, and eliminated automatic fee increases based on CPI every year that had been in place since 2005.
Shortly after the rule took effect in June, several plaintiffs sued NYDFS alleging that the amended regulation was arbitrary and capricious, violated the purpose of the banking law, and was an unconstitutional property deprivation. The NY Supreme Court found that the amended regulation had a rational basis and was supported by the administrative record. Because NYDFS neither violated the NY state banking law nor the Administrative Procedures Act, the court further declared that the “amended regulation did not constitute a deprivation of property in the absence of either procedural or substantive due process.” Because the court dismissed the petition entirely in NYDFS’s favor, the court denied the plaintiffs’ motion for preliminary injunction as merely “academic.”
OCC issues guidance on BNPL loans
On December 6, the OCC posted Bulletin 2023-37 to provide banks with guidance on Buy Now, Pay Later (BNPL) loans. The OCC defined BNPL as point-of-sale or “pay-in-4” installment loan products. The OCC noted that, if BNPL products are used responsibly, they “can provide consumers with a low-cost, short-term, small-dollar financing alternative to manage cash flow.”
The OCC emphasized that the banks should offer BNPL loans in accordance with standards for safety and soundness, treat customers fairly, provide fair access to financial services, and act in compliance with applicable laws and regulations. In the bulletin, the OCC highlighted the risks to banks associated with offering BNPL lending, including credit, compliance, operational, strategic, and reputational risks to banks. In particular, the bulletin also underscores the risks that borrowers may not fully understand their BNPL repayment obligations, the challenges of underwriting BNPL applicants who have limited or no credit history, the lack of standardized disclosure language, and the risks of merchant disputes, among other risks.
The OCC recommended banks consider risk management practices, such as maintaining “underwriting, repayment terms, pricing, and safeguards that minimize adverse customer outcomes” tailored to the unique characteristics and risks of BNPL loans. The bulletin also advised banks to pay close attention to “the delivery method, timing, and appropriateness of marketing, advertising, and consumer disclosures,” in particular to ensure that all such documents clearly disclose the borrower’s obligations and any fees that may apply.
Freddie Mac standardizes down payment assistance programs
On December 4, Freddie Mac announced new, standardized mortgage documents aimed at of making down payment assistance (DPA) programs more accessible nationwide. According to Freddie Mac, the subordinate lien programs for DPA programs have been specific to particular housing finance agencies which created confusion. By standardizing these documents, Freddie Mac hopes to benefit lenders by making DPA programs more efficient.
To create the standardized documents, Freddie Mac partnered with Fannie Mae and state housing finance agencies. These documents will initially be available for 19 states, and eventually for all 50 states and the District of Columbia. These changes come in tandem with Freddie Mac’s new tool, DPA One®, to aggregate and showcase down payment assistance programs on a single platform.
CFPB comments on California DFPI licensing provisions, income-based advances
On December 1, the CFPB posted a blog entry sharing its comment letter responding to the California DFPI’s notice of proposed rulemaking for “income-based advances” from earlier this year. As previously covered by InfoBytes, the DFPI’s proposed regulations would, among other things, clarify licensing provisions and the applicability of the CFL to certain activities. Within the CFPB’s comment letter, it stressed the importance of regulatory consistency of consumer financial products and services across federal and state law. The letter noted the CFPB’s view that companies offering “income-based advances” (also marketed as “earned wage access”) are subject to federal oversight, and the CFPB supports state oversight of such companies as well. Moreover, the CFPB said that DFPI’s particular treatment of income-based advances takes a similar approach to TILA and Regulation Z and that the CFPB plans to issue further guidance regarding the applicability of TILA to these products.
CFPB’s report on Americans’ financial health, post-pandemic.
On December 1, the CFPB released a report titled: “Making Ends Meet in 2023: Insights from the Making Ends Meet Survey” that discussed Americans’ financial health in 2023 in comparison to 2019 – before the Covid-19 pandemic. From June 2019 to February 2021, consumers benefited from increased savings and expanded unemployment benefits; however, beginning in 2022 and carrying into 2023, consumers experienced an increased strain on their finances. When comparing the last two years to 2019, the CFPB found that: (i) more families are facing greater difficulty paying their bills; (ii) more families are unprepared for a short interruption of income; (iii) access to credit remains difficult; (iv) liquidity remains available to households; and (v) large disparities in financial stability continue.
CFPB releases 2023 Ombudsman report
On November 30, the CFPB Ombudsman’s Office published its annual report, which detailed inquiries handled by the office, included a new FAQ section, and described the second year of the Ombudsman’s post-examination survey of supervised entities. The Ombudsman reviewed some pertinent topics the CFPB faced in the past year, including recognizing imposter scams, distinguishing between new and duplicate consumer complaints, assisting consumers with diminished capacity, and helping the public contact the CFPB.
In detail, and on recognizing imposter frauds, the Ombudsman provided CFPB resources and posted a blog on scam awareness in English and Spanish. On distinguishing between new and existing complaints, consumers expressed concern that the CFPB closed their cases without providing a reason or that the CFPB mistakenly identified complaints as duplicative. The report described the CFPB’s process for identifying duplicate complaints, noted consumers’ concerns, and indicated that the CFPB continues to review this issue. On assisting consumers with diminished capacity, the Ombudsman discussed challenges with third-party entities assisting with a case, as well as offering resources on power of attorney questions. And on helping the public contact the CFPB, the Ombudsman identified contact points that could improve, such as the CFPB’s website and telephone switchboard, and asked the CFPB to update the contact points.
FHFA announces increases in 2024 conforming loan limits
On November 28, FHFA announced that it will raise the maximum conforming loan limits (CLL) for mortgages purchased in 2024 by Fannie Mae and Freddie Mac from $726,200 to $776,550 (the 2023 CLLs were covered by InfoBytes here) for most of the United States. In Alaska, Hawaii, Guam, and the U.S. Virgin Islands, the maximum loan limit for one-unit properties will be 1,149,825. According to the FHFA, due to rising home values (up 5.56 percent since 2022), CLLs will be higher for all but five U.S. counties.
FinCEN, IRS issue alert on Covid-19 employee retention credit fraud schemes
On November 22, FinCEN and the IRS issued an alert to financial institutions regarding Covid-19 Employee Retention Credit (ERC)-related fraud schemes. Authorized by the CARES Act, the ERC is a tax credit aimed at incentivizing businesses to retain employees on payroll during the Covid-19 pandemic, through which fraud and scams have been carried out, FinCEN explained. The alert offers insights into typologies linked to ERC fraud and scams, emphasizes specific warning signs to aid financial institutions in detecting and reporting suspicious activities, and reinforces these institutions' obligations to report under the Bank Secrecy Act (BSA).
According to the alert, “[d]uring the 2023 tax season, the IRS noted various scammers appeared throughout the [U.S.] using the false pretense of being tax credit experts to convince businesses to file for the ERC.” Third-party ERC promoters misled taxpayers about eligibility, aiming to profit from filing ERC claims without verifying qualifications, FinCEN added. As a result, the alert mentioned that victims risk claim denial or repayment, while scammers profit regardless of the claim's outcome, involving both willing and unaware businesses in these schemes. FinCEN added that businesses must meet specific ERC requirements, and those who received PPP loans cannot use the same wages counted in the PPP loan for the ERC application. Despite this, some may file amended tax returns misrepresenting their eligibility for the ERC by falsifying staff wages or claiming their operations were partially or fully suspended during the pandemic. FinCEN listed “red flags” indicative of ERC fraud that financial institutions should be cognizant of, including, among others, (i) a business account that receives multiple ERC check deposits over several days; (ii) small business accounts that receive ERC check deposits disproportionate to their size, employee count, and transaction volume; and (iii) a new account for an established business that only receives ERC deposits, suggesting possible identity theft using the business as a front for fraudulent claims. The alert also reminds financial institutions of their obligation to file suspicious activity reports and to keep a copy of the reports for five years from the date of the filing.