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CFPB to issue $95 million in redress to victims of student loan debt relief operation
On December 13, the CFPB announced that it will distribute more than $95 million in redress to over 87,000 consumers harmed by a student loan debt relief operation. As previously covered by InfoBytes, the CFPB, along with the Minnesota and North Carolina attorneys general, and the Los Angeles City Attorney (together, the “states”), announced an action against the defendants for allegedly deceiving thousands of student loan borrowers and charging more than $71 million in unlawful advance fees. In the complaint filed October 21, 2019, and unsealed on October 29, 2019 in the U.S. District Court for the Central District of California, the Bureau and the states alleged that since at least 2015, the defendants have violated the CFPA, the TSR, and various state laws by charging and collecting improper advance fees from student loan borrowers prior to providing assistance and receiving payments on the adjusted loans. The CFPB also claimed that the defendants automatically put loans in forbearance and submitted false information to loan servicers to qualify customers for lower monthly payments.
CFPB and FHFA release updated loan-level mortgage data on borrowers’ pandemic experiences
On December 13, the CFPB and FHFA published updated loan-level data from the National Survey of Mortgage Originations. (See also FHFA announcement here.) The publicly available data highlights borrowers’ experiences when obtaining a mortgage during the Covid-19 pandemic. Key highlights from the updated data include: (i) in 2020 a higher percentage (48 percent) of borrowers reported that a paperless online mortgage process was important; (ii) 21 percent of borrowers reported that their mortgage closing did not occur as originally scheduled (up from 17 percent in 2019); (iii) an increased number of borrowers reported that they were very familiar with available interest rates, with 78 percent of borrowers (up from 67 percent in 2019) stating that they were very satisfied with the interest rate that they qualified for; and (iv) borrowers who refinanced in 2020 versus 2019 were better off financially, with 76 percent of borrowers who refinanced reporting that they were not concerned about qualifying for a mortgage in 2020.
“The data released today provide a clear view of borrower sentiment about the mortgage process during the COVID pandemic in 2020,” said Saty Patrabansh, FHFA Associate Director for the Office of Data and Statistics. “This data should be helpful to analysts and policymakers in understanding the complete experience of mortgage borrowers and identifying what challenges may still exist in mortgage lending.”
9th Circuit affirms ruling for CFPB in deceptive solicitations case
On December 13, the U.S. Court of Appeals for the Ninth Circuit affirmed summary judgment in favor of the CFPB against a California-based student financial aid operation and its owner (collectively, “defendants”), which were sued for allegedly mailing deceptive solicitations to individuals that advertised help in applying for scholarships. As previously covered by InfoBytes, the defendants allegedly engaged in deceptive practices when they, among other things, represented that by paying a fee and sending in an application, consumers were applying for financial aid or the defendants would apply for aid on behalf the students. But, according to the Bureau, the consumers did not receive the promised services in exchange for their payment. The case was stayed in 2016 while the owner defendant faced a pending criminal investigation, until the court lifted the stay in 2019 after finding the possibility of the civil proceedings affecting the owner defendant’s ability to defend himself in the criminal proceeding “speculative and unripe.” In 2021, the U.S. District Court for the Southern District of California issued an order granting in part and denying in part the CFPB’s motion for partial summary judgment and granting the agency’s motion for default judgment (covered by InfoBytes here). The order required the defendants to pay a $10 million civil money penalty and more than $4.7 million in restitution. Additionally, default judgment was entered against the defendants on the merits of the Bureau’s claims, which included allegations that the defendants failed to provide privacy notices to consumers as required by Regulation P. The defendants appealed.
On appeal, the defendant-appellant argued that he was not subject to the Bureau’s authority because he provided nonfinancial advice on “free” scholarships and that the solicitations were not deceptive. The appellate court noted that the CFPA lists ten different categories of covered persons, one of which is “providing financial advisory services … to consumers on individual financial matters or relating to proprietary financial products or services ….” Because the solicitations dealt with the topic of financial aid and scholarships for college tuition, the 9th Circuit concluded that “[a]dvising students to exhaust scholarship opportunities before taking on debt is no less ‘financial’ than advising students to leverage their unique access to federally subsidized loans.” The appellate court noted that the defendant’s “advice covered the entire gamut of financial aid and was undoubtedly financial in nature.” The appellate court further noted that the defendant “is incorrect that scholarships are not financial in nature merely because they do not have to be repaid,” and that “the ordinary meaning of financial is broad and encompasses both cash financing and debt financing. Indeed, the definition of ‘finance’ specifically contemplates raising funds, regardless of their origin, for college tuition.”
Supreme Court agrees to hear second appeal over student debt relief plan
On December 12, the U.S. Supreme Court granted a petition for certiorari in a student debt relief challenge currently pending before the U.S. Court of Appeals for the Fifth Circuit. As previously covered by InfoBytes, the DOJ filed an application on behalf of the Department of Education (DOE) asking the U.S. Supreme Court to stay a judgment entered by the U.S. District Court for the Northern District of Texas concerning whether the agency’s student debt relief plan violated the Administrative Procedure Act’s (APA) notice-and-comment rulemaking procedures. In a brief unsigned order, the Supreme Court deferred the DOE’s application for a stay, pending oral argument. The Supreme Court said it will treat the application as a “petition for a writ of certiorari before judgment,” and announced a briefing schedule will be established to allow the case to be argued in the February 2023 argument session to resolve the legality of the program. Oral arguments are scheduled for February 28, 2023.
The Supreme Court said it will consider whether the respondents (individuals whose loans are ineligible for debt forgiveness under the plan, as covered by InfoBytes here) have Article III standing to bring the challenge. The Supreme Court will also consider whether the DOE’s plan is “statutorily authorized” and “adopted in a procedurally proper manner.”
This is the second case concerning the Biden administration’s student debt relief plan that the Supreme Court has agreed to hear. On December 1, the Supreme Court agreed to hear the Biden administration’s appeal of an injunction entered by the U.S. Court of Appeals for the Eighth Circuit, which temporarily prohibits the Secretary of Education from discharging any federal loans under the DOE’s student debt relief plan. (Covered by InfoBytes here.)
District Court says consumer not provided meaningful opportunity to opt-out of arbitration provision
On December 9, the U.S. District Court for the Southern District of New York denied a defendant bank’s motion to compel arbitration in an action alleging the bank’s policy on overdraft fees caused customers to pay fees on accounts that were allegedly “never actually overdrawn.” Plaintiff filed a putative class action against the defendant seeking monetary damages from the defendant’s assessment and collection of these fees, and the defendant moved to compel arbitration. The court considered, among other things, whether 2014 and 2021 versions of the bank’s deposit account agreements constituted a request for the plaintiff to enter into a new agreement, in addition to whether “the extent to which a party subject to an agreement containing an arbitration provision with an optout clause . . . has a continuing obligation or opportunity to opt-out of arbitration each time the contract is amended or whether the party is bound by their assent to or rejection of arbitration at the first instance the opt-out procedure is offered.”
The court noted that the plaintiff’s account, which was opened in 2004, was governed by a 2002 version of an agreement that did not contain any dispute resolution provisions, nor did it require mandatory arbitration. However, the agreement did include a change of terms provision that stated customers “could be ‘bound by these changes, with or without notice.’” The agreement was amended in 2008 to include an arbitration provision and contained an opt-out clause allowing customers to reject the arbitration provision within 45 days of opening an account. In 2014, the defendant sent a notice to customers about further modifications made to initial account disclosures. The 2014 notice stated that customers could opt out of the entire amended agreement, which contained the arbitration clause, if they closed their account within 60 days. If they chose not to close the account, customers would be deemed to have accepted the amended agreement. A 2021 amendment agreement also included the arbitration provision. The defendant argued that the plaintiff is subject to the arbitration provision because he could have opted out as early as 2008 but chose not to and continued to use his account after receiving the 2014 notice.
The court disagreed, stating that the plaintiff would still have been obligated to arbitrate disputes under a survival clause in the 2008 contract, which said that the arbitration clause “shall survive the closure of your deposit account.” The court found that the 2014 notice did not provide the plaintiff a meaningful opportunity to opt out of arbitration. Moreover, because the plaintiff was unable to opt out under the 2008 agreement, “no contract to arbitrate was formed, and [the plaintiff] was not required to opt out again when [the defendant] amended the contract in or about January 2014 or thereafter.” “The lack of notice and absolute lack of opportunity for [the plaintiff] to opt out render the 2008 [agreement] unconscionable under New York law, which seeks to ‘ensure that the more powerful party’ — here, [the defendant] — ‘cannot ‘surprise’ the other party with some overly oppressive term,’ like an arbitration provision with an opt-out procedure that could never be exercised,” the court wrote.
Collection firm to pay $100,000 for operating without a license
On December 1, the Connecticut Department of Banking (Department) fined a collection law firm $100,000 and ordered it to cease and desist from collection activity for operating without a valid license. According to the order, in August, the Department issued a temporary order to cease and desist, a notice of intent to issue order to cease and desist, a notice of intent to impose a civil penalty, and a notice of a right to a hearing, which provided the firm 14 days to respond to request a hearing. Furthermore, the firm was warned that if a request for hearing was not made, a cease and desist order would likely be forthcoming. During its investigation, the state discovered that in 2019, the firm was conducting unlicensed collection agency activity for about 10,000 Connecticut accounts with a total balance of about $1.4 million. The firm allegedly collected approximately $81,000 of that amount. In late 2019, the state sent the firm a certified letter regarding its collection activity and asked for a response, which was never provided. In the August order, the firm was asked to supply the state with a list of all the creditors with whom the firm has entered into agreements for consumer collection services since July 2018, including copies of all the agreements with those creditors, and an itemized list of each Connecticut debtor account that the firm had attempted collections on for the same time period.
District Court stays action against remittance provider while Supreme Court weighs CFPB’s funding structure
On December 9, the U.S. District Court for the Southern District of New York stayed an action brought by the CFPB and the New York attorney general against a defendant remittance provider until after the U.S. Supreme Court decides if it will review whether the U.S. Court of Appeals for the Fifth Circuit erred in holding that the Bureau’s funding structure violates the Appropriations Clause of the Constitution. Last month the DOJ, on behalf of the CFPB, submitted a petition for a writ of certiorari seeking Supreme Court review of the 5th Circuit’s decision during its current term. (Covered by InfoBytes here.) The New York AG and the Bureau sued the defendant in April for allegedly violating the EFTA and its implementing Regulation E, the Remittance Rule, and the Consumer Financial Protection Act (CFPA), among various consumer financial protection laws, in its handling of remittance transfers. (Covered by InfoBytes here.)
The defendant argued that the district court should hold off on deciding on its motion to dismiss per the aforementioned argument, but should nonetheless rule on its pending motion to transfer. The Bureau opposed the defendant’s request for a stay, countering “that a stay would not promote efficiency” since the issue of the Bureau’s standing would not affect the claims brought in the current action. The Bureau further asserted “that the public and the parties’ interest weighs against a stay, as it would hinder Plaintiffs’ enforcement of the consumer protection laws and make obtaining evidence down the line more difficult.”
The district court disagreed, stating that the Supreme Court may address the broader issue of the Bureau’s standing to bring enforcement actions in its decision, and that, regardless, the agency’s claims in the current action “are inextricably linked to CFPB rules and regulations, which themselves may be implicated by a Supreme Court decision should it grant the petition.” The district court stayed the case in its entirety and said that it will wait to decide on both motions until after the Supreme Court decides on the Bureau’s filed petition for a writ of certiorari.
CFPB issues HMDA technical amendment
On December 12, the CFPB issued a technical amendment to the HMDA Rule to reflect the closed-end mortgage loan reporting threshold of 25 mortgage loans in each of the two preceding calendar years. As previously covered by InfoBytes, in September, the U.S. District Court for the District of Columbia granted partial summary judgment to a group of consumer fair housing associations (collectively, “plaintiffs”) that challenged changes made in 2020 that permanently raised coverage thresholds for collecting and reporting data about closed-end mortgage loans and open-end lines of credit under HMDA. The 2020 Rule, which amended Regulation C, permanently increased the reporting threshold from the origination of at least 25 closed-end mortgage loans in each of the two preceding calendar years to 100, and permanently increased the threshold for collecting and reporting data about open-end lines of credit from the origination of 100 lines of credit in each of the two preceding calendar years to 200 (covered by InfoBytes here). The plaintiffs sued the CFPB in 2020, arguing, among other things, that the final rule “exempts about 40 percent of depository institutions that were previously required to report” and undermines HMDA’s purpose by allowing potential violations of fair lending laws to go undetected. (Covered by InfoBytes here.) As a result of the September 23 order, the threshold for reporting data about closed-end mortgage loans is 25, the threshold established by the 2015 HMDA Rule.
FDIC announces South Carolina disaster relief
December 9, the FDIC issued FIL-51-2022 to provide regulatory relief to financial institutions and help facilitate recovery in areas of South Carolina affected by Hurricane Ian from September 25 to October 4. The FDIC acknowledged the unusual circumstances faced by institutions affected by the storms and suggested that institutions work with impacted borrowers to, among other things: (i) extend repayment terms; (ii) restructure existing loans; or (iii) ease terms for new loans, provided the measures are done “in a manner consistent with sound banking practices.” Additionally, the FDIC noted that institutions “may receive favorable Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery.” The FDIC will also consider regulatory relief from certain filing and publishing requirements.
FCC orders companies to block student loan scam calls
On December 8, the FCC’s Enforcement Bureau ordered voice service providers to cease carrying robocalls related to known student loan scams and specifically designated a service believed to account for more than 40 percent of student loan robocalls in October. The FCC’s order provides written notice to all voice service providers regarding suspected illegal robocalls that have been made in violation of the TCPA, the Truth In Caller ID Act of 2009, or the TRACED Act. Specifically, the order “directs all U.S.-based voice service providers to take immediate steps to mitigate suspected illegal student loan-related robocall traffic.” The order further noted that if a provider fails to “take all necessary steps” to avoid carrying suspected illegal robocall traffic, the provider may be “deemed to have knowingly and willfully engaged in transmitting unlawful robocalls.” According to FCC Chairwoman Jessica Rosenworcel, the Commission is “cutting these scammers off so they can't use efforts to provide student loan debt relief as cover for fraud.”