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CFPB highlights tenant background check problems
On November 15, the CFPB issued two reports discussing issues related to the tenant background check industry. The Consumer Snapshot: Tenant Background Checks bulletin outlines difficulties that prospective renters encounter in connection with a landlord’s use of a tenant screening report, based on complaints submitted to the CFPB and CFPB-commissioned qualitative research. The Tenant Background Checks Market Report is based on data from industry research, legal cases, academic research, the CFPB’s market monitoring, and other third-party sources, and focuses on publicly available information from a sample of 17 tenant screening companies that offer services to landlords across the U.S. According to the Bureau, the reports describe how errors in these background checks contribute to rising costs and barriers to quality rental housing. The Bureau’s analysis of over 24,000 complaints highlights renter challenges associated with the industry’s failure to remove wrong, old, or misleading information or to conduct adequate investigations of disputed information.
Highlights of Consumer Snapshot: Tenant Background Checks include:
- More than 17,200 of the approximately 26,700 complaints related to tenant screening received by the Bureau from January 2019 through September 2022 were related to incorrect information appearing on a prospective renter's report.
- Renters who submitted complaints about tenant screening reports described difficulties finding stable and secure housing due to negative information that was inaccurate, misleading, or obsolete.
- The experiences of most applicants who encountered inaccurate or misleading information about evictions and rental debt in their reports indicate that the presence of eviction records has a high likelihood of leading to outright denials of rental housing.
- Inaccuracies in criminal records may have an outsized impact on Native American, Black, and Hispanic communities as they are disproportionally represented in the criminal justice system.
Highlights of the Tenant Background Checks Market Report include:
- The coverage of rental payment history in the consumer reporting system is estimated to range between 1.7 percent to 2.3 percent of U.S. renters.
- Approximately 68 percent of renters pay application fees when applying for rental housing, which are often used to cover the cost of tenant screening.
- Market incentives generally value comprehensiveness of derogatory information at the expense of accurate information.
- There may be a significant possibly that tenant screening reports overstate the risk of renting to any given applicant.
District Court denies dismissal of RESPA "dual-tracking" suit
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.
OCC senior deputy comptroller discusses fair lending
On November 14, Senior Deputy Comptroller for Bank Supervision Policy Grovetta Gardineer delivered remarks on behalf of acting Comptroller Michael J. Hsu before the CRA & Fair Lending Colloquium to discuss the agency’s ongoing efforts to ensure its regulated institutions provide fair and equitable credit services. Among other topics, Gardineer mentioned the agency’s initiatives to identify and address discriminatory lending practices, including addressing fair lending in advanced analytics and reducing barriers to financial inclusion. Noting that the banking industry has evolved “rapidly,” Gardineer stated that the OCC has “remained focused on the solid foundation of our mission,” and identified “three strategic goals: (1) agility and learning; (2) credibility and trust; and (3) leadership in supervision.”
She also said that the OCC is enhancing its risk-based supervisory approach by, among other things, “[r]ecognizing our strategic goal for ‘agility and learning,’” and by “conducting fair lending risk assessments during every supervisory cycle for each bank that engages in retail lending.” Regarding the agency’s efforts to reduce inequality in banking, Gardineer stated that the OCC has taken an active role on the Interagency Task Force on Property Appraisal and Valuation Equity, or PAVE, which is an initiative to evaluate the causes, extent, and consequences of appraisal bias. As previously covered by InfoBytes in March, the thirteen member agencies and offices of the PAVE Task Force came together in an extraordinary interagency effort to issue the Action Plan to Advance Property Appraisal and Valuation Equity, which represents “the most wide-ranging set of reforms ever put forward to advance equity in the home appraisal process.”
Gardineer also disclosed that the OCC is developing other internal measures to enhance credibility and trust, including measures to “improv[e] supervisory methods for identifying potential discrimination in property valuations.” In regard to addressing fair lending in advanced analytics, Gardineer warned that “the growing use of advanced analytics such as artificial intelligence or machine learning offers both the opportunity to help reduce inequality and to address safety, soundness, and fairness risks,” and emphasized that the agency “supports fair, ethical, responsible, and transparent adoption of advanced analytics, including artificial intelligence and machine learning, in the financial sector.”
In terms of the future, she highlighted that “the OCC is focused on strengthening our supervision processes and resources devoted to compliance with fair lending laws, while enhancing our ability to remain agile and successfully execute our mission to ensure that national banks and federal savings associations operate in a safe and sound manner, provide fair access to financial services, treat customers fairly, and comply with applicable laws and regulations..”
CFPB finalizes nonbank supervisory rule
On November 10, the CFPB announced a final rule finalizing changes to a nonbank supervision procedural rule issued in April. As previously covered by InfoBytes, the Bureau announced earlier this year that it was invoking a “dormant authority” under the Dodd-Frank Act to conduct supervisory examinations of fintech firms and other nonbank financial services providers based upon a determination of risk. Specifically, the Bureau said it intends to use a provision under Section 1024 of Dodd-Frank that allows it to examine nonbank financial entities, upon notice and an opportunity to respond, if it has “reasonable cause” to determine that consumer harm is possible. Concurrently, the Bureau issued a request for public comment on an updated version of a procedural rule that implements its statutory authority to supervise nonbanks “whose activities the CFPB has reasonable cause to determine pose risks to consumers,” including potentially unfair, deceptive, or abusive acts or practices. Provisions outlined in the procedural rule would exempt final decisions and orders by the Bureau director from being considered confidential supervisory information, thus allowing the Bureau to publish the decisions on its website. Subject companies would be given an opportunity seven days after a final decision is issued to provide input on what information, if any, should be publicly released, the Bureau said.
After reviewing public comments received on the procedural rule, the Bureau incorporated certain changes to clarify the standard that the agency will apply when deciding what information is appropriate for public release, in whole or in part. The Bureau explained that information falling within Freedom of Information Act Exemptions 4 and 6 (which protect confidential commercial information and personal privacy) will not be published. Additionally, the Bureau said it may also choose to withhold information if the director determines there is other good cause to do so. The final rule also extends the deadline from seven to ten business days for nonbanks to submit input about what information should be released. The final rule will take effect upon publication in the Federal Register.
Notably, the Bureau emphasized that the “amended procedures only relate to the initial decision to extend supervision to a nonbank entity” and “do not affect the confidentiality of any ensuing supervisory examination or any other aspect of the supervisory process.”
District Court blocks student loan forgiveness program
On November 10, the U.S. District Court for the Northern District of Texas ruled that the Biden administration’s $400 billion student loan forgiveness program under the HEROES Act of 2003 is “an unconstitutional exercise of Congress’s legislative power.” As previously covered by InfoBytes, the three-part debt relief plan was announced in August to provide, among other things, up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the Department of Education (DOE) and up to $10,000 in debt cancellation to non-Pell Grant recipients for borrowers making less than $125,000 a year or less than $250,000 for married couples. Plaintiffs, whose loans are ineligible for debt forgiveness under the program, sued the DOE and the DOE secretary claiming the agency violated the Administrative Procedure Act’s (APA) notice-and-comment rulemaking procedures and arbitrarily decided the program’s eligibility criteria. Plaintiffs further contended that the DOE secretary does not have the authority under the HEROES Act to implement the program. Defendants countered that the plaintiffs lacked standing.
The court entered summary judgment in favor of the plaintiffs (rather than granting preliminary injunctive relief as requested) after determining it was appropriate to proceed to the merits of the case. Concerning defendants’ assertion regarding lack of standing to challenge the DOE’s program because it is conferring a benefit and therefore “nobody is harmed by the existence of that benefit,” (as the court characterized defendants’ argument), the court ruled that the U.S. Supreme Court has actually “recognized that a plaintiff has standing to challenge a government benefit in many cases.” The court next reviewed whether plaintiffs suffered a concrete injury based on the denial of their procedural rights under the APA by not being afforded the opportunity to provide meaningful input to protect their concrete interests. While the HEROES Act expressly exempts the APA’s notice-and-comment obligations, the court stressed that the HEROES Act “does not provide the executive branch clear congressional authorization to create a $400 billion student loan forgiveness program,” and, moreover, does not mention loan forgiveness. “If Congress provided clear congressional authorization for $400 billion in student loan forgiveness via the HEROES Act, it would have mentioned loan forgiveness,” the court wrote. Shortly after the ruling was issued, the DOJ filed a notice of appeal on behalf of the DOE with the U.S. Court of Appeals for the Fifth Circuit. Secretary of Education Miguel Cardona released a statement following the ruling expressing disappointment in the decision.
CFPB tells CRAs, furnishers to investigate disputes
On November 10, the CFPB issued Circular 2022-07 to outline how federal and state consumer protection enforcers can bring claims against companies that fail to investigate and resolve consumer report disputes. According to the Bureau, consumer reporting agencies (CRAs) and some furnishers have failed to conduct reasonable investigations of consumer disputes. The Circular affirmed that CRAs and furnishers must reasonably investigate all disputes that they have not reasonably determined to be frivolous or irrelevant, and may be liable under the Fair Credit Reporting Act if they fail to do so. Additionally, the Circular noted that claims can be pursued by both state and federal consumer protection enforcers and regulators. The Circular also described that enforcers can “bring a claim if a consumer reporting agency fails to promptly provide to the furnisher ‘all relevant information’ regarding the dispute that the consumer reporting agency receives from the consumer.” On the topic of whether CRAs need to forward to furnishers consumer-provided documents attached to a dispute, the Circular noted that “[i]t depends.” The Circular then explained that even “[w]hile there is not an affirmative requirement to specifically provide original copies of documentation submitted by consumers, it would be difficult for a consumer reporting agency to prove they provided all relevant information if they fail to forward even an electronic image of documents that constitute a primary source of evidence.”
3rd Circuit says defendants conducted reasonable investigations into FCRA claims
On November 9, the U.S. Court of Appeals for the Third Circuit affirmed a district court’s summary judgment ruling in favor of defendants in an FCRA reasonable investigation suit. According to the opinion, the plaintiff obtained a credit card from one of the defendants, exceeded her credit limit, and was past due on payments. Another of the defendants (furnishing defendant) acquired her account and reported the outstanding debt to the consumer reporting agencies (CRAs). Plaintiff disputed the tradeline as inaccurate with two of the CRAs claiming several alleged inaccuracies, including that the date the account was opened and the original balance were inaccurate, and the payment history was incomplete, among other things. The CRAs notified the furnishing defendant of the disputes, and the furnishing defendant conducted an investigation in accordance with its FCRA dispute policies and procedures, which revealed that the account status, payment history, current balance, amount past due, and account number were accurate. Discrepancies in the spelling of the plaintiff’s name and street address were corrected however. It was not until after the plaintiff sued the defendants for violations of the FCRA that she asserted the furnishing defendant should have been aware she was enrolled in a credit protection program and that it was therefore liable for the original creditor’s failure to apply the program’s benefits to her credit card account. The opinion noted that the plaintiff also filed a “similarly vague dispute” against a student loan servicer for allegedly misreporting information about her account with the CRAs.
In agreeing with the district court, the 3rd Circuit concluded that summary judgment in favor of the defendants was properly granted as the plaintiff “failed to introduce any direct or circumstantial evidence” showing either of the defendants failed to “conduct reasonable investigations with respect to the disputed information.” Additionally, the plaintiff’s disputes were vague and failed to provide specifics as to the alleged errors or explain why the information was inaccurate or incomplete. “To the extent that [plaintiff] claims that the investigations were unreasonable because a reasonable investigation would have revealed the inaccuracies alleged, her conclusory assertion is insufficient to defeat summary judgment,” the appellate court wrote.
NYDFS issues RFI on private student loan refinancing
On November 8, NYDFS issued a request for information (RFI) to student loan advocates, lenders, regulators, servicers, and other stakeholders, seeking information regarding private student loan refinancing in New York. The Private Student Loan Refinancing Task Force, tasked with “study[ing] and analyz[ing] ways lending institutions that offer non-federal student loans to students of New York institutions of higher education can be incentivized and encouraged to create student loan refinance programs,” issued questions to solicit information from stakeholders to inform a forthcoming report. According to the announcement, the Task Force is seeking responses to questions concerning private sector refinancing of student loans. The questions include, among other things: (i) “What options are available for student loan borrowers to refinance private student loans both in New York State and outside the state?”; (ii) “What options are available for student loan borrowers to refinance federal student loans both in New York State and outside the state?”; (iii) “What is the volume of private student loans refinanced, the terms of the borrowers’ prior loans, the terms of the borrowers’ refinancing loans, the unmet need for student loan refinancing, and the impact of these refinancing loans in New York and nationwide?”; (iv) “What is the volume of federal student loans refinanced, the terms of the borrowers’ prior loans, the terms of the borrowers’ refinancing loans, the unmet need for student loan refinancing, and the impact of these refinancing loans in New York and nationwide?”; and (v) “What publicly available data should the Task Force review? Is there privately owned data that could be made available to the Task Force?” Responses are due by December 8.
District Court approves $14 million wireless rates settlement
On November 8, the U.S. District Court for the Northern District of California granted final approval to a $14 million settlement resolving allegations that a telecommunications company made misleading claims regarding its administrative fees. According to the plaintiffs’ memorandum of points and authorities in support of motion for preliminary approval of class settlement, current and former wireless-service customers of the defendant (plaintiffs) with post-paid wireless service plans were charged an improper administrative fee. The plaintiffs alleged, generally, that the defendant’s representations and advertisements regarding the monthly price of its post-paid wireless service plans were misleading because the prices did not include the administrative fee, and that the defendant implemented and charged the administrative fee in a deceptive and unfair manner. According to the terms of the $14 million settlement agreement, $3.5 million of the award will cover attorney fees and costs, with additional funds allocated to cover litigation expenses.
North Carolina Supreme Court orders appeals court to review HAMP fraud claims
On November 4, the Supreme Court of North Carolina determined that an appeals court erred by remanding a case concerning a defendant bank’s Home Affordable Modification Program to a trial court with instructions to make factual findings and conclusions of law on the defendant’s motion to dismiss. Plaintiffs sued the defendant alleging fraud and other related claims arising out of the bank’s mortgage modification program. The trial court dismissed the claims for failure to state a claim pursuant to North Carolina’s Rule of Civil Procedure 12(b)(6), after concluding that plaintiffs’ claims were time barred and “that ‘the claims of all [p]laintiffs who were parties to foreclosure proceedings [were] barred by the doctrines of res judicata and collateral estoppel.’” Plaintiffs appealed. A divided panel of the Court of Appeals remanded the case to the trial court claiming that “it could not ‘determine the reason behind the grant’ and could not ‘conduct a meaningful review of the trial court’s conclusions of law.’” The North Carolina Supreme Court countered, however, that there exists “no legal basis or practical reason for the Court of Appeals to remand the case to the trial court to make factual findings and conclusions of law” as “a trial court is not required to make factual findings and conclusions of law to support its order unless requested by a party”—a request neither party made. According to the North Carolina Supreme Court, the appeals court erred by not conducting a de novo review of the sufficiency of the plaintiffs’ allegations. The North Carolina Supreme Court ordered the appeals court to address whether the plaintiffs’ allegations, if treated as true, are sufficient to state a claim upon which relief can be granted.