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CFPB sues payday lender over debt collection practices
On July 12, the CFPB filed a complaint against a Texas-based payday lender (defendant) for allegedly engaging in illegal debt-collection practices and allegedly generating $240 million in reborrowing fees from borrowers who were eligible for free repayment plans in violation of the CFPA. As previously covered by InfoBytes, in 2014, the Bureau ordered the defendant to, among other things, pay $10 million for allegedly using false claims and threats to coerce delinquent payday loan borrowers into taking out an additional payday loan to cover their debt. The Bureau stated that after the CFPB’s 2014 enforcement action, the defendant “used different tactics to make consumers re-borrow.” The complaint alleges that the defendant “engaged in unfair, deceptive, and abusive acts or practices by concealing the option of a free repayment plan to consumers who indicated that they could not repay their short term, high-cost loans originated by the defendant.” The Bureau also alleges that the defendant attempted to collect payments by unfairly making unauthorized electronic withdrawals from over 3,000 consumers’ bank accounts. The Bureau seeks permanent injunctive relief, restitution, disgorgement, damages, civil money penalties, and other relief.
FHA revises appraisal validity period
On July 12, FHA released FHA INFO 2022-71, announcing the publication of Mortgagee Letter (ML) 2022-11, Revised Appraisal Validity Periods, which applies to Single Family Title II Forward and HECM programs. The ML increases the FHA initial appraisal validity period from 120 days to 180 days and extends the appraisal update validity period to one year. As a result of the ML, FHA will implement modifications to the appraisal-related functionality in FHA Connection (FHAC). For all case numbers assigned on or after September 6, the Appraisal Effective Date field on the FHAC Appraisal Logging screen will no longer be editable. Appraisal Logging for this field is automatically pre-filled with the information submitted from the electronic appraisal report. The updates outlined in ML 2022- 11 will be incorporated under the Single-Family Housing Policy Handbook 4000.1.
District Court orders CFPB to issue Section 1071 rulemaking by March 31
On July 11, the U.S. District Court for the Northern District of California issued an order setting March 31, 2023 as the deadline for the CFPB to issue a notice of proposed rulemaking (NPRM) on small business lending data. As previously covered by InfoBytes, the Bureau is obligated to issue an NPRM for implementing Section 1071 of the Dodd-Frank Act, which requires the agency to collect and disclose data on lending to women and minority-owned small businesses. The requirement was established as part of a stipulated settlement reached in 2020 with a group of plaintiffs, including the California Reinvestment Coalition (CRC), who argued that the Bureau’s failure to implement Section 1071 violated two provisions of the Administrative Procedures Act, and harmed the CRC’s ability to advocate for access to credit, advise organizations working with women and minority-owned small businesses, and work with lenders to arrange investment in low-income and communities of color (covered by InfoBytes here).
Find continuing Section 1071 coverage here.
FHA expands mortgage eligibility for Covid-affected borrowers
On July 7, FHA announced expanded mortgage eligibility for qualifying borrowers who previously experienced employment gaps or loss of income due to the Covid-19 pandemic. Under Mortgagee Letter (ML) 2022-09, salaried and hourly wage-earners, as well as self-employed individuals impacted by a Covid-19 related economic event (defined “as a temporary loss of employment, temporary reduction of income, or temporary reduction of hours worked during the Presidentially Declared COVID-19 National Emergency”), who now have stable income will have a greater opportunity to purchase a home using affordable FHA-insured mortgage financing. Specifically, ML 2022-09 updates calculation guidelines for a borrower’s effective income under certain sections in the Single-Family Housing Policy Handbook 4000.1. While ML 2022-09’s provisions are effective for all case numbers assigned on or after September 5, 2022, lenders may begin using the policies immediately. According to FHA Commissioner Julia Gordon, the changes further agency efforts “to facilitate recovery from COVID-19 and support access to homeownership, particularly for populations most deeply impacted by the pandemic.” Gordon noted that the pandemic impacted “the livelihoods of tens of millions of workers in this country, particularly workers of color and those at the lower end of the wage scale.”
CFPB advisory stresses “permissible purpose” of consumer reports
On July 7, the CFPB issued an advisory opinion to state its interpretation that under certain FCRA-permissible purpose provisions, a consumer reporting agency may not provide a consumer report to a user unless it has reason to believe that all of the information it includes pertains to the consumer who is the subject of the user’s request. The Bureau explained that “credit reporting companies and users of credit reports have specific obligations to protect the public’s data privacy,” and reminded covered entities that “FCRA section 604(f) strictly prohibits a person who uses or obtains a consumer report from doing so without a permissible purpose.”
Among other things, the FCRA is designed to ensure fair and accurate reporting and requires users who buy these consumer credit reports to have a legally permissible purpose. Specifically, the advisory opinion clarifies that (i) insufficient matching procedures can result in credit reporting companies providing reports to entities without a permissible purpose, thus violating a consumer’s privacy rights (the Bureau explained that if a credit reporting company uses name-only matching procedures, items appearing on a credit report may not all correspond to a single individual); (ii) it is unlawful to provide credit reports of multiple people as “possible matches” (credit reporting companies are obligated to implement adequate procedures to find the correct individual); (iii) disclaimers about insufficient matching procedures will not cure a failure to take reasonable measures to ensure the information provided in a credit report is only about the individual for whom the user has a permissible purpose; and (iv) credit report users must ensure that they are not violating an individual’s privacy by obtaining a credit report when they lack a permissible purpose for doing so.
The Bureau also outlined certain criminal liability provisions in the FCRA. According to the advisory opinion, covered entities may face criminal liability under Section 619 for obtaining information on an individual under false pretenses, while Section 620 “imposes criminal liability on any officer or employee of a consumer reporting agency who knowingly and willfully provides information concerning an individual from the agency’s files to an unauthorized person.” Violators can face criminal penalties and imprisonment, the Bureau said in its announcement.
As previously covered by InfoBytes, the Bureau finalized its Advisory Opinions Policy in 2020. Under the policy, entities seeking to comply with existing regulatory requirements are permitted to request an advisory opinion in the form of an interpretive rule from the Bureau (published in the Federal Register for increased transparency) to address areas of uncertainty.
Louisiana enacts student loan servicer provisions, establishes requirements for private education lenders
On June 18, the Louisiana governor signed HB 610, which defines terms and outlines provisions related to student loan servicers. Among other things, the act prohibits servicers from misleading student loan borrowers or engaging in any unfair, abusive, or deceptive trade practice. Servicers are also prohibited from making misrepresentations or omitting information related to fees, payments, repayment options, loan terms and conditions, or borrower obligations. Moreover, servicers may not “[a]llocate a nonconforming payment in a manner other than as directed by the student loan borrower” under certain circumstances. The act also outlines duties related the furnishing of information to consumer reporting agencies, providing that a servicer may not (i) submit inaccurate information to a consumer reporting agency; (ii) refuse to correct inaccurately furnished information; (iii) fail to report a borrower’s favorable payment history at least once a year; (iv) refuse to communicate with a borrower’s authorized representative; and (v) make false statements or omit material facts connected to a state or local agency investigation. Additionally, the act specifies responsibilities related to responding to written inquires and complaints from consumers.
The same day, the governor also signed HB 789, which establishes a private student loan registry and outlines provisions related to private education lenders. The act stipulates that all private education lenders operating in the state must register with the commissioner, which may include the payment of fees and registration through the Nationwide Multistate Licensing System and Registry. However, the act allows the commissioner to prescribe an alternative registration process and fee structure for postsecondary education providers. These registration requirements are not applicable to banks, savings banks, savings and loan associations, or credit unions operating pursuant to authority granted by the commissioner. Private education lenders will also be required to comply with certain reporting requirements, including providing information related to the schools where the lender has made loans to students residing in the state, the total number and dollar amount of loans made annually, interest rate ranges, borrower default rates, copies of promissory notes and contracts, and cosigner loan statistics, among others.
Both acts take effect August 1.
N.J. appeals court says debt collector may file suit during the pandemic
On June 29, the Superior Court of New Jersey, Appellate Division affirmed a lower court’s granting of summary judgment in favor of a plaintiff debt collector in an action over whether a suit could be filed during the Covid-19 pandemic despite a clause in an agreement with the original creditor that barred collection actions in a disaster area. According to the opinion, the plaintiff purchased a portfolio of debts, including two credit card debts owned by the individual defendant. The plaintiff sued the defendant after attempts to collect on the debts were unsuccessful. The defendant filed a third-party complaint against the plaintiff asserting counterclaims accusing the plaintiff of violating the FDCPA, and stating that collection agencies were barred by an executive order that allegedly prohibited the initiation and adjudication of debt collection matters during the pandemic. A lower court granted the plaintiff’s motion for summary judgment, after finding no genuine issue of material fact which would prevent summary judgment in favor of the plaintiff. Specifically, the lower court “found that plaintiff provided sufficient, credible evidence in the record that established the nexus between the accounts and defendant,” and “also found the executive order and FDCPA argument meritless,” as “no directive existed that prevented agencies from initiating debt collection matters during the COVID-19 pandemic.” The defendant appealed.
On appeal, the defendant argued, among other things, that the lower court had “improperly relied on inadmissible hearsay documents” and erred in finding the executive order and FDCPA inapplicable. The defendant referred to a clause in an agreement she had with the original creditor, which said: “Without limiting the foregoing, [plaintiff] further represents and warrants that it shall: . . . (x) upon declaration by [the Federal Emergency Management Agency] or any appropriate local, state or federal agency that a location is a disaster area, [plaintiff] agrees to temporarily suspend its collection activities within said area until such time as is reasonable and practicable.” The appeals court agreed with the lower court’s reasoning, and called the defendant’s argument “baseless.” According to the appeals court, the defendant “failed to present evidence that an executive order prohibited the commencement and adjudication of debt collection matters during a state emergency related to the COVID-19 pandemic” and failed to establish “that there is a contractual bar to plaintiff filing a debt collection suit in a disaster area.”
8th Circuit says bank is entitled to proceeds from condo sale
On June 24, the U.S. Court of Appeals for the Eighth Circuit affirmed a trial court’s decision that a plaintiff bank is entitled to the proceeds from the sale of a condominium despite the defendant’s ex-husband’s bankruptcy and an outstanding balance owed to the bank on a business loan. When the defendant signed and initialed a mortgage securing the financing of a condominium, she consented to her ex-husband’s execution of the note but was not a signatory. The mortgage contained three provisions, including (i) a choice-of-law provision specifying that Iowa law governed the mortgage; (ii) a homestead waiver, in which the defendant and her ex-husband “waive[d] all appraisement and homestead exemption rights relating to” the condominium, except as prohibited by law; and (iii) a future advances clause or “dragnet clause,” which granted the plaintiff a security interest in the mortgage that covered future funds the ex-husband may borrow. The plaintiff initiated litigation against the defendant seeking a declaratory judgment that the defendant’s portion of the escrowed sale proceeds was subject to the mortgage’s future advances clause, and that the plaintiff could apply the proceeds to her ex-husband’s business loan. The trial court concluded that the bank was entitled to the proceeds.
On appeal, the 8th Circuit concluded that the mortgage’s future advances clause encompassed and secured the defendant’s ex-husband's business loan. Among other things, the appellate court rejected the defendant’s arguments that (i) the plaintiff failed to make a prima facie case that it was entitled to the condo sale proceeds because it purportedly “did not prove the proceeds comported with the mortgage’s maximum obligation limit clause (finding “no miscarriage of justice in declining to analyze her claim”); and (ii) the mortgage forced “her to waive her homestead rights in contravention of public policy” and in violation of the FTC’s “unfair credit practices” regulation (16 C.F.R. § 444.2)—a regulation, the appellate court pointed out, that does not apply to “banks” by its own terms. The 8th Circuit also rejected defendant’s unconscionability claim under Iowa law, stating that the “doctrine of unconscionability does not exist to rescue parties from bad bargains.” The appellate court further rejected the defendant’s other “equitable arguments” as “untenable” primarily because the mortgage is a “credit agreement” regulated under Iowa Code § 535.17(5)(c), and that statute expressly displaces equitable remedies.
CFPB reports on credit card line decreases
On June 29, the CFPB issued a report analyzing the impact of credit card line decreases (CLD) on consumers. The report is a part of a CFPB series that examines consumer credit trends using a longitudinal sample of approximately five million de-identified credit records maintained by one of the three nationwide consumer reporting agencies. The report described how credit card companies increasingly used credit line decreases during both the Great Recession and at the start of the Covid-19 pandemic. According to the Bureau, in issuing the report it “sought to examine the importance and impact of these decisions by credit card companies” because of the “critical role credit plays in financial resiliency, especially during a downturn.” Key findings of the report include, among other things, that: (i) 67 percent of consumers who had CLDs did not show evidence of a recent delinquency on any credit card, and 83 percent had no delinquency on the card that received the CLD; (ii) the median amount of credit decreased by approximately 75 percent for consumers across different credit score tiers; (iii) the median deep subprime, subprime, near-prime, and prime account utilization reached 94 percent when the CLD was applied; and (iv) the median credit scores for consumers with a recent card delinquency on any card decreased between 33 and 87 points.
Freddie to consider rent payments in automated underwriting
On June 29, Freddie Mac announced that it will begin considering on-time rent payments as part of its loan purchase decisions to increase homeownership opportunities for first-time homebuyers. Starting July 10, with a borrower’s permission, mortgage lenders and brokers will be able to submit bank account data showing 12-months of on-time rent payments through Freddie’s automated underwriting system. According to Freddie, bank account data will be “obtained from designated third-party service providers using the same automated process used to verify assets, income and employment” using its asset and income modeler. Freddie explained that eligible rent payment data includes checks, electronic transactions, or digital payments made through specific payment apps. “These automated capabilities provide greater efficiencies to lenders and allows them to deliver a better borrower experience while continuing to meet Freddie Mac’s strong credit underwriting standards,” the announcement said. Additional requirements for submitting rent payment data to Freddie’s underwriting system will be announced in an upcoming July Single-Family Seller/Servicer Guide Bulletin.