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FTC says consumers lost more than $1 billion to crypto fraud
On June 3, the FTC reported that consumers lost over $1 billion to fraud involving cryptocurrencies from January 2021 through March 2022. The FTC’s recent Consumer Protection Data Spotlight found that cryptocurrency is becoming the payment of choice for many scammers and that most reported cryptocurrency losses involved fake investment opportunities (totaling $575 million in reported losses since January 2021). The spotlight stated that nearly four out of every ten dollars reported lost to a fraud originating on social media was lost in crypto, far more than any other payment method. Following losses related to cryptocurrency schemes, the next largest losses involved romance scams ($185 million) and business and government impersonation scams ($133 million collectively).
CFPB highlights abuses in military allotment system
On June 2, the CFPB posted a blog post highlighting abuses within the military allotment system with respect to servicemembers’ automatic recurring payments. According to the Bureau, the allotment system was established to help servicemembers make payments directly from their paychecks, especially when deployed away from home. However, according to the CFPB some lenders have been abusing the allotment system, with certain lenders using the system “as a means of prioritizing repayment of that lender’s loan over the servicemember’s payments of other expenses.” The Bureau noted that servicemembers have other options for automatic payments that are usually free of charge and provide more legal protections than the allotment system, and reiterated that the Department of Defense (DoD) made significant changes in 2014 that prohibited new allotments to purchase, lease, or rent personal property like cars, furniture, and electronics, and “expanded the allotment prohibition in the Military Lending Act (MLA) to include a wider range of credit products, like installment loans, that cannot be repaid by allotment” (revised MLA regulations covered by InfoBytes here).
Through consumer complaints and the work of the agency’s Office of Servicemember Affairs, the Bureau stated it continues to hear about significant concerns in this space, including that some lenders are requiring servicemembers to repay by allotment (a violation of the MLA), and other lenders are entering into partnerships with allotment processing banks to create “allotment-funded savings accounts” for servicemembers in order to evade DoD protections. The blog post emphasized the Bureau’s commitment to protecting servicemembers from abuses and provided information for servicemembers on filing complaints should they believe they have been unfairly treated by a company through the military allotment system.
Coding glitch hits credit scores
Recently, a consumer reporting agency (CRA) informed lenders and industry members that it experienced a coding issue when it changed some of the technology to its legacy online model platform. As a result of the issue, the CRA advised that the miscalculation impacted approximately 12 percent of credit scores, although credit reports were not affected.
In response, on June 1, Fannie Mae issued a notice regarding the coding error. Fannie Mae reminded lenders “of their obligations under the Selling Guide to correct erroneous credit data, ensure the accuracy of the credit data submitted to Desktop Underwriter® (DU® ) at the time of loan sale, and to provide any corrected information to us.” Freddie Mac issued a similar notice advising lenders of their credit reporting and data correction responsibilities. Both Fannie Mae and Freddie Mac are monitoring the situation and may issue additional guidance regarding the coding issue.
District Court certifies TCPA class action against debt collector
On May 31, the U.S. District Court for the Western District of Washington granted a plaintiff’s motion for class certification in an action alleging a defendant debt collector placed unsolicited calls to borrowers’ cell phones when attempting to collect federal student loan debt. The plaintiff contended that the defendant violated the TCPA by calling her up to seven times a day without her consent using an automatic telephone dialing system (autodialer) and prerecorded calls or artificial voice calls. According to the plaintiff, in 2019, the defendant obtained her cell phone number through skip-tracing services performed by one of its vendors. The defendant allegedly had access to a call recording from a 2017 conversation between a Department of Education contractor and the plaintiff during which the plaintiff provided her phone number. The defendant, however, allegedly was not aware of the recording nor did it seek to access the file until after the plaintiff filed suit. The defendant also supposedly received a file from the contractor containing the plaintiff’s number but not until after it already acquired the number from the skip-tracing vendor. The defendant denied that it used an autodialer or made prerecorded calls or artificial voice calls. The defendant also claimed that “because it had constructive access to the recording of plaintiff’s 2017 phone conversation with [the contractor] and received the [] file with plaintiff’s number, it had plaintiff’s prior express consent to receiving calls.”
The court certified the class, ruling that the question of whether access to the files in question was sufficient to confer consent under the TCPA is “a closer legal question, but not one that overcomes predominance at this stage.” According to the court, “the issue of whether defendant can show that its right of access to [the contractor’s] files constituted prior express consent is one that is currently capable of classwide resolution. Accordingly, while the affirmative defenses defendant presses will no doubt be important to the outcome of the litigation, they presently do not undercut the central common issues in this case.”
Ed. Dept. discharges additional $5 billion
On June 1, the Department of Education announced the “largest single loan discharge the Department has made in history,” which includes discharging all remaining federal student loans borrowed to attend any campus owned or operated by a specific large for-profit post-secondary education company from its founding in 1995 through April 2015. The action will result in 560,000 borrowers receiving $5.8 billion in full loan discharges. According to the Department, the post-secondary education company engaged in “widespread and pervasive misrepresentations,” including guarantees that students would find a job. Additionally, the company “made pervasive misstatements to prospective students about the ability to transfer credits and falsified their public job placement rates.” The Department noted that the California AG’s investigation alleged that the company engaged in deceptive and false advertising and recruitment practices, as well as lied to its students about job placement. The Department noted it has approved $25 billion in loan relief to individuals since President Biden took office.
On June 2, CFPB Director Rohit Chopra released a statement regarding the discharge, referring to the company as a “ notorious repeat offender that defrauded its students and the public over many years.” Chopra also noted that the CFPB and state attorneys general actively pursued the company for its misconduct. Chopra pointed to when the Bureau “filed a lawsuit in 2014, obtained a default judgment and secured $480 million in private student loan cancellation in 2015, and won another $183 million in loan cancellation in 2017.” Chopra further noted that “[i]n 2016, then-California Attorney General Kamala Harris won a $1.1 billion judgment against [the company].”
DFPI issues NPRM to implement process for handling consumer complaints and inquiries under the CCFPL
Recently, the California Department of Financial Protection and Innovation (DFPI) issued a notice of proposed rulemaking (NPRM) to adopt regulations to implement and interpret certain sections of the California Consumer Financial Protection Law (CCFPL) related to consumer complaints and inquiries. (See also text of the proposed regulations here.) As previously covered by a Buckley Special Alert, AB 1864 was signed in 2020 to enact the CCFPL, which, among other things: (i) establishes UDAAP authority for DFPI; (ii) authorizes DFPI to impose penalties of $2,500 for “each act or omission” in violation of the law without a showing that the violation was willful, arguably representing an enhancement of DFPI’s enforcement powers in contrast to Dodd-Frank and existing California law; (iii) provides DFPI with broad discretion to determine what constitutes a “financial product or service” within the law’s coverage; and (iv) provides that administration of the law will be funded through the fees generated by the new registration process as well as fines, penalties, settlements, or judgments. While the CCFPL exempts certain entities (e.g., banks, credit unions, certain licensees), DFPI’s oversight authority was expanded to include debt collection, debt settlement, credit repair, check cashing, rent-to-own contracts, retail sales financing, consumer credit reporting, and lead generation.
The NPRM proposes new rules to implement section 90008, subdivisions (a), (b), and (d)(2)(D), of the CCFPL related to consumer complaints and inquires. According to DFPI’s notice, section 90008 subdivisions (a) and (b) authorize DFPI to promulgate rules establishing reasonable procedures for covered persons to provide timely responses to consumers and DFPI concerning consumer complaints and inquiries. Additionally, subdivision (d)(2)(D) “permits covered persons to withhold nonpublic or confidential information, including confidential supervisory information, in response to a consumer request to the covered person for information regarding a consumer financial product or service.”
Among other things, the NPRM:
- Identifies entities exempt from the consumer complaints and inquiries requirements;
- Requires covered persons to respond to consumer complaints and to establish policies and procedures for receiving and responding to complaints, including providing a complaint form, acknowledging receipt of complaints, tracking complaints, the timeline for responding to complaints, the contents for such a response, and recordkeeping of such complaints;
- Sets forth requirements for responding to complaints, including documenting when complaints do not require further investigation, performing an investigation of a complaint if warranted, and requiring corrective action to resolve a complaint such as an account adjustment, credit, or refund, and appropriate steps to prevent recurrence of the issue, which may include policy changes and employee training;
- Requires designation of an officer with primary responsibility for the complaint process;
- Requires covered persons to submit to DFPI a quarterly complaint report, which will be made public, and an annual inquiries report;
- Sets forth requirements for covered persons to respond to inquiries from consumers and develop and implement written policies and procedures for responding to such inquiries;
- Provides that covered persons must develop and implement written policies and procedures for responding to requests from DFPI regarding consumer complaints; and
- Exempts certain information, such as nonpublic or confidential information, including confidential supervisory information, from disclosure to consumers.
Written comments on the NPRM are due by July 5.
FTC secures TRO against credit repair scheme
On May 31, the FTC announced that the U.S. District Court for the Eastern District of Maryland granted a temporary restraining order against a credit repair operation for allegedly engaging in deceptive practices that scammed consumers out of more than $213 million. According to the FTC’s complaint, the operation targeted consumers with low credit scores promising its products could remove all negative information from their credit reports and significantly increase credit scores. The operation allegedly violated the FTC Act, the Credit Repair Organizations Act, and the Telemarketing Sales Rule by, among other things, (i) making misrepresentations regarding its credit repair services; (ii) selling a product that purportedly sends rent payment information to credit bureaus even though “this information is not generally part of consumers’ credit score and many credit bureaus don’t accept this kind of information directly from consumers”; (iii) charging illegal advance fees; (iv) failing to provide consumers required information such as refund and cancellation policies; and (v) recruiting consumers to sell credit repair products to other consumers as part of a pyramid scheme even though few consumers ever received the promised earnings (and many consumers actually lost money as agents). Beyond the temporary restraining order, the FTC is seeking a permanent injunction, monetary relief, and other equitable relief.
Freddie’s automated underwriting now includes bank account data
On May 26, Freddie Mac announced new automated underwriting capabilities that will allow mortgage lenders to verify assets, income, and employment using borrower-approved bank account data. The new functionality is available starting June 1, through Freddie’s asset and income modeler (AIM) within the Freddie Mac Loan Product Advisor. According to Freddie’s announcement, the automated underwriting capability “provides the borrower’s current employment status using borrower-approved bank account (direct deposit) or payroll data obtained from designated third-party service providers” in order to give “lenders a more efficient option than obtaining oral or written verification of employment prior to closing.” Freddie cited a recent study, which found that adopting offerings like AIM helps lenders “significantly boost efficiency and shorten cycle times by as much as 15 days.” These efficiencies, Freddie said, “translate into a 30 percent reduction in loan origination costs, greater customer satisfaction, and an increase in applications being completed and closed.” The announcement also noted that Freddie recently released the industry’s first automated-assessment of direct deposit income, which enables AIM to access additional fixed income or alternative income sources such as retirement, Social Security, Veteran Affairs benefits, alimony, and child support, as well as income from an applicant’s tax return for self-employed individuals.
District Court preliminarily approves $2 million debt collection settlement over garnishment issuance fees
On May 24, the U.S. District Court for the District of Oregon preliminarily approved a class action settlement resolving claims concerning a debt collection agency’s $45 garnishment “issuance fee.” According to the plaintiffs, the defendant issued garnishments to debtors’ employers and banks through its in-house attorneys to collect revenue for outstanding debts. While Oregon law allows debt collectors to charge fees as a means of compensating for the expense of hiring attorneys who issue such garnishments, the plaintiffs contended that the defendant’s “$45 fee is an abuse of the cost recovery statute because using in-house attorneys relieves defendant from ever incurring such an expense.” The plaintiffs alleged violations of the FDCPA, Oregon’s Unlawful Trade Practices Act, and Oregon’s Unlawful Debt Collection Practices Act. While the defendant denied any wrongdoing as part of the preliminarily approved settlement, it has agreed to pay $2 million to settle the claims. Class members, defined as more than 10,000 Oregonians allegedly injured by the $45 issuance fees between January 2018 and September 2019, will each receive “an amount three times greater than the actual damages caused originally by Defendant’s issuance fees.”
HUD announces Kansas disaster relief
On May 26, HUD announced disaster assistance for certain areas in Kansas impacted by severe winter storms and straight-line winds from March 17 to March 22. The disaster assistance follows President Biden’s major disaster declarations on May 25. According to the announcement, HUD is providing immediate foreclosure relief, making various FHA mortgage insurance available to disaster victims, and providing information on housing providers as well as HUD-approved housing counseling agencies, among other measures. Specifically, HUD is providing an automatic 90-day moratorium on foreclosures of FHA-insured home mortgages for covered properties effective May 25. It is also making various FHA insurance options available to victims whose homes require repairs or were destroyed or severely damaged. HUD’s Section 203(h) program allows borrowers from participating FHA-approved lenders to obtain 100 percent financing, including closing costs, for homes in which “reconstruction or replacement is necessary.” HUD’s Section 203(k) loan program enables individuals to finance the repair of their existing homes or to include repair costs in the finance of a home purchase or a refinance of a home. HUD is also allowing administrative flexibilities to community planning and development grantees, as well as to public housing agencies and Tribes.