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FTC order targets credit reporter for UDAP violation
On April 7, the FTC finalized an order against a respondent business credit report provider to settle allegations that the respondent engaged in deceptive and unfair practices by failing to provide businesses with a clear, consistent, and reliable process to fix errors in their credit reports, even though the respondent was selling products to those businesses that purported to help the businesses improve their reports. The FTC’s administrative complaint also claimed that the respondent’s telemarketers deceptively pitched another service to businesses and falsely claimed that the businesses had to purchase the service in order for the respondent to complete the business’s credit profile. In addition, the respondent allegedly failed to disclose to businesses that the service’s subscription automatically renewed each year and that other renewal practices could lead to increasing costs (covered by InfoBytes here). Under the terms of the final order, the respondent is required to make substantial changes to its processes and provide refunds to harmed businesses. Measures include (i) deleting disputed information free of charge or conducting a reasonable reinvestigation to determine the accuracy of disputed information in a report of a business; (ii) complying with specific time periods within which to promptly investigate and correct errors; (iii) informing businesses of investigation results and providing businesses with free access to the revised information; (iv) making clear disclosures to businesses about the rate at which the firm accepts subscribers’ requests to add payment history information, as well as its limits for providing assistance in adding such information; (v) allowing current subscribers to cancel their services and obtain refunds; and (vi) placing restrictions on the respondent’s ability to automatically renew subscriptions or switch subscribers into a more expensive product.
FTC prohibits Louisiana appraisal board from fixing prices
On April 5, the FTC approved a final order settling charges arising from a 2017 FTC administrative complaint alleging that a Louisiana appraisal board unreasonably restrained price competition for real estate appraisal services provided to appraisal management companies in the state. Under the Dodd-Frank Act, appraisal management companies are required to pay “a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised.” The FTC alleged that the appraisal board exceeded Dodd-Frank’s mandate by requiring appraisal fees “to equal or exceed the median fees” identified in survey reports commissioned and published by the appraisal board, and then investigated and sanctioned companies that paid fees below the specified levels. Under the terms of the order, the appraisal board is prohibited from adopting a fee schedule for appraisal services or taking any other actions that may raise, fix, maintain, or stabilize prices, compensation levels, rates, or payment terms for real estate appraisal services. Additionally, the appraisal board must rescind Rule 31101 in the Louisiana Administrative Code, which effectively sets minimum fees for real estate appraisals.
CFPB releases semi-annual report
On April 6, the CFPB issued its semi-annual report to Congress covering the Bureau’s work for the period beginning April 1, 2021 and ending September 30, 2021. The report, which is required by Dodd-Frank, addresses several issues, including difficulties faced by consumers in obtaining consumer financial products or services throughout the reporting period. The report highlighted that the Bureau, among other things, has: (i) taken steps to increase workforce and contracting diversity; (ii) carefully observed consumer reporting agencies’ and furnishers’ compliance with Fair Credit Reporting Act accuracy obligations relating to rental information, and outlined specific areas of focus and concern; (iii) hosted a roundtable examining racial bias in home appraisals; (vi) expanded housing efforts into a comprehensive, cross-federal campaign aimed at connecting homeowners and renters facing housing insecurity as a result of the Covid-19 pandemic with the resources available to help them stay in their homes; and (v) launched an initiative to reduce fees that consumers are charged by banks and financial companies. In regard to supervision, enforcement and fair lending, the report highlighted its public supervisory and enforcement actions and other significant initiatives during the reporting period. Additionally, the report noted rule-related work, including advisory opinions, advance notice of proposed rulemakings, requests for information and proposed and final rules.
CFPB addresses servicers’ obligations to respond to borrower inquiries
On April 4, the CFPB filed an amicus brief in a case on appeal to the U.S. Court of Appeals for the Ninth Circuit concerning a mortgage loan servicer allegedly failing to answer multiple inquiries from two separate consumers regarding their loans despite the requirement under Regulation X that servicers respond when a borrower submits a request for information that “states the information the borrower is requesting with respect to the borrower’s mortgage loan.” The plaintiffs filed suit after the defendant servicer declined to provide the information requested, stating that it would not respond “because the issues raised are the same or very closely related to the issues raised” in pending litigation surrounding the mortgages.
The U.S. District Court for the District of Oregon dismissed the plaintiffs’ claims, noting that under RESPA, “a mortgage loan servicer only has an obligation to provide a written response to a [qualified written request] that seeks ‘information relating to the servicing of such loan,’” and that the plaintiffs’ inquiries regarding the ownership of their loans and requesting other miscellaneous information did not “trigger[] [the defendant’s] obligations to respond under Regulation X” because a servicer has a ‘duty to respond’ only if a request for information ‘relates to the servicing of the loan.’”
In urging the appellate court to overturn the decision, the Bureau argued that under Section 1024.36 of Regulation X “servicers generally must respond to ‘any written request for information from a borrower’ that seeks ‘information ... with respect to the borrower’s mortgage loan.’” According to the Bureau, although a servicing-related request would fall under this provision, it is just one type of request that seeks information ‘with respect to’ a loan and thereby triggers a servicer’s obligation to respond” under the rules. The Bureau stated that Regulation X broadly requires servicers to respond to requests that seek information “with respect to” a borrower’s mortgage loan, explaining that it “included explicit language to that effect in the 2013 Rule to make clear that the rule created a unified set of requirements such that servicers’ obligations to respond were the same for a qualified written request as for any other information request,” and that it “did not exclude information requests that do not relate to servicing from the scope of § 1024.36.” The Bureau agreed with the plaintiffs that there is “no litigation exception to a servicer's obligation to respond to information requests under Regulation X.” The Bureau further noted in a blog post that,“[a] pending lawsuit does not take away a borrower’s right to a response from their loan servicer under Regulation X.”
FHFA suspends foreclosure for borrowers applying for HAF funds
On April 6, FHFA announced that servicers with mortgages backed by Fannie Mae and Freddie Mac are required to suspend foreclosure activities for up to 60 days if the servicer is notified that a borrower has applied for mortgage assistance under the Treasury Department’s Homeowner Assistance Fund (HAF). As previously covered by InfoBytes, the HAF was created to provide direct assistance for mortgage payments, property insurance, utilities, and other housing-related costs to help prevent delinquencies, defaults, and foreclosures after January 21, 2020.
District Court dismisses bank from class action on out-of-network ATM fees
On April 4, the U.S. District Court for the Southern District of California granted a defendant bank’s motion for summary judgment and denied class certification in an action concerning out-of-network fees charged on purportedly invalid balance inquiries performed at out-of-network (OON) ATM machines. The defendant is a member of two cardholder networks, which permit account holders to access and use OON ATMs. In 2019, plaintiff account holders filed a lawsuit alleging the defendant violated several California state consumer protection laws and breached its deposit account agreements by systematically charging excessive fees. Plaintiffs further alleged the defendant assessed multiple fees if a consumer made a balance inquiry at the same time as a cash withdrawal. The defendant argued in its motion for summary judgment that the deposit agreement was unambiguous and that its assessment of the OON fees for balance inquiries is permitted under the agreement’s express terms. In agreeing with the defendant that no ambiguity existed in the language in the agreement regarding such fees, the court, among other things, also held that language in the agreement providing the defendant and ATM operators discretion to charge or waive fees for use of OON ATMs did not imply that the defendant relied on that contract term in bad faith. The court found that nothing about the use of the word “may” in the phrase “[w]e may also charge you a fee,” necessitates “the conclusion that the bank ‘abuses its power and takes advantage of contractual uncertainty by charging OON Fees when it knows, or should know, of the [alleged] systematic deception occurring at [OON] ATMs resulting in invalid balance inquiries.’”
In its motion, the defendant bank also maintained that the claims against it fail because the plaintiffs failed to follow express reporting and pre-dispute notification procedures outlined in their agreements, which require account holders to review their statements and notify the bank within 60 days of any problems or unauthorized transactions. The court declined to find that the pre-dispute procedures provided an alternative basis for summary judgment in favor of the defendant, finding that it was not clear that plaintiffs’ obligation to provide defendant with notice of unauthorized transactions covered disputed OON ATM fees. The court explained that such fees may not be apparent on the plaintiffs’ billing statements and that “the notice provisions seem to relate to major issues such as fraud and unauthorized or stolen checks” rather than problematic fees.
3rd Circuit confirms adversary proceeding required to discharge student debt in bankruptcy
On March 25, the U.S. Court of Appeals for the Third Circuit affirmed a district court’s dismissal of an FDCPA and FCRA case against a student loan servicer and three credit reporting companies for attempting to collect a loan debt after it had been discharged in bankruptcy. After the discharge and completion of his bankruptcy case, the plaintiff filed suit, alleging the defendants violated the FDCPA and the FCRA by attempting to collect student loan debt that had been discharged. The district court granted the defendants’ motion to dismiss, ruling that the plaintiff failed to state a claim because under Section 523(a)(8) of the Bankruptcy Code, student loan debt is presumptively non-dischargeable and the plaintiff had not filed an adversary proceeding to determine otherwise.
On appeal, the plaintiff “argued that he was not required to file an adversary proceeding in Bankruptcy Court to determine the dischargeability of his student loan debt,” and that the Bankruptcy Court’s determination that the plaintiff was indigent rebuts “the presumption that his debt was nondischargeable by satisfying the exception in §523(a)(8) for undue hardship.” However, the appellate court held that “a finding of indigence is not the same as an undue hardship determination under §538(a)(8)” and that while the Bankruptcy Code does not require an adversary proceeding to discharge student loan debt, the procedures established in the Bankruptcy Rules do include such a requirement by providing that adversary proceedings include “a proceeding to determine the dischargeability of a debt” and are commenced by serving a summons and complaint on affected creditors. Accordingly, the appellate court affirmed dismissal.
FDIC announces Puerto Rico disaster relief
On April 5, the FDIC issued FIL-15-2022 to provide regulatory relief to financial institutions and facilitate recovery in areas of Puerto Rico affected by severe storms, flooding and landslides. The FDIC acknowledged the unusual circumstances faced by institutions and their customers affected by the weather 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, so long as these 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.
Chopra says credit reporting on medical debt needs review
On April 6, CFPB Director Rohit Chopra expressed cautious optimism about medical debt credit reporting changes during remarks to the CFPB’s Consumer Advisory Board. The Bureau has studied the burden of medical debt on consumers since the agency’s inception and has issued reports examining the impact of including data related to unpaid medical bills on credit reports. Chopra noted that a report released by the Bureau last month (covered by InfoBytes here) found that $88 billion of outstanding medical bills in collections affect one in every five consumers, with medical debt accounting for 58 percent of all uncollected debt tradelines reported to credit reporting agencies (CRAs). Shortly after the Bureau released the report, the three major CRAs announced they planned to eliminate nearly 70 percent of medical collection debt tradelines from consumer credit reports. As previously covered by InfoBytes, beginning July 1, paid medical collection debt will no longer be included on consumer credit reports issued by those three companies, and unpaid medical bills will only be reported if they remain unpaid for at least 12 months. Additionally, starting in 2023, medical collection debt under $500 will no longer be included on credit reports issued by these CRAs.
In response to the announcement from the CRAs, Chopra cautioned that “[i]mportant decisions about credit reporting should not be left up to three firms that arbitrarily decide how reporting will impact consumers’ access to credit.” While he acknowledged the importance of providing more time for providers and insurance companies to process claims before debts are reported, he stated that the announcement failed to “fundamentally address the concern that the credit reporting system can be used as a tool to coerce patients into paying bills they may not even owe.” Chopra presented three questions to the Consumer Advisory Board for consideration: (i) should unpaid medical bills be treated as a typical “debt”? (ii) if medical bills are not a good factor in predicting repayment on future loan obligations, should they be included in credit reports? and (iii) how should the inclusion of allegedly unpaid medical bills in credit reports be reviewed as part of the broader question of how data is used in consumer finance markets?
CFPB proposal would limit negative credit reporting on human trafficking victims
On April 7, the CFPB released a proposed rule and solicited comments on regulations implementing amendments to the FCRA intended to assist victims of trafficking. The proposed rule would establish a method for a trafficking victim to submit documentation to consumer reporting agencies (CRAs) establishing that they are a survivor of trafficking, and would require CRAs to block adverse information in consumer reports after receiving such documentation. The proposed rules would amend Regulation V to implement changes to FCRA enacted in the National Defense Authorization Act for Fiscal Year 2022, also referred to as the “Debt Bondage Repair Act,” which was signed into law in December 2021. (Covered by InfoBytes here). Under the law, CRAs are prohibited “from providing consumer reports that contain any negative item of information about a survivor of trafficking from any period the survivor was being trafficked.” In announcing the proposal, the CFPB noted that “Congress required the CFPB to utilize its rulemaking authorities to implement the Debt Bondage Repair Act through rule changes to Regulation V, which ensures consumers’ credit information is fairly reported by CRAs.” According to the CFPB, the proposal “would protect survivors of human trafficking by preventing CRAs from including negative information resulting from abuse.” Comments are due 30 days after publication in the Federal Register.