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New York reaches $1.2 million settlement with debt collectors
On November 16, the New York attorney general announced a settlement with an illegal debt collection scheme operation and its operator (collectively, “respondents”) to resolve allegations that the respondents used illegal tactics to collect consumer debt, which included false threats of criminal action, wage garnishment, driver’s license suspension, and lawsuits. According to the AG, the operator started his debt collection career collecting debts with a network of New York-based debt collectors that settled with the CFPB and New York AG in 2019 to resolve allegations that the defendants engaged in improper debt collection tactics in violation of the CFPA, the FDCPA, and various New York laws. (Covered by InfoBytes here.) Using different names, the operator allegedly continued to use deceptive and illegal threats to collect on consumer debts. In addition, the AG claimed the operator was a debt broker, “selling debts to and placing debts for collection with other collectors that engaged in egregious violations of the law.”
Under the terms of the settlement agreement, the respondents, among other things, must pay $1.2 million to the office of the AG in restitution and penalties and must dissolve all of the associated debt collection companies. The respondents are also permanently banned from engaging in consumer debt collection, consumer debt brokering, consumer lending, debt settlement, credit repair services, and payment processing.
Agencies discuss crypto-asset next steps
On November 23, the FDIC, OCC, and Federal Reserve Board issued a joint statement summarizing a recent series of interagency “policy sprints” focused on crypto-assets. During the policy sprints, the agencies conducted preliminary analysis on issues related to banking organizations’ potential involvement in crypto-asset-related activities, and identified and assessed key risks related to safety and soundness, consumer protection and compliance. The agencies also, among other things, analyzed the applicability of existing regulations and guidance on this space and identified several areas where additional public clarity is needed. Throughout 2022, the agencies intend to provide greater clarity on whether certain crypto-asset-related activities conducted by banking organizations are legally permissible. The agencies also plan to expand upon their safety and soundness expectations related to: (i) crypto-asset safekeeping and traditional custody services; (ii) ancillary custody services; (iii) facilitation of customer purchases and the sale of crypto-assets; (iv) loans collateralized by crypto-assets; (v) issuance and distribution of “stablecoins”; and (vi) activities involving a bank’s holding of crypto-assets on its balance sheet. The joint statement, which does not alter any current regulations, also states that the agencies plan to “evaluate the application of bank capital and liquidity standards to crypto-assets for activities involving U.S. banking organizations” and that the agencies will continue to monitor developments in this space as the market evolves.
District Court enters final judgment in 2016 CFPB structured settlement action
On November 18, the U.S. District Court for the District of Maryland entered a stipulated final judgment and order against one of the individual defendants in an action concerning allegedly unfair, abusive, and deceptive structured settlement practices. As previously covered by InfoBytes, the Bureau claimed the defendants violated the CFPA by employing abusive practices when purchasing structured settlements from consumers in exchange for lump-sum payments. According to the Bureau, the defendants encouraged consumers to take advances on their structured settlements and falsely represented that the consumers were obligated to complete the structured settlement sale, “even if they [later] realized it was not in their best interest.” In July 2021, the court considered the defendants’ motion to dismiss the Bureau’s amended complaint, as well as the defendants’ motion for judgment on the pleadings on the grounds that the enforcement action was barred by the U.S. Supreme Court’s decision in Seila Law LLC v. CFPB, which held that that the director’s for-cause removal provision was unconstitutional (covered by a Buckley Special Alert), and that the ratification of the enforcement action “came too late” because the statute of limitations on the CFPA claims had already expired (covered by InfoBytes here). The court’s opinion allowed the Bureau to pursue its amended 2016 enforcement action, which alleged unfair, deceptive, and abusive acts and practices and sought a permanent injunction, damages, disgorgement, redress, civil penalties, and costs.
Under the terms of the settlement, the individual defendant—“an attorney who provided purportedly independent professional advice for almost all Maryland consumers who made structured-settlement transfers with [the defendants]” and who has neither admitted nor denied the allegations—is prohibited from, among other things, (i) participating or assisting others in participating in any structured-settlement transactions; (ii) owning, being employed by, or serving as an agent of any structured-settlement-factoring company; or (iii) providing independent professional advice concerning any structured-settlement transactions. The individual defendant is also prohibited from disclosing, using, or benefiting from affected consumers’ information, and must pay $40,000 in disgorgement and a $10,000 civil money penalty.
CFPB releases ethics guidance
On November 19, the CFPB released a blog post providing guidance regarding revolving door misconduct and reminding Bureau staff to report suspicious communications and activity committed by former employees to agency officials. According to CFPB Director Rohit Chopra, the reminder will permit the Bureau to detect activity by former employees and other government agencies who may be in violation of existing ethics and confidential information disclosure laws and regulations. Chopra noted that parties using services of a former Bureau employee will be subject to “heightened scrutiny to matters and decisions where a party has employed or retained the services of a former employee to ensure that the CFPB is meeting the highest standards of ethics and integrity implemented nearly a decade ago." Among other things, the guidance disclosed areas to foster the CFPB’s standard of exemplary integrity, safeguard confidential information, and protect the Bureau’s decision-making process through: (i) protecting supervisory, confidential, and non-public CFPB information; (ii) reporting potentially unlawful communications by former federal employees; and (iii) reporting any communications with the Bureau during a former employee's first year.
HUD updates appraisal fair housing compliance
On November 17, HUD issued Mortgagee Letter 2021-27, which provides updates on appraisal fair housing compliance and general appraiser requirements. According to HUD, the letter clarifies FHA’s existing requirements for appraisers and mortgagees on compliance with fair housing laws related to appraisal of properties that will serve as security for FHA-insured mortgages, and applies to all FHA Single Family Title II Forward and Reverse Mortgage Programs. Among other things, the changes include: (i) revising the Appraisers Post-Approval Requirements section to emphasize compliance with applicable laws, including the Fair Housing Act and all other federal, state, and local antidiscrimination laws; (ii) clarifying language in the Quality of Appraisal section to emphasize the requirement that mortgagees ensure the appraisal complies with applicable laws, including the Fair Housing Act and other federal, state, and local antidiscrimination laws; and (iii) restructuring a section of the General Appraiser Requirements into subsections, which clarifies guidance to the nondiscrimination policy and compliance with FHA guidelines and appraiser conduct. The mortgagee letter is effective immediately.
DFPI issues proposed rulemaking under CCFPL
On November 17, the California Department of Financial Protection and Innovation (DFPI) issued an invitation for comments on proposed rulemaking under the California Consumer Financial Protection Law (CCFPL). The CCFPL provides DFPI with the authority to require companies that provide financial products and services to California consumers to register with the agency. DFPI is also able to “require registrants to generate and provide records to facilitate oversight of registrants and detect risks to California consumers.” The draft rule proposes requiring registration for industries that engage in the following financial products and services: debt settlement, student debt relief, education financing, and wage-based advances. According to DFPI’s notice, with respect to education financing, the proposed rulemaking covers providers of any form of credit where the credit’s purpose is to fund postsecondary education. It also covers “credit regardless of whether the provider labels the credit a loan, retail installment contract, or income share agreement, and regardless of whether the credit recipient’s payment obligation is absolute, contingent, or fixed.” Additionally, DFPI notes that “[w]ith respect to education financing with income-based payments, including contracts sometimes referred to as income share agreements,” DFPI proposes “reporting requirements that in some cases diverge from the reporting requirements for education financing with fixed payments.”
The proposed rulemaking provides definitions to implement the CCFPL registration regulations and addresses several registration provisions including the following:
- Provides that a person must not engage in the business of offering or providing the designated products and services without first registering with the commissioner unless exempt. The DFPI’s notice stipulates that registering with the commissioner “does not constitute a determination that other laws, including other licensing laws under the commissioner’s jurisdiction, do not apply” and the proposed rulemaking further provides that “granting registration to an applicant does not constitute a determination that the applicant’s acts, practices, or business model complies with any law or regulation.”
- Outlines registration requirements and designates NMLS to handle all applications, registrant filings, and fee payments on behalf of the commissioner. The proposed rulemaking lays out information that must be submitted and maintained as part of the registration application, as well as notices required by state law, and steps registrants must take when making changes to an application filing. An applicant’s failure to provide all or any part of the requested information may prevent approval, DFPI states.
- Outlines requirements for registrants seeking to conduct business at a new branch office or at a new location for an existing branch. Requests must be filed with NMLS within 30 calendar days of the date a registrant engages in business at the new branch office or new location.
- Addresses procedures related to annual assessments and pro rata payment requirements, as well as annual reporting requirements for registrants based on the products and services they provide.
- Outlines procedures and requirements for rescinding a summary revocation order when a former registrant submits a written request for reinstatement to the commissioner.
- Discusses procedures related to the effectiveness, surrender, and revocation of a registration. DFPI provides that a “registration issued under this subchapter is effective until it is revoked by the commissioner, is surrendered by the registrant, or becomes inoperative under subdivision (b) of Financial Code section 90009.5.”
DFPI’s notice also seeks comments on proposals to streamline the registration process and improve transparency and clarification on matters related to, among other things: (i) the types of information that may be subject to public disclosure; (ii) annual reporting requirements not included in the proposed rulemaking; and (iii) certain registration requirements that may be applicable to DFPI licensees and licensees and registrants of other state agencies. In addition, DFPI seeks stakeholder feedback on the economic impact of the draft rules on businesses and consumers in California.
Comments on the proposed rulemaking are due December 20.
4th Circuit: Tribal lenders must face usury claims
On November 16, the U.S. Court of Appeals for the Fourth Circuit upheld a district court’s ruling denying defendants’ bid to dismiss or compel arbitration of a class action concerning alleged usury law violations. The plaintiffs—Virginia consumers who defaulted on short-term loans received from online lenders affiliated with a federally-recognized tribe—filed a putative class action against tribal officials as well as two non-members affiliated with the tribal lenders, alleging the lenders violated the Racketeer Influenced and Corrupt Organizations Act (RICO) and Virginia usury laws by charging interest rates between 544 and 920 percent. The defendants moved to compel arbitration under a clause in the loan agreements and moved to dismiss on various grounds, including that they were exempt from Virginia usury laws. The district court denied the motions to compel arbitration and to dismiss, ruling that the arbitration provision was unenforceable as a prospective waiver of the borrowers’ federal rights and that the defendants could not claim tribal sovereign immunity. The district court also “held the loan agreements’ choice of tribal law unenforceable as a violation of Virginia’s strong public policy against unregulated lending of usurious loans.” However, the district court dismissed the RICO claim against the tribal officials, ruling that RICO only authorizes private plaintiffs to sue for money damages and not injunctive or declaratory relief.
On appeal, the 4th Circuit concluded that the arbitration clauses in the loan agreements impermissibly force borrowers to waive their federal substantive rights under federal consumer protection laws, and contained an unenforceable tribal choice-of-law provision because Virginia law caps general interest rates at 12 percent. As such, the appellate court stated that the entire arbitration provision is unenforceable. “The [t]ribal [l]enders drafted an invalid contract that strips borrowers of their substantive federal statutory rights,” the appellate court wrote. “[W]e cannot save that contract by revising it on appeal.” The 4th Circuit also declined to extend tribal sovereign immunity to the tribal officials, determining that while “the tribe itself retains sovereign immunity, it cannot shroud its officials with immunity in federal court when those officials violate applicable state law.” The appellate court further noted that the “Supreme Court has explicitly blessed suits against tribal officials to enjoin violations of federal and state law.” The 4th Circuit ultimately affirmed the district court’s judgment, noting that the loan agreement provisions were unenforceable because “tribal law’s authorization of triple-digit interest rates on low-dollar, short-term loans violates Virginia’s compelling public policy against unregulated usurious lending.”
The appellate court also agreed with the district court that RICO does not permit private plaintiffs to seek an injunction. “Congress’s use of significantly different language” to define the scope of governmental and private claims under RICO “compels us to conclude” that “private plaintiffs may sue only for treble damages and costs,” the appellate court stated. While plaintiffs “urge us to consider by analogy the antitrust statutes,” provisions outlined in the Clayton Act (which explicitly authorize injunction-seeking private suits) have “no analogue in the RICO statute,” the appellate court wrote, adding that “nowhere in the RICO statute has Congress explicitly authorized private actions for injunctive relief.”
District Court grants defendant’s motion in FCRA, FDCPA case
On November 10, the U.S. District Court for the Western District of New York granted a defendant debt agency’s motion for judgment resolving FCRA and FDCPA allegations. A father allegedly co-signed an apartment lease for his daughter (collectively, “plaintiffs”), which included a provision that allowed the plaintiffs to terminate the lease if another individual took over the lease. The plaintiffs allegedly did not move in but identified two replacement tenants to take over the lease. The owner of the apartment allegedly signed separate leases with the identified replacement tenants and “thwarted [plaintiffs’] efforts to have someone take over [the] [l]ease.” The owner placed the debt with the defendant for collection, who reported the debt to three credit reporting agencies. The plaintiffs disputed the debt, but the defendant confirmed the accuracy of the information. The plaintiffs sued, alleging the defendant violated the FCRA for not conducting a proper investigation of the dispute, and the FDCPA for attempting to collect the allegedly invalid debt, which allegedly negatively impacted the plaintiffs’ credit scores, their ability to obtain a car loan, and efforts to apply for an apartment.
With respect to the FCRA claim, the district court found that the plaintiffs’ allegation regarding an inaccurate debt “turns on an unresolved legal question, a section 1681s-2(b) claim that a furnisher failed to conduct a reasonable investigation of disputed credit information cannot stand.” Additionally, since the claim was “tethered to a legal dispute,” the district court found that it cannot form the basis of an FCRA claim. With respect to the FDCPA allegations, the district court dismissed the claim finding that the plaintiffs did not adequately state a claim because the plaintiffs’ claim was based on “nothing more than their conclusory and self-serving allegations that they do not owe the [d]ebt.”
CFPB seeks input on HMDA
On November 16, the CFPB issued a notice and request for comments regarding the rules for implementing the Home Mortgage Disclosure Act (HMDA). The Request for Information (RFI) solicits public comments on its plans to assess the effectiveness of the HMDA Rule, focusing on, among other things: (i) institutional and transactional coverage; (ii) data points; (iii) benefits of the new data and disclosure requirements; and (iv) operational and compliance costs. According to the CFPB, the RFI follows a 2021 HMDA report, which found that mortgage lenders deny credit and charge higher interest rates to Black and Hispanic applicants more often than white applicants, and a July 2021 report that analyzed 2020 HMDA loan data and examined the differences in mortgage characteristics across Asian American and Pacific Islander subgroups. (Covered previously by InfoBytes here and here.) Additionally, the RFI notes that the Bureau expects to issue a report on the findings of its assessment of the HMDA Rule by January 1, 2023. The Bureau also notes that it “plans to review recent changes to the rule and evaluate their effectiveness,” and that the assessment “will strengthen the CFPB’s ability to maintain a fair, competitive, and non-discriminatory mortgage market.” The deadline for submitting comments on the RFI is 60 days after the notice is published in the Federal Register.
Bank to pay $3.5 million to settle debt collection call suit
On November 15, a statewide team of California district attorneys announced a $3.5 million settlement to resolve allegations concerning a Utah-based bank’s debt collection activities. The California Debt Collection Task Force handled the investigation and charged the bank and its agents with allegedly placing harassing and unreasonably excessive collection calls, sometimes even after consumers informed the bank they no longer wished to receive the calls. While the bank did not admit to wrongdoing, it agreed to pay $3.5 million, including $2 million in civil penalties and $975,000 in investigation costs. The bank will also pay $525,000 to a charitable trust fund to go towards additional consumer protection efforts. Additionally, the judgment requires the bank to “implement and maintain policies and procedures to prevent unreasonable and harassing debt collection calls to California consumers, including limiting the total number of calls to each debtor and honoring consumer requests for calls to stop.”