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Supreme Court lifts federal eviction moratorium
On August 26, the U.S. Supreme Court issued a 6-3 decision in Alabama Association of Realtors et al. v. U.S. Department of Health and Human Services et al. to lift the federal government’s eviction moratorium, stating the CDC lacked authority to impose the ban. This decision follows the Court’s June decision, which previously denied the group’s request to lift the eviction moratorium in order to let the ban expire at the end of July as intended to allow for a “more orderly distribution of the congressionally appropriated rental assistance funds.” (Covered by InfoBytes here.) In agreeing with the group’s argument that the law on which the CDC relied upon did not allow it to implement the current ban, the majority held that “[i]t strains credulity to believe that this statute grants the CDC the sweeping authority that it asserts,” pointing out that, as the Court noted in its June decision, “[i]f a federally imposed eviction moratorium is to continue, Congress must specifically authorize it.” This decision vacates a stay on the U.S. District Court for the District of Columbia’s judgment placed by the same court and renders the district court’s judgment enforceable. As previously covered by InfoBytes, the district court ruled that the CDC exceeded its authority when it imposed the temporary ban and stated that because the Public Health Service Act (PHSA) does not “grant the CDC the legal authority to impose a nationwide eviction moratorium” the moratorium must be set aside.
The dissenting judges faulted the Court for deciding the issue without full briefing and argument, arguing that a stay entered by a lower court cannot be vacated “unless that court clearly and ‘demonstrably’ erred in its application of ‘accepted standards.’” Among other things, they pointed out that “it is far from ‘demonstrably’ clear that the CDC lacks the power to issue its modified moratorium order” as the CDC’s current, modified order targets only regions experiencing a spike in transmission rates. They further argued that the PHSA’s language authorizes the CDC “to design measures that, in the agency’s judgment, are essential to contain disease outbreaks,” and that “the balance of equities strongly favors leaving the stay in place.” According to the minority, “public interest strongly favors respecting the CDC’s judgment at this moment, when over 90% of counties are experiencing high transmission rates.”
Notably, the decision impact’s the CFPB’s interim final rule (Rule) amending Regulation F to require all landlords to disclose to tenants certain federal protections put in place as a result of the ongoing Covid-19 pandemic (covered by InfoBytes here). As previously covered by InfoBytes, the U.S. District Court for the Middle District of Tennessee denied a request in May for a temporary restraining order to block the Rule, but noted however, that “by its own terms the Rule applies only during the effective period of the CDC Order, only to tenants to whom the CDC Order reasonably might apply, and only in jurisdictions in which the CDC Order applies. Defendant CFPB has opined, in its response to the Motion, that ‘the Rule’s provisions—by the Rule’s own operation—have no application where the CDC Order, on account of a court order or otherwise, does not apply.’ . . . The Court concurs with this view, and it intends to hold CFPB to this view (and believes that other courts perhaps should do likewise).”
New York limits overdraft practices for state-chartered banks
On August 20, the New York governor signed S1465, which requires New York-chartered banks to either process checks in the order they are received or from the smallest to largest dollar amount for each business day’s transactions in order to help curb overdraft fees. The act also provides that while banks may dishonor checks for insufficient funds, they must make payments on any subsequent smaller transactions that may be covered by funds in the account. Under current law, if a check is presented that exceeds the available funds, the check is dishonored, as are all subsequent checks received by the bank, even if the account has sufficient funds to honor one or more of the smaller, subsequent checks. Banks are also required to disclose in writing to consumers the order in which checks are drawn at the time an account is opened and before any change is made to such policy. The act takes effect January 1.
Education Dept. announces new TPD discharge measures for student borrowers
On August 19, the U.S. Department of Education announced that more than 323,000 student loan borrowers who have a total and permanent disability (TPD) will receive automatic discharges totaling over $5.8 billion. Under the final regulations, applicable borrowers will be identified through an existing data match with the Social Security Administration starting with the September quarterly match to allow “the Department to provide automatic TPD discharges for borrowers who are identified through administrative data matching by removing the requirement for these borrowers to fill out an application before receiving relief.” Borrowers matched with the Department of Veterans Affairs have already been able to take advantage of the TPD discharge data match since 2019. Two additional TPD-related policy items were also announced: (i) the Department will indefinitely extend a previously announced policy to stop asking borrowers to provide earnings information beyond the end of the national emergency (“a process that results in the reinstatement of loans if and when borrowers do not respond”); and (ii) the Department will propose eliminating the currently required three-year income monitoring period during a negotiated rulemaking that will begin in October.
District Court preliminarily approves $12 million class action settlement over automated mortgage errors
On August 17, the U.S. District Court for the Southern District of Ohio granted preliminary approval of a proposed settlement in a class action that claimed a national bank’s automated mortgage loan modification tools failed to approve borrowers due to technical issues. Class members (defined as borrowers who qualified during a specified time period for a home loan modification or repayment plan pursuant to the requirements of government-sponsored enterprises, FHA, or the Department of Treasury’s Home Affordable Modification Program that “were not offered a home loan modification or repayment plan by [the bank] because of excessive attorneys’ fees being included in the loan modification decision process” and whose homes were not sold in foreclosure) sued the bank alleging it “failed to detect or ignored multiple systematic errors in it automated decision-making software.” This software, class members claimed, is used to create automated calculations and determine whether consumers in default are eligible for loan modifications. According to class members, the bank allegedly “failed to adequately test, audit, and verify that its software was correctly calculating whether customers met threshold requirements for a mortgage modification” and failed to regularly and properly audit its software for compliance with government requirements, thus allowing errors to remain uncorrected. Class members further claimed that the bank apparently took several years to implement new controls and disclose the error. Under the terms of the preliminarily approved settlement, the bank must pay $12 million in relief to the settlement class.
CFPB releases HMDA data report
On August 19, the CFPB released a Data Point report titled, 2020 Mortgage Market Activity and Trends, which finds that the total number of closed-end originations, as well as applications, increased substantially between 2019 and 2020. The 2020 HMDA data encompasses the third year of data that incorporates amendments to HMDA by Dodd-Frank. The changes include new data points, revisions to some existing data points, and authorizing the CFPB to require new data points. As covered by a Buckley Special Alert, the CFPB issued a final rule that implemented significant changes that reflected the needs of homeowners and the evolution in the mortgage market.
According to the report, trends in mortgage applications and originations found in the 2020 HMDA data point include:
- 4,472 financial institutions reported at least one closed-end record in 2020, which is a decrease from 5,505 in 2019;
- “The number of home-purchase loans secured by site-built, one-to-four-family properties increased by about 387,000, whereas the number of refinance loans increased by 149.1 percent from 3.4 million in 2019 to 8.4 million in 2020”;
- In 2020, the number of open-end line-of-credit originations, besides reverse mortgages, fell by 16.6 percent to 869,000, from 1.04 million in 2019;
- “The share of loans secured by closed-end home-purchase loans for site-built, one-to-four-family, first lien, principal-residence properties for Black borrowers increased in 2020 and the share of refinance loans for Asian borrowers increased in 2020”; and
- In 2020, the refinance boom largely continued the trends since the second quarter of 2019.
According to CFPB Acting Director Dave Uejio, “initial observations about the nation’s mortgage market in 2020 are welcome news, with improvements in the overall volume of home-purchase and refinance loans compared to 2019.” He also noted that “Black and Hispanic borrowers continued to have fewer loans, [are] more likely to be denied than non-Hispanic White and Asian borrowers, and pay higher median interest rates and total loan costs. It is clear from that data that our economic recovery from the COVID-19 pandemic won’t be robust if it remains uneven for mortgage borrowers of color.”
DFPI requests comments on proposed CCFPL consumer complaint rules
On August 18, the California Department of Financial Protection and Innovation (DFPI) released a new invitation for comments on proposed rulemaking to implement the California Consumer Financial Protection Law (CCFPL). As previously covered by InfoBytes, last September the California governor signed AB 1864, which enacts the CCFPL and authorizes DFPI to establish rules relating to the covered persons, service providers, and consumer financial products or services outlined in the law. The newest invitation for comments builds on responses to initial comments received from a request for comments made in February (covered by InfoBytes here), and seeks comments on draft language implementing certain subdivisions of section 90008 related to consumer complaint regulations.
Among other things, the draft regulations would (i) require covered persons to create a complaint form accessible via their website and at each physical location, as well as maintain a toll-free number for consumers to orally file complaints; (ii) outline instructions for how covered persons must investigate and respond to complaints, including tracking complaints and communicating with consumers (covered persons will be required to provide written decisions to consumers within 15 calendar days of receiving a complaint); (iii) require covered persons to maintain a written record of each complaint for a minimum of five years from the date the complaint was initially filed; (iv) prohibit discrimination during the complaint process on any basis prohibited by law; (v) require complaint reports to be filed quarterly with DFPI describing the volume and types of complaints; (vi) outline requirements for determining whether a consumer inquiry should be handled as a complaint; and (viii) define nonpublic or confidential information. Comments on the draft regulations must be received by September 17.
FDiTech launches tech sprint to test institutions' resilience
On August 16, the FDIC’s technology lab, FDiTech, announced a tech sprint, which challenges participants to “identify solutions that can be used by institutions of all sizes to measure and test their resilience to a major disruption.” The tech sprint, From Hurricanes to Ransomware: Measuring Resilience in the Banking World, is designed to review new measures, data, tools, or capabilities to calculate how well community banks, and the banking sector as a whole, can withstand a major disruption. According to the FDIC, “[r]ecognizing the evolving threat environment to bank operations, their need to strengthen resilience, and given the challenges that banks face in identifying criteria to determine their respective levels of tolerance for a disruption, the FDIC seeks solutions that improve sector-wide resilience by helping answer the question: ‘What would be the most helpful set of measures, data, tools, or other capabilities for financial institutions, particularly community banks, to use to determine and to test their operational resilience against a disruption?’” Registration will be required for stakeholders to participate, and additional information on how to participate is expected on the FDiTech website.
District Court: State law right-to-cure provisions preempted by National Bank Act
On August 4, the U.S. District Court for the Western District of Wisconsin granted defendants’ motion for partial summary judgment in an action alleging claims under the FDCPA and the Wisconsin Consumer Act (WCA). The defendants were a debt-purchasing company and a law firm hired by the company to recover outstanding debt and purported late fees on the plaintiff’s account in a separate state-court action. After the plaintiff failed to make payments on his outstanding balance, the original creditor (a national bank) charged late fees and mailed him a “right to cure” letter advising him of the minimum payment due and the deadline to make the payment. The account was eventually sold to the debt-purchasing company after the plaintiff failed to make any minimum payments. The law firm sent the plaintiff two letters on behalf of the debt-purchasing company, one which outlined his right to dispute the debt and one which provided a “notice of right to cure default.” A small claims action was filed against the plaintiff in state court, in which the plaintiff argued for dismissal, contending in part that the notice of default failed to itemize delinquency charges as required under Wisconsin law. The plaintiff then filed this suit in federal court alleging violations of the FDCPA and the WCA, claiming that the defendants “falsely represented the status of his debt in violation of § 1692e by purporting to have properly accelerated his debt and filed suit against him despite [the plaintiff] never being provided an adequate right to cure letter pursuant to Wisconsin law.”
First, in reviewing whether the plaintiff had standing to sue, the court determined that the “costs, time, and energy” incurred by the plaintiff to defend himself in the state-court action amounted to a “concrete injury in fact” that established his standing in the federal-court action. However, upon reviewing the WCA’s right-to-cure provisions as the basis for the plaintiff’s claims that the defendants violated federal and state laws by allegedly falsely representing that they could accelerate the plaintiff’s debt and sue him, the court examined whether the state law’s notice and right-to-cure provisions were federally preempted by the National Bank Act (NBA), as the original creditor’s rights and duties were assigned to the debt-purchasing company when the account was sold. The court determined that while the WCA right-to-cure provisions “do relate in part to debt collection,” they also “go beyond that by imposing conditions on the terms of credit within the lending relationship.” The court ultimately concluded that the WCA provisions “are inapplicable to national banks by reason of federal preemption,” and, as such, the court found “that a debt collector assigned a debt from a national bank is likewise exempt from those requirements” and was not required to send the plaintiff a right-to-cure letter “as a precondition to accelerating his debt or filing suit against him.”
CFPB joins Census Bureau's tech sprint
On August 18, the CFPB announced that the Bureau will participate in the Census Bureau’s The Opportunity Project (TOP) “The World Post COVID-19” tech sprint program, comprised of six tech sprints that will focus on post-pandemic challenges. The CFPB is partnering with HUD to lead a tech sprint regarding post-pandemic housing challenges. According to the CFPB, participants will “develop innovative tools to raise the visibility of housing assistance resources” and connect individuals experiencing housing insecurity to such resources. The goal is for “housing assistance resources to land in the hands of landlords, particularly small ones, because, often, they are not prepared to weather significant financial hardships, such as tenants being unable to pay rent, and have fewer resources to manage the demands of running a business,” the CFPB stated.
District Court grants summary judgment against student loan debt-relief defendant
On August 10, the U.S. District Court for the Central District of California granted summary judgment against an individual defendant in an action by the CFPB against a lender and several related individuals and companies (collectively, “defendants”) for alleged violations of the Consumer Financial Protection Act (CFPA), Telemarketing Sales Rule (TSR), and Fair Credit Reporting Act (FCRA). As previously covered by InfoBytes, the CFPB filed a complaint in 2020 claiming the defendants violated the FCRA by, among other things, illegally obtaining consumer reports from a credit reporting agency for millions of consumers with student loans by representing that the reports would be used to “make firm offers of credit for mortgage loans” and to market mortgage products. However, the Bureau alleged that the defendants instead resold or provided the reports to numerous companies, including companies engaged in marketing student loan debt relief services. The defendants also allegedly violated the TSR by charging and collecting advance fees for their debt relief services, and violated both the TSR and CFPA by placing telemarketing sales calls and sending direct mail to encourage consumers to consolidate their loans, while falsely representing that consolidation could lower student loan interest rates, improve borrowers’ credit scores, and allow borrowers to change their servicer to the Department of Education. Settlements have already been reached with certain defendants (covered by InfoBytes here, here and here).
Responding to the Bureau’s motion for summary judgment against the individual defendant, the court, among other things, held that undisputed evidence showed that the individual defendant “obtained and later used prescreened lists from [a consumer reporting agency] without a permissible purpose” in order to send direct mail solicitations from the businesses that he controlled to consumers on the lists as opposed to firm offers of credit or insurance. The court also found that the individual defendant violated the TSR by mispresenting material aspects of the debt relief services and violated the CFPA by making false statements to induce consumers to pay advance fees for these services. Furthermore, the court rejected the individual defendant’s arguments involving boilerplate evidentiary objections and Fifth Amendment and statute of limitation claims. Because the individual defendant “was heavily involved in and controlled much of the [student loan debt relief businesses’] activities,” the court found that he acted recklessly and granted the Bureau’s motion for summary judgment, finding that injunctive relief, restitution, and a civil money penalty are appropriate remedies.