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On July 25, the CFPB and New York attorney general announced (see here and here) proposed settlements with a network of New York-based debt collectors (defendants) to resolve allegations that the defendants engaged in improper debt collection tactics in violation of the Consumer Financial Protection Act, the FDCPA, and various New York laws. As previously covered by InfoBytes, the CFPB and the New York AG filed a lawsuit in 2016, alleging the defendants established and operated a network of companies that harassed and/or deceived consumers into paying inflated debts or amounts they may not have owed. Among other things, the defendants allegedly (i) “misrepresented to consumers that they owed sums they did not owe, were not obligated to pay, or that the companies did not have a legal right to collect”; (ii) deceptively threatened consumers with lawsuits that the defendants did not plan on initiating; and (iii) impersonated law enforcement officials, government agencies, and court officers. Additionally, the New York AG claimed the defendants violated state laws related to the collection of consumer debt and the placement of consumer debt for collection.
The proposed settlements permanently ban the defendants from acting as debt collectors and enjoin all defendants from engaging in the alleged unlawful conduct in the future and from making any misrepresentation or omission connected with any consumer financial product or service. The first proposed stipulated final judgment and order for a group of the defendants imposes a $10 million civil money penalty (CMP) to both the CFPB and the New York AG, as well as $40 million in redress to harmed consumers. Under the terms of the second proposed stipulated final judgment and order, the other group of defendants must pay CMPs of $1 million to both the CFPB and the New York AG and $4 million in consumer redress. However, based on the second group of defendants’ inability to pay, full payment is suspended subject to the defendants paying $10,000 in consumer redress and a $1 CMP to the Bureau.
On July 23, HUD released a Conciliation Agreement with a real estate group and a mortgage company and its agents (collectively, the “respondents”) who allegedly discriminated against African-American home seekers. The complaint, brought by the Fair Housing Council of Riverside County (FHCRC), claims the respondents violated the Fair Housing Act during a series of FHCRC fair housing tests whereby African-American “testers” were falsely informed that there were no available homes and were subject to tougher pre-qualification requirements than white testers. While the respondents deny having engaged in any discriminatory behavior, they have agreed to pay $10,000 in relief and provide fair housing training to their agents.
On July 23, HUD issued Mortgagee Letter 2019-10, announcing the official suspension of the effective date of the agency’s April guidance (Mortgagee Letter 2019-06), which changed the downpayment assistance (DPA) guidelines. The suspension comes just a week after the U.S. District Court for the District of Utah granted an American Indian band and its mortgage company (collectively, “plaintiffs”) a preliminary injunction halting the enforcement of the April changes, and ordering that HUD “shall not deny insurance nor cause insurance to be denied based on non-compliance with Mortgagee Letter 19-06 and shall provide public notice that the effective date of Mortgagee Letter 19-06 is suspended until after a final determination on the merits of the case.” Buckley is co-counsel in the pending litigation.
The suspended guidance, Mortgagee Letter 2019-06 (Mortgagee Letter), issued on April 18, imposed new documentation requirements purportedly aimed at confirming that Governmental Entities operate their DPA programs within the scope of their governmental capacity when providing any portion of a borrower’s Minimum Required Investment (MRI). The letter updated Handbook 4000.1 to specify that when any portion of a borrower’s MRI comes from a Governmental Entity, a mortgagee must obtain the following documentation: (i) proof that the Governmental Entity has authority to operate in the jurisdiction where the property is located; (ii) a legal opinion from the Governmental Entity’s attorneys, signed and dated within two years of closing, establishing the Governmental Entity’s authority to operate in the jurisdiction where the property is located, which in the case of a federally recognized Indian Tribe means the entity is operating on tribal land in which the property is located, or offering DPA to enrolled members of the tribe; and (iii) evidence that the Governmental Entity is providing DPA and is doing so in its governmental capacity. The Mortgagee Letter went on to require documentation indicating that the provision of DPA is not contingent upon the future transfer of the insured mortgage to a specific entity.
The plaintiffs filed suit against HUD on April 22 arguing that the Mortgagee Letter was unlawful and discriminatory, and unfairly targeted American Indian tribes by “requiring them, for the first time, to confine their DPA programs to the geographic boundaries of their reservations and to enrolled members of the tribes, literally driving them out of the national marketplace and back onto the reservation.” Additionally, the complaint argued that HUD failed to execute these changes in accordance with the protections of the Administrative Procedures Act (APA) by providing a notice and comment period—purporting the Mortgagee Letter to be an “informal ‘guidance’ document that merely ‘clarifies’ existing law.” The decision to grant the preliminary injunction was announced by the court at the conclusion of a July 16 hearing. In the written order released the following week, the court concluded that the plaintiffs were likely to succeed on claims that the agency violated the APA because the Mortgagee Letter was actually a legislative rule with the force and effect of the law, not merely an interpretive rule. Moreover, the court rejected HUD’s argument that the Mortgagee Letter merely reiterates jurisdictional limitations that were already present, and stated the plaintiffs sufficiently demonstrated irreparable harm caused by the new jurisdictional limitations in the Mortgagee Letter.
On July 19, the CFPB released a report titled, “Building a Bridge to Credit Invisibility,” which covers the Bureau’s September 2018 fair lending symposium of the same name. The symposium was a day-long event that explored the challenges consumers face in accessing credit. The Bureau uses the term “credit invisible” to describe consumers who do not have a credit record maintained by a national credit reporting agency, or who have a credit record that is deemed to have too little or too old information to be treated as “scorable” by widely used credit scoring models. (Coverage of a previous Bureau report on credit invisibility available here.) The symposium report includes summaries of each of the panel discussions: (i) several short talks on issues such as credit invisibility, lending deserts, and innovation to expand access to credit; (ii) Bridging to Credit Visibility Using Innovative Products; (iii) Credit Products and Services for Microenterprise; and (iv) Alternative Data: Innovative Products and Solutions. The report also highlights key themes from the symposium, noting that many panelists believe work needs to be done to make products for the credit invisible more profitable and sustainable for large financial service providers. Additionally, panelists noted the need for responsible innovation while ensuring that access to credit is facilitated in a way that is “safe, affordable, and non-discriminatory.”
On July 18, Senators Patty Murray (D-WA) and Sherrod Brown (D-Ohio) sent a letter to CFPB Director Kathy Kraninger and U.S. Department of Education (Department) Secretary Betsy DeVos requesting an explanation as to why a statutorily required Memorandum of Understanding (MOU) terminated by the Department in 2017 has not been reestablished. As previously covered by InfoBytes, the terminated MOU allowed the sharing of information connected with the oversight of federal student loans. The Senators’ letter raises questions concerning the disagreement between the agencies over why the MOU was terminated, as well as “conflicting explanations” provided to Congress regarding the delay in reestablishing the MOU. According to the Senators, Kraninger previously commented in April that creating a new MOU with the Department was a priority for the Bureau (see InfoBytes coverage here). However, the Senators note that this statement conflicts with formal responses from the Department for a hearing record received three weeks after Kraninger’s comments, in which the Department claimed the Bureau “has not formally attempted to reestablish an MOU.” The Senators asked the agencies to provide a written explanation addressing (i) the basis for terminating the MOU; (ii) whether an attempt to reestablish the MOU has been made; (iii) any outstanding unresolved issues preventing reestablishment of the MOU; and (iv) an expected timeline for reestablishing the MOU. The Senators strongly encouraged the agencies “to reestablish the MOU immediately.”
On July 18, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such entities. The new enforcement actions include personal cease-and-desist orders, civil money penalties, formal agreements, prompt corrective action directives, removal and prohibition orders, and terminations of existing enforcement actions. Included in the list is a formal agreement issued against a Texas-based bank on June 20 for alleged unsafe or unsound practices related to, among other things, compliance risk management and violations of laws and regulations concerning the Flood Disaster Protection Act (FDPA), Bank Secrecy Act, TILA, RESPA, and the Expedited Funds Availability Act. Among other things, the agreement requires the bank to (i) appoint a compliance committee responsible for submitting a written progress report detailing specific corrective actions; (ii) ensure that it has “sufficient and competent management”; (iii) prepare a risk-based consumer compliance program, which must include revised policies and procedures related to the Servicemembers’ Civil Relief Act, TILA-RESPA Integrated Disclosure rule, and the FDPA; and (iv) take measures to “ensure that current and satisfactory credit and proper collateral information is maintained on all loans.”
On July 22, the CFPB, FTC, and 48 states, the District of Columbia and Puerto Rico announced a settlement of up to $700 million with a major credit reporting agency to resolve federal and state investigations into a 2017 data breach that reportedly compromised sensitive information for approximately 147 million consumers. According to the complaints (see here and here) filed in the U.S. District Court for the Northern District of Georgia, the company allegedly engaged in unfair and deceptive practices by, among other things, (i) failing to provide reasonable security for the sensitive personal information stored within its network; (ii) deceiving consumers about its data security program capabilities; and (iii) failing to patch its network after being alerted in 2017 to a critical security vulnerability.
Under the terms of the proposed settlements (see here and here), pending final court approval, the company will pay up to $425 million in monetary relief to consumers and provide credit monitoring to affected individuals, as well as six free credit reports each year for seven years to all U.S. consumers. The company must also pay $175 million to 48 states, the District of Columbia and Puerto Rico, and a $100 million civil money penalty to the Bureau. The $425 million fund will also compensate consumers who bought credit- or identity-monitoring services from the company and paid other expenses as a result of the breach. The company must also, among other things, implement a comprehensive information security program that will require annual assessments of security risks and safeguard measures, obtain third-party information security assessments, and acquire annual certifications from the board of directors that the company has complied with the settlements.
On July 18, Kathy Kraninger, Director of the CFPB, spoke before the Exchequer Club where she discussed the Bureau’s strategy for preventing consumer harm. Kraninger discussed her ongoing “listening tour”—in which she has met with and received feedback from “more than 600 consumer groups, consumers, state and local government officials, military personnel, academics, non-profits, faith leaders, financial institutions, and former and current Bureau officials and staff”—and commented on ways in which feedback received from these stakeholders has helped shape her approach. Kraininger highlighted four “tools” that the Bureau has at its disposal to execute its mission: education, rulemaking, supervision, and enforcement.
- Education. According to Kraninger, the Bureau’s focus reflects a “consumer-centric definition of financial well-being” designed to empower consumers when protecting their own interests and choosing the appropriate financial products and services. Specifically, Kraninger referred to the Bureau’s “Misadventures in Money Management” financial education tool for active-duty servicemembers, as well as its “Start Small, Save Up” initiative, which is designed to increase consumers’ ability to handle urgent expenses.
- Rulemaking. Kraninger commented that the Bureau will continue to comply with Congressional mandates to promulgate rules or address specific issues through rulemaking. However, where the Bureau has discretion, it “will focus on preventing consumer harm by maximizing informed consumer choice, and prohibiting acts or practices that undermine the ability of consumers to choose the products and services that are best for them.” Kraninger spoke of the need for increased transparency and deregulatory efforts and highlighted a recent change to the comment period for the Bureau’s Payday and Debt Collection rulemakings, as well as the consideration of potential changes to the existing Remittances Rule based on responses to a call for evidence.
- Supervision. Kraninger stressed that “[s]upervision is the heart of the agency,” as it helps to prevent violations of laws and regulations from happening in the first place. The Bureau’s approach will focus on ensuring supervision is effective, efficient, and consistent, and will explore ways to incentivize institutions to have in place good compliance management systems. Kraninger noted that, as chair of the Federal Financial Institutions Examination Council, she will focus on coordinating and collaborating with the other agencies to advance consumer protections.
- Enforcement. Kraninger noted that the Bureau will continue to enforce against bad actors that do not comply with the law, as “[a] purposeful enforcement regime can foster compliance, deter unlawful conduct, help prevent consumer harm, and right wrongs.” She referenced the Bureau’s history of collaborating with state and federal partners on enforcement actions, and stressed her commitment to ensuring enforcement matters are handled as expeditiously as possible. Kraninger also specifically drew attention to the Bureau’s collaborative approach in its recent advisory on elder financial exploitation (previously covered by InfoBytes here).
On July 18, the CFPB released a report providing an overview of third-party debt collection tradelines from 2004 to 2018, which the Bureau segmented into two parts: debt buyer tradelines and non-buyer debt collections tradelines. The CFPB’s report, “Market Snapshot: Third-Party Debt Collections Tradeline Reporting,” is based on a nationally representative sample of approximately 5 million credit records from one of the three major credit bureaus. According to the report, as of the second quarter of 2018, more than one in four consumers in the sample have at least one debt in collection by third-party debt collectors. Additionally, fewer than 900 unique furnishers of third-party collections tradelines nationwide reported unpaid debts for consumers in the sample, according to the Bureau—a decrease from the 2,294 collectors reported back in 2004. The report also notes that in the second quarter of 2018, the top four debt buyers account for 90 percent of all debt buyer tradelines for consumers in the sample, while the top four non-buyers, by comparison, accounted for just 13 percent of reported tradelines. Furthermore, in the second quarter of 2018, 3 out of 4 of all reported tradelines in the sample from non-buyers were for non-financial debt, such as medical, telecommunications, or utilities debt. Buyers, in contrast, were more likely to report unpaid financial, retail, or banking debts.
On July 16, the U.S. Government Accountability Office (GAO) submitted a report to the ranking members of the Senate Banking Committee and the House Committee on Financial Services recommending that the CFPB improve communications to consumer reporting agencies (CRAs) and furnishers about the Bureau’s supervisory expectations. Specifically, the report—based on a CRA performance audit conducted by GAO from July 2018 to July 2019—presents two recommendations to the CFPB director on communicating expectations to CRAs concerning: (i) “reasonable procedures for assuring maximum possible accuracy of consumer report information;” and (ii) “reasonable investigations of consumer disputes.” According to the report, there are various causes for consumer report inaccuracies: errors in the data collected by CRAs and data not being matched to the correct consumer by CRAs. While the Bureau has “generally focused on assessing compliance with Fair Credit Reporting Act (FCRA) requirements,” GAO notes that the CFPB “has not defined its expectations for how CRAs can comply with key statutory requirements.” For instance, under the FCRA, CRAs must follow reasonable procedures for ensuring maximum possible accuracy and reasonably investigate consumer disputes. However, although the CFPB has identified deficiencies concerning these requirements in its CRA examinations, the Bureau “has not defined its expectations—such as by communicating information on appropriate practices—for how CRAs can comply with these requirements.” Therefore, GAO concluded, there exist opportunities for the Bureau to improve its oversight of CRAs. The CFPB neither agreed nor disagreed with GAO’s recommendations, and stressed that “it has made oversight of the consumer reporting market a top priority and that its supervisory reviews of CRAs have focused on evaluating their systems for assuring the accuracy of data used to prepare consumer reports.” The Bureau also commented on CRAs’ significant advances in promoting greater accuracy.
- Hank Asbill to discuss "Ethical guidance in conducting internal investigations – The intersection of Yates and Upjohn" at the American Bar Association Southeastern White Collar Crime Institute
- H Joshua Kotin to discuss "Recent developments in fair lending and avoiding the pitfalls" at the Arkansas Community Bankers/Bankers Assurance 2019 Compliance Conference
- Brandy A. Hood to discuss "RESPA Section 8/referrals: How do you stay compliant?" at the New England Mortgage Bankers Conference
- Daniel P. Stipano to discuss "Risk management in enforcement actions: Managing risk or micromanaging it" at the American Bar Association Business Law Section Annual Meeting
- Valerie L. Hletko to discuss "Banking on guns ‘n drugs: Social policy meets financial services" at the American Bar Association Business Law Section Annual Meeting
- Daniel P. Stipano to discuss "Navigating the conflicting federal and state laws for doing business with cannabis companies" at the American Bar Association Business Law Section Annual Meeting
- Tim Lange to discuss "Services and value" at the North American Collection Agency Regulatory Association Annual Conference
- Katherine L. Halliday to discuss "UDAP, UDAAP & the Map rule compliance basics" at the Mortgage Bankers Association Regulatory Compliance Conference
- Brandy A. Hood to discuss "How to ace your TRID exam" at the Mortgage Bankers Association Regulatory Compliance Conference
- Amanda R. Lawrence to discuss "Data privacy litigation" at the Mortgage Bankers Association Regulatory Compliance Conference
- Melissa Klimkiewicz to discuss "Navigating FHA rules and regs" at the Mortgage Bankers Association Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "HMDA data is out, now what?" at the Mortgage Bankers Association Regulatory Compliance Conference
- Jeffrey P. Naimon to discuss "Washington regulatory overview" at the Mortgage Bankers Association Regulatory Compliance Conference
- Daniel P. Stipano to discuss "Assessing the CDD final rule: A year of transitions" at the ACAMS AML & Financial Crime Conference
- Daniel P. Stipano to discuss "Lessons learned from recent enforcement actions and CMPs" at the ACAMS AML & Financial Crime Conference
- Kathryn L. Ryan to discuss "The state’s role in fintech: Providing an industry framework for innovation" at Lend360
- Jeffrey P. Naimon to discuss "Truth in lending" at the American Bar Association National Institute on Consumer Financial Services Basics
- Daniel P. Stipano to discuss "Lessons learned from recent enforcement actions" at the Institute of International Bankers Risk Management and Regulatory Examination/Compliance Seminar
- Jonice Gray Tucker to discuss "Fintech regulatory developments, crypto-assets, blockchain and digital banking, and consumer issues" at the Practising Law Institute Banking Law Institute
- Amanda R. Lawrence to discuss "How to balance a successful (and stressful) career with greater personal well-being" at the American Bar Association Women in Litigation Joint CLE Conference