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CFPB Issues Consent Orders Regarding Debt Collection Practices
On September 9, the CFPB ordered the two largest U.S. debt buyers and collectors to pay a combined total of nearly $80 million in civil penalties and consumer restitution related to their debt collection practices. The CFPB alleged that both companies, among other things, engaged in robo-signing, sued (or threatened to sue) on stale debt, made inaccurate statements to consumers, and engaged in other illegal collection practices. In particular, the CFPB criticized the practice of purchasing debts without obtaining important documentation or information about the debt, or verifying to ensure the debts were accurate and enforceable before commencing collection activities. Under the consent orders, one company agreed to provide up to $42 million in consumer refunds, pay a $10 million civil money penalty, and cease collecting on a portfolio of consumer debt with a face value of over $125 million. The other company agreed to provide $19 million in restitution, pay an $8 million civil money penalty, and cease collecting on a consumer debt portfolio with a face value of over $3 million. In addition, both companies are also generally prohibited from reselling consumer debt. In prepared remarks announcing the enforcement action, CFPB Director Richard Cordray noted, “the terms of the orders will help reform and improve the tactics and approaches” within the debt collection market. The CFPB’s action comes as the industry anticipates the CFPB’s issuance of new debt collection rules.
Ninth Circuit Rules Against Title Insurer in Long-Running RESPA Litigation
On August 24, the Ninth Circuit held that a title insurer’s equity investments in title agencies in exchange for agreements that the agencies would refer customers to the insurer violated the anti-kickback provisions of the Real Estate Settlement Procedures Act (RESPA). Edwards v. First Am. Corp., 2015 WL 4999329 (9th Cir. Aug. 24, 2015). In this long-running case (covered in InfoBytes here, here, here, and here), borrowers filed a putative class-action lawsuit against the title insurer claiming violations of Section 8 of RESPA, which prohibits payments for the referral of settlement service business. In prior phases of the litigation, courts declined to certify the class, and the U.S. Supreme Court eventually granted certiorari but declined to rule on the merits of the litigation. In this appeal, the plaintiff-borrowers asked the Ninth Circuit to review the district court’s most recent denial of class certification, and the CFPB filed an amicus brief in the appeal as well. The Ninth Circuit affirmed the denial of the certification, finding that common issues did not predominate over individual issues for the proposed class. The court further stated that, while RESPA exempts payments for “goods,” “facilities,” and “services” from Section 8’s prohibition on referral fees, the title insurer’s equity investments in the title agencies were not payments for “goods,” “facilities,” or “services.” Further, the court found that RESPA’s exemption from Section 8 available to affiliated business arrangements did not apply because no compensable services were performed by the title agencies in exchange for the payments and the title insurer did not receive any payments from the title agencies as a return on its ownership interests.
CFPB Spotlights Credit Reporting Industry in Latest Complaints Report
On August 25, the CFPB released the second of its monthly complaint reports, highlighting complaints received from consumers regarding the credit reporting industry. In its latest snapshot report, the CFPB revealed a 56 percent increase in the number of credit reporting complaints submitted by consumers between June 2015 and July 2015, and a 45 percent increase in credit reporting complaints from last year. The report also stated that 77 percent of credit reporting complaints involved inaccurate information on consumers’ credit reports. Despite the large volume of data used to prepare the report, the Bureau cautioned that the data is not normalized and that company-specific information should be considered in context of a company’s size.
CFPB & NYDFS File Suit Against Two Pension Advance Lenders Over Misleading Consumers Related to Costs, Risks Associated to Advance Payments
On August 20, the CFPB, along with the New York Department of Financial Services (NYDFS), filed a joint complaint in federal court against two pension advance lenders and three of their managers for allegedly misleading consumers regarding the costs and risks associated with the companies’ pension advance loans. The CFPB and NYDFS contend that both companies coerced consumers into borrowing against their pensions by marketing the product as a sale rather than a loan, and misrepresented or failed to disclose interest rates and fees on lump-sum cash advances offered for agreeing to redirect the full or partial amount of the consumer’s pension payments over an extended period. In separate allegations, the NYDFS contends that both companies violated New York state specific laws related to usury and deception, and unlawfully transmitted money without a proper license. The complaint follows guidance issued earlier this year highlighting three business practices consumers should avoid when conducting business with pension advance lenders.
United States District Court: Mortgagor Lacks Standing to Bring RESPA Claim
On August 11, the U.S. District Court for the District of New Hampshire rejected the addition of a potential RESPA claim to plaintiff’s complaint due to lack of standing, and the court dismissed the remaining counts for failure to state a claim. Sharp v. Deutsche Bank National Trust Company, As Trustee For Morgan Stanley ABS Capital Inc. Trust 2006-HE3, No. 14-cv-369 (D.N.H. Aug. 11, 2015). Although plaintiff and his father were both mortgagors on the mortgage document, the promissory note identified plaintiff’s father as the sole borrower for the loan. After plaintiff’s father died and plaintiff defaulted on the mortgage, plaintiff sought to enjoin the bank’s subsequent foreclosure proceedings. Plaintiff moved to amend his complaint to add a RESPA claim based on the bank’s allegedly inadequate responses to his requests for information pursuant to 12 C.F.R. § 1024.35 and 12 C.F.R. § 1024.36. The court determined that plaintiff lacked standing to assert his RESPA claim because the RESPA provisions at issue only applied to borrowers, not mortgagors like plaintiff. The court also rejected plaintiff’s argument that his status as the successor-in-interest to his father under 12 C.F.R. § 1024.38 established standing to bring the RESPA claim. The court confirmed that plaintiff was protected by 12 C.F.R. § 1024.38, but the court relied on the CFPB’s official interpretation of 12 C.F.R. § 1024.38 to determine that no private right of action existed to enforce the rule. The court also dismissed plaintiff’s original claims that sought to enjoin foreclosure by asserting that the bank (i) lacked authority to foreclose because the bank could not demonstrate that it was an assignee of the mortgage and (ii) it breached the implied covenant of good faith and fair dealing by pursuing foreclosure despite plaintiff’s request to postpone it. The court held that the bank had authority to foreclose because New Hampshire law did not require the bank to record the assignment in order to exercise the statutory power of sale. Regarding plaintiff’s second claim, the court determined that the bank did not breach the implied covenants because its actions were consistent with its contractual rights and there was no duty to postpone the foreclosure sale upon plaintiff’s request.
CFPB Orders Subsidiary of Peer-to Peer Lending Company to Provide $700,000 in Restitution over Practices Related to its Health Care Loan Product
On August 19, the CFPB announced a consent order against a subsidiary of an online lending company, ordering the subsidiary to provide $700,000 in monetary relief to affected consumers. According to the CFPB, the subsidiary marketed two loan products at dental offices as part of its health-care services financing program – an installment loan and a deferred-interest loan – to assist consumers in paying for dental services. The CFPB contended that consumers were provided inaccurate information related to the terms and conditions of the deferred-interest loan product, finding that, in certain instances, the loan product was marketed as a “no-interest” loan. However, the dental service providers who marketed the loan product failed to note that the 22.98 percent interest rate would be added to the principal if consumers failed to pay the loan in full before the end of the promotional period.
CFPB's Office of Older Americans Releases Virginia Guides Designed for Financial Caregivers
On August 17, the CFPB released Virginia state-specific Managing Someone Else’s Money guides, which are designed to make it easier for financial caregivers to follow the state’s unique fiduciary laws and procedures. According to Director Cordray’s remarks, the four guides – (i) Agents under powers of attorney; (ii) Court-appointed guardians; (iii) Trustees; and (iv) Government fiduciaries – will provide fiduciaries with “tips and answers to everyday questions people may have about managing someone else’s bank account, applying for federal benefits, and sharing information with family members.” Additionally, the guides are intended to alert caregivers to potential scams and financial exploitation, while also providing ways to respond if a beneficiary is the victim of either. The CFPB plans to release similar guides for Arizona, Florida, Georgia, Illinois, and Oregon. Following the nationally-applicable 2013 Managing Someone Else’s Money guide, the release of these state-specific guides represents the second phase of the Bureau’s Office of Older Americans’ initiative to assist financial caregivers.
CFPB, FDIC, and OCC Order Large Financial Institution and Subsidiaries to Pay Nearly $40 Million for Deposit Discrepancies
On August 12, in coordinated enforcement actions, the CFPB, FDIC, and OCC ordered a large financial institution and two of its banking subsidiaries to pay nearly $40 million in fines and restitution for failing to credit consumers the full amounts of their deposited funds. The regulators allege that, from 2008 through 2013, the bank entities (i) failed to credit consumers the full amount of their deposits when the amount scanned on the deposit slip was less than the amount of the checks and cash deposited; and (ii) falsely claimed that they would verify the deposits. The CFPB consent order requires the bank entities to pay approximately $11 million in restitution and a $7.5 million civil money penalty. The FDIC order requires one of the banking subsidiaries to pay nearly $5.8 million in restitution and a $3 million civil money penalty, while the OCC consent order assessed a $10 million civil money penalty on the other banking subsidiary.
CFPB Issues Guidance Reminding Servicers of Requirements for Cancellation and Termination of Private Mortgage Insurance
On August 4, the CFPB issued Compliance Bulletin 2015-03 to provide guidance to mortgage servicers on their compliance obligations related to the private mortgage insurance (PMI) cancellation and termination provisions under the Homeowners Protection Act (HPA). The bulletin summarizes HPA requirements regarding annual disclosures, PMI refunds, borrower-requested cancellation, automatic termination, and final termination of PMI. The bulletin also cautions servicers to implement investor guidelines in a manner that does not violate the HPA. In a statement released by the Bureau, CFPB Director Richard Cordray advised, “We will continue to supervise mortgage servicers to ensure they are treating borrowers fairly, and [the Bureau’s] guidance should help servicers come into compliance with the [HPA].”
Update Regarding Marketing Services Agreements ("MSAs")
On Thursday, June 30, 2015, a CFPB spokesman issued a statement to HousingWire in response to the announcement by a large lender that it was terminating its MSAs:
[This] decision to exit all marketing services agreements is an important step for the mortgage industry towards ensuring compliance with [the Real Estate Settlement Procedures Act (“RESPA”)] and freeing up more choices for consumers. We are concerned that such agreements can carry significant legal risk for companies and undermine transparency for consumers. Companies should take note of today’s action and consider carefully whether their own business practices comply with the consumer protections provided under the law, which bars kickbacks for customer referrals.
These announcements come in the wake of the CFPB’s September 2014 consent order against Lighthouse Title, Inc. and CFPB Director Cordray’s June 2015 ruling against PHH Corporation and its affiliates. Both matters involved alleged violation of Section 8 of RESPA, which states that “[n]o person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.” 12 U.S.C. § 2607(a). However, Section 8 also states that “[n]othing in this section shall be construed as prohibiting … the payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed.” 12 U.S.C. § 2607(c)(2).
In the Lighthouse order (at ¶ 20), the CFPB stated that “[e]ntering a contract is a ‘thing of value’ within the meaning of Section 8, even if the fees paid under that contract are fair market value for the goods or services provided.” This statement raised concerns that, notwithstanding Section 8(c)(2) which market participants have believed for decades permitted MSAs and similar arrangements so long as the payments were fair market value, the CFPB believed a MSA violated RESPA if its “true purpose” was the referral of settlement services, regardless of whether fair market value was paid in exchange for actual marketing services.
Director Cordray’s opinion in the PHH appeal appears to confirm these concerns. The opinion repeatedly states that payments for services are only “bona fide” under RESPA § 2607(c)(2) if they “are solely for services actually performed (i.e., not for referrals)….” CFPB PHH Opinion at 18; see also id. at 17 (“[T]he distinct meaning of ‘bona fide’ in section 8(c)(2) is that the payment must be solely for the service actually being provided on its own merits, but cannot be a payment that is tied in any way to the referral of business.”); id. (“A payment made ‘in good faith’ for services performed is made for the services themselves, not as a pretext to provide compensation for a referral.”). In reaching this result, Director Cordray rejected guidance provided by HUD in a 1997 letter “[t]o the extent … inconsistent with [his] textual and structural interpretation of [RESPA].” Id. at 17 (stating that “[t]he HUD letter is not in such a form as to be binding on any adjudicator” because it was not published in the Federal Register and therefore “provides no protection to PHH in this proceeding”).
But the CFPB faces additional challenges if it were to take the position that MSAs generally are per se impermissible in light of the fact that, unlike the 1997 letter regarding captive reinsurance, HUD published guidance in the Federal Register in 2010 regarding the marketing of home warranty companies (the “HWC Guidance”) that “may be applicable to payments made by other settlement service providers to real estate brokers or agents.” HWC Responses, 75 Fed. Reg. 74620, 74621 (Dec. 1, 2010) (question 7). Among other things, the HWC Guidance concludes that the interpretive rule does not “prohibit payments from an HWC to real estate brokers or agents for general advertising services performed by the brokers or agents on behalf of the HWC[.]” 75 Fed. Reg. at 36272-73. The HWC Guidance uses the following example to illustrate this conclusion: “a reasonable payment for an advertisement by an HWC in a real estate broker's or agent's publication or on the broker's or agent's website would not, in and of itself, be a payment for a referral under RESPA.” Id.
The PHH decision is being appealed to the U.S. Court of Appeals for the D.C. Circuit.