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On February 22, the U.S. District Court for the District of South Carolina granted the CFPB’s motion for default judgment and appointment of receiver in an action alleging defendants violated the CFPA and TILA by falsely representing that their lump-sum pension advances were not loans and that they carried no applicable interest rate. As previously covered by InfoBytes, the Bureau filed a complaint against the defendants in 2018 claiming that consumers were actually required to pay back advances with interest and were charged various fees for the product. The Bureau also alleged, among other things, that the defendants failed to provide customers with TILA closed-end-credit disclosures, and provided income streams from the advance payments as 60- or 120-month cash flow payments to third-party investors, promising between 6 and 12 percent interest rates.
In its decision, the court upheld a magistrate judge’s report and recommendations, which concluded that the Bureau’s complaint sufficiently stated “a deception claim” under the CFPA, as well as violations of TILA and Regulation Z by the corporate defendants. The magistrate judge recommended that the court grant the Bureau “a permanent injunction to prevent future violations of the law,” redress and a civil money penalty awarded jointly and severally against the defendants, and appointment of a receiver. The court overruled various objections raised by the individual defendant’, including for failure to timely raise the objection before the magistrate judge, and because certain claims were without merit. Ultimately, the court granted the Bureau a default judgment against the defendants and adopted the report and recommendations of the magistrate judge for injunctive relief, consumer redress, a civil money penalty, and the appointment of a receiver.
On February 22, the CFPB and state attorneys general from Massachusetts, New York, and Virginia filed a complaint against a group of defendants that provide immigration bond products or services for non-English speaking U.S. Immigration and Customs Enforcement (ICE) detainees. The Bureau alleges that the defendants engaged in deceptive and abusive acts and practices in violation of the CFPA, while the states bring related claims that the defendants violated their respective consumer-protection laws, by, among other things, (i) representing that they paid the detainees’ bonds and that monthly payments go towards repaying the defendants for doing so (the Bureau and states allege that the monthly payments are actually “rental fees for a GPS device that do not go to repaying consumers’ bonds”); (ii) making false threats that detainees will be re-arrested, detained, or deported if they do not make the monthly payments or remove the defendants’ GPS devices, many of which, the complaint claims, do not actually work; (iii) threatening to send detainees’ accounts to collection, representing that failing to make payments could harm their credit, or threatening to sue detainees or their families for non-payment; (iv) representing that collateral payments would be refunded once the detainees’ proceedings were resolved but in many cases failing to do so; (v) presenting detainees, most of whom cannot read or understand English, with a series of English-only contracts requiring the payment of large upfront fees plus $420 per month to “lease” GPS-tracking ankle monitors until their cases are resolved; (vi) creating the illusion that defendants are affiliated with ICE, even though they have no affiliation with authorities; and (vii) offering financial rewards to employees who sign up new customers and collect payments. The Bureau is seeking an injunction, as well as damages, redress, disgorgement, and civil money penalties.
On February 23, the CFPB issued a statement noting it is considering whether to revisit final rules issued last year regarding the definition of a Qualified Mortgage and the establishment of a “Seasoned QM” category of loans. As previously covered by InfoBytes, last December the Bureau issued the General QM Final Rule to amend Regulation Z and revise the definition of a “General QM” by eliminating the General QM loan definition’s 43 percent debt-to-income ratio (DTI) limit and replacing it with bright-line price-based thresholds. The General QM Final Rule also eliminates QM status resulting solely from loans meeting qualifications for sale to Fannie or Freddie Mac (GSEs), known as the “GSE Patch.” The Bureau issued a second final rule, the Seasoned QM Final Rule, to create a new category of safe-harbor QMs applicable to first-lien, fixed-rate mortgages that are held in portfolio by the originating creditor or first purchaser for a 36-month period while meeting certain performance requirements, and comply with general QM restrictions on product features and points and fees. The effective date for both final rules is March 1. The General QM Final Rule also has a mandatory compliance date of July 1.
In the statement, the Bureau noted that it is “considering whether to initiate a rulemaking to revisit the Seasoned QM Final Rule,” including whether to revoke or amend the Seasoned QM Final Rule and how that would affect covered transactions for which applications were received after the March 1 effective date. In addition, the Bureau stated that it expects to issue a rule to delay the July 1, 2021 mandatory compliance date of the General QM final rule. Should a proposed rule be finalized, creditors would then “be able to use either the current General QM loan definition or the revised General QM loan definition for applications received during the period from March 1, 2021, until the delayed mandatory compliance date,” the Bureau said. Additionally, the GSE patch would also remain in effect until the new mandatory compliance date, or until the GSEs cease to operate under conservatorship prior to that date.
The same day, the Bureau updated its small entity compliance guide and other compliance aids for the Ability-to-Repay and Qualified Mortgage Rule. The updates reflect amendments set forth in the GSE Patch Extension Final Rule, the General QM Final Rule, and the Seasoned QM Final Rule.
On February 10, CFPB acting Director Dave Uejio published a blog post sharing his “broad vision” for the Division of Consumer Education and External Affairs (CEEA). This guidance, Uejio emphasized, will help to immediately advance the Bureau’s policy priorities and protect economically vulnerable consumers, which includes making sure consumers who submit complaints to the Bureau “get the response and the relief they deserve.” Observing that some companies have not met their obligations to respond to consumer complaints, Uejio reiterated that “[i]t is the Bureau’s expectation that companies provide substantive responses that address the issues consumers describe in their complaints.” He also noted that because consumer advocates have identified disparities in certain companies’ responses to Black, Brown, and Indigenous communities, he asked Consumer Response to provide an analysis identifying companies with poor track records on these issues. To achieve his goal of assisting economically vulnerable consumers, Uejio asked CEEA to take the following steps:
- Target resources to ensure struggling homeowners in delinquency or at risk of foreclosure and renters at risk of eviction know their rights.
- Increase coordination efforts with other agencies to provide assistance and information to at-risk homeowners and renters.
- Collaborate with coalitions of stakeholders, including consumer advocates, civil rights groups, grassroots, community-based organizations, and individual consumers to ensure homeowners receive information and assistance in languages and terminology they understand.
- Help ensure homeowners and renters can access HUD-approved housing counseling organizations so they can manage financial hardships due to Covid-19.
- Take the lead on updating the Bureau’s website so it is more user friendly and focused on consumers rights, and expand the Bureau’s social media presence so consumers can be heard from directly.
- Aggressively rebuild and repair the Bureau’s relationships with external stakeholders who support economically vulnerable consumers, including consumer, civil rights, racial justice, and tribal and Indigenous rights groups.
Since being named acting Director, Uejio has also published blog posts conveying his visions for the Division of Research, Markets, and Regulations and the Office of Supervision, Enforcement, and Fair Lending (covered by InfoBytes here and here).
On February 4, CFPB acting Director Dave Uejio published a blog post conveying his “broad vision” for the Division of Research, Markets, and Regulations (RMR). Uejio emphasized that in order for the Bureau to respond to his previously stated policy priorities—(i) relief for consumers facing hardship and economic crisis due to the Covid-19 pandemic, and (ii) racial equity (covered by InfoBytes here)—the agency must sharpen its focus on the consumer experience. To achieve this goal, Uejio is authorizing the Bureau’s use of its 1022(c)(4) data collection authority and has asked RMR to examine “the impact of specific industry practices on consumers’ daily budget and overall bottom line in order to target effective policy interventions.” Among other things, RMR has been asked to take the following immediate steps:
- Prepare an analysis assessing housing insecurities such as mortgage foreclosures, mobile home repossessions, and landlord-tenant evictions.
- Prepare an analysis to address pressing consumer financial barriers to racial equity in order to “inform research and rulemaking priorities,” and “[e]xplicity include in policy proposals the racial equity impact of the policy intervention.”
- Resume data collections paused due to Covid-19, including HMDA quarterly reporting, CARD Act data collection, PACE data collection, and the previously completed 1071 data collection.
- Focus mortgage servicing rulemaking on Covid-19 responses “to avert, to the extent possible, a foreclosure crisis” when pandemic forbearances end in March and April.
- Explore options for preserving the status quo with respect to QM and debt collection rules. (QM rules covered by InfoBytes here and a Buckley Special Alert; debt collection rules covered by InfoBytes here and here.)
Uejio also noted that he “will be assessing regulatory actions taken by the previous leadership and adjusting as necessary and appropriate those not in line with [the Bureau's] consumer protection mission and mandate,” and that he wants to “preserve, where possible, maximum policy flexibility” for President Biden’s nominee once confirmed.
On February 3, the FTC announced it recently provided the CFPB with its annual summary of work on ECOA-related policy issues, focusing specifically on the Commission’s activities with respect to Regulation B during 2020. The summary discusses, among other things, the following FTC research and policy development initiatives:
- The FTC submitted a comment letter in response to the CFPB’s request for information on ways to provide additional clarity under ECOA (covered by InfoBytes here). Among other things, the FTC noted that Regulation B explicitly incorporates disparate impact and offered suggestions should the Bureau choose to provide additional detail regarding its approach to disparate impact analysis. The FTC also urged the Bureau to remind entities offering credit to small businesses that ECOA and Regulation B may apply based “on the facts and circumstances involved” and that entities cannot avoid application of these statutes based solely on how they characterize a transaction or the benefits they claim to provide.
- The FTC hosted the 13th Annual FTC Microeconomics Conference, which focused on the use of machine-learning algorithms when making decisions in areas such as credit access.
- The FTC’s Military Task Force continued to work on military consumer protection issues, including military consumers’ “rights to various types of notifications as applicants for credit, including for adverse action, and information about the anti-discrimination provisions, in ECOA and Regulation B.”
- The FTC continued to participate in the Interagency Task Force on Fair Lending, along with the CFPB, DOJ, HUD, and the federal banking regulatory agencies. The Commission also joined the newly formed Interagency Fair Lending Methodologies Working Group with the aforementioned agencies in order “to coordinate and share information on analytical methodologies used in enforcement of and supervision for compliance with fair lending laws, including ECOA.”
The summary also highlights FTC ECOA enforcement actions, business and consumer education efforts on fair lending issues, as well as blog posts discussing fair lending safeguards and the use of artificial intelligence in automated decision-making.
On January 28, newly appointed CFPB acting Director, Dave Uejio, released a statement he sent to staff announcing his immediate priorities for the Bureau as: (i) relief for consumers facing hardship and economic crisis due to the Covid-19 pandemic, and (ii) racial equity. Acknowledging the recently released Covid-19 Supervisory Highlights (covered by InfoBytes here), Uejio stated he was “concerned” about the findings, which noted issues with mortgage servicing, auto loan servicing, student loan servicing, and small business lending (including banks' practice of only offering Paycheck Protection Program loans to pre-existing customers). Uejio stated that going forward, the Bureau will “take aggressive action to ensure that regulated companies follow the law and meet their obligations to assist consumers during the COVID-19 pandemic,” noting that companies will have already received or should expect to receive a letter dictating “remediat[ion] [to] all of those who are harmed” and should “change policies, procedures, and practices to address the root causes of harms.” Moreover, Uejio will be reversing policies put into place by the previous administration, including reinstating examinations of the Military Lending Act and rescinding “public statements conveying a relaxed approach to enforcement.”
Additionally, Uejio said fair lending enforcement is a “top priority,” calling it “time” for the CFPB to “take bold and swift action on racial equity.” Uejio noted plans to “elevate and expand existing investigations and exams,” as well as add new ones and focus broadly on “unlawful conduct that disproportionately impacts communities of color and other vulnerable populations.”
On January 21, the U.S. District Court for the Southern District of California issued an order granting in part and denying in part the CFPB’s motion for partial summary judgment and granting the agency’s motion for default judgment in a 2015 case against a now defunct California-based student financial aid operation and its owner (defendants). As previously covered by InfoBytes, the defendants allegedly engaged in deceptive practices when they, among other things, represented that by paying a fee and sending in an application, consumers were applying for financial aid or the defendants would apply for aid on behalf the students. However, according to the Bureau, the consumers did not receive the promised services in exchange for their payment. The case was stayed in 2016 while the owner defendant faced a pending criminal investigation, until the court lifted the stay in 2019 after finding the possibility of the civil proceedings affecting the owner defendant’s ability to defend himself in the criminal proceeding “speculative and unripe.”
In issuing the order, the court determined, among other things, that the Bureau had established the owner defendant’s liability for deceptive practices under the CFPA, rejecting the owner defendant’s argument that booklets sent to consumers did not qualify as a “consumer financial product or service” within the scope of the Bureau’s enforcement authority. The court further ruled that the owner defendant had made material representations to consumers that were “likely to mislead” them into thinking, among other things, that they would receive individually tailored products, when in reality their individual information never mattered and no specific financial aid advice was ever provided. However, the court denied the CFPB’s motion for summary judgment with respect to solicitation packets sent by the defendants in 2016, ruling that an included FAQ creates “a genuine issue of disputed fact as to whether the 2016 solicitation packets misrepresented that [the company’s] program permitted consumers to apply for financial aid or to apply through [the company].”
The order requires the defendants to pay a $10 million civil money penalty and more than $4.7 million in restitution. The court will also issue an injunction to prevent the defendants “from committing any future fraud” once the Bureau submits a proposed order. Additionally, default judgment was entered against the defendants on the merits of the Bureau’s claims, which included allegations that the defendants failed to provide privacy notices to consumers as required by Regulation P.
On January 19, the CFPB released a special edition of Supervisory Highlights detailing the agency’s Covid-19 prioritized assessment (PA) observations. Since May 2020, the Bureau has conducted PAs in response to the pandemic in order to obtain real-time information from supervised entities operating in markets that pose an elevated risk of pandemic-related consumer harm. According to the Bureau, the PAs are not designed to identify federal consumer financial law violations, but are intended to spot and assess risks in order to prevent consumer harm. Targeted information requests were sent to entities seeking information on, among other things, ways entities are assisting and communicating with consumers, Covid-19-related institutional challenges, compliance management system changes made in response to the pandemic, and service provider data. Highlights of the Bureau’s findings include:
- Mortgage servicing. The CARES Act established certain forbearance protections for homeowners. The Bureau pointed out that many servicers faced significant challenges, including operational constraints, resource burdens, and service interruptions. Consumer risks were also present, with several servicers (i) providing incomplete or inaccurate information regarding CARES Act forbearances, failing to timely process forbearance requests, or enrolling borrowers in unwanted or automatic forbearances; (ii) sending collection and default notices, assessing late fees, and initiating foreclosures for borrowers in forbearance; (iii) inaccurately handling borrowers’ preauthorized electronic funds transfers; and (iv) failing to take appropriate loss mitigation steps.
- Auto loan servicing. The Bureau noted that many auto loan servicers provided insufficient information to borrowers about the impact of interest accrual during deferment periods, while other servicers continued to withdraw funds for monthly payments even after agreeing to deferments. Additionally, certain borrowers received repossession notices even though servicers had suspended repossession operations during this time.
- Student loan servicing. The CARES Act established protections for certain student loan borrowers, including reduced interest rates and suspended monthly payments for most federal loans owned by the Department of Education. Many private student loan holders also offered payment relief options. The Bureau noted however that servicers faced significant challenges in implementing these protections. For certain servicers, these challenges led to issues which raised the risk of consumer harm, including (i) provision of incorrect or incomplete payment relief options; (ii) failing to maintain regular call center hours; (iii) failing to respond to forbearance extension requests; and (iv) allowing certain payment allocation errors and preauthorized electronic funds transfers.
- Small business lending. The Bureau discussed the Small Business Administration’s Paycheck Protection Program (PPP), noting that when “implementing the PPP, multiple lenders adopted a policy that restricted access to PPP loans beyond the eligibility requirements of the CARES Act and rules and orders issued by the SBA.” The Bureau encouraged lenders to consider and address any fair lending risks associated with PPP lending.
The Supervisory Highlights also examined areas related to credit card accounts, consumer reporting and furnishing, debt collection, deposits, prepaid accounts, and small business lending.
On January 20, Kathy Kraninger resigned from her position as CFPB director and newly sworn-in President Biden announced that Dave Uejio would serve as acting director until permanent leadership is confirmed by the U.S. Senate. President Biden officially nominated Rohit Chopra as the permanent director of the Bureau.
Uejio has been with the Bureau since 2012, and prior to his appointment as acting director, he has served as the Bureau’s Chief Strategy Officer since 2015. Chopra, who is currently a Democratic Commissioner of the FTC, previously served as the Bureau’s first student loan ombudsman and assistant director of the Office for Students before leaving the Bureau in 2015.
Kraninger’s resignation is a notable departure from the Bureau’s original structure, as outlined in Dodd-Frank, which called for a single director, appointed to a five-year term and only removable by the president for cause (i.e., for “inefficiency, neglect of duty, or malfeasance in office”). As previously covered by a Buckley Special Alert, in June 2020, the Supreme Court, in a plurality opinion in Seila Law LLC v. CFPB, held that the CFPB’s statutory structure violates the constitutional separation of powers by restricting the president’s ability to remove the director. The Court remedied the constitutional violation by severing the “for cause” removal language from the remainder of the statute. When Kraninger submitted her resignation on President Biden’s Inauguration Day, she stated it was in “support of the Constitutional prerogative of the President to appoint senior officials within the government who support the President’s policy priorities…”
- Jonice Gray Tucker to moderate “Pandemic relief response and lasting impacts on access, credit, banking, and equality” at the American Bar Association Business Law Section Spring Meeting
- Jeffrey P. Naimon to discuss "Post-pandemic CFPB exam preparation" at the Mortgage Bankers Association Spring Conference & Expo
- Jonice Gray Tucker to discuss "Making fair lending work for you" at the Mortgage Bankers Association Spring Conference & Expo
- Jonice Gray Tucker to discuss "Reading the tea leaves of President Biden’s initial financial appointees" at LendIt Fintech
- Moorari K. Shah to discuss “CA, NY, federal licensing and disclosure” at the Equipment Leasing & Finance Association Legal Forum
- Jonice Gray Tucker to discuss "Compliance under Biden" at the WSJ Risk & Compliance Forum
- Sherry-Maria Safchuk to discuss UDAAP at an American Bar Association webinar
- Jonice Gray Tucker to discuss “The future of fair lending” at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference