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Recently, the U.S. District Court for the Western District of Tennessee granted in part and denied in part a defendant mortgage servicer’s motion for summary judgment concerning allegations that the defendant improperly foreclosed on plaintiff’s property. The plaintiff alleged that the defendant wrongfully accused her of failing to remedy her default and therefore violated RESPA and the FDCPA, among other things. Ultimately, the court denied defendant’s summary judgment request as to plaintiff’s RESPA claim because the defendant failed to exercise due diligence. But the court granted defendant’s request for summary judgment regarding plaintiff’s FDCPA claim because plaintiff presented no evidence that the defendant acted deceptively.
The plaintiff’s original loan—serviced by a previous servicer—was modified in 2016. But payments again were not made, so the previous servicer notified the plaintiff in December 2018 that it had accelerated the loan’s maturity date and referred the loan to foreclosure. The plaintiff, however, again applied for another modification in early 2019. After telling plaintiff her application was complete, the previous servicer then told the plaintiff, who claimed she inherited the property, that it needed additional documents to prove plaintiff’s successor-in-interest status. Ultimately, the previous servicer did not confirm the modification because the plaintiff did not confirm her successor-in-interest status.
The plaintiff again applied for a loan modification in March 2019, after the previous servicer transferred servicing rights to the defendant, and this modification was denied. She allegedly spoke with one of defendant’s representatives about the denial and indicated that she wished to reapply for a modification. However, the representative advised that she would have to reinstate the mortgage first before any loan modification. The defendant then sent a default letter to plaintiff’s property, which advised that the loan was still in default and needed payment.
The plaintiff submitted at least one additional request for mortgage assistance after the March 2019 modification application. The defendant acknowledged receipt of the request and detailed the documents it needed to process the request. The defendant then followed up in June 2019, stating again that it could not confirm that she was the successor-in-interest on the loan without documentation. A month later the defendant advised the plaintiff again that documents were still missing that were necessary to process her loan assistance request. The loan remained in default thereafter and the defendant foreclosed in August 2019.
In adopting the magistrate judge’s recommendation that the defendants’ motion for summary judgment be denied as to the RESPA claim, the district court noted that the defendant possibly should have sought documents, specifically the successor-in-interest documentation from the previous servicer, after the plaintiff submitted an incomplete loan modification application. The court stated that “there is a question of material fact whether [defendant] exercised reasonable diligence in failing to request the successor-in-interest documentation from [the previous servicer].” The court added that “there is a requirement of reasonable diligence, and there is no evidence showing that [defendant] met this standard. Failing to address the regulatory standard creates a question that cannot be resolved on the available information. Thus, there is at least one question of material fact here.”
Regarding plaintiff’s FDCPA claim, the court noted that “there is no evidence of deception in the foreclosure of loan payment process” and that “[p]laintiff has failed to provide any evidence that [defendant] acted dishonestly in requesting additional documentation to complete the loan modification.” The court therefore granted defendant’s summary judgment motion as to the FDCPA claim.
On April 4, the CFPB filed an amicus brief in a case on appeal to the U.S. Court of Appeals for the Ninth Circuit concerning a mortgage loan servicer allegedly failing to answer multiple inquiries from two separate consumers regarding their loans despite the requirement under Regulation X that servicers respond when a borrower submits a request for information that “states the information the borrower is requesting with respect to the borrower’s mortgage loan.” The plaintiffs filed suit after the defendant servicer declined to provide the information requested, stating that it would not respond “because the issues raised are the same or very closely related to the issues raised” in pending litigation surrounding the mortgages.
The U.S. District Court for the District of Oregon dismissed the plaintiffs’ claims, noting that under RESPA, “a mortgage loan servicer only has an obligation to provide a written response to a [qualified written request] that seeks ‘information relating to the servicing of such loan,’” and that the plaintiffs’ inquiries regarding the ownership of their loans and requesting other miscellaneous information did not “trigger [the defendant’s] obligations to respond under Regulation X” because a servicer has a ‘duty to respond’ only if a request for information ‘relates to the servicing of the loan.’”
In urging the appellate court to overturn the decision, the Bureau argued that under Section 1024.36 of Regulation X “servicers generally must respond to ‘any written request for information from a borrower’ that seeks ‘information ... with respect to the borrower’s mortgage loan.’” According to the Bureau, although a servicing-related request would fall under this provision, it is just one type of request that seeks information ‘with respect to’ a loan and thereby triggers a servicer’s obligation to respond” under the rules. The Bureau stated that Regulation X broadly requires servicers to respond to requests that seek information “with respect to” a borrower’s mortgage loan, explaining that it “included explicit language to that effect in the 2013 Rule to make clear that the rule created a unified set of requirements such that servicers’ obligations to respond were the same for a qualified written request as for any other information request,” and that it “did not exclude information requests that do not relate to servicing from the scope of § 1024.36.” The Bureau agreed with the plaintiffs that there is “no litigation exception to a servicer's obligation to respond to information requests under Regulation X.” The Bureau further noted in a blog post that,“[a] pending lawsuit does not take away a borrower’s right to a response from their loan servicer under Regulation X.”
On March 15, the U.S. District Court for the Southern District of Ohio granted a defendant mortgage loan servicer’s motion for summary judgment in an action claiming violations of federal law based on alleged defects in the servicing of the plaintiff’s loan. According to the court, after settling similar claims against his two prior loan servicers, the plaintiff sued the companies that own and service his mortgage loan (collectively, defendants) disputing the precise amount of his delinquency and claiming the defendants failed to properly apply his mortgage payments or to respond to his notice of error (NOE). The plaintiff contended, among other things, that the defendants’ response to the NOE, misapplication of payments, and inaccurate periodic mortgage statements breached the terms of the mortgage agreement and violated RESPA, FDCPA, and TILA. In granting summary judgment, the court agreed with the defendants, finding that plaintiff’s breach of contract claim was foreclosed by a prior settlement agreement with his former servicer. The court also found that the servicer’s response to plaintiff’s NOE did not violate RESPA because it “fully addressed both ‘errors’ that the plaintiff presented,” and the perceived errors “amounted to confusion about basic arithmetic.” The court emphasized that “[n]othing in RESPA or Regulation X gives borrowers authority to dictate the parameters of a lender’s investigation,” and concluded that the servicer’s investigation and response was sufficient since the servicer provided the documents used to conclude that there was no misapplication of funds and “[e]ven a cursory investigation would have revealed that the specific errors alleged in the NOE did not occur.”
In granting the defendants’ request for summary judgment regarding claims that the plaintiff received five inaccurate mortgage statements in violation of the FDCPA and TILA, the court concluded that the periodic statements contained all the fields required under Regulation Z, and explained that allegations contesting the accuracy of the information contained in the statements did not violate TILA because “12 C.F.R. § 1026.42(d) does nothing to regulate the accuracy of information presented in a periodic statement.” As to the plaintiff’s FDCPA claim, which was premised on allegations that plaintiff’s prior servicer misapplied funds which caused defendants to collect amount that plaintiff did not owe, the court found that that the disputed periodic statement was truthful and accurate and that the plaintiff released the defendants of any liability under the FDCPA in his settlement agreement with the prior servicer.
On March 31, the FDIC released the spring 2022 edition of the Consumer Compliance Supervisory Highlights to provide information and observations related to the FDIC’s consumer compliance supervision of state non-member banks and thrifts in 2021. Topics include:
- A summary of the FDIC’s supervisory approach in response to the Covid-19 pandemic, including efforts made by banks to meet the needs of consumers and communities.
- An overview of the most frequently cited violations (approximately 78 percent of total violations involved TILA, the Flood Disaster Protection Act (FDPA), EFTA, Truth in Savings Act, and RESPA). During 2021, the FDIC initiated 20 formal enforcement actions and 24 informal enforcement actions addressing consumer compliance examination observations, and issued civil money penalties totaling $2.7 million against institutions to address violations of the FDPA and Section 5 of the FTC Act.
- Information on the charging of multiple non-sufficient funds fees (NSF) for re-presented items, and risk-mitigating activities taken by banks to avoid potential violations. According to the FDIC, “failure to disclose material information to customers about re-presentment practices and fees” may be deceptive. The failure to disclose material information to customers “may also be unfair if there is the likelihood of substantial injury for customers, if the injury is not reasonably avoidable, and if there is no countervailing benefit to customers or competition. For example, there is risk of unfairness if multiple fees are assessed for the same transaction in a short period of time without sufficient notice or opportunity for consumers to bring their account to a positive balance.” Recommendations on addressing overdraft issues are discussed in the report.
- An overview of fair lending concerns highlighting ways to mitigate risk, including “[m]aintaining written policies and procedures that include information for lending staff to reference when applying credit decision criteria and determining whether borrowers are creditworthy” and reviewing requirements used to screen potential applicants to make sure there is no “discriminatory impact.”
- Information on regulatory developments, such as (i) rulemaking related to the Community Reinvestment Act, flood insurance, false advertising/misuse of the FDIC’s name or logo rulemaking, deposit insurance, and LIBOR; and (ii) guidance on fintech due diligence, artificial intelligence/machine learning, and third-party risk management.
- A summary of consumer compliance resources available to financial institutions.
- An overview of consumer complaint trends.
On February 22, the U.S. Court of Appeals for the Fourth Circuit affirmed in part and reversed in part a district court’s dismissal of claims related to whether letters sent by plaintiff borrowers to a defendant loan servicer constituted qualified written requests (QWRs) under RESPA or Regulation X that would require the defendant to stop sending adverse information about accounts to credit reporting agencies. According to the opinion, one of the plaintiffs wrote to the defendant asking to have his records corrected after noticing his credit reports reflected purported overdue home loan payments that were allegedly affecting his employment after his employer expressed concerns about the credit report. The plaintiff noted a discrepancy between the amount he was allegedly behind on his mortgage payment and included a copy of the credit report his employer received, his account number, the ID number of the agent with whom he spoke on the phone, and requested that the error be corrected. However, the plaintiff alleged that the defendant continued to report adverse loan information. The other named plaintiff allegedly fell behind on her loan payments, and the defendant began reporting adverse information to the credit reporting agencies. She later applied for a loan modification, which was not finalized due to the existence of a lien by a solar panel company. The plaintiff sent a letter to the defendant challenging the existence of “title issues” and asked for her dispute to be investigated and corrected. The parties ultimately finalized a loan modification, but in the interim, the defendant continued reporting adverse information. The plaintiffs filed a putative class action alleging that despite sending QWRs, the defendant continued to report adverse information on their loans to credit reporting agencies; however, the district court dismissed the claims.
On appeal, the 4th Circuit reversed the district court’s dismissal of the first plaintiff’s claim, holding that the plaintiff’s letter was a QWR subject to RESPA because it contained sufficient details to identify his account and indicate why he believed the credit reporting was in error. In particular, the court noted that the letter constituted a QWR because it did not rely solely on the alleged phone call “as the basis for the description of the problem,” but also detailed conflicting balance information received from the defendant and the credit reporting service. The dissenting judge wrote that this plaintiff’s letter was not a QWR because it failed to identify the possible error and did not provide a statement of reasons for believing the unidentified error existed.
With respect to the other named plaintiff’s claim, the court affirmed dismissal because the letter did not qualify as a QWR. The court explained that the content of the plaintiff’s letter failed to satisfy the requirements of a valid QWR, finding that “correspondence limited to the dispute of contractual issues that do not relate to the servicing of the loan, such as loan modification applications, do not qualify as QWRs.”
On January 10, the U.S. District Court for the District of Maryland granted preliminary approval of a settlement in a class action against a national bank (defendant) for allegedly participating in a kickback scheme with a title company (company). According to the memorandum in support of plaintiffs’ unopposed motion for preliminary approval of the settlement, the class action complaint alleged that over a six year period the company paid the defendant for the referral of residential mortgage loans, refinances, and reverse mortgages for title and settlement services in violation of RESPA. Further, the plaintiffs alleged that the company and defendant falsified borrowers’ HUD-1 settlement statements and other documents, and misrepresented the defendant’s efforts to “choose a qualified attorney, title agent or title insurance company to search title and conduct [the borrower's] closing.” While agreeing to the class action settlement, the defendant disputes plaintiffs’ allegations and denies that it is liable for any of the claims in the complaint. Under the terms of the preliminarily approved settlement agreement, the defendant will pay approximately $1.2 million in settlement benefits to class members, a $1,500 service award to both lead plaintiffs, and up to $325,000 in attorneys’ fees and $17,500 in expenses to class counsel.
On January 12, the U.S. Court of Appeals for the Third Circuit vacated an order granting summary judgment in favor of a mortgage lender (defendant) for alleged violations of TILA and RESPA, among other claims. The plaintiff, a retired disabled military veteran, contracted with a home builder to purchase a home and used the defendant to obtain mortgage financing, which was later transferred to a servicing company. The plaintiff contended that the defendant allegedly (i) provided outdated TILA and RESPA disclosures; (ii) misrepresented that the plaintiff would not have to pay property taxes; (iii) failed to make a reasonable and good faith determination of the plaintiff’s ability to pay; and (iv) failed to provide notice of the transfer of servicing rights. On appeal, the 3rd Circuit determined that the defendant did not meet the initial burden to show no genuine dispute as to any material fact related to the plaintiff’s claims, and remanded the action. Without assessing the evidentiary value of the testimonies and materials submitted by each party in support of their own version of events, the appellate court reasoned that “these materials do not foreclose a reasonable jury from crediting [the plaintiff’s] testimony over [the defendant’s] account and finding [the defendant] liable.”
On December 15, the U.S. Court of Appeals for the Fifth Circuit affirmed summary judgment in favor of defendants in a mortgage foreclosure action. According to the opinion, after the plaintiff fell behind on his mortgage payments, the defendant bank’s mortgage servicer approved him for a trial loan modification plan that required timely reduced payments for a period of three months. The plaintiff stated that he complied with the trial plan but that the defendant bank nevertheless foreclosed on his property and sold the property to a third defendant. The plaintiff further claimed that he did not learn about the sale of his property until two months after it happened when the third defendant sought to evict him. The plaintiff sued the bank and mortgage servicer for violating RESPA and the Texas Debt Collection Act (TDCA), and sued the purchaser of the property “asserting claims to quiet title and for trespass to try title.” All defendants moved for summary judgment, which the district court granted based on evidence that refuted each allegation. The plaintiff appealed.
On appeal, the 5th Circuit first reviewed, among other claims, the plaintiff’s RESPA claim, which alleged the bank and mortgage servicer engaged in “dual tracking” by initiating foreclosure proceedings while the plaintiff’s trial modification plan was purportedly still active. According to the court, dual tracking occurs when “the lender actively pursues foreclosure while simultaneously considering the borrower for loss mitigation options.” The appellate court agreed with the district court’s conclusion that summary judgment was appropriate because the plaintiff did not submit his first payment by the deadline established under the trial modification plan, and thus “did not timely accept the Trial Modification Plan.” As such, the bank and mortgage servicer did not engage in “dual tracking” because there was no obligation to notify the plaintiff of any denial of a permanent loan modification or to provide an opportunity to appeal, and accordingly was not considering the plaintiff for loss mitigation options. The court also found deficiencies in the plaintiff’s Texas law and TDCA claims.
On December 13, the Office of Information And Regulatory Affairs released the CFPB’s fall 2021 rulemaking agenda. According to a Bureau announcement, the information released represents regulatory matters the Bureau plans to pursue during the period from November 2, 2021 to October 31, 2022. Additionally, the Bureau stated that the latest agenda reflects continued rulemakings intended to further its consumer financial protection mission and help advance the country’s economic recovery from the Covid-19 pandemic. Promoting racial and economic equity and supporting underserved and marginalized communities’ access to fair and affordable credit continue to be Bureau priorities.
Key rulemaking initiatives include:
- Small Business Rulemaking. This fall, the Bureau issued its long-awaited proposed rule (NPRM) for Section 1071 regulations, which would require a broad swath of lenders to collect data on loans they make to small businesses, including information about the loans themselves, the characteristics of the borrower, and demographic information regarding the borrower’s principal owners. (Covered by a Buckley Special Alert.) The NPRM comment period goes through January 6, 2022, after which point the Bureau will review comments as it moves to develop a final rule. Find continuing Section 1071 coverage here.
- Consumer Access to Financial Records. The Bureau noted that it is working on rulemaking to implement Section 1033 of Dodd-Frank in order to address the availability of electronic consumer financial account data. The Bureau is currently reviewing comments received in response to an Advance Notice of Proposed Rulemaking (ANPR) issued fall 2020 regarding consumer data access (covered by InfoBytes here). Additionally, the Bureau stated it is monitoring the market to consider potential next steps, “including whether a Small Business Review Panel is required pursuant to the Regulatory Flexibility Act.”
- Property Assessed Clean Energy (PACE) Financing. As previously covered by InfoBytes, the Bureau published an ANPR in March 2019 seeking feedback on the unique features of PACE financing and the general implications of regulating PACE financing under TILA (as required by Section 307 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, which amended TILA to mandate that the Bureau issue certain regulations relating to PACE financing). The Bureau noted that it continues “to engage with stakeholders and collect information for the rulemaking, including by pursuing quantitative data on the effect of PACE on consumers’ financial outcomes.”
- Automated Valuation Models (AVM). Interagency rulemaking is currently being pursued by the Bureau, Federal Reserve Board, OCC, FDIC, NCUA, and FHFA to develop regulations for AVM quality control standards as required by Dodd-Frank amendments to FIRREA. The standards are designed to, among other things, “ensure a high level of confidence in the estimates produced by the valuation models, protect against the manipulation of data, seek to avoid conflicts of interest, require random sample testing and reviews,” and account for any other appropriate factors. An NPRM is anticipated for June 2022.
- Amendments to Regulation Z to Facilitate LIBOR Transition. As previously covered by InfoBytes, the Bureau issued a final rule on December 7 to facilitate the transition from LIBOR for consumer financial products, including “adjustable-rate mortgages, credit cards, student loans, reverse mortgages, [and] home equity lines of credit,” among others. The final rule amended Regulation Z, which implements TILA, to generally address LIBOR’s eventual cessation for most U.S. dollar settings in June 2023, and establish requirements for how creditors must select replacement indices for existing LIBOR-linked consumer loans. The final rule generally takes effect April 1, 2022.
- Reviewing Existing Regulations. The Bureau noted in its announcement that it decided to conduct an assessment of a rule implementing HMDA (most of which took effect January 2018), and referred to a notice and request for comments issued last month (covered by InfoBytes here), which solicited public comments on its plans to assess the effectiveness of the HMDA Rule. Additionally, the Bureau stated that it finished a review of Regulation Z rules implementing the Credit Card Accountability Responsibility and Disclosure Act of 2009, and that “[a]fter considering the statutory review factors and public comments,” it “determined that the CARD Act rules should continue without change.”
Notably, there are 14 rulemaking activities that are listed as inactive on the fall 2021 agenda, including rulemakings on overdraft services, consumer reporting, student loan servicing, Regulation E modernization, abusive acts and practices, loan originator compensation, and TILA/RESPA mortgage disclosure integration.
On October 29, the FDIC released a list of administrative enforcement actions taken against banks and individuals in September. During the month, the FDIC made public six orders consisting of “one Consent Order, two terminations of Consent Orders, one Order to Pay Civil Money Penalty, one Order Terminating Decision and Order to Cease and Desist, and one Order of Termination of Insurance.” Among the orders is an order to pay a civil money penalty imposed against a Nebraska-based bank related to alleged violations of the Flood Disaster Protection Act. Among other things, the FDIC claimed that the bank “[m]ade, increased, extended, or renewed loans secured by a building or mobile home located or to be located in a special flood hazard area without requiring that the collateral be covered by flood insurance,” and also allegedly “[f]ailed to comply with proper procedures for force-placing flood insurance in instances where the collateral was not covered by flood insurance at some time during the term of the loan.” The order requires the payment of a $24,000 civil money penalty.
The FDIC also issued a consent order to a Utah-based bank, which requires the bank to take measures to correct current alleged violations (and prevent future violations) of TILA, RESPA, E-Sign Act, ECOA, CRA, and TISA, as well as the statutes’ implementing regulations. The bank neither admitted nor denied the alleged violations but agreed to, among other things, develop a sound risk-based compliance program and implement an effective training program to ensure compliance.
- Daniel R. Alonso discussed “The importance of the FCPA in the world and its current impact” at a ‘Competitive Breakfast’ event sponsored by the international compliance firm Intedya
- Jedd R. Bellman discussed “The CFPB’s crackdown on collection junk fees and the growing anti-CFPB rhetoric” at an Accounts Recovery webinar
- Buckley Webcast: State supervision, enforcement, and multistate coordination
- Benjamin W. Hutten to discuss “Latest on AML regulations and impact of economic sanctions” at a Mortgage Bankers Association webinar
- Hank Asbill to discuss “Ethical issues at sentencing” at the 31st Annual National Seminar on Federal Sentencing
- Benjamin W. Hutten to discuss “Fundamentals of financial crime compliance” at the Practicing Law Institute
- Benjamin W. Hutten to discuss “Ongoing CDD: Operational considerations” at NAFCU’s Regulatory Compliance & BSA Seminar