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On January 10, the CFPB issued its second no-action letter (NAL) under the agency’s revised NAL Policy that was issued last September. The new NAL Policy’s goal is to streamline the review process to “focus[ ] on the consumer benefits and risks of the product or service in question.” As previously covered by InfoBytes, the Bureau issued its first NAL under the revised policy in response to a request by HUD on behalf of more than 1,600 housing counseling agencies (HCAs) that participate in HUD’s housing counseling program.
A national bank is the recipient of the most recent NAL regarding the bank’s funding arrangements with HCAs certified by HUD. The NAL states that the Bureau will not take supervisory or enforcement actions against the bank under RESPA or UDAAP for entering into certain arrangements with HCAs for pre-purchase housing counseling services conditioned on the consumer applying for a loan from the bank, even if that activity could be construed as a referral, as long as the level of payment for the services is no more than a level that is commensurate with the services provided and is reasonable and customary for the area. The Bureau noted that the bank submitted its application to facilitate funding arrangements with HCAs through the HUD NAL application, which was made public last year.
On January 9, the CFPB announced that it filed a complaint in the U.S. District Court for the Central District of California against a mortgage lender, a mortgage brokerage, and several student loan debt relief companies (collectively, “the defendants”), for allegedly violating the FCRA, TSR, and FDCPA. In the complaint, the CFPB alleges that 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. The Bureau asserts that the reports of more than 7 million student loan borrowers were actually resold or provided to companies engaged in marketing student loan debt relief services.
According to the complaint, “using or obtaining prescreened lists to send solicitations marketing debt-relief services is not a permissible purpose under FCRA.” The complaint alleges that the defendants violated the TSR by charging and collecting advance fees before first “renegotiat[ing], settl[ing], reduc[ing], or otherwise alter[ing] the terms of at least one debt pursuant to a settlement agreement, debt-management plan, or other such valid contractual agreement executed by the customer,” and prior to “the customer ma[king] at least one payment pursuant to that settlement agreement, debt management plan, or other valid contractual agreement between the customer and the creditor or debt collector.” The CFPB further alleges that the defendants violated the TSR and the CFPA when they used telemarketing sales calls and direct mail to encourage consumers to consolidate their loans, and falsely represented that consolidation could lower student loan interest rates, improve borrowers’ credit scores, and change their servicer to the Department of Education.
The Bureau is seeking a permanent injunction to prevent the defendants from committing future violations of the FCRA, TSR, and CFPA, as well as an award of damages and other monetary relief, civil money penalties, and “disgorgement of ill-gotten funds.”
On December 23, the U.S. District Court for the District of Maryland granted a motion to stay in an action between the CFPB and parties of a structured-settlement company, pending the U.S. Supreme Court’s decision in CFPB v. Seila Law. According to the court, a decision in Seila Law that the CFPB’s structure violates the Constitution’s separation of powers under Article II may render the CFPB unable prosecute the case. A determination by the Court is expected later this year (previous InfoBytes coverage here).
As previously covered by InfoBytes, the court allowed to move forward the Bureau’s UDAAP claim, which alleged the defendants employed abusive practices when purchasing structured settlements from consumers in exchange for lump-sum payments. The defendants asked the court to stay the proceedings pending the outcome of two cases: Seila Law and a case pending in the Maryland Court of Appeals involving a different structured settlement company (covered by InfoBytes here). The court determined that a stay is not appropriate based on the Maryland case since it is not known when the case may be decided. The court also disagreed with the defendants’ argument that if the Maryland Court of Appeals upholds the settlement, the Bureau would be precluded from obtaining relief from the defendants. According to the court, “the extent to which the settlement is preclusive is unclear” and the provision that would preclude action by the Bureau is being disputed on appeal. However, the court concluded that a stay pending the outcome in Seila Law is warranted because “one of the Supreme Court’s paths in Seila Law may render the CFPB unable to prosecute this action; the stay would not be lengthy; and the interests of judicial efficiency and potential harm to the movants justify the stay.”
On November 6, the CFPB filed an amicus brief with the Court of Appeals of Maryland in a case challenging a private class action settlement against a structured settlement company, which purports to “release the Bureau’s claims in a pending federal action, to enjoin class members from receiving benefits from the Bureau’s lawsuit, and to assign any benefits the Bureau might obtain for class members to the class-action defendants.” As previously covered by InfoBytes, in 2017, the U.S. District Court for the District of Maryland allowed a UDAAP claim brought by the CFPB to move forward against the same structured settlement company, where the Bureau alleged the company employed abusive practices when purchasing structured settlements from consumers in exchange for lump-sum payments. A similar action was also brought by the Maryland attorney general against the company. In addition to the state and federal enforcement actions, the plaintiffs filed a private class action against the company, and a trial court approved a settlement. The Court of Special Appeals reversed the lower court’s approval of the settlement, concluding that it “interferes with the [state’s] and Bureau’s enforcement authority.” The company appealed.
In its brief to the Maryland Court of Appeals, the Bureau argues that the Court of Special Appeals decision should be affirmed because the settlement provisions “threaten to interfere with the Bureau’s authority under the [Consumer Financial Protection Act] in two significant ways.” Specifically, the Bureau argues that the settlement (i) could interfere with the Bureau’s statutory mandate to remediate consumers harmed through the Civil Penalty Fund; and (ii) would interfere with the Bureau’s authority to use restitution to remediate consumer harm. The Bureau states that “the risk of windfalls to such wrongdoers could force the Bureau to decline to award Fund payments to victims,” and would “threaten to offend basic principles of equity.”
On October 31, the Michigan attorney general announced it filed a lawsuit against an online lender alleging the lender violated the CFPA and Michigan law by allegedly offering usurious loans in an “unfair, deceptive, and abusive manner” with interest rates between 388 percent and 1,505 percent. The complaint alleges that the online lender is using its affiliation with a federally recognized Indian tribe located in California to circumvent Michigan’s interest rate cap, but, “is not an arm of the tribe and therefore is not entitled to assert tribal sovereign immunity from suit.” Moreover, the complaint argues that because the lender offers loans to Michigan residents, it is operating outside of tribal boundaries and, therefore, is subject to any and all applicable state and federal laws. In addition to usurious interest rates, the complaint alleges the lender misrepresented contract terms, including various rates and fees, and refused to let consumers pay off loans early. The attorney general is seeking declaratory and injunctive relief to prevent the lender from “providing usurious loans in Michigan in the future.” Notably, this is Michigan’s first-ever lawsuit alleging violations of the CFPA.
On October 30, the CFPB, along with the Minnesota and North Carolina attorneys general, and the Los Angeles City Attorney (together, the “states”), announced an action against a student loan debt relief operation for allegedly deceiving thousands of student-loan borrowers and charging more than $71 million in unlawful advance fees. In the complaint filed October 21 and unsealed on October 29 in the U.S. District Court for the Central District of California, the Bureau and the states alleged that since at least 2015 the defendants have violated the Consumer Financial Protection Act, the Telemarketing Sales Rule, and various state laws by charging and collecting improper advance fees from student loan borrowers prior to providing assistance and receiving payments on the adjusted loans. In addition, the Bureau and the states claim the defendants engaged in deceptive practices by misrepresenting (i) the purpose and application of fees they charged; (ii) their ability to obtain loan forgiveness; and (iii) their ability to actually lower borrowers’ monthly payments. The defendants also allegedly failed to inform borrowers that they automatically requested that the loans be placed in forbearance and submitted false information to student loan servicers to qualify borrowers for lower payments. The complaint seeks injunctive relief, as well as damages, restitution, disgorgement, and civil money penalties.
On November 15, the court entered a preliminary injunction enjoining the alleged violations of law in the complaint, contining the asset freeze, and appointing a receiver against the defendants.
On October 17, CFPB Director Kathy Kraninger testified at a hearing held by the Senate Banking Committee on the CFPB’s Semi-Annual Report to Congress. (Previous InfoBytes coverage here.) Pursuant to the Dodd-Frank Act, the hearing covered the semi-annual report to Congress on the Bureau’s work from October 1, 2018 to March 31, 2019. While Committee Chairman Mike Crapo (R-Idaho) praised recent key initiatives undertaken by Kraninger pertaining to areas such as innovation, small dollar lending underwriting provisions, and proposed amendments to the Ability to Repay/Qualified Mortgage Rule, he stressed the importance of reconsidering the fundamental structure of the Bureau. Conversely, Senator Sherrod Brown (D-Ohio) argued that Kraninger’s leadership has led to zero enforcement actions taken against companies for discriminatory lending practices, and that her initiatives have, among other things, failed to protect consumers. In her opening testimony, Kraninger reiterated her commitment to (i) providing clear guidance; (ii) fostering a “‘culture of compliance’” through the use of supervision to prevent violations; (iii) executing “vigorous enforcement”; and (iv) empowering consumers. Notable highlights include:
- Constitutionality challenges. The Bureau recently filed letters in pending litigation arguing that the for-cause restriction on the president’s authority to remove the Bureau’s single Director violates the Constitution’s separation of powers, and on October 18, the U.S. Supreme Court granted cert in Seila Law LLC v. CFPB, to answer the question of whether an independent agency led by a single director violates Article II of the Constitution. (InfoBytes coverage here.) Senator Brown challenged, however, Kraninger’s “credibility as a public official,” arguing that she changed her original position about not speaking on constitutionality issues.
- Supervision of student loan servicers. Kraninger addressed several Senators’ concerns about the Department of Education reportedly blocking the Bureau from obtaining information about the Public Service Loan Forgiveness Program for supervisory examinations, as well as and the need for a stronger response from the Bureau to obtain the requested information. Kraninger stressed that the CFPB will move forward with a statutorily required Memorandum of Understanding between the two agencies, and emphasized that the Bureau continues to examine private education loans and is collaborating with the Department of Education to ensure consumer protection laws are followed.
- Proposed revisions to Payday Rule. Several Democratic Senators questioned the Bureau’s notice of proposed rulemaking to rescind the Payday Rule’s ability-to-repay provisions. (Previously covered by InfoBytes here.) Specifically, one Senator argued that the Bureau has failed to “present any new research in defense of the change.” Kraninger replied that while she defends the Bureau’s proposal, “a final decision has not been made in this issue.” Kraninger also addressed questions as to why—if the Bureau does not believe there is a reason to delay the effective date of the Payday Rule’s payment provisions—the Bureau has not yet filed a motion to lift a stay and allow payment provision to be implemented. Kraninger indicated that the CFPB had not done so because the payday loan trade groups were also challenging the Bureau’s constitutionality (InfoBytes here).
- Clarity on abusive practices under UDAAP. Kraninger noted the Bureau intends to, “in the not too distant future,” provide an update as to whether more guidance is necessary in order to define what constitutes an abusive act or practice.
A day earlier, Kraninger also presented testimony at the House Financial Services Committee’s hearing to discuss the semi-annual report, in which committee members focused on, among other things, constitutionality questions and concerns regarding recent Bureau settlements. Similar to the Senate hearing, Democratic committee members questioned Kraninger’s change in position concerning the Bureau’s constitutionality, and argued that for her “to second-guess Congress’ judgment on [the] constitutionality of the CFPB and to argue against the CFPB structure in court is disrespectful to Congress.” With regard to recent Bureau enforcement actions, many of the committee members’ questions revolved around consumer restitution, as well as a recently released majority staff report, which detailed the results of the majority’s investigation into the CFPB’s handling of consumer monetary relief in enforcement actions since Richard Cordray stepped down as director in November 2017. (See previous InfoBytes coverage here.)
CFPB files deceptive and abusive allegations against foreclosure relief services company and principals
On September 6, the CFPB announced a complaint filed in the U.S. District Court for the Central District of California against a foreclosure relief services company, along with the company’s president/CEO (defendants), for allegedly engaging in deceptive and abusive acts and practices in connection with the marketing and sale of purported financial-advisory and mortgage-assistance-relief services to consumers. According to the complaint, since 2014 the defendants allegedly violated the Consumer Financial Protection Act (CFPA) and Regulation O by making deceptive and unsubstantiated representations about the efficacy and material aspects of its mortgage assistance relief services, as well as making misleading or false claims about the experience and qualifications of its employees. Additionally, the Bureau alleged the defendants’ representations about their services constituted abusive acts and practices because, among other things, consumers “generally did not understand and were not in a position to evaluate the accuracy of [the defendants’] marketing representations or the quality of the mortgage-assistance-relief services that [the defendants] sold.” Moreover, the Bureau claimed the defendants further violated Regulation O by charging consumers advance fees before rendering services.
In addition, the Bureau entered a proposed stipulated final judgment and order against the company’s principal auditor for providing “substantial assistance in furtherance of [the defendants’] unlawful conduct” in violation of the CFPA and Regulation O. The proposed judgment imposes a $493,403.04 civil penalty, of which all but $5,000 is suspended due to the auditor’s limited ability to pay. The auditor is also permanently banned from providing mortgage assistance relief services or consumer financial products and services.
On August 28, the CFPB announced a settlement with an Illinois-based debt collection company to resolve allegations that the company engaged in improper debt collection tactics in violation of the Consumer Financial Protection Act and the FDCPA. Among other things, the company allegedly engaged in deceptive acts and practices by (i) threatening consumers with arrest, lawsuits, liens on their homes, and wage garnishment that the company did not plan on initiating; (ii) misrepresenting to consumers that company employees were attorneys; and (iii) informing consumers that their credit reports would be negatively affected if they failed to pay even though the company does not report consumer debts to credit-reporting agencies. While the company neither admitted nor denied the allegations, it has agreed to pay $36,878 in redress to harmed consumers and a $200,000 civil money penalty.
On August 22, a tribal nation issued a press release announcing a $6.5 million settlement with a national bank to resolve allegations related to the opening of deposit and credit card accounts for customers without consent. In 2018, the tribal nation’s suit was dismissed by a district court ruling (previously covered by InfoBytes here), which rejected the tribal nation’s claims under the Consumer Financial Protection Act, holding that the claims were barred by res judicata, as they had previously been litigated under the CFPB’s 2016 consent order and the tribal nation was in privity with the CFPB. (InfoBytes coverage of the CFPB action available here.) The tribal nation appealed the decision to the U.S. Court of Appeals for the 10th Circuit, and on August 20, an order granting a stipulation to dismiss the appeal with prejudice was entered by the court. While the stipulation does not provide any details, the tribal nation’s press release notes that the “settlement compensates the Nation, as well as avoids the uncertainty and expense of continued litigation.”
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