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  • Delaware Enacts State SCRA Law

    Consumer Finance

    On July 23, Delaware Governor Jack Markell signed SB 206, which incorporates federal protections for servicemembers under the Servicemembers Civil Relief Act into state law, extends those protections to members of the Delaware National Guard who are called into active military service for the State of Delaware for a period of more than 30 consecutive days, and gives the state attorney general authority to enforce the new protections. The bill took effect immediately upon enactment.

    Servicemembers SCRA

  • CFPB, State AGs Announce Joint Enforcement Action Against Military Consumer Lender

    Consumer Finance

    On July 29, the CFPB and 13 state Attorneys General announced a consent order that requires a consumer lender currently in Chapter 7 bankruptcy to provide $92 million in debt relief for about 17,000 U.S. servicemembers and other consumers harmed by the company’s alleged predatory lending scheme. The lender offered credit to consumers purchasing computers, videogame consoles, televisions, or other products, which typically were purchased at mall kiosks near military bases. In some cases the lender was the initial creditor, and in other cases, the lender provided indirect financing by agreeing to buy the financing contracts from merchants who sold the goods.

    Allegations

    The CFPB claims the lender “lured consumers with the promise of no money down and instant financing.” Then, according to the CFPB, the lender and its merchant partners artificially inflated the disclosed price of the consumer goods being sold to mask finance charges collected by the lender. The CFPB also asserts that the company withheld information on billing statements, failed to obtain required lending licenses, and illegally collected on loans that were void pursuant to state licensing and usury laws.

    Specifically, the CFPB alleges the lender violated TILA by (i) failing to accurately disclose the finance charge and annual percentage rate for financing agreements where they served as the creditor; and (ii) failing to disclose or accurately disclose in periodic billing statements for open-end financing agreements the annual percentage rate, the balance subject to interest rate, how that balance was determined, itemized interest charges, the closing date of the billing cycle, and the account balance on that date.

    In addition, the CFPB claims the lender violated the Consumer Financial Protection Act’s UDAAP provisions by purchasing deceptive financing agreements from merchants and thereby facilitating the merchant’s deceptive disclosures. The CFPB also asserts UDAAP violations for servicing and collecting on consumer financing agreements that state laws rendered void or limited the consumer's obligation to repay.

    Debt Relief

    The order requires that all efforts to collect on any outstanding financing agreements cease—approximately $60 million in contracts owed by about 12,000 consumers—and that the liquidating trust created as part of the company’s bankruptcy plan stop collections on approximately $32 million owed by more than 5,000 consumers. Servicemembers may keep the merchandise they purchased. In addition, the company must update credit reporting agencies and notify servicemembers and other consumers of debt status.

    Penalty & Redress

    The order also requires the company, through its bankruptcy trustee, to make a $1 penalty payment to the CFPB’s Civil Penalty Fund. The CFPB states that the bankruptcy prevents it from assessing a larger penalty, but the $1 payment may allow harmed consumers to be eligible for relief from the Civil Penalty Fund in the future, although that determination has not yet been made. The order also requires redress payments for excess finance charges. Due to the company’s inability to pay, the redress requirement will be suspended once the company complies with the debt relief provisions.

    CFPB TILA UDAAP Servicemembers Enforcement Predatory Lending State Attorney General

  • Fannie Mae Offers Alternative To Repurchase For Mortgage Insurance Rescission, Announces Numerous Other Servicing Policy Updates

    Lending

    On July 1, Fannie Mae issued Servicing Guide Announcement SVC-2014-13, which describes a new alternative to repurchase, an “MI stand-in.” The MI stand-in is defined as the full mortgage insurance (MI) benefit that would have been payable under the original mortgage insurance policy if the mortgage loan liquidates. The alternative was first announced earlier this year as part of broader updates to Fannie Mae’ representation and warranties framework. Fannie Mae will not require immediate repurchase when the MI is rescinded on mortgage loans acquired on or after July 1, 2014, and instead will offer the MI stand-in if: (i) the responsible party meets Fannie Mae’s eligibility criteria; and (ii) the only defect Fannie Mae identifies in the mortgage loan is the rescission of MI; or (iii) the responsible party cures all defects identified, except the MI rescission defect, during the required cure period. A mortgage loan will not be eligible for the MI stand-in if: (i) Fannie Mae identifies other defects during the full file quality control review which the responsible party fails to cure during the required cure period, or (ii) the responsible party does not respond in a timely manner or submit all of the required documents within the timeframes required by Fannie Mae. If the responsible party cures the defects that made the mortgage loan ineligible for the MI stand-in, Fannie Mae will review the mortgage loan and responsible party for this alternative to repurchase. On July 9, in Servicing Guide Announcement SVC-2014-14, Fannie Mae announced that servicemembers can use alternatives to Fannie Mae’s form for documenting active duty orders. The announcement also updates policies regarding (i) ordering a property valuation for short sales, Mortgage Releases, and foreclosure sale bidding instructions; (ii) submitting financial statements and reports; and (iii) loan modification monthly principal and interest payment requirements.

    Fannie Mae Mortgage Servicing Servicemembers Mortgage Insurance Repurchase Servicing Guide

  • President Obama Announces Student Loan Initiatives; Senate Student Loan Refinance Bill Fails

    Consumer Finance

    On June 9, President Obama announced numerous initiatives related to federal student loans and signed a presidential memorandum directing the Education and Treasury Departments to execute certain of those initiatives. The central directive instructs the Education Department to initiate a rulemaking that will allow students who borrowed before October 2007 or who have not borrowed since October 2011 to cap their payments at 10 percent of their monthly incomes. The Education Department aims to finalize the program by December 2015. In addition, the President announced that, among other things, (i) the Education Department will renegotiate its contracts with federal loan servicers to alter financial incentives “to help borrowers repay their loans on time, lower payments for servicers when loans enter delinquency or default, and increase the value of borrowers’ customer satisfaction when allocating new loan volume”; (ii) the Education Department will proactively apply SCRA protections by reducing interest rates automatically for eligible servicemembers and will also provide additional guidance to Federal Family Education Loan program servicers to provide for a similar streamlined process; (iii) Treasury and the Education Department will work with tax preparation companies to communicate information about federal student loan repayment options; and (iv) the Education Department will expand other existing efforts to identify borrowers who may be struggling to repay and provide them with information about repayment options. The President also called on Congress to pass federal student loan refinance legislation championed by Senator Elizabeth Warren (D-MA). On June 11, the Senate failed to advance that bill, which was designed to allow federal loan borrowers to reat rates set last year by the Bipartisan Student Loan Certainty Act, and allow private loan borrowers to refinance loans into the federal program at the same rates.

    Servicemembers Student Lending SCRA Department of Treasury

  • Freddie Mac Announces Numerous Servicing Policy Updates

    Lending

    On June 3, Freddie Mac announced revisions to numerous servicing policies, including policies regarding, among other things, short sales and deeds-in-lieu of foreclosure (DILs), the CFPB’s mortgage servicing rules, and unemployment forbearance.  Bulletin 2014-10 advises servicers that for new short sale and DIL evaluations conducted on and after August 1, 2014 (or sooner if a servicer chooses), Freddie Mac will permit a servicemember to qualify for a short sale or DIL provided the mortgaged property is or was previously the borrower’s primary residence. When such a short sale or DIL is approved for a servicemember as provided above, the servicemember will receive the existing benefits afforded to a service member with PCS orders. In addition, for any borrower seeking a short sale or DIL, Freddie Mac is establishing a new lookback period that requires the servicer to review the borrower’s credit report to determine that the borrower did not obtain a new mortgage in the six months preceding the delinquency or in the six months preceding the evaluation of the borrower for a short sale or DIL. In addition, Freddie Mac (i) is now requiring servicers to investigate any inquiries by mortgage creditors that appear on the borrower’s credit report to determine if the borrower obtained a mortgage in the lookback period; and (ii) soon will require the servicer to rely solely upon the results of the cash reserves and promissory note payment capacity formulae to determine when to request a contribution from a borrower who is 31 days or more delinquent. The Bulletin also includes revisions to the following requirements introduced in response to the CFPB’s mortgage servicing rules: (i) trial period payment adjustments after the borrower exercises the right to appeal; (ii) delay in referral to foreclosure or proceeding with the next legal action; (iii) foreclosure sale date timing; and (iv) borrower solicitation letters. Finally, among several other policy revisions, the announcement details unemployment forbearance policy changes similar to those announced by Fannie Mae on June 4, 2014.

    CFPB Foreclosure Freddie Mac Mortgage Servicing Servicemembers Short Sale

  • Fannie Mae Announces Servicemember Policy Changes, Other Servicing Policy Updates

    Lending

    On May 21, Fannie Mae issued Servicing Guide Announcement SVC-2014-08, which announced that the extended stay of foreclosure and other legal proceedings that is set to expire at the end of this year will continue indefinitely for eligible servicemembers, and that servicers can no longer obtain written servicemember consent or petition the court to continue or commence foreclosure proceedings. Fannie Mae also announced that, effective September 1, 2014, for loans originally purchased at a premium or discounted price that experienced negative amortization, Fannie Mae will limit both the purchase discount and the purchase premium to the amount of the original purchase discount or premium, and the price used to calculate the repurchase amount will be expressed as a percentage of par. Finally, Fannie Mae also (i) announced updated documents used to evaluate and apply for a full or partial release of a property securing a loan; and (ii) clarified that servicers must oversee all outsourcing and third-party vendors, and that both servicers and vendors must implement and maintain business continuity plans.

    Foreclosure Fannie Mae Mortgage Servicing Servicemembers Servicing Guide

  • DOD Report Previews Expansion Of Military Lending Act Regulations

    Consumer Finance

    Recently, the Department of Defense (DOD) published a report on the Military Lending Act (MLA), as requested in the House report that accompanied the fiscal year 2013 National Defense Authorization Act (FY 2013 NDAA). The MLA generally covers short-term, small dollar loans, including payday, car title, and refund-anticipation loans, but current DOD regulations exclude credit cards, overdraft loans, military installment loans, and all forms of open-end credit. Consumer advocates, state attorneys general, and others have called for the MLA regulations to be expanded to cover other products. The DOD report provides a summary of responses the DOD received in response to a 2013 advance notice of proposed rulemaking related to the potential expansion of the MLA regulations, and reviews state and federal policy developments, as well as changes in the markets for small dollar products. The DOD concludes that the MLA regulations need to be amended, but that simply extending the definition of covered credit products is not sufficient. The DOD is therefore “redrafting” the MLA regulations and plans to take a more “comprehensive approach” that could cover all short-term, small dollar credit products under the MLA regulations and provide exceptions as appropriate. Notably, the FY 2013 NDAA also clarified the CFPB’s enforcement authority under the MLA and granted the CFPB an opportunity to influence the content of the MLA regulations by adding the CFPB to the list of agencies with which the DOD must consult regarding implementation of the MLA’s protections.

    CFPB Servicemembers Military Lending Act

  • Washington Amends State SCRA Statute To Provide State Remedy For Violation Of Federal SCRA

    Consumer Finance

    On March 27, Washington Governor Jay Inslee signed HB 2171, which amends the Washington Service Member’s Civil Relief Act (WSCRA) to provide that a violation of the federal Servicemembers Civil Relief Act is a violation of the WSCRA and applies in proper cases in all Washington courts. The bill also provides a private right of action for servicemembers or their dependents to enforce the WSCRA, and grants the state attorney general civil litigating authority, with penalties of up to $55,000 for a first violation and up to $110,000 for each subsequent violation. The changes take effect on June 12, 2014.

    Servicemembers SCRA

  • CFPB Releases Snapshot of Servicemember Complaints

    Consumer Finance

    On March 6, the CFPB released a “snapshot” of servicemember complaints prepared by the Office of Servicemember Affairs (OSA), which analyzes the military consumer complaints received since July 2011. According to the report, servicemembers, veterans, and their families have submitted 14,100 complaints to the Bureau since its opening and have recovered more than $1 million. The volume of servicemember complaints has continued to increase over time, rising 148% from 2012 to 2013.

    Notably, although “debt collection” was not added as a complaint category until July 2013, approximately 3,800 complaints received relate to collection practices. Nearly half of these complaints concern attempts to collect non-existent debts, with the remainder concerning improper collection tactics and procedural issues related to collection. The category that received the most complaints—approximately 4,700—was mortgage. Concerns raised relate primarily to practices undertaken when a borrower defaults, but also to loan origination and making payments. The remainder of the complaints received relate to consumer loans, private student loans, payday loans, credit cards, credit reporting, banking services, and money transfers. Along with debt collection practices, the report identifies payday loans—and specifically, compliance with the Military Lending Act's interest-rate restrictions—as a point of focus for OSA.

    CFPB Servicemembers Consumer Complaints Military Lending Act

  • Ninth Circuit Holds Failure To Remove Fees From Withdrawn Foreclosure Violates SCRA

    Lending

    On February 7, the U.S. Court of Appeals for the Ninth Circuit held that the attempted collection of past due foreclosure-related fees from a borrower in active duty military service is a violation of section 533 of the Servicemembers Civil Relief Act (SCRA). Brewster v. Sun Trust Mortg., Inc., No. 12-56560, WL No. (9th Cir. Feb. 7, 2014). The district court dismissed an active duty servicemember’s suit against the current and former servicer of his mortgage loan after the current servicer failed to remove fees associated with a foreclosure initiated, but then withdrawn, by the prior servicer. SCRA section 533 bars the “sale, foreclosure, or seizure of property” for the breach of certain obligations relating to a mortgage made before a servicemember’s military service, unless such action is pursuant to a court order or a valid SCRA waiver, and also establishes criminal penalties for a person who knowingly makes, causes to be made, or attempts to make such a prohibited sale, foreclosure, or seizure of property. On appeal, the Ninth Circuit concluded that the failure to remove the fees incidental to the previous foreclosure’s Notice of Default was a continuation of the previous “foreclosure proceeding,” and, therefore, a violation of section 533. The court did not consider whether the Notice of Default had been initially filed in violation of section 533. The court’s reasoning hinged on its reading of what the word “foreclosure” encompassed and based its interpretation on (i) a state-law statutory definition of foreclosure that the court determined included the attempted collection of foreclosure fees as part of the foreclosure proceeding, and (ii) the U.S. Supreme Court’s unambiguous requirement that courts broadly construe the statutory language of the SCRA. The court declined to determine whether SCRA allows punitive damages, as the DOJ had urged it to do in an amicus brief. The court reversed the district court’s dismissal of the borrower’s suit and remanded for further proceedings.

    Foreclosure Servicemembers SCRA DOJ

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