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CFPB Proposes Rule Governing the Confidentiality of Privileged Information Provided to the Bureau
On March 12, the CFPB released a proposed rule to govern the confidential treatment of privileged information submitted to the Bureau by the financial institutions it regulates. The proposed rule, which would amend 12 C.F.R. part 1070, subpart D, would add a new section providing that a person’s submission of any information to the CFPB in the course of the CFPB’s supervisory or regulatory processes would not waive or otherwise affect any privilege that such person might claim under federal or state law with respect to the submitted information. In the preamble to the proposed rule, the CFPB notes that although the Dodd-Frank Act did not explicitly address whether the submission of confidential information to the CFPB affects any privilege a supervised entity might claim, the Dodd-Frank Act did grant the CFPB all the powers and duties of the prudential regulators regarding their transferred consumer financial protection functions. The CFPB concludes that this grant of powers and duties includes the ability to receive privileged information from supervised entities without resulting in a waiver of any privileges. The CFPB added that its proposed rule is promulgated pursuant to Congress’s delegation of authority to the CFPB to prescribe rules governing the confidential treatment of information obtained from persons during its exercise of its authority. In addition to providing for the non-waiver of privilege when submitting information to the CFPB, the proposed rule provides that the CFPB’s provision of privileged information to another federal or state agency would not waive any applicable privilege, whether the privilege belongs to the CFPB or any other person. Comments on the proposed rule must be submitted on or before April 16, 2012.
CFPB Seeks Complaints Regarding Auto and Installment Loans, Announces Complaint Sharing with FTC
On March 12, the CFPB announced that it launched a system to handle consumer complaints regarding auto loans and installment loans. The new complaint form also allows consumers to submit complaints regarding vehicle leases and personal lines of credit. While the system will accept all such complaints, the CFPB initially can handle only complaints with regard to consumer loans with large banks, those over $10 billion in total assets. Loans issued by small banks or nonbanks will be referred to the appropriate federal or state authority. After it has finalized a rule defining “larger participants” in these markets, the CFPB will be permitted to handle directly complaints regarding covered nonbanks.
On March 14, the CFPB announced on its blog that, pursuant to its Memorandum of Understanding with the FTC, the CFPB now is sharing consumer complaint information with the FTC through the FTC’s Consumer Sentinel system. Consumer Sentinel is an online database of consumer complaints maintained by the FTC that helps law enforcement track and respond to consumer complaints. Many state attorneys general, the U.S. Postal Inspection Service, and the FBI’s Internet Crime Complaint Center also access and provide data to the FTC’s Consumer Sentinel system.
Ninth Circuit Holds Director Personally Liable for Illegal Debt Collection
On March 8, the U.S. Court of Appeals for the Ninth Circuit held that International Collection Corporation (ICC) and its director were liable for violating the Fair Debt Collection Practices Act (FDCPA) by falsely claiming in communications to debtors that ICC was entitled to interest and legal fees. Cruz v. International Collection Corp., No. 09-17449, 2012 WL 742337 (9th Cir. Mar. 8, 2012). In 2006, Cruz wrote two checks to Harrah’s Casino in Reno, Nevada. The checks bounced. Over the course of the next year, ICC sent Cruz eight collection letters, some of which falsely claimed that ICC was entitled to treble damages, interest, and legal fees. The director and sole owner of ICC signed and sent at least one such collection letter. The FDCPA bars the use of any false, deceptive, or misleading representation in connection with the collection of any debt. 15 U.S.C. § 1692e. Cruz filed suit and the district court granted summary judgment for the plaintiff. The Ninth Circuit affirmed the decision against ICC and affirmed that Hendrickson was personally liable. Because the director was personally involved in at least one illegal collection attempt, the court did not need to reach the question of whether an officer who qualifies as a debt collector may be held personally liable based solely on the action of serving in his role as an officer of the company.
Federal Appeals Court Holds Borrower Can Sue Servicer For Promised HAMP Modification
On March 7, the U.S. Court of Appeals for the Seventh Circuit held that a mortgage borrower could proceed with a class action suit against the servicer of her loan for its failure to offer a permanent loan modification under the federal Home Affordable Mortgage Program (HAMP). Wigod v. Wells Fargo Bank, N.A., No. 11-1423, 2012 WL 727646 (7th Cir. Mar. 7, 2012). In Wigod, the loan servicer and borrower entered into a Trial Period Plan (TPP) under HAMP; the servicer stated in the TPP that if the borrower complied with the TPP for four months, the servicer would offer the borrower a permanent HAMP modification. The borrower alleged that she complied with the TPP, but the servicer denied her a permanent HAMP modification. The borrower filed a class action on behalf of all similarly situated borrowers of the servicer who had entered into and complied with a TPP but were nevertheless denied a permanent modification. The District Court for the Northern District of Illinois granted the servicers motion for summary judgment, but the Seventh Circuit reversed on four of the seven counts. Judge Hamiltons opinion for the Circuit Court held thatwhile the borrower may not have been able to state a cause of action for a breach of HAMP directlythe borrower properly pled claims for breach of contract and promissory estoppel based on the servicers promise to offer a permanent modification in the TPP. The Circuit Court also held that the borrower sufficiently stated claims for fraudulent misrepresentation and for violation of the Illinois Consumer Fraud and Deceptive Business Practices Act. Finally, the Circuit Court held that these state law claims were not preempted by federal law.
Ohio Enacts Cyber Fraud Enforcement Legislation
On March 9, Ohio Governor Kasich signed SB 223, which will give the Ohio Attorney General the authority investigate suspected cyber fraud cases, and to subpoena phone records, IP addresses, payment information, and witness testimony when the AG has reasonable cause to believe that a person or enterprise has engaged in, is engaging in, or is preparing to engage violations of state cyber fraud laws. The bill also alters the thresholds for determining the severity of cyber fraud charges, creating a new charge of first degree felony for frauds involving $1 million or more. The changes will take effect on June 7, 2012.
Seventh Circuit Rejects Class Certification for RESPA Section 8 Action
On March 6, the United States Court of Appeals for the Seventh Circuit concluded that borrower claims against a title insurance company for alleged kickbacks and fee splitting, in violation of Section 8 of the Real Estate Settlement Procedures Act (RESPA), were not appropriate for class treatment because an individual determination of liability would be required for each class member. Howland v. First American Title Ins. Co., Nos. 11-1816, 11-1817, 2012 WL 695636 (7th Cir. Mar. 6, 2012). The case involves the sale of title insurance in Illinois by First American Title Insurance Company. First American typically sells title insurance to borrowers by contracting with the borrower’s real estate attorney to conduct a title examination. As part of that contract, First American provides the real estate attorney with a substantial amount of information about the property, including a summary sheet that includes legal description of the property, the last known grantee, and any open liens. The borrowers alleged that this summary sheet was itself a preliminary title examination. Because much of the title examination work was provided by First American to the attorney as title agent, the borrower sought to certify a class based on two related alleged violations of RESPA: (i) that the fees charged were excessive and unreasonable given the small amount of work performed and (ii) that the attorney title agents were paid to compensate for referrals and not actual services. The court concluded class certification was not appropriate in this instance. It held that while kickbacks and referral fees to the real estate attorney title agents based on compensation for nominal or duplicative services were banned by Section 8 of RESPA, “the existence or the amount of the kickback in these cases generally requires an individual analysis of each alleged kickback to compare the services performed with the payment made.” Furthermore, the court found that claims attorney title agents were being overcompensated for a pro forma clearance of the title based on the title company’s property summary sheet required a specific case-by-case inquiry. The court concluded that “RESPA Section 8 kickback claims premised on an unreasonably high compensation for services actually performed are inherently unsuitable for class action treatment.”
Federal District Court Holds New York's EIPA Does Not Permit Private Right of Action for Judgment Debtors to Sue Their Banks
On March 2, the U.S. District Court for the Southern District of New York dismissed a putative class action brought by judgment debtors seeking money damages from their bank for allegedly violating New York’s Exempt Income Protection Act (EIPA), holding that the statute does not support a private right of action. Cruz v. TD Bank, N.A., No. 10-8026, 2012 WL 694267 (S.D.N.Y. Mar. 2, 2012). The EIPA provides a special exemption from satisfaction of money judgments for certain amounts and types of a debtor’s income, including income derived from social security, public assistance, and disability benefits. In Cruz, the judgment debtor plaintiffs alleged that their bank failed to provide them and other members of the putative class with the notices and exemptions forms as required by the EIPA, and asserted that the bank unlawfully restrained their accounts and charged them various fees in violation of the statute. After examining the plain text, legislative history, and purpose of the EIPA, the court held that judgment debtors had neither an express nor implied right to sue their bank for money damages under the statute. Instead of creating a right of action for suing a bank, the court concluded that the EIPA merely permitted judgment debtors and creditors to bring claims against each other. In addition to dismissing the EIPA claim, the court dismissed the plaintiffs’ common law fraud, fiduciary duty, unjust enrichment, negligence, and conversion claims.
Washington Enacts Multiple Amendments to Consumer and Mortgage Lending Laws
On March 8, Washington enacted HB 2255, which alters state regulation of consumer loan companies, including mortgage originators, check cashers and sellers, and payday lenders. Under the Consumer Loan Act, which covers nonbank consumer lenders including nonbank mortgage originators, consumer lenders are prohibited from making a loan from an unlicensed location. The Director of the Department of Financial Institutions can, among other things, order refunds to customers, informally settle complaints and enforcement actions, and issue subpoenas. Entities offering retail installment sales using open loop prepaid cards are no longer exempt from the Consumer Loan Act. Under the Check Cashers and Sellers Act, which covers entities that cash or sell checks, drafts, money orders, or other commercial paper, as well payday lenders, the definition of “licensee” is amended to include out-of-state entities, as well as those that should have a small loan endorsement. The Director can informally settle complaints and enforcement actions regarding covered entities. The bill includes new prohibited practices for check cashers and sellers, including (i) selling open loop prepaid access in a retail installment loan, (ii) advertising a statement that is false or deceptive, (iii) failing to pay annual assessments on time, and (iv) failing to pay other monies due to the Director. The law allows for the transition of check cashers and sellers, escrow agents, and money transmitters to the National Mortgage License System and Registry. HB 2255 also eliminates the requirement that mortgage originators provide a state disclosure form, so long as the originator offers disclosures in compliance with federal Regulation X. All of the above changes take effect June 7, 2012.
Multi-Party Mortgage Servicing Settlement Filed in Court
On March 12, federal and state officials filed documents in the United States District Court for the District of Columbia formalizing a previously announced settlement (the Settlement) of various government probes into alleged mortgage-related violations by the five largest residential mortgage servicers (collectively the Servicers). The Settlement resolves investigations and inquiries by numerous federal regulators and 49 state Attorneys General (AGs). The federal agencies that have signed on to the settlement include: the Department of Justice, the Department of Housing and Urban Development, the Department of Treasury, the Department of Agriculture, the Department of Veterans Affairs, the Federal Trade Commission, the Consumer Financial Protection Bureau, and the U.S. Trustee. With the filing of a consolidated complaint and a separate consent judgment for each Servicer, the details of the Settlement have been made available, including its provisions regarding: (i) restitution and other relief, (ii) new servicing standards, (iii) the scope of its releases, and (iv) implementation and enforcement. For a detailed analysis of the Settlement, please see BuckleySandler LLP’s recent Special Alert.
Federal Circuit Courts Issue More Rulings Enforcing Arbitration Agreements
On March 7, the U.S. Court of Appeals for the Ninth Circuit held that a national bank could compel arbitration of a dispute involving student loans. Kilgore v. KeyBank, Natl Assn, No. 09-16703, 2012 WL 718344 (9th Cir. Mar. 7, 2012). A group of students filed a class action in state court alleging that KeyBank violated state law in its offering of loans to students of a helicopter pilot school, which subsequently misappropriated the student loan funds. KeyBank removed the action to federal court and moved to compel arbitration. The district court denied the motion and KeyBank appealed. While the case was on appeal, the Supreme Court in AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011), set a new standard for assessing the enforceability of arbitration clauses. That new standard required the Ninth Circuit to hold in KeyBank that the Federal Arbitration Act preempts Californias rule prohibiting arbitration of claims for broad, public injunctive relief. The court also held that the arbitration clause was not procedurally unconscionable because it clearly provided a sixty-day opt-out provision and a conspicuous and comprehensive explanation of the arbitration agreement. The court did not address the issue of whether the arbitration agreement was substantively unconscionable. The U.S. Court of Appeals for the Eleventh Circuit recently issued two separate, but substantively similar, opinions regarding arbitration agreements, both in cases consolidated in the multidistrict overdraft fee litigation pending in the U.S. District Court for the Southern District of Florida. Hough v. Regions Financial Corp., No. 11-14317, 2012 WL 686311 (11th Cir. Mar. 5, 2012); Buffington v. SunTrust Banks, Inc., No. 11-14316, 2012 WL 660974 (11th Cir. Mar. 1, 2012). In both cases, based on Concepcion, the court previously vacated district court rulings that the banks arbitration clauses were substantively unconscionable under Georgia law because they contained a class action waiver. On remand, the banks renewed their motions to compel arbitration. The district court denied the motions again, this time on the ground that the arbitration clauses were substantively unconscionable under Georgia law because a provision granting the banks the unilateral right to recover their expenses for arbitration allocated disproportionately to the plaintiffs the risks of error and loss inherent in dispute resolution. The Eleventh Circuit held that, under Georgia law, an agreement is not unconscionable because it lacks mutuality of remedy. It also rejected the district courts holding that the clauses were procedurally unconscionable because the contract did not meet the Georgia standard that for an agreement to be procedurally unconscionable it must be so one-sided that no sane man not acting under a delusion would make [it] and no honest man would participate in the transaction. The Eleventh Circuit vacated the district courts orders and remanded both cases with specific instructions to compel arbitration.