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Financial Services Law Insights and Observations

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  • OCC updates Credit Card Lending booklet

    Agency Rule-Making & Guidance

    On April 29, the OCC issued Bulletin 2021-22 announcing the revision of the Credit Card Lending booklet of the Comptroller’s Handbook. The booklet rescinds OCC Bulletin 2015-14 and replaces version 1.2 of the “Credit Card Lending” booklet that was issued on January 6, 2017. Among other things, the revised booklet (i) discusses the adoption of current expected credit loss methodology and the increased use of such modeling in credit card origination and risk management; (ii) reflects changes to OCC issuances; (iii) includes refining edits regarding supervisory guidance, sound risk management practices, and legal language; and (iv) includes revisions for clarity.

    Agency Rule-Making & Guidance OCC Comptroller's Handbook Credit Cards CECL

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  • HUD charges mortgage modification service with Fair Housing Act violations

    Federal Issues

    On April 30, HUD announced a Charge of Discrimination against a California-based mortgage modification service (respondents) for allegedly violating the Fair Housing Act by discriminating against Hispanic homeowners. According to HUD, the complainants alleged that the respondents targeted them for illegal or unfair loan modification assistance based on their national origin, and that as a result, “they were diverted from obtaining legitimate assistance” and “were at risk of foreclosure.” Specifically, the respondents allegedly marketed and sold loan modification services to financially distressed California homeowners, the majority of whom were Hispanic. The allegations claim that most of the advertisements were in Spanish or were aired on Spanish-language stations and contained allegedly deceptive information regarding the respondents’ ability to obtain loan modifications, as well as its payment structure. Additionally, the complainants stated that they were discouraged from seeking free loan modification assistance, and were, among other things, (i) charged fees before the respondents completed the promised mortgage modifications; (ii) advised to stop making payments without being informed about the risks involved in not paying their mortgages; (iii) provided inaccurate information about the respondents’ services, including that clients would receive services from an attorney; and (iv) instructed to stop communicating with their lenders and to instead forward all lender communications to the respondents if threatened with foreclosure. The charge will be heard by a United States Administrative Law Judge unless a party elects to have the case heard in federal district court.

    Federal Issues HUD Enforcement Fair Housing Act Mortgages Fair Lending Consumer Finance

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  • FDIC releases March enforcement actions

    Federal Issues

    On April 30, the FDIC released a list of administrative enforcement actions taken against banks and individuals in March. During the month, the FDIC issued 10 orders consisting of “five Prohibition Orders, three Orders to Pay Civil Money Penalties, two Section 19 Applications, one Order to Correct Conditions, and one Order Terminating Consent Order.” Among the orders is a civil money penalty imposed against a Puerto Rico bank related to alleged violations of the Flood Disaster Protection Act for failing to “timely force place insurance in connection with loans secured by a dwelling located within a special flood hazard area” on 27 occasions. The order requires the payment of a $40,500 civil money penalty.

    The FDIC also imposed a civil money penalty against a Tennessee bank related to alleged violations of the Flood Disaster Protection Act. Among other things, the FDIC claims that the bank (i) failed to obtain flood insurance at or before the origination, increase, renewal, or extension of loans in 61 instances; (ii) failed to maintain an adequate amount of flood insurance in 88 instances; (iii) failed to provide required lender-placed flood insurance notices to borrowers within 45-days of force placement in 10 instances; (iv) provided an incomplete lender-placed flood insurance notice to a borrower; and (v) failed to provide timely notice of special flood hazards and the availability of federal disaster relief assistance in 37 instances. The order requires the payment of a $172,500 civil money penalty.

    Federal Issues FDIC Enforcement Flood Insurance Flood Disaster Protection Act Mortgages

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  • FTC reaches $20 million settlement with company for misusing consumer credit reports

    Federal Issues

    On April 29, the FTC announced a civil complaint and stipulated order filed by the DOJ on its behalf against a home security and monitoring company accused of allegedly violating the FCRA by improperly obtaining consumers’ credit reports to help potential customers qualify for financing for its products and services. According to the complaint, company employees allegedly engaged in a process known as “white paging,” in which the credit history of another individual with the same or similar name as the potential customer is used to qualify the potential customer for the company’s financing program. Additionally, the FTC claimed that company sales representatives allegedly added “impermissible co-signers” to accounts for unqualified customers by unlawfully using the credit history of the “co-signers” without their permission. In the event a customer defaulted on a loan, the company referred the impermissible co-signer to its debt buyer, potentially harming the co-signer’s credit score and subjecting the individual to debt collections, the FTC stated. According to the complaint, the company was aware of the misconduct, terminated hundreds of sales representatives as a result of these practices, but later rehired some of the same sales representatives because they generated millions of dollars in revenue.

    Under the terms of the stipulated order—the largest to date for an FTC FCRA action—the company is required to pay a $15 million civil money penalty, as well as $5 million to compensate harmed individuals. Additionally, the company must (i) implement an employee monitoring and training program to prevent further FCRA violations; (ii) establish and maintain an identity theft prevention program; (iii) establish a customer service task force to verify all accounts that reference more than one address or include a co-signer before referring the accounts to a debt collector and assist individuals who were improperly referred to debt collectors; and (iv) obtain biennial assessments by an independent third party to ensure compliance.

    While the Commission voted 4-0 to approve the stipulated final order, Commissioner Rohit Chopra issued a separate statement noting that he believes the FTC “should have also alleged that the company violated the FTC Act’s prohibitions on deceptive practices by falsifying credit applications,” and that because the company “turned a blind eye to obvious compliance failures by its sales force” it also allegedly “violated the FTC Act’s prohibition on unfair practices.”

    Federal Issues FTC Enforcement FTC Act FCRA Credit Report Consumer Finance

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  • FDIC announces Kentucky and Alabama disaster relief

    Federal Issues

    On April 30, the FDIC issued FIL-31-2021 and FIL-32-2021 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Kentucky and Alabama affected by severe storms. The FDIC acknowledged the unusual circumstances faced by institutions affected by the storms and suggested that institutions work with impacted borrowers to, among other things, (i) extend repayment terms; (ii) restructure existing loans; or (iii) ease terms for new loans to those affected by the severe weather, provided the measures are done “in a manner consistent with sound banking practices.” Additionally, the FDIC noted that institutions “may receive favorable Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery.” The FDIC will also consider regulatory relief from certain filing and publishing requirements.

    Federal Issues FDIC Disaster Relief Kentucky Alabama Consumer Finance CRA

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  • CFPB reports on Covid-19 mortgage borrower challenges

    Federal Issues

    On May 4, the CFPB released two reports analyzing mortgage borrowers’ challenges due to the ongoing Covid-19 pandemic. The first report explores the characteristics of borrowers who are delinquent or in forbearance based a sample of nearly 662,000 loans for owner-occupied properties. The report shows that Black and Hispanic borrowers are more at risk than others, as they comprised 33 percent of borrowers in forbearance (and 27 percent of delinquent borrowers) while only constituting 18 percent of the total population of mortgage borrowers. Other findings include that (i) loans reported in March 2021 as being in forbearance or delinquent were “more likely than current loans to be single-borrower loans and to have been 30+ days delinquent in February 2020,” and (ii) “the share of loans with [a loan-to-value] ratio above 60 percent was significantly larger for borrowers in forbearance (50 percent) or delinquent (51 percent) compared to those who were current (34 percent).”

    The second report examines mortgage forbearance issues described in consumer complaints from the 2020 Consumer Response Annual Report. According to the complaint bulletin, the mortgage complaint volume “has remained relatively steady since January 2020, averaging around 2,500 complaints per month,” while peaking to 3,400 complaints in March 2021—the greatest monthly mortgage complaint volume in nearly three years. The most common issue reported since January 2020 was consumers experiencing difficulty during the payment process. The bulletin also highlights that: (i) many consumers reported that servicers were not providing advice about loss mitigation until after the consumer’s forbearance had been terminated; and (ii) consumers reported long delays in having their loans modified so they could resume payments on their mortgages.

    The CFPB also issued a reminder in its press release that it is seeking comments on a proposal intended to help prevent avoidable foreclosures for borrowers affected by the Covid-19 pandemic. As covered by a Buckley Special Alert, the proposal would temporarily require servicers to enhance communications with borrowers who are delinquent or in forbearance, allow servicers to offer certain streamlined loan modification options to borrowers with Covid-19-related hardships, and require servicers to afford all borrowers a special pre-foreclosure review period, if finalized. The CFPB indicated that a final rule implementing the proposal will take effect August 31—a tight timeline to address public comments, which are due May 10.

    Federal Issues CFPB Covid-19 Mortgages Consumer Finance

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  • CFPB, FTC remind landlords of tenant pandemic protections

    Federal Issues

    On May 3, the CFPB acting Director Dave Uejio and FTC acting Chairwoman Rebecca Kelly Slaughter released a joint notification letter to the nation’s largest apartment landlords that together own over 2 million units. The letter serves as a reminder of federal protections put in place to keep tenants in their homes throughout the Covid-19 pandemic, including an eviction moratorium recently extended by the CDC to June 30, and an interim final rule issued by CFPB last month (covered by InfoBytes here), effective May 3, that established new notice requirements under the FDCPA. The letter also encourages the landlords to “notify debt collectors working on your behalf, which may include attorneys, of the CDC Moratorium, applicable state or local moratoria, and those parties’ obligations under the FTC Act and the FDCPA, including under the CFPB’s interim final rule.” Furthermore, the letter asks landlords to examine their practices in light of the CDC moratorium to ensure that they “comply with the FTC Act and the [FDCPA]” and “remediate any harm to consumers stemming from any law violations.” As previously covered in InfoBytes, in March, the CFPB and FTC issued a joint statement indicating staff at both agencies will be monitoring and investigating eviction practices to ensure that they comply with the law.

    Federal Issues FTC Covid-19 CFPB CDC FTC Act FDCPA

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  • CFPB sued over Covid-19 FDCPA eviction rule

    Courts

    On May 3, plaintiffs, including members of the National Association of Residential Property Managers, sued the CFPB asserting the Bureau’s recently issued interim final rule (IFR) violates their First Amendment rights. As previously covered by InfoBytes, the IFR amended Regulation F to require debt collectors to provide tenants clear and conspicuous written notice alerting them of their rights under the CDC’s moratorium on evictions in response to the Covid-19 pandemic. Under the IFR, failure to provide notice is considered a violation of the FDCPA. The plaintiffs argue that the moratorium, however, has been challenged and invalidated by several federal courts, including the U.S. Court of Appeals for the Sixth Circuit. As such, the plaintiffs contend that the IFR compels “false speech” and “requir[es p]laintiffs to lie about the lawfulness and availability” of consumers’ rights under the moratorium. The complaint asks the court to “enjoin this CFPB policy, declare it unlawful, and set it aside.”

    Courts CFPB Debt Collection Consumer Finance Covid-19 Agency Rule-Making & Guidance FDCPA

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  • 11th Circuit revives FCRA claims against credit-reporting agency

    Courts

    On April 28, the U.S. Court of Appeals for the Eleventh Circuit vacated a district court’s judgment, holding that it was unclear whether a credit reporting agency (CRA) took “reasonable procedures to assure maximum possible accuracy of the information” as required under the FCRA after a consumer claimed his credit report contained inaccuracies. The consumer contacted the CRA after noticing his credit report showed he was delinquent on a mortgage that was discharged in bankruptcy. The CRA sent an automated consumer data verification to the mortgage servicer who confirmed the debt. The consumer claimed that the CRA did not take further steps to investigate the situation and failed to correct the credit report until after the consumer commenced the litigation against the CRA for willfully violating the FCRA. The district court disagreed with the consumer, concluding that under both § 1681e and § 1681i, the CRA’s actions were reasonable as a matter of law. Among other things, the consumer failed to provide the CRA “with specific information from which it could have discovered that he no longer owed money” on the mortgage, the district court found, determining also that the consumer’s “theory of liability was a ‘bridge too far’ because it would require [CRAs] to examine court orders and other documents to determine their legal effect.”

    On appeal, the Eleventh Circuit disagreed that the measures taken by the CRA after it was notified of the inaccuracy in the consumer’s report were “‘reasonable’ as a matter of law.” The CRA did “nothing, although it easily could have done something with the information” provided by the consumer, the appellate court wrote. However, the court emphasized that its decision was a narrow one. “Just as we cannot hold that [the CRA’s] procedures were per se reasonable, we do not hold that they were per se unreasonable,” the appellate court wrote, noting that it also could not “hold that in every circumstance where a plaintiff informs a [CRA] of an inaccuracy, the agency must examine court records to independently discern the status of a debt.” Additionally, the appellate court determined that although a bankruptcy discharge does not expunge a debt, the consumer’s credit report was still factually inaccurate because he “was no longer liable for the balance nor was he ‘past due’ on any amount for more than 180 days.”

    Courts Eleventh Circuit Appellate FCRA Credit Reporting Agency

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  • District Court dismisses shareholder sales-compensation suit

    Courts

    On April 27, the U.S. District Court for the District of Illinois granted an Ohio-based bank’s motion to dismiss a consolidated shareholder suit, ruling that investors “failed to allege facts that give rise to a strong inference of scienter” concerning whether bank executives intended to deceive them by not immediately disclosing a federal investigation into unauthorized account openings. The investors claimed, among other things, that bank executives made misleading statements and material omissions in the bank’s securities filings for 2016, 2017, and 2018 by failing to disclose a 2016 CFPB investigation into the bank’s sales practices. After the bank disclosed the investigation in its 2019 filings, the investors alleged the stock price dropped. The Bureau later filed a complaint in 2020 (covered by InfoBytes here) charging that the bank knew that sales employees “engag[ed] in misconduct in order to meet goals or earn additional compensation,” but purportedly “took insufficient steps to properly implement and monitor its program, detect and stop misconduct, and identify and remediate harmed consumers.” The investors claimed that bank executives’ assurances about the bank’s robust risk management and compliance practices “served to conceal [its] faulty reporting structure and their knowledge of its problems,” and that the CFPB’s ongoing litigation against the bank supported an inference of scienter because, among other things, bank executives were allegedly motivated to hide the Bureau’s investigation and underlying account issues because of a pending acquisition.

    The court disagreed, ruling that the investors failed to allege any specific facts showing that bank executives knew of reporting structure deficiencies or that they “had personal knowledge of any problematic practices at the time when they made the statements at issue.” The court pointedly stated that it “does not find it appropriate to infer scienter from conclusory statements made in another litigation.” Moreover, with regards to whether bank executives concealed the Bureau’s investigation to make the company appear profitable, the court stated that “the general desire to keep stock prices high to make the company appear profitable or to close a deal” is not enough on its own to “allow a strong inference of scienter.”

    Courts CFPB Securities and Exchange Commission Securities Enforcement Incentive Compensation

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