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Third Circuit Reverses Lower Court Decision, Rules Envelope Revealing Consumer's Account Number Violates the FDCPA
Recently, the U.S. Court of Appeals for the Third Circuit reversed a lower court’s holding that the disclosure of a consumer’s account is not a “benign” disclosure and, therefore, violates the FDCPA. Douglass v. Convergent Outsourcing, No. 13-3588, 2014 WL 4235570 (3d Cir. Aug. 28, 2014). In this case, a debt collector sent a consumer a dunning letter in a window envelope, and the consumer’s account number was visible through the window. The consumer brought a claim under § 1692f(8) of the FDCPA, which bars debt collectors from using any language or symbol other than the collector’s address on any envelope sent to the consumer. The debt collector contended that the claim must fail because the account number was “benign language” that was not prohibited by § 1692f(8) of the FDCPA. The Third Circuit held that even if “benign language” was exempt from § 1692f(8)’s prohibition (a question that the court declined to decide), the consumer’s account number was not benign. In particular, the court noted that the disclosure of the account number threatened the consumer’s privacy because it was a “core piece of information pertaining to the status as a debtor and the debt collection effort.”
Webinar Recap: The CFPB's Expanding Oversight of Auto Finance, Part I
On October 1, 2014, Buckley Sandler hosted a webinar, The CFPB’s Expanding Oversight of Auto Finance, Part One. Through an examination of the Consumer Financial Protection Bureau’s (CFPB) authority, recent enforcement activities, and discussion of the exam process, John Redding, Michelle Rogers, andMarshall Bell explored the different areas of the auto finance industry coming into the CFPB’s focus.
Buckley Sandler will present The CFPB’s Expanding Oversight of Auto Finance, Part Two on October 30, 2014.
Explaining the Larger Participant Rule
Since its creation, the CFPB has held statutory authority to supervise nonbank institutions who are “a larger participant of a market for other consumer financial products or services.” On September 17, 2014, the CFPB proposed a rule defining a market for “automobile financing” and “larger participants” within that market. Under this proposed rule:
- A nonbank institution is a larger participant in the auto finance market if it “has at least 10,000 aggregate annual originations,” which includes:
- Credit granted for the purpose of purchasing an automobile
- Refinancings
- Automobile leases
- Purchases of extensions of credit and leases
- An “automobile” includes any self-propelled vehicle used primarily for a consumer purpose for on-road transportation, except for certain identified vehicle types, including recreational vehicles, motor scooters and limited others
- Affiliates are included in calculations but dealers are excluded
Supervisory & Enforcement Activities & Trends
Our attorneys noted that potential fair lending issues resulting from dealer “reserve” (also known as “participation”), which is the amount paid based on the difference between the buy rate and contract rate, remains the CFPB’s top area of focus in auto finance at this time, though the CFPB is expected to expand its focus beyond fair lending in the near future. They identified ancillary products, debt collection, and credit reporting as likely areas of CFPB expansion and noted that while the CFPB does not have authority to enforce the Sevicemembers’ Civil Relief Act (SCRA), the Bureau may rely on its Unfair, Deceptive, Abusive Acts and Practices (UDAAP) authority in seeking to extend its authority with respect to SCRA claims. The panelists went on to identify specific areas of CFPB interest under each area of enforcement.
Outlining the Exam Process
Each panelist is experienced in working with the CFPB, including in the examination context. They offered their insights on working with the CFPB to negotiate modifications of timing and scope of examination requests, educating examiners on business operations, and responding to Potential Action and Request for Response (PARR) and Notice and Opportunity to Respond and Advise (NORA) letters. Our panelists stated that ECOA exams of creditors are one of the most common CFPB examinations in the auto finance industry, reviewing the following three aspects of transactions:
- Buy rates
- Mark up
- Underwriting decisions
The exam process may include:
- Initial information request/ “first day letter”
- Request for transactional data
- Discussions to clarify exam scope, responsibilities, resources and document control
- Presentations of key operational processes
- Statistical testing to detect potential disparities on a prohibited basis in underwriting outcomes, buy rates or “mark up”
- Notification of alleged violations or concerns may be communicated by:
- “Soft exit” meeting or formal exit meeting
- PARR/NORA letter
- Written examination report
- Informal discussion
- A nonbank institution is a larger participant in the auto finance market if it “has at least 10,000 aggregate annual originations,” which includes:
Special Alert: Lessons Learned from Arab Bank's U.S. Anti-Terrorism Act Verdict
On September 22, 2014, following a two-month trial, a federal jury in the Eastern District of New York ruled in favor of a group of 297 individual plaintiffs in a civil suit accusing Arab Bank PLC, headquartered in Amman, Jordan, of supporting terrorism. Linde vs. Arab Bank PLC, No. 1:04-CV-2799 (E.D.N.Y. filed July 2, 2004).
In summary, the plaintiffs alleged that Arab Bank was liable under the U.S. Anti-Terrorism Act, 18 U.S.C. § 2331, et seq. (the “ATA”), for the deaths and/or severe injuries resulting from acts in international terrorism that occurred between 2001 and 2004, because the bank had processed and facilitated payments for Hamas and other terrorist or terrorist-related organizations, their members, the families of suicide bombers, or Hamas front organizations.
What this means for financial institutions, particularly foreign banks that increasingly face the potential reach of U.S. laws and plaintiffs, remains to be seen. But there are three take-aways worthy of immediate consideration.
Click here to view the full special alert.
Proposed Changes to the TILA-RESPA Integrated Disclosure Rule
On October 10, the CFPB issued a proposal to modify and make technical amendments to the TILA-RESPA Integrated Disclosure Rule, issued in November of 2013. Specifically, the CFPB proposes to (i) relax the timing requirements associated with the redisclosure of interest rate dependent charges and loan terms after consumers lock in a floating interest rate, such that creditors would have until the next business day after a consumer locks in a floating interest rate to provide a revised disclosure; and (ii) add language to the Loan Estimate form that creditors could use to inform a consumer that the consumer may receive a revised Loan Estimate for a construction loan that is expected to take more than 60 days to settle. In addition, the Bureau proposes non-substantive changes such as technical corrections and corrected or updated citations and cross-references in the regulatory text and commentary, minor word changes throughout the regulatory text and commentary, and an amendment to the 2013 Loan Originator Rule, to provide for placement of the NMSR ID on the integrated disclosures. The CFPB is accepting comments on the proposed changes through November 10, 2014. The CFPB noted its intention to finalize the proposed amendments quickly in order to provide the industry adequate time to implement any resulting changes by August 1, 2015, the effective date of the TILA-RESPA Integrated Disclosure Rule.
CFPB Updates Dodd-Frank Mortgage Rules Readiness Guide
Recently, the CFPB published an updated mortgage rules Readiness Guide for financial institutions to assist them in complying with new mortgage lending requirements. The Guide contains: (i) a summary of the mortgage rules finalized by the CFPB as of August 1, 2014; (ii) a readiness questionnaire to help perform self-assessments; (iii) a section on frequently asked questions; and (iv) a section on further tools to assist with compliance with the new rules. The guide discusses, among other rules, the TILA-RESPA Integrated Disclosure rule that integrates the mortgage loan disclosures currently required under TILA and RESPA. That rule requires a new Loan Estimate form that combines two existing forms, the Good Faith Estimate and the initial Truth-in Lending disclosure. The Loan Estimate must be provided to consumers no later than the third business day after they submit an application. The rule also requires a Closing Disclosure form, which combines the current Settlement Statement (“HUD-1”) and final Truth-in Lending disclosures forms. The Closing Disclosure must be provided to consumers at least three business days before consummation of the loan. The new requirements are effective for loans where the lender receives an application on or after August 1, 2015.
CFPB Report Analyzes Private Student Loan Borrowers' Complaints
On October 16, the CFPB announced the findings of its annual student loan ombudsman report. Analyzing over 5,000 private student loan complaints that the CFPB received from October 1, 2013 through September 30, 2014, the report highlights the struggle private loan borrowers face in repaying their loans, noting that many are driven into default because practical repayment options are not available to them. The report outlines three main reasons why many private student loan borrowers default: (i) they are unaware of the loan modifications available to them; (ii) they do not have the same affordable options that federal student loan borrowers are entitled to by law; and (iii) the temporary forbearance options that some lenders offer often result in “burdensome enrollment fees and processing delays.” In connection with the report, the CFPB released a sample letter that consumers can edit and send to servicers to request lower monthly payments and information on available repayment plans, as well as a sample financial worksheet to assist borrowers to determine maximum funds available to pay their student loans.
CFPB And FTC To Hold Roundtable On Debt Collection In The Latino Community
On October 23, the CFPB and the FTC will hold a roundtable to discuss the effects of debt collection and credit reporting in the Latino community. The event will focus on the customers with limited English proficiency, and is scheduled to take place from 9 a.m. to 5 p.m. in Long Beach, CA.
CFPB Publishes Proposed Policy Regarding No-Action Letters
On October 10, the CFPB published for comment a proposal for a limited No-Action Letter policy, which appeared in the Federal Register on October 16. The proposed policy aims to “create a process to reduce the regulatory uncertainty that may exist for certain emerging products or services which stand to benefit consumers.” Specifically geared towards financial products and services for which existing statutes and regulations are vague, the proposed policy allows for a CFPB staff member to inform a company that “staff has no present intention to recommend initiation of an enforcement or supervisory action against the requester” by sending a No-Action Letter. The proposed policy requires that the financial product or service that is the subject of a No-Action Letter have substantial consumer benefit when issues of uncertainty regarding certain provisions of statutes implemented by the Bureau arise.
FINRA Issues Guidance Notice To Warn Against Settlements Barring Whistleblower Tips
This month, FINRA issued guidance notice 14-40 to remind firms that “it is a violation of FINRA Rule 2010 (Standards of Commercial Honor and Principles of Trade) to include confidentiality provisions in settlement agreements or any other documents, including confidentiality stipulations made during a FINRA arbitration proceeding, that prohibit or restrict a customer or any other person from communicating with the Securities and Exchange Commission (SEC), FINRA, or any federal or state regulatory authority regarding a possible securities law violation.” Additionally, the notice addresses FINRA’s Code of Arbitration Procedure for Customer Disputes, emphasizing that the parties involved in the arbitration discovery process must “cooperate with each other to the fullest extent practicable in the voluntary exchange of documents and information to expedite the arbitration process.” FINRA further specifies that “stipulations between the parties or confidentiality orders issued by an arbitrator as part of the discovery process regarding the non-disclosure of the documents in question outside the arbitration of the particular case do not restrict or prohibit the disclosure of the documents to the SEC, FINRA, any other self-regulatory organization, or any other state or federal regulatory authority.”
HUD Continues To Fight Housing Discrimination
On October 15, HUD announced the award of more than $38 million to fair housing and non-profit organizations in 43 states and the District of Columbia to address discrimination in the housing industry. Through HUD’s Fair Housing Initiatives Program, grants are funded with the intent that they will “help enforce the Fair Housing Act through investigations and testing of alleged discriminatory practices.” Additionally, the grants are meant to help provide education on rights and responsibilities under the Fair Housing Act to housing providers, local governments, and potential victims of housing discrimination. HUD’s most recent categories of grants included: (i) Private Enforcement Initiative Grants; (ii) Education and Outreach Initiative Grants; and (iii) Fair Housing Organizations Initiative.