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  • DOJ proposes SCRA settlement for auto lender

    Federal Issues

    On March 6, the DOJ announced it reached a proposed $80,000 settlement with a California-based indirect auto lending company for allegedly repossessing servicemembers’ vehicles in violation of the Servicemembers Civil Relief Act (SCRA). As previously covered by InfoBytes, the DOJ filed a lawsuit against the company in March 2018, alleging that an investigation revealed the company failed to have policies or practices in place to verify borrowers’ military status before repossessing vehicles. As such, the DOJ argued that the defendant may have repossessed vehicles of other servicemembers without obtaining the necessary court orders or verifying military status. The investigation was triggered after an Army Private submitted a complaint about the company to the DOJ in 2016. The proposed consent order would require the company to pay a $50,000 civil penalty and issue $30,000 in compensation to a different Army Specialist, whose credit, according to the DOJ, was severely damaged as a result of a repossession by the company. In addition, the company would be required to develop policies and procedures to ensure compliance with the SCRA in the future. The consent order has not yet been approved by the court.

    Federal Issues DOJ Consumer Finance Servicemembers SCRA Repossession Settlement

  • Senate Democrats: CFPB already has authority to supervise for MLA

    Federal Issues

    On March 5, U.S. Senate Democrats issued a letter urging CFPB Director, Kathy Kraninger, to resume reviews for compliance with the Military Lending Act (MLA) during routine lender examinations. The Senators argue that the existing statutory authorities for the Bureau “are more than sufficient to justify including MLA compliance in routine examinations,” in an apparent response to Kraninger’s January request to Congress to grant the Bureau “clear authority” to conduct the examinations. (Covered by InfoBytes here.) The Senators cite to Section 1024(b)(1)(C) of the Dodd-Frank Act, which states that the Bureau “shall require reports and conduct examinations on a periodic basis . . . for purposes of . . . detecting and assessing risks to consumers and to markets for consumer financial products and services,” and asserts that charging servicemembers and their families more than 36 percent in violation of the MLA is “clearly a risk” to consumers. Concluding that the CFPB has all the authority it needs to include the MLA in routine examinations, the Senators request the Bureau provide a full justification of the leadership’s decision to not review for compliance with the MLA by March 8.

    Federal Issues CFPB Military Lending Military Lending Act Supervision Compliance U.S. Senate Examination

  • FTC seeks comments on Safeguards and Privacy rules

    Federal Issues

    On March 5, the FTC released proposed amendments to two rules that protect the privacy and security of customer data held by financial institutions. The agency seeks comments on proposed changes to the Safeguards Rule and the Privacy Rule under the Gramm-Leach-Bliley Act. The Safeguards Rule requires financial institutions to develop, implement, and maintain comprehensive information security programs, whereas the Privacy Rule requires financial institutions to notify customers about information-sharing practices, as well as enable customers to opt out of sharing their information with certain third parties. The FTC’s proposed amendments to the Safeguards Rule would, among other things, add more detailed requirements for financial institutions, including mandatory encryption of customer data and the use of multi-factor authentication to prevent unauthorized access to customer information. The proposed amendments to the Privacy Rule would change the rule to account for statutory changes in the Dodd-Frank Act, which gave the majority of the FTC’s rulemaking authority for the Privacy Rule to the CFPB with the exception of certain motor vehicle dealers. The agency plans to remove examples of financial institutions that do not apply to motor vehicle dealers, as well as clarify when annual customer privacy notices must be provided. In addition, the FTC proposes to expand the definition of “financial institution” in both rules to include “finders,” which include persons or entities that charge a fee to introduce consumers to a lender.

    Federal Issues FTC Consumer Finance Privacy/Cyber Risk & Data Security Gramm-Leach-Bliley Safeguards Rule Privacy Rule Dodd-Frank

  • New Jersey appellate court affirms dismissal of lease fraud claims against auto financier

    Courts

    On March 1, the Superior Court of New Jersey Appellate Division affirmed a lower court’s order granting summary judgment to an auto finance company and dismissing with prejudice a plaintiff’s New Jersey Consumer Fraud Act (CFA) and Fair Credit Reporting Act (FCRA) claims. According to the opinion, the plaintiff entered into a lease agreement for a vehicle serviced by the defendant. The plaintiff, who incurred late charges on 35 of her 39 monthly payments of $300, returned the vehicle before the end of the lease and was required to pay a $495 vehicle return fee, along with wear and tear fees and late charges. The plaintiff subsequently entered into a new lease transaction, in which the dealership agreed to pay the defendant the outstanding payments on her old lease, but did not, according to the court, waive the vehicle return fee. The dealership paid the full balance to the defendant after the plaintiff received notification about an overdue lease payment, and the day after the dealership’s payment was applied, the plaintiff paid an additional $300—which was mistakenly applied to a $395 disposition fee, as opposed to the larger vehicle return fee. The plaintiff made a final payment of $655 to settle the balance of the disposition fee as well as wear and tear fees and late charges. A complaint was filed later by the plaintiff against the defendant alleging that it fraudulently procured an additional $300 lease payment and falsely reported that she was delinquent on payments.

    Affirming the lower court, the appeals court concluded that the defendant’s representations regarding the outstanding $300 payment were accurate and, under the lease terms, the plaintiff remained responsible for the vehicle return and wear and tear fees. In addition, the appeals court held that the plaintiff’s FCRA claim failed because the record confirmed that within 30 days of being notified of a dispute with the plaintiff’s credit score, the defendant conducted an investigation and requested that the credit reporting agencies remove the “late marks.”

    Courts Appellate State Issues Auto Finance FCRA

  • District Court cites 9th Circuit, holds Fannie Mae is not a CRA

    Courts

    On February 26, the U.S. District Court for the Northern District of California granted summary judgment in favor of Fannie Mae in an action brought by a consumer alleging that Fannie Mae violated the California Consumer Credit Reporting Agencies Act (CCCRA) and the Fair Credit Reporting Act (FCRA) by prohibiting lenders from providing consumers a copy of Fannie Mae’s Desktop Underwriter (DU) report. According to the opinion, two years after completing a short sale on his previous home, a consumer sought a mortgage with three lenders. One lender used Fannie Mae’s DU program to determine if the loan would be eligible for purchase by the agency, but the DU report listed his prior mortgage loan as a foreclosure rather than a short sale. The lender ultimately denied the application, rather than manually underwrite it. Upon reviewing Fannie Mae’s motion for summary judgment, the court noted that in order for the consumer to succeed on his CCRA and FCRA claims, he must establish Fannie Mae is a credit reporting agency. The court rejected the consumer’s attempts to distinguish his case from the recent 9th Circuit decision in Zabriskie v. Fed. Nat’l Mortg. Ass’n, which held that Fannie Mae was not a credit reporting agency under the FCRA. (Covered by InfoBytes here.) The court acknowledged that even though Fannie Mae may have problems with its foreclosure recommendations in the DU system, it does not undercut the conclusion that Fannie Mae operates the DU system to assist lenders in making purchasing decisions, does not “regularly engage[] in . . . the practice of assembling or evaluating” consumer information, and therefore, is not a credit reporting agency.

    Courts Fannie Mae Credit Reporting Agency FCRA Ninth Circuit Appellate Foreclosure

  • CFPB seeks comments on PACE financing

    Agency Rule-Making & Guidance

    On March 4, the CFPB issued an Advance Notice of Proposed Rulemaking (ANPR) on Property Assessed Clean Energy (PACE) financing, which often takes the form of loans to facilitate residential solar energy and other home improvement projects. The ANPR was issued in response to Section 307 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, which amended TILA to mandate the CFPB propose regulations related to PACE financing. Specifically, the regulations are required to carry out the purposes of TILA’s ability-to-repay requirements and apply TILA’s general civil liability provisions for violations, accounting for the “unique nature” of the transaction. In addition to seeking feedback on the unique features of PACE financing and the general implications of regulating PACE financing under TILA, the ANPR also requests commenters (i) provide samples of any written materials used in PACE financing transactions; (ii) describe the current standards and practices in PACE financing origination, including application information obtained and underwriting standards used; and (iii) identify parties in a PACE financing transaction to whom civil liabilities may apply, including information related to any rescission rights and loss mitigation programs available upon borrower default. Comments must be submitted within 60 days after publication in the Federal Register.

    Agency Rule-Making & Guidance CFPB PACE Programs ANPR Federal Register TILA EGRRCPA

  • OFAC sanctions Venezuelan security officials connected to Maduro regime

    Financial Crimes

    On March 1, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions against six Venezuelan security officials connected to former President Maduro’s “illegitimate regime.” According to OFAC, the sanctions, taken pursuant to Executive Order 13692, designate the individuals in response to actions taken by groups under their control that have obstructed the delivery of humanitarian aid. As a result, any assets or interests therein belonging to the identified individuals, as well as any entities directly or indirectly owned 50 percent or more by such individuals that are subject to U.S. jurisdiction are blocked and must be reported to OFAC. U.S. persons are also prohibited generally from dealing with any such property or interests. OFAC also refers financial institutions to Financial Crimes Enforcement Network advisories FIN-2017-A006 and FIN-2017-A003 for further information concerning the use of the U.S. financial system and real estate market by Venezuelan government agencies and individuals to launder corrupt proceeds.

    See here for continuing InfoBytes coverage of actions related to Venezuela.

    Financial Crimes OFAC Department of Treasury Venezuela Sanctions

  • CFPB analyzes first-time homebuying data for servicemembers

    Lending

    On March 1, the CFPB released its latest Quarterly Consumer Credit Trends report titled, “Mortgages to First-time Homebuying Servicemembers,” which analyzes mortgages made to first-time homebuying active duty servicemembers and veterans (collectively defined as “servicemembers”). The report, using data from the Bureau’s Consumer Credit Panel (CCP) supplemented with data on military service, offers information on the mortgage choices and mortgage performance outcomes of servicemembers who bought homes between 2006 and 2016. Key findings include:

    • The share of first-time homebuying servicemembers using the U.S. Department of Veterans Affairs (VA) guaranteed home loan program significantly increased, from 30 percent before 2007 to 63 percent in 2009. By 2016, 78 percent of servicemembers relied on a VA mortgage for their first home loan.
    • Conventional mortgages, which accounted for approximately 60 percent of loans among first-time homebuying servicemembers in 2006 and 2007, declined to 13 percent by 2016. During this period, the use of conventional mortgages among non-servicemembers also decreased, as the use of FHA and U.S. Department of Agriculture (USDA) increased.
    • In 2016, the median servicemember first-time homebuyer VA loan amount was $212,000, increasing from $156,000 in 2006.
    • Early delinquency rates for nonprime servicemember first-time VA-loan borrowers decreased from an average of 5 percent to 7 percent in 2006 and 2007 to slightly above 3 percent in 2016. Notably, early delinquency rates were lower for active duty VA-loan borrowers than for veteran VA-loan borrowers.

    Lending CFPB Military Lending Servicemembers Mortgages Department of Veterans Affairs FHA Department of Agriculture

  • Wyoming law classifies digital assets as personal property

    State Issues

    On February 26, the Wyoming Governor signed SF 125, which classifies digital assets, including virtual currency, as personal property. Specifically, the bill divides digital assets into three categories of intangible personal property within the existing Wyoming Uniform Commercial Code: (i) digital consumer assets are considered “general intangibles”; (ii) digital securities are considered “intangible personal property” and classified as securities and investment property; and (iii) virtual currency is classified as money. Among other things, SF 125 also establishes an opt-in framework for banks to provide custodial services for digital assets as custodians (and authorizes supervision fees for banks that provide such services), and clarifies the jurisdiction of Wyoming courts to hear claims related to digital assets.

     

    State Issues State Legislation Virtual Currency Securities Fintech

  • District Court finds telephone numbers did not overshadow debt validation notice

    Courts

    On February 28, the U.S. District Court for the District of New Jersey dismissed a putative class action alleging a debt collector violated the FDCPA by sending a collection letter, which allegedly failed to properly notify the plaintiff of his right to dispute the debt. According to the opinion, the collection agency sent a one-page collection letter notifying him that a dispute must be in writing. The letter also contained two telephone numbers and requested the consumer call with any questions or concerns. In his complaint, the consumer argued that the inclusion of the phone numbers and request for telephone contact, “overshadows or contradicts” the debt dispute notice required by law. The collection agency moved for judgment on the pleadings and dismissal, arguing that the consumer failed to state a legal claim under the FDCPA. The court agreed, stating that “nothing about the form of the letter overshadows or contradicts the information in the validation notice.” Specifically, the sentence that requested the consumer call the collection agency does not mention disputing the debt, and the only reference to disputing the debt is in the standard validation notice one paragraph below, which specifies it must be done in writing. Because the consumer’s FDCPA claims failed, the court entered judgment and dismissed the action.

    Courts FDCPA Debt Collection Debt Verification

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