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District Court holds FCRA preempts state law claims
On February 8, the U.S. District Court for the Western District of North Carolina dismissed a consumer’s state law claims under the North Carolina Unfair and Deceptive Trade Practices Act and civil conspiracy claims because they were preempted by the FCRA. According to the opinion, which affirmed and adopted a Magistrate Judge’s recommendation, and also allowed the consumer’s FDCPA claims to proceed, the consumer alleged the furnisher improperly filed delinquencies on his credit report, wrongfully refused to remove the delinquencies, and improperly handled the investigation of his claims. The consumer had objected to the Magistrate’s conclusions with regard to the state law claims, arguing that the FCRA preemption was not applicable because the unfair and deceptive conduct occurred after the furnisher allegedly reported inaccurate information to the credit bureaus. The district court rejected this argument, concluding that the state law claims “run [] into the teeth of the FCRA preemption provision” and are “squarely preempted” by the federal statute.
FDIC issues 2018 annual report
On February 14, the FDIC released its 2018 Annual Report, which includes, among other things, the audited financial statements of the Deposit Insurance Fund and the Federal Savings and Loan Insurance Corporation (FSLIC) Resolution Fund. The report also provides an overview of key FDIC initiatives, performance results, and other aspects of FDIC operations, supervision developments, and regulatory enforcement. Highlights of the report include: (i) the FDIC’s efforts to adopt and issue proposed rules on key regulations under the Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA); (ii) efforts to strengthen cybersecurity oversight and help financial institutions mitigate cyber risk; (iii) supervision focus on Bank Secrecy Act/Anti-Money Laundering compliance; and (iv) financial institution letters providing regulatory relief to institutions affected by natural disasters. The report also highlights the FDIC’s monitoring of financial technology developments through its various research groups and committees to better understand how technological efforts may affect the financial market. Lastly, the report covers the agency’s efforts to encourage de novo bank applications, including the December 2018 request for information soliciting comments on the deposit insurance applications process (covered by InfoBytes here).
VA Circular clarifies rules on cash-out refis
On February 14, the Department of Veterans Affairs (VA) released Circular 26-19-05 (and on February 15, accompanying Change Circular 26-19-05) to clarify the VA’s interim final rule regarding VA-guaranteed cash-out refinancing loans, which was released in December 2018 and became effective on February 15. The interim final rule was previously covered by InfoBytes. Among other things, the Circular provides clarification regarding (i) the Net Tangible Benefit test; (ii) the contents of the loan comparison and home equity disclosures (including sample 3-day and final loan closing disclosures); (iii) the loan seasoning requirements, including a new obligation that, for loans refinanced within 1 year of the original closing date, lenders obtain a payment history/ledger documentating all payments, unless a credit bureau supplement clearly identifies all payments made in that timeframe; and (iv) the manner by which lenders should calculate fee recoupment.
OFAC sanctions Iranian entities and individuals supporting intelligence gathering and cyber targeting of U.S. persons
On February 13, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions against an Iran-based entity and four affiliated Iranian individuals for their alleged roles in providing support for the Islamic Revolutionary Guard Corps-Qods Force’s (IRGC-QF) efforts to recruit and collect intelligence from foreign attendees of international conferences, including facilitating contact between the IRGC-QF and U.S. persons. According to OFAC, the sanctions were issued pursuant to Executive Order 13224, which authorizes “the U.S. government to designate and block the assets of foreign individuals and entities that commit, or pose a significant risk of committing, acts of terrorism.” The same day, OFAC also sanctioned a separate Iran-based entity and six associated individuals, pursuant to Executive Order 13606, for their alleged involvement in the cyber targeting of current and former U.S. government and military personnel, in an effort to gain access to their computer systems and implant malware.
As a result of the OFAC sanctions, all property and interests in property belonging to the identified individuals and entities and subject to U.S. jurisdiction are blocked, and U.S. persons are generally prohibited from entering into transactions with the individuals and entities. Additionally, OFAC notes that “any foreign financial institution that knowingly facilitates a significant transaction or provides significant financial services for any of the persons designated today pursuant to E.O. 13224 or that are Iranian persons on OFAC’s list of Specially Designated Nationals and Blocked Persons . . . could be subject to U.S. correspondent account or payable-through sanctions.”
Visit here for additional recent InfoBytes coverage of actions related to Iran.
D.C. Mayor establishes sandbox and innovation council
On February 11, the District of Columbia Department of Insurance, Securities and Banking announced the formation of the District of Columbia Financial Services Regulatory Sandbox and Innovation Council. The Council, which will examine the feasibility of implementing a financial services regulatory sandbox in the District, will also “develop a blockchain and innovation regulatory framework to facilitate financial services innovation in the District.” D.C. Mayor Bowser, who established the Council in January, has directed the advisory group to review barriers that fintech, insurtech, regtech, and other technology companies face when attempting to bring innovative services to the District, and to evaluate how these impediments can be mitigated or eliminated to foster innovation, including making recommendations for ways to reduce the regulatory burden on financial services providers that impede innovation. Among other things, the Mayor also has tasked the Council with studying the potential dangers regulatory sandboxes pose to consumers and the possible safeguards to such dangers. The Council—whose membership will include a cross section of professionals from the insurance, securities, banking, and lending industries; consumer representatives; technology industry members; and individuals specializing in financial services regulation and the captive insurance industry—will report legislative, programmatic, and policy recommendations to the Mayor within the first six months after its initial meeting.
Democratic AGs object to CFPB sandbox
On February 11, a coalition of 22 Democratic state Attorneys General responded to the CFPB’s proposed policy on No-Action Letters (NAL) and a new federal product sandbox, pushing back on the Bureau’s efforts to provide relief to financial institutions looking to implement new consumer financial products or services. (InfoBytes coverage on the proposal available here.) The Attorneys General argued that the Bureau “has no authority to issue such sweeping immunity absent formal rulemaking” and urged the Bureau to rescind the proposals, which the Bureau had stated were exempt from the notice and comment procedures of the Administrative Procedures Act.
In addition to challenging the Bureau’s authority to establish these policies, the Attorneys General asserted specific concerns with the NAL proposal, including (i) the fact that the proposed NAL policy would make NALs binding on the CFPB indefinitely; (ii) the streamlined application process and 60-day decision window, potentially causing the Bureau to render hasty, uninformed decisions; and (iii) the proposed NAL policy’s purported deviations from the policies of other federal agencies, such as the SEC.
As for the new product sandbox, the Attorneys General viewed the proposed policy as “even more troubling” than the NAL proposal, as it provides immunity from “enforcement actions by any Federal or State authorities, as well as from lawsuits brought by private parties.” The Attorneys General rejected the Bureau’s contention that the statutory safe harbors in TILA, ECOA, and the EFTA grant the authority to provide the broad enforcement relief and accused the Bureau of “abandoning its critical role in monitoring the risk that new and emergency technologies post to consumers in the financial marketplace.”
7th Circuit vacates class decertification decision in auto finance lawsuit
On February 13, the U.S. Court of Appeals for the 7th Circuit vacated a lower court’s decision to rescind class certification for a group of automotive dealerships (plaintiffs), concluding the lower court did not provide a sufficiently thorough explanation of its decision for the appeals court to reach a decision. According to the opinion, the plaintiffs were granted class certification of breach of contract and RICO claims, among others, brought against an inventory financing company for allegedly improperly charging interest and fees on credit lines before the money was actually extended by the company for the automobile purchases. The company had moved the district court to reconsider the class certification, arguing the plaintiffs admitted the financing agreements were ambiguous on their face, and therefore extrinsic evidence on an individual basis would be required to establish the parties’ intent. In response, the plaintiffs had argued that patent ambiguity in the contract does not require consideration of extrinsic evidence and individualized proof. The district court had agreed with the company, concluding that “ambiguity in the contracts requires consideration of extrinsic evidence, necessitates individualized proof, and undermines the elements of commonality and predominance for class certification.”
On appeal, the 7th Circuit concluded the denial of class certification lacks “sufficient reasoning” to ascertain the basis of the decision, noting that while the original decision to grant certification was a “model of clarity and thoroughness,” the decision to withdraw certification provides only a conclusion. Moreover, the appellate court concluded that the mere need for extrinsic evidence does not in itself render class certification improper and therefore the court needed a more thorough explanation of its reasoning to decertify the class.
District Court: New Jersey licensing requirements apply to debt collector
On February 11, the U.S. District Court for the District of New Jersey denied a motion to dismiss a putative class action against a debt collector and its legal counsel, holding that the plaintiff debtor made a plausible claim under the FDCPA that the debt collector was required by New Jersey’s Consumer Financing Licensing Act (NJCFLA) to be licensed as a consumer lender. According to the opinion, the plaintiff had defaulted on his credit card debt and, nine years later, received a letter from the defendant’s legal counsel seeking payment of the balance due. The plaintiff filed a proposed class action arguing that the letter violated the FDCPA because the debt collector had not been licensed with the New Jersey Department of Banking and Insurance prior to purchasing the debt, and therefore lacked the authority to collect on the debt. The defendant debt collector moved to dismiss the complaint, claiming, among other things, that it was exempt from the licensing requirements because it did not qualify as a “consumer loan business” under the NJCFLA. The debt collector argued that it never exceeded the state’s interest rate cap and therefore was exempt from the licensing requirements. However, the plaintiff argued that the defendant’s licensing violation arose from a second part of the “consumer loan business” definition, under which the licensing requirements apply because the defendant “directly or indirectly engag[es] . . . in the business of buying. . . notes.” The district court agreed with the plaintiff, stating that “[t]his statutory language does not narrow the category of lenders falling under that definition according to the interest rates that they charge.”
Mortgage lender settles FCA allegations
On February 13, the U.S. Attorney for the Eastern District of California announced a $3.67 million joint settlement with HUD and the Fair Housing Administration (FHA) to resolve allegations that a mortgage lender violated the False Claims Act by falsely certifying compliance with FHA mortgage insurance requirements. According to the settlement agreement, between 2007 and 2009, the mortgage lender, a participant in HUD’s Direct Endorsement Lender program, allegedly knowingly submitted false claims to the FHA loan insurance program by failing to ensure the loans qualified for FHA insurance when they were originated. The announcement notes that the settlement relates solely to allegations, and that there has been no determination of actual liability by the mortgage lender, which did not admit to liability in the settlement.
CFPB releases semi-annual report to Congress
On February 12, the CFPB issued its semi-annual report to Congress covering the Bureau’s work from April 1, 2018, through September 30, 2018. The report, which is required by the Dodd-Frank Act, addresses issues including problems faced by consumers with regard to consumer financial products or services; significant rules and orders adopted by the Bureau; and various supervisory and enforcement actions taken by the Bureau when acting Director Mick Mulvaney was still in office. The report is the first to be released under Kathy Kraninger, who was confirmed as Director in December 2018. In her opening letter, Kraninger emphasized that during her tenure the Bureau will “vigorously and even-handedly enforce the law,” and will make sure the financial marketplace “is innovating in ways that enhance consumer choice.” Among other things, the report focuses on credit invisibility and mortgage shopping as two significant problems faced by consumers, noting that credit invisibility among adults tends to be concentrated in rural and highly urban areas and, based on recent studies, more than 75 percent of borrowers report applying for a mortgage with only one lender.
The report also includes an analysis of the efforts of the Bureau to fulfill its fair lending mission. The report highlights the most frequently cited violations of Regulation B (ECOA) and Regulation C (HMDA) in fair lending exams during the reporting period and emphasizes that during the reporting period the Bureau did not initiate or complete any fair lending public enforcement actions or refer any matters to the DOJ with regard to discrimination.