Mortgage Banking Update
In This Issue:
- Chopra Confirmed as CFPB Director
- This Week’s Podcast: Preparing for the End of COVID-19-Related Hardship Assistance Programs
- CFPB Releases Debt Collection Rule FAQs
- FTC Chair Khan Outlines Priorities in Memo to FTC Commissioners and FTC Staff
- Maryland Revises Evaluation Rules and Offers Alternative Methods of Determining Creditworthiness
- National Defense Authorization Act Amends SCRA to Restrict Use of Arbitration Agreements and Waivers of SCRA Protections
- California Enacts New Requirements for Automatic Subscription Renewals; Ballard Spahr to Hold Oct. 19 Webinar on Subscription Services
- CFPB Section 1071 Proposed Rule on Small Business Lending Data Collection Published in Federal Register
- CBA Urges CFPB to Adopt Larger Participant Rule for Fintech Consumer Lenders
- Did You Know?
For the latest updates on the COVID-19 pandemic visit the Ballard Spahr COVID-19 Resource Center
By a 50-48 party line vote, the U.S. Senate confirmed Rohit Chopra as CFPB Director.
Mr. Chopra’s confirmation clears the way for the White House to move forward on President Biden’s nomination of Alvaro Bedoya to fill Mr. Chopra’s seat as FTC Commissioner and on the President’s nomination of Acting CFPB Director Dave Uejio to serve as Assistant Secretary for Fair Housing and Equal Opportunity at the Department of Housing and Urban Development.
Once he arrives at the CFPB, Mr. Chopra can be expected to name a Deputy Director.
We look at the issues creditors and debt collectors should be considering in preparation for the surge in delinquencies that is expected to occur once consumers are required to fully resume making payments that had been suspended or reduced during the pandemic, including: operational and compliance considerations arising from increased delinquencies, likely sources of regulatory scrutiny, and potential compliance issues that could cause a regulator to initiate enforcement.
Alan Kaplinsky, Ballard Spahr Senior Counsel, hosts the conversation, joined by Chris Willis, Co-Chair of Ballard Spahr’s Consumer Financial Services Group.
Click here to listen to the podcast.
The CFPB has released frequently asked questions on the limited-content message and call frequency provisions of its debt collection rule (Regulation F) that becomes effective on November 30, 2021. While many of the FAQs repeat what is stated in the rule, they do provide some clarifying information which we highlight below.
Limited content message (LMC). As a general matter, the FAQs make clear that any deviance from the LMC “script” will result in the message not being a LMC and in the loss of the safe harbor protection from unauthorized third-party debt disclosure claims. More specifically, the FAQs indicate:
- If a call drops off or is otherwise interrupted while a debt collector is leaving a LMC, the voicemail is not a LMC because the collector did not deliver the entire LCM “script.” The partial message is not, however, a “collection communication” within the meaning of the FDCPA because it does not contain information about a debt. But because the partial message is an attempt to communicate about the debt, it still counts toward the “7-in-7” call attempt limit.
- A debt collector can leave a LCM using a prerecorded message but should be mindful that the message is subject to TCPA requirements for prerecorded messages.
- A Zortman voicemail is not the same as a LMC and therefore does not have the safe harbor from the prohibition against unauthorized third-party debt disclosures.
- Unless otherwise required by state law or licensing regulations, a collector does not have to include its full legal name or registered DBA in a LCM (and may want to avoid doing so if that full name or DBA would reveal the caller is a debt collector). When leaving a LCM, a collector can use abbreviations in its business name so its name does not indicate that it is in the business of collecting debts and the use of abbreviations will not violate the FDCPA requirement to meaningfully disclose the caller’s identity. However, if a state law or licensing regulation requires a collector to use its full legal name or registered DBA when leaving messages for consumers and use of the legal name or DBA indicates that the collector is in the business of debt collection, the voicemail would not be a LCM with a safe harbor from the prohibition against third-party communications.
- A LCM retains its status as a LCM despite the fact that a consumer determines that the caller is a debt collector by researching the business name used by the collector or recognizing the LCM as a communication that generally comes from debt collectors.
Call Frequency. As a general matter, the FAQs make clear that adhering to the “7-in-7” call limit and the 7-day waiting period creates no more than a rebuttable presumption that the collector has not violated the specific FDCPA prohibition against repeated or continuous phone calls or the general FDCPA prohibition against engaging in harassing, oppressive or abusive conduct based solely on the frequency of calls. More specifically, the FAQs indicate:
- Incoming calls from a consumer do not count when determining whether a debt collector has complied with the “7-in-7” limit. However, if the collector has a conversation with the consumer about a debt, the conversation will trigger the 7-day waiting period before placing future calls to that consumer unless the consumer asks to be called back sooner (thereby providing consent that lasts 7 days to place that single return call in response to the consumer’s express request.)
- Consumer consent to a call that would cause the collector to exceed the “7-in-7” limit or make a call before the expiration of the 7-day waiting period lasts only for 7 days even if the consumer agrees to a longer period. Conversely, that consent does not last 7 additional days if the consumer requests a call back during a shorter period of time.
- The presumptions created by the “7-in-7” limit and 7-day waiting period only apply to telephone calls and voicemails left for consumers and not to other media types such as text messages, email, in-person interactions, or social media. Collectors are reminded that the FDCPA’s general prohibition against harassing, abusive, or oppressive communications applies to all communication channels.
- If a debt collector calls a consumer to discuss multiple debts but the consumer does not answer the call and the collector does not leave a voicemail, the debt collector can count the unanswered telephone call as an attempt in connection with the collection of one particular debt (unless an exclusion applies) and does not have to count it as a call attempt as to each debt. (This reinforces the principle that the “7-in-7” limit and the 7-day waiting period apply per debt account and not per consumer.) While not directly stated in the FAQs, it should be noted that if the collector does reach the consumer and discusses multiple debts or mentions multiple debts in a voicemail, the call would count against each account that was discussed or mentioned.
- Factors that can rebut the presumptions of compliance even when a collector adheres to the “7-in-7” limit and the 7-day waiting period include “rapid succession calls” (e.g., 2 unanswered calls to the same telephone number within a short period of time or 2 voicemails being left within a short period of time at the same telephone number), “highly concentrated calls” (e.g. 7 calls to or 7 voicemails left at the same telephone number in one day), as well as concentrating calls “on days that may be less convenient for the consumer (such as Sundays or holidays).”
- In contrast, factors that can rebut a presumption of a violation when a collector exceeds the “7-in-7” limit or makes a call before the expiration of the 7-day waiting period include that the call was: (1) made to comply with or as required by applicable law (e.g., a call made to inform the consumer of mortgage loss mitigation options to comply with Reg. X); (2) directly related to active litigation (e.g., to complete a court-ordered communication or as part of debt settlement negotiations); (3) made in response to a consumer’s request for additional information; or (4) made to give information of benefit to the consumer (e.g., would provide the consumer an opportunity to avoid a clear negative effect relating to the collection of the debt that was not in the collector’s control and where time was of the essence.)
FTC Chair Lina Khan sent a memo this week to the other FTC Commissioners and FTC staff outlining her “vision and priorities” for the agency.
The key statements in her memo relevant for consumer financial services are:
- Use of authorities. In light of the U.S. Supreme Court’s AMG decision, it is particularly critical for the FTC to use its “full set of tools and authorities,” including rulemaking and research in addition to enforcement. (In AMG, the Supreme Court ruled that Section 13(b) of the FTC Act does not authorize the FTC to seek monetary relief such as restitution or disgorgement.)
- Strategic approach. To ensure that the FTC’s efforts are directed at the most significant harms across markets, including those involving marginalized communities, the agency should focus on “power asymmetries” and the unlawful practices that such imbalances enable. Enforcement efforts should be oriented around targeting root causes rather than looking at one-off effects, which means focusing on structural incentives that enable unlawful conduct (i.e., conflicts of interest, business models, or structural dominance) as well as looking upstream at the firms that are enabling and profiting from this conduct. The FTC should be particularly attentive to next-generation technologies, innovations, and nascent industries so that the FTC can quickly target unfair practices.
- Policy priorities. The FTC will take aim at how certain contract terms, particularly those that are imposed in “take-it-or-leave-it” contracts, constitute unfair or deceptive practices.
- Operational objectives. The FTC should move away from existing “siloes” between competition and consumer protection and take an integrated approach to its cases, rules, research, and other policy tools. This approach can reveal interconnections between conditions that give rise to antitrust and consumer protection violations.
It is not surprising that Chair Khan would want to pursue greater use of the FTC’s rulemaking authority in the wake of AMG. For violations of consumer protection rules issued under Section 18 of the FTC Act, the FTC can file actions in federal district court seeking either consumer redress under Section 19 or civil penalties under Section 5(m)(1)(A) of the FTC Act.
At her first FTC meeting in July 2021, Chair Khan paved the way for increased use of the FTC’s rulemaking authority with the Commission’s approval (by a 3-2 vote) of changes to the FTC’s rulemaking process. Pursuant to the 1975 Magnuson-Moss Warranty Act, instead of using the Administrative Procedure Act rulemaking process, the FTC must follow specific procedures for the promulgation of trade regulation rules under Section 18 of the FTC Act. Section 18 authorizes the FTC to prescribe “rules which define with specificity acts or practices which are unfair or deceptive acts or practices in or affecting commerce.” Further procedural requirements were imposed on the FTC’s Section 18 rulemaking by the Federal Trade Commission Improvement Act of 1980 and Rules of Practice adopted by the FTC.
Among other changes, under the agency’s revised Rules of Practice approved in July, the FTC Chair, instead of the Chief Administrative Law Judge, serves as or designates the Presiding Officer for rulemaking proceedings and the Commission is given more control over the hearing process.
In her memo, Chair Khan also announced her intention to name Samuel Levine as Director of the Bureau of Consumer Protection and she officially did so this week. Mr. Levine had been serving as Director in an acting capacity since June 2021. He first worked in the FTC’s Midwest Regional office and then became an attorney advisor to Commissioner Rohit Chopra in the FTC’s D.C. office. Before joining the FTC, Mr. Levine worked for the Illinois Attorney General.
- Kim Phan
Maryland has enacted legislation that revises the rules of determining creditworthiness. On May 30, 2021, Gov. Lawrence J. Hogan (R) signed HB1213 into law, which adds to Maryland Code Ann. Financial Institutions (FI) § 1-212.
Effective October 1, 2021, certain financial institutions (banking institutions, credit unions, savings and loan associations, community development financial institutions, and certain credit grantors) must adhere to the rules concerning evaluations of applications under federal law, specifically 12 C.F.R. § 1002.6. The affected financial institutions will also be required to consider the following as verifiable alternative indications of potential creditworthiness:
- History of rent or mortgage payments;
- History of utility payments;
- School attendance; and
- Work attendance.
Additionally, if an applicant requests, the financial institution must consider other verifiable alternative indications of creditworthiness presented by the applicant.
While there is no further indications of what constitutes “school attendance” or “work attendance”, this likely refers to measuring school or work attendance in the context of a component being evaluated. For example, a creditor may have to consider work attendance if the creditor is evaluating each component of the applicant’s income for reliability, such as assessing the probable continuance of employment income. Similarly, a creditor making student loans might have to consider school attendance if the creditor is assessing the likelihood of graduation.
The Maryland Department of Labor has stated here that entities subject to this legislation should be prepared to comply with these requirements starting on the effective date of October 1, 2021. This includes integration of the requirements into risk and compliance frameworks by establishing sufficient policies, procedures and control to ensure compliance with the changes to the rules.
This law is similar to other established state laws that require creditors to consider other information submitted by applicants. (See 815 Ill. Comp. Stat. Ann. 120/4, and Nev. Rev. Stat. Ann. § 604A.5038). Similarly, this law doesn’t require a creditor to change its underwriting standards. So while creditors will be required to consider information of this nature when provided by applicants, we do not think the practical impact of the legislation will be very large.
In addition to amendments to the Fair Credit Reporting Act dealing with the reporting of adverse information on servicemembers by consumer reporting agencies, the National Defense Authorization Act (NDAA) as passed by the House and now headed to the Senate includes amendments to the Servicemembers Civil Relief Act that restrict the use of arbitration agreements and waivers of SCRA protections.
Arbitration. The NDAA adds a new provision to the SCRA that requires post-dispute written consent to use arbitration “whenever a contract with a servicemember, or a servicemember and the servicemember’s spouse jointly, provides for the use of arbitration to resolve a controversy subject to a provision of [the SCRA] and arising out of or relating to such contract.” All parties to the dispute must give such written consent. The requirement applies to all contracts “entered into, amended, altered, modified, renewed, or extended after the date of the enactment of [the NDAA].”
The Military Lending Act, which applies to certain loans made to servicemembers already on active duty, prohibits the use of mandatory arbitration agreements in loans covered by the MLA. The proposed SCRA amendment would round out that protection by restricting the enforcement of arbitration provisions against active duty service members where the underlying agreement was made before the start of active duty service. (The SCRA’s coverage, however, is broader than the MLA. The MLA applies to loans covered by TILA, with exceptions for purchase money loans and mortgages, while the SCRA covers a wide range of obligations, not just loans.)
Waivers. The SCRA allows a servicemember to waive SCRA protections and generally requires that for a waiver to be effective, (1) it must be in writing and (2) the waiver agreement must be separate from the document creating the obligation or liability to which the waiver applies and executed during or after the servicemember’s period of military service.
The NDAA amends the SCRA’s waiver provision to add the requirement that for a waiver to be effective, it must be agreed to after a specific dispute has arisen and must identify the dispute. The amendment applies to waivers made on or after the date of the NDAA’s enactment.
On October 4, California Governor Gavin Newsom signed into law amendments to California’s existing law on automatic subscription renewals. The law applies to all businesses that make automatic renewal or continuous services offers to California consumers. The amendments are effective July 1, 2022.
The amendments include new notice requirements that apply:
- When a consumer accepts a free gift or trial lasting more than 31 days that was included in an automatic renewal or continuous service offer or accepted an automatic renewal or continuous service offer at a promotional or discounted price that applies for more than 31 days. In these situations, the notice must be provided at least 3 days before and at most 21 days before the expiration of the period for which the fee gift or trial, or promotional or discounted price, applies.
- When the consumer accepts an automatic renewal or continuous service offer with an initial term of one year or longer that automatically continues unless the consumer cancels. In those cases, the notice must be provided at least 15 days and not more than 45 days before the automatic renewal offer or continuous service offer renews.
An offer is exempt from the notice requirement if the consumer does not enter into the contract electronically, and the business has not collected or maintained the consumer’s email address, phone number, or other means of notifying the consumer electronically. The amendments provide that a “free gift” does not include a free promotional item or gift given by the business that is different from the subscribed product.
The amendments specify the information that must be included in the notice. Prior to the amendments, California law required businesses that allow consumers to accept an automatic renewal or continuous service offer online to also allow a consumer to terminate the service exclusively online. The amendments provide that the consumer must be able to terminate the service online “without engaging in any further steps that obstruct or delay the consumer’s ability to terminate the automatic renewal or continuous service immediately.” They also provide that the business must provide a termination method that is either online in the form of a prominently located direct link or button or an immediately accessible termination email that a consumer can send to the business without further information.
On October 19, 2021, from 2 p.m. to 3 p.m. ET, Ballard Spahr will hold a webinar, “Pitfalls of Using Subscription Services in the Consumer Financial Services Industry.” Click here for more information and to register.
- Kim Phan
More than a month after it was issued, the CFPB’s notice of proposed rulemaking (NPRM) to implement Section 1071 of the Dodd-Frank Act was published in the Federal Register on Friday, October 8. Section 1071 amended the ECOA to require financial institutions to collect and report certain data in connection with credit applications made by women- or minority-owned businesses and small businesses.
The publication of the NPRM starts the clock running on the 90-day comment period. Comments must be filed by January 6, 2022.
The Consumer Bankers Association has sent a letter to Rohit Chopra, the incoming CFPB Director, in which it urges the CFPB to adopt a larger participant rule for fintech consumer lenders.
Under the Dodd-Frank Act, in addition to authority to supervise nonbank entities in the residential mortgage, private student lending, and payday lending markets, the CFPB has authority to supervise nonbank entities considered to be “a larger participant of a market for other consumer financial products or services.” The CFPB has used its larger participant authority to issue rules for consumer reporting, consumer debt collection, student loan servicing, and international money transfers.
In its letter, CBA asserts that a rule for the unsecured consumer lending market is appropriate because “non-supervised fintechs offer financial products and services to consumers in numbers that rival some of the country’s largest supervised banks, but operate outside of the supervisory framework that allows the Bureau to monitor their activities and consumer harm.” CBA contends that non-supervised fintech lenders pose a “threat to consumers.”
However, if the CFPB were to adopt a larger participant rule for nonbank unsecured consumer lenders, such a rule is unlikely to single out fintechs or online lenders. Such a rule would likely cover all unsecured consumer lenders regardless of whether they operate online, through brick and mortar stores, or both.
Indeed, the CFPB has previously indicated in its semi-annual rulemaking agendas that it was considering larger participant rules “in markets for consumer installment loans and vehicle title loans for purposes of supervision.” In the CFPB’s Spring 2018 rulemaking agenda issued under the leadership of former Acting Director Mulvaney, the CFPB’s larger participant rulemaking was designated “inactive.” The agenda stated that the change in designation was “not intended to signal a substantive decision on the merits of the projects.” The CFPB’s Fall 2021 rulemaking agenda could shed light on the whether the “new CFPB” under the Biden Administration plans to return this initiative to active status and if so, what its timetable is for moving forward.
Highlights from the NMLS Ombudsman Meeting
The fall NMLS Ombudsman Meeting was held on September 30. A recording of the meeting is available here.
NMLS Policy Guidebook Updates Available
An updated version of the NMLS Policy Guidebook has been posted to the NMLS Resource Center.
The NMLS Policy Guidebook was updated to clarify that the main address listed on a company’s record must be the principal executive office where the company’s key individuals (such as control persons) direct, control, and coordinate the company’s activities. In addition, the new language provides that if no licensable activity is being conducted at the main address, then the operations hub for the licensee may be listed as the main address.
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