CFPB Revises TILA, RESPA Exam Procedures To Incorporate Integrated Disclosures Rule

The CFPB has revised the chapters of its Supervision and Examination Manual specific to TILA and RESPA, incorporating the TILA/RESPA integrated disclosures (TRID) requirements that are set to take effect on August 1, 2015. These chapters replace versions of the TILA and RESPA procedures released on November 27, 2013.

As is the case for most statute-specific portions of the manual, the TILA and RESPA chapters each contain two parts: a narrative portion outlining the substantive requirements and restrictions of the law and its implementing regulation, and a detailed examination checklist. While neither portion of the new TILA and RESPA chapters sheds much light on the Bureau’s supervisory priorities with respect to early TRID rule exams, the narrative portion of the new TILA chapter does provide a good, high-level summary of the rule, which aggregates the primary text with the relevant commentary. (Because the TRID rule installed disclosure, timing, and other requirements in TILA’s Regulation Z, the new REPSA chapter merely cross-references the narrative portion of the new TILA chapter.)

More importantly, the CFPB’s release of these chapters signals that it has begun, or will shortly begin, intensive examiner training on the rule. The release also may indicate that the CFPB does not intend to delay the effective date of the rule beyond August 1. The industry will likely pursue a statement from the CFPB providing for some type of leniency in enforcement through 2015, and the CFPB’s decision to revise the examination guidance does not preclude it from issuing such a statement.

The narrative portion of the new TILA chapter specific to the TRID rule runs from page 35 through page 50, and the TILA examination procedures specific to the TRID rule run from page 4 through page 42. The narrative portion of the new RESPA chapter specific to the TRID rule is on page 5, and, as discussed above, the RESPA examination procedures include no instructions specific to the TRID rule.

- Ryan J. Richardson 

Third Circuit Rules FDCPA Claims Can Be Based on Foreclosure Complaints

The U.S. Court of Appeals for the Third Circuit recently ruled that foreclosure complaints can be the basis of Fair Debt Collection Practices Act (FDCPA) claims. This decision continues the Third Circuit’s expansive interpretation and application of the FDCPA.

The case was filed as a putative class action by a mortgagor who alleged that a law firm had violated the FDCPA by filing a foreclosure complaint that stated amounts for attorneys’ and other fees that were already due and owing when such fees had not yet actually been incurred (because they related to not-yet-performed services). According to the plaintiff, the complaint violated FDCPA provisions that prohibit debt collectors from using any “false, deceptive, or misleading representations or means in connection with the collection of any debt” or attempting to collect amounts not “expressly authorized by the agreement creating the debt or permitted by law.”

In addition to rejecting the law firm’s argument that FDCPA claims cannot be based on formal pleadings, the Third Circuit also rejected the firm’s arguments that:

  • a complaint is not a communication to the consumer subject to such FDCPA provisions because it is directed to the court; and
  • a foreclosure action cannot be the basis of FDCPA claims because the mortgagor is entitled to other protections under Pennsylvania’s Rules of Civil Procedure.

Reversing the district court’s dismissal of the FDCPA claims, the Third Circuit found that, because the foreclosure complaint plainly indicated that the disputed fees were due in specific amounts on a particular date, the plaintiff had stated a claim that the law firm had misrepresented the amount of the debt in violation of the FDCPA. It also found that the plaintiff had stated a claim that the law firm had attempted to collect unauthorized amounts because the mortgage only allowed the mortgagee to charge for services “performed” in connection with the mortgagor’s default and collect expenses “incurred” in pursuing its lawful remedies.

The plaintiff also alleged that, by misrepresenting or overcharging fees in the foreclosure complaint, the law firm and mortgagee had engaged in deceptive conduct in violation of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (UTPCPL). Under the UTPCPL, a plaintiff must show “ascertainable loss of money or property, real or personal” to establish a claim. According to the plaintiff, because the disputed fees inflated the mortgage lien on his property, he would have had to pay them for a period of time before any services were performed to avoid foreclosure.

Predicting how the Pennsylvania Supreme Court would interpret “ascertainable loss,” the Third Circuit ruled that a plaintiff must show that he or she suffered an actual loss of money or property. Affirming the district court’s dismissal of the UTPCPL claims, the Third Circuit found that the plaintiff had not suffered actual loss because the alleged misrepresentations in the foreclosure complaint never deprived him of his property and he never paid the disputed fees. The Third Circuit also observed that it was speculative whether the plaintiff would have cured his default but for the disputed fees.

The plaintiff also alleged that the lender had violated the UTPCPL by virtue of violating Pennsylvania’s Fair Credit Extension Uniformity Act (FCEUA). (A FCEUA violation constitutes a per se UTPCPL violation.) Affirming the district court’s dismissal of the FCEUA claim, the Third Circuit found that because the FCEUA could be enforced only through the UTPCPL’s private remedy, the plaintiff’s inability to show ascertainable loss meant he could not state a FCEUA claim. Treating the plaintiff’s inability to show ascertainable loss as a failure to plead resultant damages, the Third Circuit also affirmed the district court’s dismissal of the plaintiff’s breach of contract claim against the mortgagee.

In holding that the plaintiff had stated an FDCPA claim based on the foreclosure complaint, the Third Circuit relied on its 2014 decision in McLaughlin v. Phelan Hallinan & Schmieg, LLP. In McLaughlin, the court held that attorneys’ fees and costs in a demand letter that were not clearly disclosed as estimates constituted actionable misrepresentations under the FDCPA. The court also concluded the demand letter constituted a debt collection communication, defining “debt collection” as “activity undertaken for the general purpose of inducing payment.” In its new decision, the Third Circuit applied that broad definition in concluding that a foreclosure complaint can be the basis of FDCPA claims.

- Barbara S. Mishkin

Consent Judgments Entered Against Individuals and Law Firm Accused of Mass-Joinder Mortgage Rescue Scams

Consent judgments in a lawsuit brought by the Florida and Connecticut Attorneys General have been entered against five individuals and one law firm for their part in an alleged “mass-joinder” mortgage rescue scam.  

The lawsuit, filed in the U.S. District Court for the Middle District of Florida and captioned The State of Florida, et al. v. Berger Law Group, P.A., et al. Case No. 8:14-cv-1825-T-30MAP, alleged that eight individuals and five companies, operating under the names Resolution Law Group and Berger Law Group, engaged in a mortgage rescue scam in which they sold homeowners the opportunity to participate in a so-called “mass-joinder” multi-plaintiff lawsuit that would purportedly enable them to avoid foreclosure and obtain loan modifications. As alleged in the complaint, homeowners typically paid a $6,000 upfront fee to join as a plaintiff in a lawsuit and often were required to pay a $500 monthly fee to remain represented in the case. A copy of the Amended Complaint is available here.

The mass-joinder lawsuits would typically involve dozens of homeowners and assert claims against dozens of mortgage lenders and servicers. The allegations of wrongdoing, however, were pleaded very generally, and, in one example of questionable uniformity, often related to the use of the Mortgage Electronic Registration System, Inc. (MERS). Almost all of these and similar mass-joinder suits were abandoned or dismissed at the pleading stages. The AGs’ lawsuit alleged that the defendants almost never obtain the promised results. The suit asserted claims under Florida’s and Connecticut’s unfair trade practices statutes, as well as Sections 1042 and 1097 of the Consumer Financial Protection Act (CFPA)—part of the Dodd-Frank Act—which authorize a state Attorney General to bring civil actions to enforce the CFPA and the federal Mortgage Assistance Relief Services Rules (Regulation O), respectively. The Middle District of Florida entered a temporary restraining order and subsequently a preliminary injunction, freezing certain of the defendants’ assets and placing several of the law firm defendants in receivership. 

The consent judgments, entered between December 2014 and March 2015, permanently enjoin the defendants from engaging in a broad range of mortgage and consumer financial-related services. Specifically, they prohibit any direct or indirect offering or marketing of mortgage assistance relief products and services, debt relief products and services, and any other consumer financial product or service. The consent judgments also impose a permanent ban on telemarketing and commercial telephone solicitation of any kind, as well as a ban on misrepresenting any product or service in violation of Regulation O and Florida's and Connecticut’s unfair trade practice laws. These defendants are further barred from collecting or attempting to collect any payment from any consumer who signed up to participate in a mass-joinder lawsuit. The defendants must comply with ongoing compliance monitoring. The sole law firm to enter into the consent judgment, the Berger Law Group, agreed to remain in receivership. Furthermore, the consent judgments provide for significant monetary penalties, totaling approximately $3.1 million.

For mortgage lenders and servicers defending against the handful of mass-joinder actions pending across the country, these consent judgments offer compelling support for the dismissal of such actions.

- Alan S. Petlak and Melanie J. Vartabedian

CFPB Targets Another Mortgage Lender for Deceptive Advertising

The CFPB has announced the settlement of an enforcement action against a California-based mortgage lender for alleged deceptive advertising practices, including the use of advertisements that the CFPB claimed falsely led consumers to believe that the company was affiliated with the U.S. government. The consent order requires the lender to pay a civil penalty of $250,000.

The lender was alleged to have sent direct mail advertisements to military service members and veterans containing the names and logos of the Department of Veterans Affairs and the Federal Housing Administration in a way that falsely implied that the advertisements were sent by the VA or FHA, or that the advertised mortgage products were endorsed or sponsored by the VA or FHA. The CFPB also alleged that the lender’s advertisements failed to satisfy TILA requirements for advertising variable rate loans and misrepresented interest rates and estimated monthly payments, such as by misleading consumers to believe advertisements were for fixed-rate rather than variable-rate loans.

The CFPB charged the lender with violations of TILA, the CFPA, and Regulation N (the Mortgage Acts and Practices Advertising Rule). Regulation N bars material misrepresentations about the terms of a mortgage product in a commercial communication, including misrepresentations regard the relationship between a credit provider and a government.

In addition to ordering the lender to pay the $250,000 civil penalty and no longer engage in the alleged unlawful practices, the consent order imposes reporting and recordkeeping requirements on the lender.

Earlier this year, the CFPB announced enforcement actions against three mortgage companies for alleged violations of Regulation N resulting from the companies’ alleged wrongful depiction of their affiliation with the U.S. government in direct mail advertisements. Two of the actions were settled through consent orders requiring payments of civil penalties of $225,000 and $85,000.

- Richard J. Andreano, Jr.

North Dakota Creates Exemptions from MLO License


The state of North Dakota has amended sections of the North Dakota Century Code relating to money brokers, collection agencies, money transmitters, and mortgage loan originators. Notably, the modifications create an exemption from the mortgage loan originator licensing requirement for the following two types of individuals: (1) employees of a federal, state, or local government agency or housing finance agency, and (2) employees of a bona fide nonprofit organization. The amendment also clarifies the term “money transmission” to expressly exclude payment processing activities conducted for a merchant under an agency relationship.

The amendments vary from effective immediately to effective on August 1, 2015. The provisions related to the mortgage loan originator licensing exemptions are effective immediately.  

- Marc D. Patterson

Copyright © 2015 by Ballard Spahr LLP.
(No claim to original U.S. government material.)

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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.

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