FTC Provides 2015 Enforcement Report to CFPB

The Federal Trade Commission (FTC) has provided its annual report to the Consumer Financial Protection Bureau (CFPB) covering the FTC’s enforcement activities in 2015 related to compliance with Regulation Z (Truth in Lending), Regulation M (Consumer Leasing), and Regulation E (Electronic Fund Transfers). Under Dodd-Frank, the FTC retained its authority to enforce these regulations with respect to entities within its jurisdiction. The FTC and CFPB coordinate their enforcement and related activities pursuant to a MOU entered into in 2012 and reauthorized in 2015.

Reg Z/TILA. The FTC’s enforcement activities included one federal court action involving alleged deceptive advertising by an auto dealer, five consent orders in administrative actions settling deceptive advertising claims against auto dealers, and two consent orders in administrative actions settling deceptive advertising claims by auto title lenders (representing the FTC’s first actions against such lenders). Other TILA-related enforcement activities included a stipulated order in a federal court action against two online payday lenders settling claims that the lenders gave inaccurate TILA disclosures to borrowers and a final judgment in one federal court action and continued litigation in two other federal court actions against companies providing mortgage assistance relief services (including alleged forensic audit scams in which the providers offered, for a fee, to review or audit mortgage documents of distressed homeowners to identify legal violations).

Reg M/Consumer Leasing. The FTC’s enforcement actions included proposed or final consent orders in administrative actions against three auto dealers to settle deceptive advertising claims.

Reg E/EFTA. The FTC’s enforcement actions included three federal court actions involving negative option plans in which the defendants are alleged to have debited consumers’ accounts without obtaining proper written authorization and a consent order in a federal court action against two online payday lenders settling claims that the lenders conditioned the extension of credit on preauthorized transfers.

- Barbara S. Mishkin

Modernize TCPA, ACA International Urges in White Paper

In a new white paper, ACA International, a trade association for members of the credit and collection industry, argues that the Telephone Consumer Protection Act (TCPA) must be modernized to accurately reflect the current state of communications technologies and how those technologies are used by businesses and consumers. The white paper, "The Imperative to Modernize the TCPA: Why an Outdated Law Hurts Consumers and Encourages Abusive Lawsuits," demonstrates that the dramatic increase in TCPA litigation is a manifestation of the TCPA's outdated nature and its propensity to serve as a catalyst for frivolous lawsuits.

The white paper includes the following observations:

  • While originally designed to protect consumers from the harassment of telemarketing calls, the TCPA has increasingly been applied to nonsolicitation communications across a diverse range of industries, thereby placing a spectrum of nontelemarketing businesses at risk of lawsuits for engaging in a variety of legitimate business-related communications if the incorrect consumer is inadvertently contacted. Examples of such communications include reminders for bill due dates, notices from financial institutions such as notices of overdrafts and late fees, and notices of flight changes. Because uncertainty surrounding the interpretation of the TCPA and the threat of litigation has caused businesses to become apprehensive about directly communicating with consumers, customer service initiatives and outreach have been negatively impacted.
  • The availability of high statutory damages has created the unintended consequence of incentivizing plaintiffs' attorneys to file frivolous TCPA lawsuits based on ambiguities in the TCPA and its implementing regulations. Between 2010 and 2015, there was a 948 percent increase in individual plaintiffs in TCPA litigation (including actions with multiple plaintiffs but not including class actions), with a 45 percent increase in individual plaintiffs between 2014 and 2015. In 2014, the average attorneys' fees for a TCPA class action settlement were $2.4 million while the individual consumer received $4.12. The stark disparity in the damages received by consumers relative to the fees received by plaintiffs' attorneys undermines the TCPA's consumer protection purpose.
  • Key TCPA language, such as the definition of "automatic telephone dialing system" (ATDS), has not been updated since the TCPA's enactment in 1991. As a result, there is tremendous uncertainty as to how modern communication technologies, including consumers' access to and preferred use of those technologies, fit into the statutory framework. In addition, the Federal Communication Commission's (FCC) TCPA interpretations have increased TCPA liability risk for legitimate businesses. For example, the FCC has interpreted the term "capacity" in the ATDS definition to include equipment that "lacks the 'present ability' to dial randomly or sequentially" but can be modified to provide those capabilities.
  • Despite the rapid development of mobile communication technology and consumers' widespread adoption of these technologies, the TCPA governs business communications from an outdated understanding of technology. The FCC should use its authority to modernize TCPA regulations in a way that will allow covered communications to be governed by a clear, fair, and consistent framework. (The white paper characterizes the Department of Education and White House recommendations that resulted in the TCPA's amendment to remove the prior express consent requirement for calls ''made solely to collect a debt owed to or guaranteed by the United States'' as recognition that "the ability to use modern communication technology is essential for reaching consumers in the contemporary marketplace." However, as we have observed, the FCC's proposed regulations implementing the amendment would significantly undermine its utility.)

As the white paper notes, the Senate Commerce Committee held a hearing on May 18, 2016, to consider whether the TCPA is still an effective tool to protect consumers from unwanted calls after 25 years.

- Alan S. Kaplinsky, John L. Culhane, Jr., Mark J. Furletti, and Daniel JT McKenna

Down Payment Assistance Stand-Off between HUD and the Inspector General Clouds the Waters

The HUD Office of Inspector General (OIG) released an audit on July 9, 2015, in which it opined that loans that included down payment assistance programs from state housing agencies ran afoul of HUD regulations. (OIG Report 2015-LA-1005). Less than two weeks later, Ed Golding, Principal Deputy Assistant Secretary for Housing, issued a press release reaffirming "FHA's support of certain down payment assistance programs, like those run by state housing finance agencies." Since then, HUD and the OIG have traded blows on the issue with the OIG conducting additional audits releasing similar findings and HUD responding by assuring lenders that the programs were compliant with HUD rules.  Most recently, on May 25, 2016, Mr. Golding issued a release on behalf of HUD in which he said:

"I am writing to let you know that loans that include down payment assistance provided by state and local housing finance agencies continue to be eligible for FHA insurance. After conducting a thorough and deliberative process, HUD has determined that housing finance agency down payment assistance programs are legal and consistent with the National Housing Act. Government entities may provide funds to borrowers to help make down payments on FHA loans."

OIG Inspector General David Montoya responded almost immediately and expressed the OIG's disagreement with HUD's decision. The OIG noted that another audit of a lender is currently underway related to a similar down payment assistance program. Accordingly, HUD's press release provides little comfort to those lenders that may be subjected to an OIG audit (and the resulting costs incurred in working through and responding to such an audit). As a result, until HUD takes official action to approve of the down payment assistance programs, lenders need to closely consider their participation in the programs. 

- Constantinos G. Panagopoulos

CFPB Urged to Adopt Strong Protections for LEP Consumers

Americans for Financial Reform (AFR) has issued a brief in which it urges the Consumer Financial Protection Bureau (CFPB) and other federal agencies to adopt strong language access protections to improve the mortgage marketplace for limited English proficiency (LEP) consumers. Although the CFPB has indicated that serving LEP consumers should be a priority for financial institutions, AFR wants the CFPB to go further “in establishing rules and procedures to make the financial system fully and fairly accessible to these consumers.” In addition, while AFR’s brief is focused on the mortgage market, AFR comments that “comparable measures are needed throughout the financial marketplace.” AFR’s brief is accompanied by a paper that compiles stories of LEP consumers intended to demonstrate the hurdles faced by such consumers when navigating the mortgage market.

AFR asserts that the CFPB has authority to take the actions it recommends under the Dodd-Frank Act, RESPA, and ECOA. In taking such actions, AFR wants the CFPB to work with the Federal Housing Finance Agency, HUD, and the federal banking agencies.

AFR recommends that the CFPB take the following actions:

  • Enhance mortgage servicing protections for LEP homeowners, such as requiring servicers to provide  both free, contemporaneous oral interpretation services for homeowners who request it and key documents in the borrower’s preferred language;
  • Provide protections for LEP mortgage applicants, such as making communications to the applicant available in at least eight languages other than English (a prospective applicant could then request communications in one of the specified languages);
  • Expand existing supervision and examination procedures to include a review of language accessibility, such as expanding/updating the supervision and exam manual to include more questions for examiners to ask related to language access in mortgage servicing and questions related to language access in the sections related to mortgage origination;
  • Improve language access to the CFPB’s consumer complaint services, such as hiring bilingual staff  so that the staff at CFPB contact centers are fluent in at least seven languages in addition to English;
  • Improve opportunities for LEP mortgage applicants and homeowners to find a HUD-approved housing counseling agency with a counselor who speaks their preferred language;
  • Provide affirmative written guidance/regulations on standards for addressing  language access in financial institutions;
  • Update HMDA data fields to include the preferred language spoken by the loan applicant;
  • Establish and lead a federal interagency working group to examine strategies for improving data collection and tracking of language preferences of borrowers through the mortgage process including revision of the mortgage application and the Uniform Borrower’s Assistance Form (this would supplement the more general interagency guidance currently provided at LEP.gov and it could also result in interagency approval of the Spanish language mortgage application and other documents that are currently provided by Fannie Mae).

As we have previously observed, the expectations of the CFPB and other regulators for serving LEP customers present numerous challenges for financial institutions, including UDAAP and fair lending risks, and regulators have not yet provided financial institutions with guidance about how to serve LEP consumers without taking such risks. We were therefore glad to see that AFR’s recommendations include the CFPB’s provision of affirmative written guidance/regulations. In November 2015, we conducted a webinar on the issues that institutions should consider when taking steps to serve LEP consumers.

- John L. Culhane, Jr.

CFPB May 2016 Complaint Report Highlights Credit Reporting Complaints, Complaints From New Mexico Consumers

The Consumer Financial Protection Bureau (CFPB) has issued its May 2016 complaint report which highlights complaints about credit reporting and complaints from consumers in New Mexico and the Albuquerque metro area. The CFPB began taking complaints about credit reporting in October 2012. Credit reporting complaints were also the subject of the CFPB’s August 2015 monthly report.

General findings include the following:

  • As of May 1, 2016, the CFPB handled approximately 882,800 complaints nationally, including approximately 23,900 complaints in April 2016. As of May 1, 2016, debt collection continued to be the most-complained-about financial product or service, representing about 27 percent of complaints submitted. Debt collection complaints, together with complaints about credit reporting and mortgages, collectively represented about 68 percent of the complaints submitted in April 2016.
  • Complaints about student loans showed the greatest percentage increase based on a three-month average, increasing about 48 percent from the same time last year (February to April 2015 compared with February to April 2016). As we noted in our blog post about the April 2016 complaint report, rather than reflecting an increase in the number of borrowers making student loan complaints, the increase most likely reflects that in March 2016, the CFPB began accepting complaints about federal student loans. Previously, such complaints were directed to the Department of Education.
  • Payday loan complaints showed the greatest percentage decrease based on a three-month average, decreasing about 14 percent from the same time last year (February to April 2015 compared with February to April 2016).  Complaints during those periods decreased from 498 in 2015 to 406 in 2016. In the March and April 2016 complaint reports, payday loan complaints also showed the greatest percentage decrease based on a three-month average.
  • New Mexico, Minnesota, and Indiana experienced the greatest complaint volume increases from the same time last year (February to April 2015 compared with February to April 2016) with increases of, respectively, 41, 33, and 26 percent.
  • Vermont, Hawaii, and Maine experienced the greatest complaint volume decreases from the same time last year (February to April 2015 compared with February to April 2016) with decreases of, respectively, 20, 19, and 14 percent.

Findings regarding credit reporting complaints include the following:

  • The CFPB has handled approximately 143,700 credit reporting complaints, representing about 16 percent of total complaints. Credit reporting is the third most-complained-about product or service after debt collection and mortgages.
  • The most-complained-about issue involved incorrect information on credit reports, such as a debt appearing on the report that has been paid or is too old to be enforced in court (which the CFPB suggests “may reflect confusion about the fact that information on past overdue debt, even when paid, or no longer enforceable as a result of limitations often can remain on a credit report.”) Other complaints involved a debt belonging to another consumer, a debt that is not recognized by the consumer, delays and problems in updating and correcting inaccurate records, and public records being incorrectly matched to a consumer’s credit report.
  • Problems accessing credit reports because of the consumer’s inability to answer identity authentication questions were also raised in complaints.
  • In addition to complaints about the “big three” credit reporting companies, consumer submitted more than 2,000 complaints about specialty consumer reporting companies. Problems raised by consumers submitting complaints about specialty consumer reporting companies included difficulty resolving inaccuracies, information about other consumers appearing on reports, unfair or inaccurate information in reports used for rental screening, inaccurate reporting of criminal charges or convictions on reports used for background and employment screening, and identity theft.

Findings regarding complaints from New Mexico consumers include the following:

  • As of May 1, 2016, approximately 4,700 complaints were submitted by New Mexico consumers of which approximately 48 percent (2,200) were from consumers in the Albuquerque metro area.
  • Debt collection is the most-complained-about product, representing 31 percent of the complaints submitted by New Mexico consumers and 27 percent of complaints submitted by consumers nationally.
  • The percentage of mortgage complaints submitted by New Mexico consumers was lower than the national average.

- Barbara S. Mishkin

Foreclosure Firm Did Not Violate FDCPA By Alleging that Mortgagor on FHA Insured Loan Was Personally Liable for Deficiency, Federal Court Holds

A federal district court in Illinois recently dismissed a putative class action against a foreclosure firm, holding that an allegation in a foreclosure complaint that the mortgagor is personally liable for any deficiency on a Federal Housing Authority (FHA) insured loan is not a violation of the Fair Debt Collection Practices Act (FDCPA).

In the case, the plaintiff obtained an FHA insured loan and subsequently defaulted. The underlying foreclosure complaint specifically identified the plaintiff, the mortgagor, as personally liable for any deficiency. 

In response, the plaintiff filed an independent FDCPA action against the foreclosure law firm, claiming that it was not truthful for the firm to allege in the foreclosure complaint that plaintiff is personally liable for any deficiency. According to the plaintiff, this allegation was false and misleading because, under FHA regulations and guidelines, it was virtually certain that the FHA would not authorize or require that a deficiency be pursued against the plaintiff.

The court held that a foreclosure complaint may include such an allegation because, under Illinois mortgage foreclosure law, the borrower is in fact the party liable for any deficiency following the foreclosure action, regardless of the likelihood that the FHA would request or require that a deficiency be pursued. In addition, the court noted that nothing in the FHA regulations or guidelines required that a mortgagee obtain FHA authorization prior to the mortgagee seeking a deficiency. As such, the court held that defendant’s allegation in the foreclosure complaint that the plaintiff is personally liable for any deficiency was a true statement, and did not violate the FDCPA. 

- Joel E. Tasca and Jenny N. Perkins


by Wendy Tran

Maryland Reduces Application Investigation Fees

The Maryland Commissioner of Financial Regulation has amended the mortgage lender license application investigation fee in efforts to benefit initial applications of mortgage lender licenses.  The fee will be reduced from $100 to $1.

The application investigation fee and license amendment fee for mortgage loan originators will be reduced as well. The Commission anticipates that the license application fee will be sufficient to cover costs associated with processing applications and investigations.

These provisions are effective on July 1, 2016.
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