FDIC Publishes Community Banker Product Guide Resource

The Federal Deposit Insurance Corporation (FDIC) has published multiple resources to help community bankers learn more about single-family housing products offered by federal agencies and government-sponsored enterprises. The publication of the Affordable Mortgage Lending Guide, Part I:  Federal Agencies and Government Sponsored Enterprises along with the launch of the internet-based Affordable Mortgage Lending Center were both developed in response to substantial feedback from community bankers who did not understand the array of federal housing programs and requested a consolidated resource articulating the assortment of programs available.

The first part of the Mortgage Lending Guide defines federal programs for single-family housing lending, including purchase, refinance, and manufactured housing. The guide also covers programs that are intended to assist a diverse set of communities from veterans, first-time homebuyers, and those living in rural areas to lower- and moderate-income individuals. The corresponding Affordable Mortgage Lending Center includes data, fact sheets, and mortgage lending studies.

The FDIC anticipates the publication of two additional parts—State Housing Finance Agencies and Federal Home Loan Banks—by the end of 2016.

- Richard J. Andreano, Jr. and Matthew R. Smith


11th Circuit Holds That Entity Collecting Its Own Debt, Which It Acquired After Default, Is Not a “Debt Collector” Under the FDCPA, Highlighting Split Among the Circuits

The 11th Circuit Court of Appeals has affirmed its prior holding in Arencibia v. Mortgage Guaranty Insurance Corp. that an entity that acquires and collects debt on its own behalf does not qualify as a debt collector under the Fair Debt Collection Practices Act (FDCPA), regardless of the default status of the debt when acquired.

The plaintiff filed a purported class action lawsuit against Mortgage Guaranty Insurance Corp. (Mortgage Guaranty), a mortgage insurance provider, alleging the company had violated the FDCPA by purchasing mortgagors’ debt after the lender had obtained a foreclosure judgment, and filing a deficiency lawsuit without providing prior notice of the assignment of the debt as required by Florida law. Mortgage Guaranty moved for summary judgment, arguing that it was not a debt collector under the FDCPA. Arencibia argued that Mortgage Guaranty was a debt collector because it “regularly collected or attempted to collect debts that were originally owed to others and acquired after default.” Shortly after the motion for summary judgment was filed, the 11th Circuit held, in a separate case, that an entity collecting on its own debts—even debts originally owned by another and acquired after default—does not qualify as a debt collector under § 1692a(6). Accordingly, the district court granted summary judgment in favor of Mortgage Guaranty, and Arencibia appealed.

On appeal, Arencibia argued that the 11th Circuit’s precedent is erroneous, and conflicts with the decisions of a majority of the other circuits that have addressed the issue. The court rejected this argument, noting that it is bound by its precedent under the prior panel precedent rule, which provides that the holding of a prior panel is binding unless and until it is overruled or undermined to the point of abrogation by the U.S. Supreme Court or the appellate court sitting in en banc. See United States v. Archer, 531 F.3d 1347, 1352 (11th Cir. 2008).

While the decision merely affirms the 11th Circuit’s prior precedent, it highlights an important split among the circuits regarding the FDCPA. The court noted that the Fourth Circuit issued an opinion in line with its precedent in early 2016. Moreover, as Arencibia notes, several other circuits, including the Third, Sixth, and Seventh, hold that an entity that seeks to collect debt that it acquired when it was in default is a debt collector under the FDCPA. See, e.g., McKinney v. Cadleway Props., Inc., 548 F.3d 496, 501 (7th Cir. 2008) (“the purchaser of a debt in default is a debt collector for purposes of the FDCPA even though it owns the debt and is collecting for itself.”) (citing FTC v. Check Investors, Inc., 502 F.3d 159, 171-74 (3d Cir. 2007) (holding that an entity engaged in collection activity on a defaulted debt acquired from another is a “debt collector” under the FDCPA even though it “may actually be owed the debt”).

Accordingly, unless and until additional circuits or the Supreme Court decide to address this issue, an entity’s status as a creditor will continue to vary based on the jurisdiction. 

- Joel E. Tasca, Matthew A. Morr, and Daniel C. Fanaselle


To (Dis)Close for Comfort–FTC Workshop Seeks Effective Consumer Disclosures

A goal of providing effective disclosures to consumers is to allow consumers to make informed decisions. But what must be done to make disclosures effective? This was the question the Federal Trade Commission (FTC) explored in the recent "Putting Disclosures to the Test" workshop through reports on numerous studies related to consumer understanding of disclosures and the efficacy of different methods and timing of consumer disclosures.

Regulators are Paying Attention

The workshop highlighted how seriously the FTC regards the quality of disclosures to consumers, especially in newer forms of advertising and media, such as native advertising, mobile applications, and mobile games. In a recent settlement with Warner Brothers Home Entertainment, the FTC alleged that the company failed to disclose it was paying "influencers," i.e., individuals who have a significant number of social media followers, to post positive reviews of its video games on YouTube and other social media sites.

The FTC also recently settled its case against the mobile advertising company InMobi. The FTC alleged the company misrepresented that its advertising software would only track consumers’ location in accordance with the permissions obtained through the mobile application where, in fact, location was being tracked using other means and without permission.

The Consumer Financial Protection Bureau (CFPB), through its Decision Making and Behavioral Studies team, is also investing in research that explores the factors that influence the efficacy of disclosures in financial services, how to use different methodologies to study disclosure, and the market effects of disclosures. Heidi Johnson, a research analyst at the CFPB and panelist at the FTC's workshop, discussed some of the CFPB's research in this area.

Key Takeaways from the Studies Presented at the Workshop

  • Consumer engagement depends on the method and timing of disclosure. The mode, timing, placement, and content of the disclosures have varying effects on a consumer's engagement with a disclosure and the underlying content. In mobile apps, consumers were not able to recall the details of disclosures that were made in the app store as well as in application install permissions. In video games in which a player needed to engage with sound, voice disclosures regarding the use of information being collected were deemed less effective than textual disclosures.
  • Sometimes one disclosure method is not enough. In native advertising, consumers were more likely to recognize a social media post or other content to be advertising if, along with a disclosure such as "sponsored ad" or "sponsored link," it contained a professional photograph or featured a famous brand. On the other hand, when an advertisement did not contain a professional photograph or famous brand, consumers were less likely to recognize content as advertising, even if a disclosure was made.
  • Consumers do not want to see what they already know and spend the same amount of time reviewing a short disclosure as a long one. When asked, consumers preferred not to see disclosures regarding how a product or service would use information provided by consumers if consumers would normally expect their information to be used in that way. Given the short amount of time consumers spend reviewing disclosures, presenting disclosures of an unexpected use of consumer information or of risks created by use of the product or service earlier or in a more prominent manner is likely to make disclosures more effective.
  • A disclosure is still more effective than no disclosure at all; context affects comprehension. Consumers' comprehension was affected by whether or not they read the document on their own or were in a location where they could be interrupted by others nearby.
  • Vague language is less effective. Consumers perceive disclosures with one or more of the words "may," "can," "would," "might," "could," or "possibly" as vague and less effective. Using the word "likely" was deemed less vague. The more definite language that disclosures used, the more likely consumers were deemed to comprehend it.
  • Consumer feedback is not always accurate. Up to 80 percent of consumers that reported having read half or more of a disclosure actually engaged in limited to no reading of the disclosure.

- the Consumer Financial Services and Privacy and Data Security Groups


HUD Finalizes New Fair Housing Rule for Quid Pro Quo, Hostile Environment Harassment

The U.S. Department of Housing and Urban Development (HUD) has issued a final rule that creates liability for housing providers for occurrences of "quid pro quo harassment" or "hostile environment harassment." The new rule, "Quid Pro Quo and Hostile Environment Harassment and Liability for Discriminatory Housing Practices Under the Fair Housing Act," takes effect on October 14, 2016.

The rule prohibits both quid pro quo and hostile environment harassment because of a resident’s protected class which, under the Fair Housing Act (FHA) includes race, color, religion, sex, familial status, national origin, or disability. It imputes direct liability on housing providers more broadly for discriminatory practices.

Quid pro quo ("this for that") harassment is defined as occurring when a housing provider conditions a resident’s housing availability, terms, or privileges on compliance with an unwelcome request or demand. The unwelcome request or demand can still constitute harassment even if the resident acquiesces to it.

Hostile environment harassment is defined as unwelcome conduct because of an individual's membership in a protected class, which is sufficiently severe or pervasive that it interferes with the availability, terms, or privileges of residency in the dwelling. The rule enacts a "totality of the circumstances" test for assessing whether a hostile environment of harassment exists, which examines factors such as the nature of the conduct, its context, severity, scope, frequency, and location, and the relationship of the people involved. Harassment can take the form of written, verbal, or other conduct. Physical contact or psychological harm, although relevant, is not required for a viable claim.

The final rule largely mirrors the proposed rule on which we previously reported. One notable modification to the final rule creates the standard for judging whether harassing behavior is "sufficiently severe or pervasive," which is to be judged from the perspective of a reasonable person in the aggrieved person's position.

The most concerning section of the rule for housing providers relates to direct liability exposure for any type of discriminatory housing practice. The rule creates three categories of direct liability for housing providers—liability for the housing provider's own conduct; liability for failing to take prompt corrective action relating to the conduct of its employees or agents; and liability for failing to take prompt corrective action for the conduct of a third party (such as another resident).

Perhaps the most significant impact of the new rule is the imposition of direct liability for the conduct of third parties—housing providers could be liable for behavior among tenants. This liability hinges on whether the housing provider "knew or should have known of the discriminatory conduct and had the power to correct it." Determining if a housing provider has the "power to correct" the third party's actions depends on the somewhat ambiguous task of assessing the extent of its control over that offending party and what legal responsibility it has for the conduct.

The concern for housing providers under this new rule is facing liability for one tenant harassing another tenant—regardless of whether the harassment relates to the terms or conditions of residency. An implication of the rule is the interjection of housing providers into common disputes between two tenants. The rule neither defines what steps a housing provider must take nor how far it must go in mediating tenant-on-tenant harassment disputes. Housing providers should pay attention to developments in this area as courts provide further guidance on how to navigate compliance in this new regulatory framework.

- Michael P. Cianfichi, Amy M. Glassman, and Michael W. Skojec


Did you know?

by Wendy Tran

Minnesota Adds Licenses to NMLS

On September 1, 2016, NMLS started accepting applications for the following Minnesota Department of Commerce Licenses: Currency Exchange License, Currency Exchange Registration, Currency Exchange Branch License, and Accelerated Mortgage Payment Provider License.

MSB Call Report Adopted By 14 State Agencies

The Money Services Businesses (MSB) Call Report will start on NMLS in Q1 2017 with the first reports due on May 15, 2017. The MSB Call Report is intended to standardize the information available to state regulators regarding mortgage services businesses. Thus far, 14 state agencies covering 18 licenses will adopt the MSB Call Report including: Arkansas Securities Department; Georgia Department of Banking and Finance; Illinois Division of Financial Institutions; Kansas Office of the State Bank Commissioner; Louisiana Office of Financial Institutions; Massachusetts Division of Banks; Nebraska Department of Banking & Finance; North Dakota Department of Financial Institutions; Pennsylvania Department of Banking and Securities; Rhode Island Division of Banking; South Dakota Department of Banking; Vermont Division of Banking; Washington Department of Financial Institutions; and Wyoming Division of Banking.

California Revises Finance Lenders Law

The California Department of Business Oversight added a provision to the Finance Lenders Law indicating that a person who makes one commercial loan in a 12-month period is exempt from regulation pursuant to that law. This provision takes effect January 1, 2017, and will remain effective until January 1, 2022.


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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.