Mortgage Banking Update
American Banker has reported that the Consumer Financial Protection Bureau (CFPB) is planning to dismiss its lawsuit against PHH Corp. According to the report, the CFPB and PHH have issued a joint statement in which the parties confirm that they have agreed to recommend the dismissal and request that Acting Director Mick Mulvaney proceed to dismiss the CFPB's administrative proceeding.
On January 31, 2018, the Court of Appeals for the D.C. Circuit issued its en banc PHH decision reinstating the Real Estate Settlement Procedures Act (RESPA)-related portions of the Circuit's October 2016 panel decision. The panel had held that the plain language of RESPA permits captive mortgage reinsurance arrangements like the one at issue in the PHH case, if the mortgage reinsurers are paid no more than the reasonable value of the services they provide. However, the en banc court disagreed with the panel and rejected PHH's challenge to the CFPB's constitutionality based on its structure of a single director removable only for cause. Neither PHH Corporation nor the CFPB filed a petition for certiorari asking the U.S. Supreme Court to review the en banc decision.
For the first time in 2015, while prosecuting the case against PHH, the CFPB announced a new interpretation of RESPA under which captive mortgage reinsurance arrangements were prohibited. The panel rejected this interpretation on the grounds that the statute unambiguously allows the kinds of payments that the CFPB's 2015 interpretation prohibited. The panel remanded the case to the CFPB to determine whether PHH complied with RESPA under the longstanding interpretation previously articulated by HUD. The en banc court's reinstatement of that aspect of the panel decision led it to order that the case be remanded to the CFPB for further proceedings.
Although the D.C. Circuit panel had agreed with PHH that the RESPA three-year statute of limitations applies to administrative proceedings, it left undecided another statute of limitations issue for the CFPB to consider on remand. The panel stated: "We do not here decide whether each alleged above-reasonable-market value payment from the mortgage insurer to the reinsurer triggers a new three-year statute of limitations for that payment. We leave that question for the CFPB on remand and any future court proceedings."
Since the en banc court reinstated the panel's decision "insofar as it related to the interpretation of RESPA and its application to PHH," the issue of when the RESPA three-year statute of limitations is triggered—an issue of great significance to the mortgage industry—might have been addressed on remand. The CFPB's dismissal of the administrative proceeding means the Bureau will not have an opportunity to rule on that issue in this case.
A determination on remand about whether PHH complied with RESPA under the longstanding interpretation previously articulated by HUD would have required the CFPB to consider whether the mortgage reinsurers were paid more than reasonable market value for the services they provided. The dismissal of the administrative proceeding also means the CFPB will not have an opportunity to rule on how reasonable market value is determined in mortgage reinsurance arrangements.
The CFPB has issued a new report, Complaint snapshot: Debt collection, which provides complaint data as of April 1, 2018. The report represents the CFPB's first complaint report since Mick Mulvaney was appointed Acting Director in November 2017. The CFPB's last regular monthly complaint report was issued in May 2017 and provided complaint data as of April 1, 2017. (Subsequent complaint reports issued prior to former Director Cordray’s departure were “special edition” reports.)
The new report is different from prior monthly complaint reports in several significant respects:
- While the new report includes overall complaint volume information by product and state that was previously part of the CFPB’s monthly complaint reports, it does not include complaint volume information by company (i.e. the “top 10 most-complained about companies.”)
- It does not highlight complaints received in a particular state as did prior monthly reports.
- It provides context for certain complaint data. More specifically, as described below, the new report provides context for the complaint categories showing the greatest percentage changes over the three month periods compared in the report and for the debt collection data highlighted in the report. (In the RFI seeking comment on potential changes to the CFPB’s practices for the public reporting of consumer complaint information, the CFPB has asked for comment on whether it should change the amount of context it provides for complaint information, particularly with regard to product or service market share and company size.)
Also noteworthy is that the new report was not accompanied by a press release or blog containing editorial spin about the report information. Rather, the accompanying blog post provides a straightforward overview.
General findings include the following:
- As of April 1, 2018, the CFPB handled approximately 1,492,600 complaints nationally, including approximately 30,300 complaints in March 2018.
- Credit reporting complaints and debt collection complaints represented, respectively, approximately 37 and 27 percent of complaints submitted in March 2018.
- Credit reporting, debt collection, and mortgage complaints collectively represented about 74 percent of the complaints submitted in March 2018.
- Money transfer or service and virtual currency complaints showed the greatest percentage increase from January-March 2017 (352 complaints) to January-March 2018 (1,000 complaints), representing an increase of about 184 percent. The CFPB comments that the increase was "driven by a spike related to virtual currency" and that, in the complaints submitted from January-March 2018, "consumers described issues with the availability of funds held at virtual currency exchanges during periods of price volatility for the most active virtual currencies."
- Credit reporting complaints showed the second greatest percentage increase from January-March 2017 (4,848 complaints) to January-March 2018 (11,107 complaints), representing an increase of about 129 percent. The CFPB comments that improvements to its complaint submission process instituted in April 2017 allow consumers "to submit consumer reporting complaints about concerns they are having with data furnishers that supply consumer information to consumer reporting agencies, contributing to this increase in [credit reporting] complaints."
- Student loan complaints showed the greatest percentage decrease from January-March 2017 (monthly average of 3,273 complaints) to January-March 2018 (monthly average of 974 complaints), representing a decline of about 70 percent. The CFPB comments that the decline "is likely because student loan complaint data was elevated in 2017 following the Bureau’s enforcement action against a student loan servicer."
Below are key findings regarding debt collection complaints:
- The CFPB has received approximately 400,500 debt collection complaints since July 21, 2011, representing 27 percent of all complaints.
- The CFPB has referred about 40 percent of the debt collection complaints it has received to other regulators. The CFPB states that it typically makes such referrals when a complaint is about a first-party collector, where the debt did not arise from a financial product or service, or when the company complained about does not appear to be a third-party collector of a financial product or service-related debt.
- The CFPB comments that "debt collection complaints submitted by consumers can be more meaningful when considered in context with other data, such as the number of consumers who have an account in collection." The CFPB observes that, according to its most recent annual FDCPA report, "millions of Americans" are affected by the debt collection industry, and according to its Consumer Credit Panel, "about 26 percent of consumers with a credit file have a third-party collection tradeline listed."
- The most common concerns identified by consumers were attempts to collect a debt not owed (39 percent), written notification about debt (17 percent), and communication tactics (17 percent).
- Based on its review of the narrative descriptions in complaints, the CFPB observed that:
- consumers complained about debts appearing on their credit reports without prior written notice of the existence of the debt and not receiving additional information requested about such debts from companies; and
- consumers complained about communication tactics, such as frequent and repeated calls and calls before 8 a.m. and after 9 p.m. and calls after requesting no further telephone contact about the debt.
The CFPB has indicated that it intends to move forward on debt collection rulemaking. Its Spring 2018 rulemaking agenda states that the Bureau "is preparing a proposed rule focused on FDCPA collectors that may address such issues as communication practices and consumer disclosures" and estimates the issuance of a NPRM in March 2019.
The location of the third PLI 23rd Annual Consumer Financial Services Institute event will be PLI’s California Conference Center in San Francisco, with a concurrent live webcast on June 25-26. This will be the first time in many years that the Institute will take place in San Francisco. Since the first event in New York City on March 26-27 was well-attended, and the second in Chicago on May 7-8 was sold out, anyone interested in attending the San Francisco program is encouraged to act quickly to register. I am co-chairing the event, as I have for the past 22 years.
With the resignation of former CFPB Director Cordray and President Trump's appointment of Mick Mulvaney as CFPB Acting Director, the agenda and activity of the CFPB is already undergoing significant change. Further significant change can be expected under the new permanent director once appointed and confirmed. At the same time, state attorneys general and regulators are threatening to fill any void created by a less aggressive CFPB.
As was the case last year, the lead-off morning presentation on the first day will feature a panel discussion devoted to CFPB developments. I am very pleased that in San Francisco, the panel will feature two CFPB attorneys: Christopher J. Young, Deputy Assistant Director for Supervision, and Cara Petersen, Principal Deputy Enforcement Director. The CFPB attorneys will respond to a wide-ranging list of questions about the CFPB's supervisory, enforcement, and other activities. During this panel presentation, I will moderate a discussion among two experienced industry lawyers and an experienced consumer lawyer who closely follow the CFPB's activities. If your practice involves the CFPB, you will not want to miss the entire panel discussion.
The first day of the program will also include a panel titled "Federal Regulators Speak: Priorities & Coordination" that will feature representatives of the FTC and DOJ.
New to the Institute this year will be a panel on the second day that will discuss the rapidly changing landscape for marketplace lending and Fintech. My partner Scott Pearson will be a member of the San Francisco panel and I will moderate.
The Institute will also focus on a variety of other cutting-edge issues and developments, including:
- privacy and data security issues;
- FCRA/debt collection issues;
- class action and litigation developments;
- state regulatory and enforcement developments; and
- plaintiffs' lawyers' perspective of regulatory and litigation issues under the Trump administration.
In addition, attendees will receive up to one full hour of ethics credit, exploring ethical issues unique to the consumer space.
Click here for a complete description of PLI's 23rd Annual Consumer Financial Services Institute and to reserve your seat today. A special discounted registration fee will only be available to those who register using this link.- Alan S. Kaplinsky
The North Carolina Commissioner of Banks Office has begun receiving new and converted Electronic Surety Bonds (ESB) through NMLS for its mortgage broker, mortgage lender, and mortgage servicer licenses.
To date, more than half of the states have adopted ESBs for one or more of the licenses they administer.
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