Mortgage Banking Update - January 27, 2022
In This Issue:
- Podcast: Cancel Culture in the Consumer Financial Services Industry - A Discussion With Special Guest Todd J. Zywicki, Professor of Law at George Mason University Antonin Scalia Law School.
- Podcast: What Will 2022 Hold for the Consumer Finance Industry - A Conversation With Special Guests Evan Weinberger, Correspondent at Bloomberg Law, and Jon Hill, Senior Banking Reporter at Law360.
- Eleventh Circuit Schedules February 22 Oral Argument in Hunstein En Banc Rehearing
- FTC Announces Settlement With Lead Generation Company
- CFPB Sues Debt Buyer Companies and Their Owners/Officers for Unlawful Debt Collection Practices Based on Third-Party Conduct.
- Did You Know?
For the latest updates on the COVID-19 pandemic visit the Ballard Spahr COVID-19 Resource Center
Professor Zywicki shares his views on the current trend of denying access to financial services to politically-disfavored industries or based on political views, whether through the actions of banking regulators, most notably Operation Choke Point, or actions taken by banks on their own initiative. We discuss the appropriateness of possible responses to these tactics, such as the OCC’s final fair access rule that did not become effective due to the change in Administrations. Professor Zywicki, who chaired the CFPB’s Taskforce on Federal Consumer Financial Law, also shares his reaction to the settlement of the lawsuit challenging the Taskforce’s creation and its impact on the Taskforce’s recommendations in its report.
Alan Kaplinsky, Ballard Spahr Senior Counsel, hosts the conversation.
Click here to listen to the podcast.
In this wide-ranging conversation with two experienced reporters on the consumer finance industry, we discuss differences between the current CFPB and the Trump-era CFPB, including with regard to areas of regulatory and enforcement focus such as UDAAP, consumer access to financial information, small business issues, and fair lending. We also discuss the potential implications of the current CFPB’s interest in buy-now-pay-later and its inquiry into large technology companies that offer payment services. Other topics include the potential impact of the recent leadership turmoil at the FDIC and expectations for activity by state regulators and attorneys general.
Alan Kaplinsky, Ballard Spahr Senior Counsel, hosts the conversation.
Click here to listen to the podcast.
The U.S. Court of Appeals for the 11th Circuit has scheduled oral argument in the rehearing en banc in Hunstein v. Preferred Collection and Management Services, Inc. for February 22, 2022. After ordering the rehearing en banc in November 2021, the 11th Circuit issued a memorandum indicating that for purposes of the rehearing, the court wanted counsel to focus their briefs on the question: “Does Mr. Hunstein have Article III standing to bring this lawsuit?”
The district court had dismissed Mr. Hunstein’s complaint for failing to state a claim, concluding that he had not sufficiently alleged that the debt collector’s transmittal of information to the vendor violated Section 1692c(b) of the FDCPA because the transmittal did not qualify as a “communication in connection with the collection of any debt.” After a unanimous 11th Circuit panel reversed the lower court’s dismissal and ruled that the plaintiff had stated a FDCPA claim, in response to the defendant’s first effort to obtain a rehearing, the panel vacated its original opinion and substituted a new opinion.
In the substituted new 2-1 opinion, the majority again concluded that the plaintiff had sufficiently alleged a potential claim for a violation of Section 1692c(b) of the FDCPA. The new opinion was vacated by the 11th Circuit’s order to rehear the case en banc.
The FTC announced last week that it has entered into a settlement with ITMedia Solutions LLC, a lead generation company, and a group of affiliated companies (collectively, ITMedia), and several individuals who served as officers of ITMedia, to resolve a complaint filed by the FTC in a California federal district court alleging that the defendants’ conduct violated the FTC Act and FCRA. The settlement requires the defendants to pay a $1.5 million civil penalty to the FTC.
In its complaint, the FTC alleges that ITMedia:
- Operates websites that urge consumers to complete loan applications in which they are asked to provide sensitive financial information, including their Social Security numbers and bank account information.
- Induces consumers to complete applications by assuring that it will share information only with “qualified and trusty” loan providers and will only share information to find a loan for the consumer.
- Represents that loans are available without regard to credit scores or history to consumers who complete ITMedia’s application.
- Sells information to entities other than lenders (such as marketers, debt relief, and credit repair companies), and without regard for whether an entity purchasing leads would check and evaluate a consumer’s creditworthiness.
- Transmits loan applications to prospective lead buyers without masking or otherwise restricting access to sensitive information resulting in the sharing of sensitive information with multiple entities that have not committed to purchase the information.
- Lacks policies and procedures that require an entity obtaining leads to certify that it uses the information solely to respond to the consumer’s loan request or that provide for ITMedia’s assessment or investigation of whether lead purchasers safeguard information or use such information for purposes other than making a loan.
- Uses credit scores it purchases of consumers who submit applications for marketing purposes such as setting lead prices and sends information to potential lead buyers with codes identifying the range into which a consumer’s credit score falls or filter leads based on credit score ranges selected by potential buyers without requiring the potential buyer to identify each recipient or end user of the leads and certify it will use the leads only to respond to the consumer’s loan request.
- Represents to the consumer reporting agencies (CRAs) from which it purchases credit scores that it will use the scores to prequalify consumers without (1) acknowledging that it uses the scores for marketing purposes, (2) providing the identities of the entities to which it has furnished score-based information, or (3) providing the CRAs with the purposes for which such entities use such information.
- Shares sensitive information with entities that are not using the information solely to respond to the consumer’s request without the consumer’s knowledge or consent (or with any disclosures regarding such sharing “buried in dense text, in small font, and in single space type” that could only be reached via a hyperlink that did not appear on the same pages as the loan application and which consumers were not required to view before submitting an application.)
Based on the above allegations, the FTC alleges that the defendants’ violated:
- The FTC Act by (1) making deceptive representations regarding how their information and applications would be used, and (2) unfairly distributing sensitive information without consumers’ knowledge or consent and without regard to whether the recipients are lenders or otherwise had a legitimate need for the information.
- The FCRA by obtaining and using credit scores without a permissible purpose and reselling credit scores without complying with the FCRA’s reseller requirements.
In addition to payment of the $1.5 million civil penalty, the Stipulated Order requires the defendants to establish, implement, and maintain procedures to verify the legitimate need for and use of consumer’s sensitive information by any person to whom they sell, transfer, or disclose such information, and prohibits them from obtaining or using a consumer report for other than a permissible purposes and from reselling consumer reports without complying with FCRA requirements.
Since conducting a 2015 workshop on lead generation and issuing a staff paper in 2016, lead generation has been an FTC enforcement focus. In its enforcement actions, the FTC has targeted both lead generators and users of their services. Having continued to target lead generation during the Trump Administration, the FTC can be expected to target lead generation even more aggressively under Democratic leadership.
- Kim Phan
The CFPB filed a complaint January 10 in a New York federal district court against three companies that purchase defaulted debts (Corporate Defendants) and three individuals who are owners and/or officers of the Corporate Defendants (Individual Defendants). (Click here to read the statement from United Holding Group, LLC, one of the Corporate Defendants, about the lawsuit.)
The Bureau alleges that the Corporate Defendants (1) placed consumer debts directly with debt collectors that collected the debts on their behalf or with “master servicers” who then placed the debts with debt collectors that collected the debts on their behalf, and (b) sold consumer debts to debt collectors, some of whom were contractually required to make ongoing payments to the Corporate Defendants. The CFPB alleges that both debt collectors who collected debts on the Corporate Defendants’ behalf and debt collectors to whom the Corporate Defendants sold debts used deceptive collection tactics, including false threats of lawsuits, arrest, and jail, and false statements about credit reporting. The CFPB’s claims against the defendants consist of claims for direct violations of the CFPA and FDCPA and claims for substantially assisting CFPA violations by debt collectors.
Direct Violations. The CFPB alleges that the Corporate Defendants and the Individual Defendants violated the CFPA’s UDAAP prohibition by falsely representing through debt collectors with whom they placed debts that consumers would be sued if they did not settle their debts or that repayment (or not repaying) would affect their credit scores. According to the CFPB, the defendants did not authorize these debt collectors to sue consumers, did not intend to sue consumers imminently, and did not furnish information to consumer reporting agencies. It also alleges that two of the Corporate Defendants violated the FDCPA by making these false representations and that such FDCPA violations also constituted CFPA violations.
Substantial Assistance. The CFPB alleges:
- Debt collectors with whom all of the Corporate Defendants placed debts and debt collectors to whom they sold debts violated the CFPA UDAAP prohibition by making false threats of lawsuits and false statements about credit reporting. All of the defendants knowingly or recklessly provided substantial assistance to the debt collectors in violation of the CFPA because they knew, or should have known, of the debt collectors’ deceptive practices and continued to place debts with or sell debts to the debt collectors. In the complaint, among the allegations made by the CFPB to support its allegation that the defendants “knew or should have known” is the defendants’ receipt of hundreds of complaints about false threats and statements by debt collectors and recordings of phone calls in which debt collectors made such threats or statements.
- Debt collectors to whom one of the Corporate Defendants sold debts violated the CFPA UDAAP prohibition by making false threats of arrest or jail. This Corporate Defendant and one of the Individual Defendants (who owned and managed the Corporate Defendant) knowingly or recklessly provided substantial assistance to these debt collectors in violation of the CFPA because they knew, or should have known, of the debt collectors’ false threats and continued to sell debts to them.
The CFPB’s claims in this enforcement action strike us as particularly aggressive because rather than taking action against the debt collectors used by the Corporate Defendants or the debt buyers to whom they sold debts, it is seeking to hold the Corporate and Individual Defendants directly and separately responsible for the violations committed by these third parties. As such, the takeaway for debt sellers (including first-party creditors) is that they should perform appropriate due diligence when selecting debt collectors or debt buyers, monitor debt collectors and debt buyers for compliance with applicable consumer protection laws and regulations, and take appropriate action promptly when compliance issues arise to ensure full remediation of any issues.
Multi-State Settlement with MLOs Over SAFE Act Education Requirements
Forty-four state financial regulatory agencies from 42 states have reached settlements with more than 400 mortgage loan originators (MLOs) who claimed to have completed annual continuing education as required for licensure under state and federal law, including the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act).
Through the settlements, the MLOs have agreed to surrender their licenses for a period of three months, pay a fine of $1,000 for each state where they hold a license, and take continuing education beyond the SAFE Act requirements. The loans originated by these MLOs are not impacted in any way and are considered valid loans.
California Financing Law Licensees to Submit 2021 Annual Report
The California Department of Financial Protection and Innovation (DFPI) reminds licensees licensed under the California Financing Law that they are required to submit an Annual Report regarding activities conducted during the calendar year of 2021, even if the licensee had no business activity in 2021.
The deadline to file the 2021 Annual Report is March 15, 2022. The Annual Report must be submitted electronically through the DFPI portal account. The form and instructions for submitting the Annual Report are available here.