Alston & Bird Consumer Finance Blog

Consumer Finance

NY DFS unveils Consumer Protection Task Force, adds Former CFPB Deputy Director

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A&B ABstract:

Less than one month into the new year, New York’s Department of Financial Services (DFS) has taken strong measures to make good on its proclamation that  “2020 must be the year of the consumer” by: (1) unveiling a 12-member Consumer Protection Task Force to help implement an extensive consumer protection agenda; and (2) adding former CFPB Deputy Director Leandra English as a special policy advisor to the Superintendent.

The Consumer Protection Task Force

On January 9, Superintendent Lacewell announced the roll-out of a 12-member Consumer Protection Task Force to “further DFS’ mission to protect consumer as the federal government rolls back important consumer protections.”  In his annual State of the State, Governor Cuomo expressed his belief that with the current Administration’s “rolling back of consumer protections and regulations, Americans are more exposed to predatory and abusive practices than at any time since the 2008 financial crisis.”  The DFS press release noted that one of the task force’s immediate focuses will be to help bring to fruition “the extensive consumer protections proposals included in Governor Cuomo’s 2020 State of the State agenda” which includes such initiatives as: (1) licensing and regulating debt collection companies; (2) the codification of a Federal Trade Commission rule banning confessions of judgment; (3) strengthening the state’s consumer protection laws to protect against unfair, deceptive, and abusive practices; (4) cracking down on elder financial abuse; and (5) increasing access to affordable banking services.

According to the DFS, task force members will “provide formal input on the [DFS’] consumer engagement, policy development and research” in order to “ensure that consumer’s always come first as the [DFS] develops policies and regulates the financial services industry.”  The 12-member committee consists of: (1) Chuck Bell, Programs Director for the advocacy division of Consumer Reports; (2) Elisabeth Benjamin, Esq., Vice President of Health Initiatives at the Community Service Society; (3) Carolyn Coffee, Esq., Director of Litigation for Economic Justice at Mobilization for Justice; (4) Beth Finkel, State Director for the New York State Office of the AARP; (5) Jay Inwald, Esq., Director of Foreclosure Prevention at Legal Services NYC; (6) Paul Kantwill, Esq., Distinguished Professor in Residence and Executive Director, Rule of Law Program at Loyola University Chicago School of Law; (7) Neha Karambelkar, Esq., Staff Attorney at Western New York Law Center; (8) Kristen Keefe, Esq., Senior Staff Attorney with the Consumer Finance and Housing Unit at Empire Justice Center; (9) Peter Kochenburger, Esq., Executive Director of the Insurance LLM Program and Deputy Director of the Insurance Law Center at the University of Connecticut Law School; (10) Sarah Ludwig, Esq., Co-Director of New Economy Project; (11) Frankie Miranda, Executive Director at the Hispanic Federation; and (12) Cy Richardson, Senior Vice President at the National Urban League.

Superintendent Lacewell noted that, as the federal government, in her words, “dismantles consumer protections across the board, New York has intensified its commitment” to “further solidify New York’s reputation as the consumer protection capital of America.” Lacewell added that, “[w]ith the federal government stepping down and refusing to enforce critical consumer protection law, we must make 2020 the Year of the Consumer.”

NY DFS Adds Former CFPB Deputy Director Leandra English

On January 14, 2020 the DFS announced that former CFPB Deputy Director Leandra English would be joining the DFS as a special policy advisor reporting directly to Linda Lacewell.  According to the press release, Ms. English will “help develop policy initiatives and manage DFS’ consumer protection agenda” and her appointment “strengthens the mission of the [DFS] to protect and empower New York consumers as Washington continues to roll back on consumer protections.”  Ms. English is well known for leaving the CFPB after having been appointed acting director by departing director Richard Cordray only to see the President’s administration issue a dual appointment, naming Mick Mulvaney as acting director.  The ensuing legal dispute reached the U.S. Court of Appeals for the D.C. Circuit before Ms. English ultimately resigned.

Ms. English’s most recent work was as Director of Financial Services Advocacy for the Consumer Federation of America (CFA), a “national nonprofit organization dedicated to advancing the consumer interest through research, advocacy, and education.”  One of Ms. English’s initiatives in that role was to support the Forced Arbitration Injustice Repeal Act (H.R. 1423), known as the “FAIR” Act, which would eliminate compulsory arbitration in consumer contracts and was passed by the House of Representatives in the Fall by a 225-186 vote.  Upon the bills passage, Ms. English commented that, “Americans deserve their day in court, but when companies force consumers into signing away their rights, the chances of a fair outcome diminish drastically. We thank the House for taking this important step in eliminating these clauses from contracts for products consumers use every day including credit cards and checking accounts. We now need the Senate to act to protect consumers.”

Takeaway

As the DFS continues its push to strengthen protections for New York consumers in 2020, it will be interesting to watch how such initiatives impact the DFS’ investigative and enforcement priorities.  Moreover, as New York is a bellwether state, it will be interesting to see whether other states follow suit.

CFPB Issues New Edition of Supervisory Highlights

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A&B ABstract:

 The Fall 2019 edition of the CFPB’s Supervisory Highlights focuses on credit reporting issues of interest.

Discussion

The Fall 2019 edition of Supervisory Highlights represents the second time the Consumer Financial Protection Bureau (“CFPB”)  has focused entirely on credit reporting.  With respect to furnishers, the Supervisory Highlights includes five categories of supervisory observations relating to compliance with the Fair Credit Reporting Act (“FCRA”) and its implementing Regulation V and associated compliance management system weaknesses.

Policies and Procedures

 Under Regulation V, a furnisher must establish and implement reasonable written policies and procedures regarding the accuracy and integrity of the consumer information it provides to consumer reporting companies (“CRCs”).  Related examination findings by the CFPB include:

  • Mortgage industry furnishers failed to have policies and procedures appropriate to the nature, size, complexity, and scope of their activities;
  • The policies and procedures of auto loan furnishers failed to provide sufficient guidance on the conduct of “reasonable investigations of indirect disputes that contain allegations of identity theft”; and
  • Debt collection furnishers failed to have policies and procedures that differentiated between FCRA disputes, disputes under the Fair Debt Collection Practices Act, and debt validation requests.

The CFPB also addressed examination findings for furnishers of deposit account information.

Reporting Information with Actual Knowledge of Errors

 Under FCRA, a furnisher cannot furnish information relating to a consumer that it “knows or has reasonable cause to believe … is inaccurate,” unless the furnisher clearly and conspicuously discloses to the consumer an address to which the consumer can send notice that specific information is inaccurate.

The CFPB found that one or more furnishers violated this prohibition by reporting to CRCs accounts with derogatory status codes that were inaccurate because of coding errors, and that the furnishers knew or had reasonable cause to believe were inaccurate.  Further, these furnishers failed: (1) in investigating disputes of such information to conduct a root-cause analysis that would have identified the source of the issue; and (2) to provide consumers with a clear and conspicuous disclosure of the address to which they could send notices of dispute.

Duty to Correct and Update Information

 A furnisher must promptly notify a CRC if it determines that information provided to the CRC is incomplete or inaccurate, and must make any corrections or addition to the information to correct the issue.  The CFPB identified examples of auto loan and deposit account furnishers who violated this duty.

Duty to Provide Notice of Delinquency of Accounts

 FCRA imposes on furnishers a duty to report the date of first delinquency – defined as “the month and year of commencement of the delinquency on the account that immediately preceded the action” – to a CRC within 90 days.  The CFPB identified instances of furnishers incorrectly reporting the date of delinquency

Obligations Upon Notice of Dispute

 The final category of findings in connection with the activities of furnishers is obligations upon notice of dispute.  If a consumer disputes the accuracy of information contained in a consumer report, FCRA and Regulation V require a furnisher to conduct a reasonable investigation of the dispute.

Among other issues, the CFPB noted that furnishers violated this duty by:

  • Failing to conduct reasonable investigations of both direct and indirect disputes;
  • Failing to timely complete dispute investigations within the timeframe established by Regulation V (generally 30 days); or
  • Failing to notify consumers of a determination that a dispute is frivolous or irrelevant (and that, as a result, the furnisher will not undertake an investigation).

Takeaway

As the second edition dedicated to consumer reporting, these Supervisory Highlights puts furnishers and CRCs that this is an area of focus for the CFPB.  Building on the credit reporting supervisory observations in the Summer 2019 edition, furnishers – banks, mortgage servicers, auto loan servicers, student loan servicers, and debt collectors – should take the opportunity to evaluate their own policies, procedures, and processes for compliance with FCRA and Regulation V.

CFPB Issues Its Fall 2019 Rulemaking Agenda

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A&B Abstract:

On November 20, 2019, the Consumer Financial Protection Bureau (the “Bureau” or “CFPB”) published its Fall 2019 Rulemaking Agenda (the “Rulemaking Agenda”) as part of the Fall 2019 Unified Agenda of Federal Regulatory and Deregulatory Actions. The Rulemaking Agenda sets forth the matters that the Bureau reasonably anticipates having under consideration during the period from October 1, 2019 to September 30, 2020.  The Rulemaking Agenda is the first Unified Agenda prepared by the CFPB since Director Kraninger embarked on her “listening tour” shortly after taking office in December 2018. Below we highlight some of the key agenda items discussed in the Rulemaking Agenda.

Implementing Statutory Directives

In the Rulemaking Agenda, the Bureau indicates that it is engaged in a number of rulemakings to implement directives mandated in the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (“EGRRCPA”), the Dodd-Frank Act and other statutes.  For example:

Truth in Lending Act

In March 2019, the Bureau published an Advanced Notice of Proposed Rulemaking (“ANPR”) seeking public comment relating to the implementation of section 307 of the EGRRCPA, which amends the Truth in Lending Act (“TILA”) to mandate that the Bureau prescribe certain regulations relating to “Property Assessed Clean Energy” (“PACE”) financing.  The Bureau indicated that it is reviewing the comments it has received in response to the ANPR as it considers next steps to facilitate the development of a Notice of Proposed Rulemaking (“NPRM”).

TRID Rule Guidance

The Bureau has also been engaged in several other activities to support its rulemaking to implement the EGRRCPA.  For example, the Bureau noted that it has (i) updated its small entity compliance guides and other compliance aids to reflect the EGRRCPA’s statutory changes; and (ii) issued written guidance as encouraged by section 109 of the EGRRCPA, which provides that the Bureau “should endeavor to provide clearer, authoritative guidance” on the CFPB’s TILA/RESPA Integrated Disclosure rule.

Implementation of Section 1071 of Dodd-Frank

Additionally, the Bureau is undertaking certain activities to facilitate its mandate to prescribe rules implementing Section 1071 of the Dodd-Frank Act, which amended the Equal Credit Opportunity Act to require financial institutions to collect, report, and make public certain information concerning credit applications made by women-owned, minority-owned, and small businesses.  For example, on November 6, 2019, the Bureau hosted a symposium on small business data collection in order to facilitate a discussion with outside experts on the issues implicated by creating such a data collection and reporting regime.

We have previously issued an advisory in which we discuss the key mortgage servicing takeaways from the EGRRCPA.

Continuation of the CFPB’s Spring 2019 Rulemaking Agenda

The Rulemaking Agenda notes that the Bureau will continue with certain other rulemakings that were described in its Spring 2019 Agenda that are intended to “articulate clear rules of the road for regulated entities that promote competition, increase transparency, and preserve fair markets for financial products and services.”  Such rulemakings include:

HMDA and Regulation C

In May 2019, the Bureau issued a NPRM to (i) reconsider the thresholds for reporting data about closed-end mortgage loans and open-end lines of credit under the Bureau’s 2015 Home Mortgage Disclosure Act (“HMDA”) Rule and to incorporate into Regulation C an interpretive and procedural rule that the Bureau issued in August 2018 in order to implement certain partial HMDA exemptions created by the EGRRCPA.  In summer 2020, the Bureau is expecting to issue an NPRM to follow-up on an ANPR issued in May 2019 related to data points and coverage of certain business- or commercial-purpose loans.  The Bureau also anticipates issuing a NPRM addressing the public disclosure of HMDA data in light of consumer privacy interests to allow the Bureau to concurrently consider the collection and reporting of data points and the public disclosure of those data points.

Proposed Regulation F

In May 2019, the Bureau issued a NPRM which would, for the first time, prescribe substantive rules under Regulation F, which implements the Fair Debt Collection Practices Act, to govern the activities of debt collectors (the “Proposed Rule”). The Proposed Rule would address several issues related to debt collection, such as (i) addressing communications in connection with debt collection; (ii) interpreting and applying prohibitions on harassment or abuse, false or misleading representations, and unfair practices in debt collection; and (iii) clarifying requirements for certain consumer-facing debt collection disclosures.  The Bureau noted that it is also engaged in testing of consumer disclosures relating to time time-barred debt disclosure issues that were not part of the Proposed Rule.  The results of the CFPB’s testing will inform the Bureau’s assessment of whether to issue a supplemental NPRM seeking comments on any disclosure proposals related to the collection of time-barred debt.

We previously published a five-part blog series in which we discussed the provisions of the Proposed Rule that are under consideration. We will continue to monitor and report on any developments related to the Proposed Rule.

Payday, Vehicle Title, and Certain High-Cost Installment Loans (the “Payday Rule”)

The Bureau is expecting to take final action in April 2020 on the NPRM issued in February 2019 related to the reconsideration of the mandatory underwriting requirements of the 2017 Payday Rule.  That said, we note that the U.S. District Court for the Western District of Texas has stayed the Payday Rule’s August 19, 2019 compliance date. The parties before the court have a status hearing on December 6, 2019 which could affect the stay and the effective date of the Payday Rule.

Remittance Rule

In addition, the Rulemaking Agenda notes that the Bureau is planning to issue a proposal this year to amend the CFPB’s Remittance Rule to address the effects of the expiration in July 2020 of the Rule’s temporary exception allowing institutions to estimate fees and exchange rates in certain circumstances.

New Rulemakings and Review of Existing Regulations

Expiration of the “GSE Patch”

In January 2019, the Bureau completed an assessment of certain rules that require mortgage lenders to make a reasonable and good faith determination that consumers have a reasonable ability to repay certain mortgage loans and that define certain “qualified mortgages” that a lender may presume comply with the statutory ability-to-repay requirement. The “GSE Patch” is set to expire in January 2021, meaning that loans eligible to be purchased or guaranteed by GSEs that are originated after that date would not be eligible for qualified mortgage status under its criteria. In July 2019, the Bureau issued an ANPR to amend Regulation Z, regarding the scheduled expiration of the GSE Patch, and is currently reviewing the comments it received since the comment period closed on September 2019.

As noted in a previous blog post, the CFPB announced in its ANPR, that the Bureau does not intend to extend the GSE patch permanently. It will be interesting to see whether the Bureau will allow the patch to expire in January 2021 as planned of if the Bureau will use this as an opportunity to possibly extend the expiration date.

Addition of New Regulatory Agenda Items

In response to feedback received in response to the Bureau’s 2018 Call for Evidence and other outreach efforts, the Bureau is adding two new items to its long-term regulatory agenda to address concerns related to (i) loan originator compensation; and (ii) the use of electronic channels of communication in the origination and servicing of credit card accounts.

Review of Existing Regulations

The Rulemaking Agenda also highlights the Bureau’s active review of existing regulations.  For example, the CFPB will be assessing its so-called TRID Rule pursuant to Section 1022(d) of the Dodd-Frank Act, which requires the CFPB to publish a report assessing the effectiveness of each “significant rule or order” within five years of it taking effect.  The Bureau must issue a report with the results of its assessment by October 2020.

The Rulemaking Agenda further notes that, in 2020, the Bureau expects to conduct a 610 RFA review of the Regulation Z rules that implemented the Credit Card Accountability Responsibility and Disclosure Act of 2009.  Section 610 of the RFA requires federal agencies to review each rule that has or will have a significant economic impact on a substantial number of small entities within 10 years of publication of the final rule.

Takeaway

The Bureau’s Rulemaking Agenda gives industry an advanced look at what to expect from the CFPB in the coming months. We expect the Bureau to be active in working through their agenda and will provide further updates as they become available.

* We would like to thank Associate, David McGee, for his contributions to this blog post.

Federal Court Inspects Maryland’s Restrictions on Inspection Fees

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A&B Abstract:

Maryland’s inspection fee statute has been interpreted by the Maryland Court of Appeals and the Maryland Office of the Commissioner of Financial Regulation (“OCFR”) to apply both at the time of origination and throughout the servicing of a residential mortgage loan.  More recently, a lower federal district court decision came to a different interpretation.

Maryland’s Inspection Fee Restriction

Maryland Commercial Law Section 12-121 provides that, subject to limited exceptions, a lender may not impose a “lender’s inspection fee” in connection with a loan secured by residential real property.   A “lender’s inspection fee” means a fee imposed by a lender to pay for a visual inspection of real property. A lender’s inspection fee may be charged only if the inspection is needed to ascertain the completion of (i) the construction of a new home; or (ii) repairs, alternations, or other work required by the lender.  A “lender” is defined as a licensee or a person who makes a loan subject to Maryland’s Interest and Usury subtitle. In turn, a “licensee” is defined as a person that is required to be licensed to make loans subject to Maryland’s Interest and Usury subtitle, regardless of whether the person is actually licensed.

Prior Guidance

Previously, the Court of Appeals of Maryland held, in Taylor v. Friedman, 689 A.2d 59 (Md. Ct. App. 1997), that, unless permitted by Section 12-121(c), the prohibition on inspection fees was not limited to inspections for closings, but extended to any inspections throughout the life of the loan. In 2014, the OCFR released an advisory opinion stating that Taylor remains good law in Maryland and applies to circumstances where a servicer orders a visual inspection of property following default on the terms of the mortgage.

Roos vs. Seterus

More recently, the U.S. District Court for the District of Maryland in Roos v. Seterus held, despite previous decisions indicating otherwise, that non-lenders may charge inspection fees to mortgagors.  The defendants in Roos argued that they did not charge illegal inspection fees because (1) the deed of trust specifically authorized inspection fees; (2) Section 12-121 is inapplicable to the defendants; and (3) Section 12-121 does not have a blanket prohibition on the imposition of inspection fees. The defendants believed that since they were a servicer, and the plain language of the statute only prohibited lenders from charging inspection fees, the statute did not prohibit them from charging inspection fees.  The court agreed with defendants that the plain meaning of the statute only prohibits a “lender” from imposing or collecting inspection fees. Although the court in Roos did not itself provide a definition of “lender,” the court pointed to a Montgomery Circuit Court case, Kemp v. Seterus, Inc., No. 441428-V, 2018 Md. Cir. Ct. LEXIS 9 (Md. Cir. Ct. Oct. 19, 2018), which addressed the issue. In that case, the court stated that “the meaning of the statute [wa]s plain; only ‘persons’ which make loans to ‘borrowers’ are lenders and thus covered by the statute.” The court in Roos adopted the Kemp court’s definition of lender, finding it well reasoned and applicable since it involved the same issue and defendant.

Takeaway

It is unclear if this decision will convince the OCFR to change its long-standing position or if plaintiffs will appeal this decision.  Moreover, we note that this decision was issued by a federal district court interpreting Maryland state law and, as such, will not have precedential value in Maryland state courts. While defendants may have prevailed in this federal district court case, servicers should still remain cautious in charging inspection fees when servicing a loan secured by residential real estate in Maryland.

* We would like to thank Associate, David McGee, for his contributions to this blog post.

CFPB Updates Financial Institution Guidance on Elder Financial Exploitation

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A&B ABstract:

In July 2019, the Consumer Financial Protection Bureau (“CFPB”) issued an update to its 2016 Advisory and Recommendations for Financial Institutions on Preventing and Responding to Elder Financial Exploitation (“Update”).  The Update focuses on recent developments in state laws related to elder financial exploitation (“EFE”) and makes a number of recommendations to financial institutions on how to best handle EFE.

Developments in State Law

The Update highlighted four principal sets of state law developments.

Reporting Obligations:

As of April 2019, 26 states and the District of Columbia require financial institutions or certain financial professionals to report suspected EFE.

Transaction Holds:

Since 2016, a substantial number of states have enacted legislation permitting delayed disbursements of funds or transaction holds when a financial institution believes that financial exploitation may occur. Generally, when a financial institution chooses to hold a transaction, it must report the suspected financial exploitation.  Most states’ statutes apply only to broker/dealers, financial advisers, or others dealing in securities.  Several states, however, also extend their statutes to depository institutions such as banks and credit unions.

Record Production:

Since 2016, Kentucky, Tennessee, Texas, and Utah have enacted new laws regarding the production of records to investigatory agencies. Kentucky and Texas (along with Illinois Minnesota, and Wisconsin) now require that financial institutions provide records related to suspected EFE to Adult Protective Services (“APS”) and law enforcement, either as part of a report or referral or upon request pursuant to an investigation.  Tennessee and Utah (along with North Carolina) now require that financial institutions provide records related to suspected EFE to authorized investigatory agencies if the agency serves a subpoena.  Additionally, Maryland and Washington permit, but do not require, financial institutions to provide records related to suspected EFE as part of a report or referral or upon request pursuant to an investigation.

Employee Obligations:

Ohio now requires that employees of banks, savings banks, savings and loan associations, or credit unions, in addition to certain financial professionals, report suspected financial exploitation.

CFPB Recommendations to Financial Institutions

The  CFPB also made a series of  recommendations in the Update.

Protocols and Procedures:

First, financial institutions should develop and implement internal protocols and procedures for protecting account holders from EFE, including training requirements, procedures for making reports, compliance with the Electronic Fund Transfer Act as implemented by Regulation E, means of consent for information-sharing with trusted third parties, and procedures for collaborating with key stakeholders.

Technology:

Second, financial institutions should harness technology to detect EFE by ensuring that their fraud detection systems include analyses of the types of products and account activity that may be associated with EFE risk.

Reporting:

Third, financial institutions should report suspected EFE to all appropriate local, state, or federal responders, regardless of whether reporting is mandatory or voluntary under state or federal law (which, in general, does not violate the privacy provisions of the Gramm-Leach-Bliley Act).

SAR Filings:

Fourth, financial institutions should file Suspicious Activity Reports (“SARs”) when the financial institution suspects EFE.  When a financial institution files an EFE-related SAR, it should also report to APS and/or relevant law enforcement agencies.  Financial institutions should work with their legal counsel to expedite their responses to requests for SAR supporting documentation by law enforcement and other agencies with authority to access SARs.

Collaboration:

Fifth, financial institutions should collaborate with other stakeholders such as law enforcement, APS, and service organizations, as well as expedite documentation requests and provide financial records at no charge to APS and law enforcement when requested.

Training:

Finally, financial institutions should establish clear, efficient training protocols to enhance their capacity to prevent, detect, and respond to EFE.  This training curriculum should include indicators of potential EFE, describe what actions to take when employees detect problems, and describe the roles of management, frontline staff, and other employees.  A key benefit from following this suggestion is that under the Federal Senior Safe Act, which became effective in June 2018, an eligible financial institution[i] is not liable for disclosing suspected EFE to certain agencies if the institution has trained its employees on identifying EFE and the disclosure is made in good faith and with reasonable care by a trained employee.[ii]

Takeaways

These developments at the state level and recommendations by the CFPB strongly indicate a governmental full‑court press against EFE.  While local, state, and federal agencies and law enforcement are all working to identify and address EFE, financial institutions play an integral role in the process.  Financial institutions should ensure compliance with state law and should train their personnel to detect EFE and report suspected EFEs to relevant law enforcement and governmental agencies.

[i] Eligible institutions are depository institutions, credit unions, investment advisers, broker/dealers, insurance companies, insurance agencies, insurance advisers, and transfer agents.

[ii] Specifically, the training must: (1) instruct any individual attending the training on how to identify and report the suspected exploitation of a senior citizen internally and, as appropriate, to government officials or law enforcement authorities, including common signs that indicate the financial exploitation of a senior citizen; (2) discuss the need to protect the privacy and respect the integrity of each individual customer of the covered financial institution; and (3) be appropriate to the job responsibilities of the individual attending the training.